Health Action in Depth 

May 2003

The TAARA Health Insurance Subsidy:
A Life Preserver for Some Workers

When Bethlehem Steel declared bankruptcy and closed its doors at the end of March, the company also stopped paying for health coverage for retirees and their families. Now, help is on the way for many of these retirees, their families, and thousands of other workers who have lost their employer-sponsored health coverage as a consequence of trade practices or bankruptcies. The Trade Adjustment Assistance Act of 2002 (TAARA), enacted last summer, includes a new tax subsidy to help such workers purchase replacement health coverage.

For those eligible, the TAARA subsidy covers 65 percent of the cost of health insurance purchased from certain specified sources. Right now, the subsidy is only available as a refundable tax credit (that is, it can only be received along with any other tax credit or refund after the worker files a tax return). Beginning on  August 1, 2003, the tax subsidy will be available on an advanceable basis (this means that monthly payments can be sent directly to a health insurance provider, and the recipient need not wait to file a tax return and receive the subsidy as a tax credit or refund).

This new federal program could help upwards of a quarter of a million workers and retirees each year who have lost their health coverage. There are 12 states with more than 10,000 workers who are projected to be eligible for the TAARA subsidy: Alabama, California, Florida, Georgia, Illinois, Indiana, New York, North Carolina, Ohio, Pennsylvania, Texas, and Washington. And while this subsidy applies to workers and retirees in very particular circumstances, Congress is also looking at it as a possible approach to providing other federal health insurance subsidies for additional groups of people.

It is important to distinguish the TAARA subsidy from the plan the President released two years ago that purported to help uninsured people purchase health insurance through tax credits. There are two main reasons why the TAARA subsidy is better for consumers than the tax credit plan the President proposed: 1) It assures access to coverage with two important protections - guaranteed issue (a requirement that insurance companies sell policies to all who agree to pay the requisite premiums and meet other requirements) and protection from exclusions for pre-existing conditions, and 2) it offers more money. The President's proposal only offered up to $1,000 for the purchase of coverage in the private market for an individual and up to $3,000 for family coverage. The TAARA plan, on the other hand, offers a subsidy of 65 percent of the cost of health coverage, which provides more help to the people who most need health insurance coverage. For example, for higher-risk people--those who are sicker and who would be required to pay higher premiums and cost-sharing--it can ameliorate discriminatory premiums, which can be imposed when people likely to incur high medical costs join the same health plan.

Because this legislation is fairly complex, health care advocates and health assistance programs have important roles to play. They can help clear up confusion surrounding the subsidy and work to ensure that eligible people learn about it. They can also urge their states to designate TAARA eligible health insurance plans that provide good coverage options and maximize the benefit from the 65 percent subsidy.

Who Is Eligible for the TAARA Subsidy?
There are three groups of people who are eligible for this 65 percent subsidy: 

1. The first eligible group consists of workers whose employer-sponsored health insurance was lost because of increased imports or plant relocation. Their spouses and dependents are also eligible for this subsidy.
2. Another category of eligible workers is known as Alternative Trade-Displaced Older (Alternative TAA) workers. These are workers who are at least 50 years old, have gotten full-time jobs within 26 weeks of having lost their jobs with their trade-affected employers, but whose new jobs pay them less than their old jobs did. These workers' spouses and dependents are also eligible.
3. The third group is retirees who are 55 years or older (but not yet and receive any portion of their pension benefits from the Pension Benefit Guaranty Corporation (PBGC). The PBGC insures traditional pension plans. If a pension plan is terminated because an employer can no longer fund the plan, and the plan doesn't have the money to pay for the benefits promised, the PBGC assumes responsibility for the plan and the benefits it covered. These retirees' spouses and dependents are also eligible for the subsidy.

