October 31, 2001

October 31, 2001 | WebMemo on Health Care

How Congress Can Improve Health Coverage for Displaced Workers: AnAnalysis of Legislative Proposals

Displaced American workers and their families need quality help. They are not getting it. Congress must quickly improve the flawed legislative proposals to assist displaced workers with health care coverage.

There are several bills pending before the House and Senate that attempt to craft an alternative to the Left's ongoing efforts to enroll millions of Americans in the substandard Medicaid program, a welfare program, while expanding the flawed State Children's Health Insurance Program (SCHIP) for American workers and their families. Unfortunately, these congressional alternatives fall short of meeting the needs of the displaced workers and serve only to add another segment of the American population to financially troubled government-run health care programs. Members of Congress must recognize the shortcomings of these bills, fix them, and give American workers and their families the option of retaining or enrolling in superior private health insurance coverage.


In evaluating the effectiveness of the various proposals designed to assist displaced workers with health insurance, there are three important factors Congress should consider.

1. Eligibility:
Does it extend eligibility to all displaced workers? A proposal should ensure that all displaced workers are eligible to receive assistance. Some proposals indirectly disqualify certain displaced workers from receiving help by requiring that the assistance be used only for COBRA continuation coverage. This approach excludes a large portion of the displaced worker population that does not qualify for COBRA and exposes this population to the Left's agenda.

2. Flexibility:
Does it permit workers to apply assistance to an alternative health care coverage option of their choice? Assistance should not be restricted to a certain type of health care coverage, such as COBRA coverage. It is well-known that COBRA coverage is expensive. Individuals can be required to pay up to 102 percent of the premium. Workers should have the flexibility to use the assistance to seek out a more affordable alternative replacement coverage for themselves and their families. With limited federal dollars, this flexibility offers a more fiscally responsible approach for the worker and the government.

3. Efficiency:
Does it ensure that assistance reaches displaced workers in the most immediate and direct way? The federal government's efforts to provide displaced workers with timely assistance should not be complicated by a lack of direction. Dumping federal funds to states to determine its distribution criteria adds another layer of bureaucracy to the process for workers and could put assistance for health insurance at risk due to competing unemployment needs. Federal assistance for health insurance should be designated directly to the worker, with states simply acting as a conduit for its administration. Ideally, an advanceable, refundable federal tax credit would provide a fixed amount to give these workers the assistance they need when they need it.


H.R. 3090, the Economic Security and Recovery Act of 2001, introduced by Representative Bill Thomas (R-CA) and approved by the House Ways and Means Committee.

This economic stimulus package specifically allocates an additional $3 billion in block grant funds through the Social Services Block Grant for "states to assist an unemployed individual who is not eligible for Federal health coverage to purchase health care coverage for the individual or any member of the family of the individual who is not so eligible."

What's Good.
There are several benefits to this proposal. First, it does not limit eligibility, either directly or indirectly. Second, it does not discriminate as to the type of coverage that can be purchased. It simply states that the funds should be used "to purchase health care coverage."

What's Not.
However, there are some areas of the health care provisions that can be improved. First, the language directs the states "to purchase health care coverage for the individual or any member of the family…." This leads some to interpret that the decision as to the type of coverage chosen lies in the hands of the state and not the worker. Second, the block grant solution, while it allocates money specifically for health coverage, does not ensure how the funds will be distributed and could delay the actual delivery of assistance to the workers.

How to Make the Bill Better:

  • Clarify legislative language to explicitly give the unemployed individual, not the state, the ability to purchase the replacement coverage. This will ensure that individuals have the right to choose the health care coverage that is right for themselves and their families.
  • Redesign the block grant funds to an advanceable, refundable tax credit for displaced workers to purchase health care coverage. This will ensure that displaced workers have a fixed amount of assistance to help them purchase health care coverage.

S. 1532, the Emergency Extended Unemployment Compensation Act of 2001, introduced by Senator George Allen (R-VA).

This bill offers an extensive compensation package for displaced workers. It authorizes $3 billion in emergency grant funds through the Workforce Investment Act to qualified states for employment and training assistance and COBRA continuation coverage payment. These funds can be used by the state to help displaced workers obtain COBRA continuation coverage by paying up to 75 percent of the premium payment for up to 10 months.

What's Good.
This proposal offers a limited solution to assisting displaced workers with health insurance coverage.

