October 04,2004

Baucus Concerned About Low Enrollment and High Premiums in TAA Health Program; Questions the Value of Tax Credits to Expand Health Coverage

Today, the Government Accountability Office (GAO) issued a report reviewing theBush administration’s implementation of the health coverage tax credit (HCTC). TheHCTC program provides a 65 percent tax credit toward the purchase of health coverage fordisplaced workers eligible for Trade Adjustment Assistance (TAA) and for certain retireesreceiving pension benefits through the Pension Benefit Guarantee Corporation (PBGC).The TAA program provides job training and income support, as well as assistance forhealth coverage, to workers who have lost their jobs due to foreign competition.

After reviewing GAO’s conclusions, Senator Baucus, Ranking Member of theSenate Finance Committee, which has jurisdiction over the TAA program, made thefollowing statement:

“As Chairman of the Senate Finance Committee, I was proud to pass the TradeAdjustment Assistance Reform Act of 2002. This landmark legislation expanded tradeadjustment assistance to new categories of workers impacted by trade and expanded thebenefits available to them, including assistance in purchasing health care coverage.

“I am a strong proponent of free trade. Opening new markets and leveling theplaying field benefits American workers, farmers, and businesses. But there are downsidesto trade. And when our national trade policy leads to job losses, we have a responsibilityto help workers gain new skills and find new jobs in other sectors of the economy. For thisreason, trade adjustment assistance is crucial. The addition of health coverage to the TAAprogram was particularly important, as the lack of health benefits was viewed as a majorgap in the program prior to the 2002 reauthorization and expansion.

“Two weeks ago, the GAO issued a report examining the Bush administration’simplementation of the TAA program. That report found serious deficiencies in the waythat the U.S. Department of Labor has administered the program. Today’s report, thesecond on TAA, focused exclusively on the new health coverage tax credit (HCTC) fordisplaced workers. And the results are similarly troubling.

“This latest GAO report confirms what I hear from displaced workers back home.The program is complicated and the timelines for enrollment are fragmented andunnecessarily complex, leading potential participants to lose consumer protections ordiscouraging them from enrolling altogether. In addition, affordability of the premiums isa significant burden, both because the amount of the credit is not high enough and because,with few limits on what insurers can charge, premiums are extremely expensive.

“Contrary to Congressional intent, the Administration permits medicalunderwriting of premiums. The GAO reports that in some cases, HCTC-eligibleindividuals were charged premiums nearly six times higher than the standard rate chargedto healthy individuals.

“Combined, these factors have led to a disappointing participation rate amongdisplaced workers and retirees. As of July 2004, less than six percent of the more than230,000 eligible individuals were enrolled. I am very concerned that this benefit is notreaching hundreds of thousands of families in need.

“In addition to lower-than-expected enrollment, I am astonished by how costly theprogram has been to administer. Expenses for start-up through mid-2005 operations wereestimated to be $116 million, most of which was paid to private contractors. Costs for theHCTC program from July 2004 through June 2005 were expected by Internal RevenueService officials to be $40 million. A portion of the expense represents fixed costs, whichwould not increase with higher enrollment levels. But compared to the $37 million inbenefits paid for 2003, the cost to administer the program seems disproportionately high.

“The GAO outlined several aspects of the program that could be improved toincrease participation, both through legislative and administrative fixes. Theserecommendations mirror many of the provisions included in the Wyden-Coleman TAAamendment to the FSC-ETI corporate tax bill that I strongly supported, but was defeated inMay. I hope this report will prompt my colleagues to take a closer look at the HCTCprogram and that we can work together to address the problems that the GAO hasidentified.

“The problems identified with the program should be addressed before Congressexpands the HCTC to other populations. In fact, given the high premiums, highadministrative costs, and low participation rates demonstrated by this program, the reportraises serious questions about whether tax credits are the best way to provide healthcoverage for low- income uninsured individuals and families, as President Bush has proposed.”