What Types of Health Coverage Qualify for the TAARA Subsidy?
Four different types of health insurance qualify for a TAARA subsidy: COBRA continuation coverage, coverage through a policy purchased in the individual insurance market (under very limited circumstances), coverage available through the policy of a worker's spouse (under limited circumstances), and state-designated group coverage. The first three kinds of coverage automatically meet the definition of "qualified health insurance" for all eligible workers. For the fourth option, the state must have or create a program that meets certain criteria in order for the insurance to be considered "qualified."

1. COBRA continuation coverage. Under the federal COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) law, workers laid off from firms with 20 or more employees can get 18 months of COBRA, which allows them to purchase the coverage offered by their former employer, coverage that can include family members too.
2. Coverage in the individual insurance market--in limited circumstances. Some workers may already be covered by a policy purchased in the individual market during the entire last 30 days they worked with their trade-affected employer. These workers can use the 65 percent subsidy to continue paying for that coverage. However, policies purchased in the individual market tend to be very expensive unless the purchaser is young and perfectly healthy.
3. Coverage through a spouse's policy--in limited circumstances. Unfortunately, this option is only available if the spouse's employer contributed less than 50 percent of the cost of the combined monthly premiums for the employee and his or her family's coverage. Most companies that offer health insurance contribute at least 50 percent to the cost of premiums for covered workers; in 2002, the average percent of premiums employers paid for family coverage was 73 percent. Federal officials state that the subsidy will not be advanceable for coverage through a spouse's employer's plan.

State-designated group coverage. For those who cannot purchase or are not eligible for any of the three types of coverage mentioned above, states must create or designate a type of coverage that TAARA users can purchase with their subsidy. There are several different kinds of programs that states can establish that would qualify as valid plans (all of which must include certain consumer protections), as the box on the next page shows.

What Can Advocates and Health Assistance Programs Do To Shape TAARA Programs?
Advocates can provide public education and outreach regarding this new subsidy. They can educate those who are likely to be eligible for the subsidy about how they may be able to take advantage of this new opportunity for health coverage. They may want to contact unions, industry, and state insurance departments to find potentially eligible workers and their families. They can also collect stories of people who've lost their health coverage as a consequence of trade practices so reporters can use the stories to put a human face on the issue, and they can get articles and columns placed in local newspapers in locations where companies are affected by trade policies.
 
Advocates can also urge their states to designate TAARA eligible health insurance plans that provide good coverage options and maximize the benefit from the 65 percent subsidy. Key players advocates can work with to ensure this happens include the following: governors' offices, state legislators, state insurance commissioners, health departments, insurance companies, and local labor organizations.
 
Unfortunately, states are struggling through a period of fiscal crisis and are focused more on Medicaid budgets than this new program. However, it is important that states understand that, once they designate a health coverage plan, the federal government handles all administration of the subsidy through a federal center and the state does not bear any administrative cost.

Lastly, advocates can encourage their states to extend important consumer protections to all TAARA subsidy users who buy any state-designated TAARA health insurance product, regardless of whether those users meet the federal requirement that they have three months of prior creditable coverage. Those protections are as follows: 1) guaranteed issue; 2) no exclusions for pre-existing conditions; 3) non-discrimination in premiums; and 4) non-discrimination in benefits. We mentioned the first two protections earlier in this piece; they are unambiguous and vital for state-designated qualified coverage. However, it is unclear how protections 3 and 4 will be interpreted.

Where Can Eligible Workers and Advocates Find Information about the Tax Credit?
We've provided a more technical description of the TAARA subsidy in a recent issue brief, The Health Insurance Tax Credit in the Trade Adjustment Assistance Reform Act of 2002, which is posted on our Web site. The Department of Labor Web site (www.doleta.gov/tradeact/) provides guidance letters, training materials, a search tool to track the status of petitions, and other information. The IRS Web site (www.irs.gov -- search on "Trade Adjustment Assistance") provides information about filing for the refundable tax credit and preliminary information about how the advanceable tax credit works. The PBGC Web site (www.pbgc.gov -- search on "tax credit") provides fact sheets and other information about TAARA and the status of PBGC pensions at many companies.