What's Not.
The bill does not explicitly exclude any displaced workers, but it limits eligibility indirectly by restricting the allowable use of funds only to COBRA continuation coverage. Second, it only provides assistance for COBRA coverage. As discussed above, COBRA coverage is costly. An alternative coverage option could be more financially feasible for a displaced worker and the government. Finally, while the legislation authorizes $3 billion in emergency grants, these funds must compete with other unemployment needs, leaving displaced workers unsure of available assistance for health care coverage.

How to Make the Bill Better:

  • Remove the COBRA exclusivity provisions for allowable use of assistance. This will both ensure that all displaced workers are eligible for assistance and provide a variety of affordable coverage options.
  • Designate funds to an advanceable, refundable tax credit for displaced workers to assist them in purchasing health care coverage. This offers a direct benefit to the workers to encourage them to make health insurance coverage a priority.

H.R. 3112, the Back to Work Act of 2001, introduced by Representative John Boehner (R-OH), Chairman of the House Education and Workforce Committee.

This legislation, like Senator Allen's bill, authorizes $3 billion in emergency grant funds through the Workforce Investment Act for a variety of unemployment compensation benefits. However, Representative Boehner's proposal allows states to use the funds for "temporary health care coverage assistance." Funds may be used for health care premium assistance for up to 10 months but may not exceed 75 percent of the full premium.

What's Good.
A good point of this bill is that it does not exclude any segment of displaced workers, either directly or indirectly. It also attempts not to limit to coverage options.

What's Not.
The bill undercuts the goal of comprehensive coverage by prohibiting the use of assistance for the purchase of health insurance coverage in the individual market. This is a classic restriction on consumer demand and provider supply, and thus is incompatible with the consumer choice and competition that are the hallmarks of a free and open market. Finally, as in the proposal above, the bill does not offer a clear and direct benefit to the worker. It provides grant money to the states, and the states determine its distribution toward health insurance and other unemployment benefits.

How to Make the Bill Better:

  • Remove the restriction on assistance being used for health insurance bought in the individual market. This will ensure that all affordable coverage options are available to displaced workers and their families.
  • Restructure the block grant to provide an advanceable, refundable tax credit system for health insurance coverage. This will give workers real assistance in a timely fashion to obtain replacement health care coverage.

S. 1502, the COBRA Plus Act of 2001, introduced by Senator Jim Jeffords (I-VT).

This bill offers a 50 percent premium subsidy in the form of an advanceable, refundable tax credit to displaced workers to purchase COBRA coverage. The credit may not exceed $110 per month for single coverage or $290 per month for family coverage and may not extend past 9 months.

What's Good.
The proposal offers the best structured approach to providing displaced workers with direct assistance for health insurance coverage. It establishes a simple tax credit system under which displaced workers are given a tax credit.

What's Not.
The bill limits the credit's use only to COBRA coverage. It thus restricts consumer demand and blocks a supply of provider alternatives, and thus constitutes a deliberate distortion of the market. As noted earlier, COBRA coverage can be expensive. Limiting the allowable use of the credits only to COBRA forces individuals to pay a higher than necessary premium.

How to Make The Bill Better:

  • Expand allowable use of the credit to include any health insurance coverage. Do not limit it simply to COBRA continuation coverage. Opening the allowable use will enable workers to shop around for more affordable replacement coverage for themselves and their families.


Those on the Left, in Congress and elsewhere, clearly view the current economic dislocation as the occasion to enroll more and more Americans, particularly those who find themselves in a desperate situation, into a government-run health care program. In such a program, the quality and kind of benefits and the financing arrangements, the central components of control, are partially or wholly dictated by government officials. Whatever the merits of such an agenda, it is at least a coherent and simple policy.

Members of Congress who wish to pursue an alternative to this agenda should fashion a coherent health care policy based on the principles of patient choice and market competition. While each bill offers a partial solution to address the needs of displaced workers, each bill also contains defects that restrict patient choice and market competition. As Congress moves forward on these legislative proposals, Members should make improvements to ensure that all displaced workers receive assistance that is immediate and concrete. For these proposals to be affective, they must ensure that all displaced workers are eligible for assistance, that all replacement coverage options are available, and that the assistance provides displaced workers direct assistance quickly.

With some basic restructuring, each of these proposals could provide the basis for displaced health care security without additional government bureaucracy where individuals, not the government, have the ability to decide the coverage that best suits their families' needs.

Nina Owcharenko, Health Care Policy Analyst, The Heritage Foundation

About the Author

Nina Owcharenko Director, Center for Health Policy Studies and Preston A. Wells, Jr. Fellow
Center for Health Policy Studies

Related Issues: Health Care