December 18, 2001

December 18, 2001 | WebMemo on Health Care

Effective Health Care Policy: The President's Compromise Plan ForDisplaced Workers

President Bush has reached a solid agreement with Senate "moderates" to provide health care assistance to displaced workers as part of the stimulus package. The compromise proposal establishes a tax credit for workers to purchase affordable health care coverage. This tax credit approach offers displaced workers the practical assistance they need to help them secure health care coverage for themselves and their families.

The compromise proposal provides a refundable, advanceable tax credit for 50 percent of premiums paid for health care coverage, up to $110 per month for individual coverage or $294 per month for family coverage, for 12 months. Displaced workers would be immediately certified for eligibility through their state workforce agencies, and the credit would be available to them for two years.

This tax credit proposal allows workers to choose the coverage option they think best for themselves and their families during their period of unemployment. Designing the tax credit as a refundable and advanceable credit also ensures that workers will get the assistance when they need it, when premiums are due, rather than having to wait for a reimbursement. It allows workers to assign the credit directly to the insurer of choice, thus avoiding additional and burdensome paperwork requirements. In addition, any National Emergency Grant funds could be used by states to further supplement the cost of the coverage.


Most in Congress and the Administration agree that displaced workers should not be forced to go without health care coverage during this period of unemployment. Of all the proposals, the compromise proposal agreed upon by the President and Senate "moderates" is most effective because of its scope, administration, and flexibility.

  • Scope. The proposal covers all displaced workers regardless of whether they are eligible for COBRA or not. Every American worker, not just those eligible for COBRA, would have the opportunity to obtain private health care coverage using the tax credit.

  • Administration. The proposal is administratively simple and quick to implement. With coordination between the U.S. Treasury and state unemployment agencies, displaced workers would get assistance quickly.

  • Flexibility. The proposal allows displaced workers, taking into account their own families' personal medical and financial situations, to decide which health care coverage options are most affordable for themselves and their families and best-suited to their needs. The displaced worker would decide whether to purchase COBRA, if eligible; "super-COBRA," a state-run continuous coverage option available in some states; or other types of private, non-employer-based health insurance.


Some congressional critics of the tax credit approach have proposed Medicaid expansion as an alternative during negotiations on the stimulus package. Some of these critics reportedly proposed a wild expansion of Medicaid eligibility, covering persons up to 400 percent of the official poverty level. In other words, millions of these Americans, if they were unemployed, would have no other practical alternative but to be enrolled in the Medicaid program.

Medicaid is not only in a financial crisis in many states, but is also characterized by the delivery of substandard care to many Medicaid enrollees. Access problems, aggravated by low Medicaid reimbursement to doctors and other providers, often deny Medicaid enrollees the care they need when they need it. It is hard to imagine many private-sector workers who, given the choice, would voluntarily sign up for a welfare program when they could get superior private health insurance.

To restore real accountability and patient satisfaction in the current health care system, individuals and families should have the ability and the opportunity to make their own health care decisions. Tax credits offer both of these advantages. Displaced workers, who have no employer and who do not want to be enrolled in a government-run welfare program for health insurance, can benefit from this significant compromise between the President and reasonable members of the Senate.

The policy choice is simple. Congress can force displaced workers onto Medicaid--a flawed welfare program--by denying them any alternatives. Or Congress can level the playing field for workers and their families and enable them to purchase private health care coverage on their own.

Nina Owcharenko is Health Care Policy Analyst at 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

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