Covering Laid-Off Workers: Whats Possible? Eight million Americans were unemployed in February for the 16th consecutive month. The Bureau of Labor Statistics says the average length of unemployment now exceeds four-and-a-half months.

Later this spring, federal policymakers are likely, once again, to extend unemployment insurance to workers who have been without work for more than six months.

Certainly, unemployment insurance helps meet these workers need for subsistence income. But nearly 4 million unemployed Americans also lack health insurance. It is time for federal policymakers to take the next step and help laid-off workers retain health insurance for their families.

Not only would this be the right thing to do, it would be politically popular. Eighteen months ago, public opinion polls showed that, among Democrats, Republicans and Independents alike, more than 90% of Americans supported policies to help laid-off workers buy health insurance. No other form of expanded assistance to unemployed workers received this level of support.

In the Trade Act of 2002, policymakers addressed part of the problem. That legislation provided federal income tax credits to pay 65% of health insurance costs for workers laid-off because of foreign competition. With modest adjustments, these credits could be extended to workers who lose their jobs for other reasons.

The Trade Act credits are fully refundable, hence available to laid-off workers whose reduced income means they owe no federal income tax. These credits can be advanced during the year to pay insurance premiums when they are due. Workers with limited resources are not unrealistically asked to “front” premium payments based on expected tax refunds after the end of the year.

However, some features of these credits are worth revisiting before they are expanded to other unemployed workers. For many beneficiaries, Trade Act credits can buy COBRA coverage or certain forms of state-based health insurance. Depending on whether and how states offer coverage, many laid-off workers could receive health insurance tax credits but have no place to use them. If federal grants and contracts gave all states the option to offer coverage like the Federal Employees Health Benefits Program, tax credit beneficiaries would gain access to comprehensive, affordable insurance. Analysts at the Heritage Foundation, Washington, describe FEHBP as “largely run on the free-market principles of consumer choice and market competition,” offering “a broad range of choice of plans and benefits” like “no other insurance-based system of financing and delivery in America.”

Once a state establishes such a system for its residents, consumers with the right to continue health insurance under COBRA (including laid-off workers receiving tax credits) could obtain coverage through their states FEHBP-type system, rather than from former employers. That would shift the cost of COBRA compliance from business to the public sector, lowering employer health costs while helping laid-off workers.

Health insurance tax credits for laid-off workers could also provide essential fiscal relief to states struggling with their largest budget deficits since World War II. Such credits could be designed to help pay Medicaid and other state health costs incurred to cover low-income, laid-off workers and their families. That would target state fiscal relief precisely to need. Automatically, federal help to a state would rise when unemployment grows and drop as unemployment falls.

Other adjustments to Trade Act credits would also be important. For example, very few low-income, unemployed workers can afford to pay even 35% of health insurance premiums, and many are ineligible for Medicaid. To provide extra help for the neediest laid-off workers without creating a new means-testing mechanism, workers could qualify for supplemental credits by showing that public programs (like food stamps) have already found them to have low incomes.

This policys basic goal is to fix one of the health care systems greatest flaws–namely, that a pink slip can abruptly end a familys health coverage. Such “bridge” coverage could address fears of job loss and consequent termination of insurance among 165 million Americans who now get their health coverage from employers.

Of course, this is only one of many viable steps to consider for covering Americas uninsured. Policymakers could also prioritize other groups for help, such as low-income people ineligible for Medicaid, low-wage employees of small companies, or individuals eligible for but not enrolled in current public health coverage programs.

Our countrys leaders are considering further, more far-reaching reforms to close these and other gaps. The Covering America project, funded by the Robert Wood Johnson Foundation, Princeton, N.J., has commissioned leading scholars to produce 13 proposals for coverage expansion. These proposals range from market-based plans by conservative analysts at the Cato Institute, Washington and the Heritage Foundation to “Medicare for all” policies developed by prominent academics. For more information about these proposals and the Covering America project, see http://www.esresearch.org/covering_america.php.

But one short-term step worth serious bipartisan consideration is building on Trade Act health credits to cover workers who, through no fault of their own, have lost their jobs and their health insurance.

Stan Dorn is a senior policy analyst at the Economic and Social Research Institute, Washington, a non-partisan research organization. Lynn Etheredge is a consultant for the Health Insurance Reform Project of George Washington University.

Reproduced from National Underwriter Edition, April 7, 2003. Copyright 2003 by The National Underwriter Company in the serial publication. All rights reserved. Copyright in this article as an independent work may be held by the author.

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Covering Laid-Off Workers: Whats Possible?

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