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The Health Coverage Tax Credit (HCTC), which pays 65 percent of health Insurance premiums for 16,000 trade-displaced workers and others, is the only use of federal income tax credits to cover the otherwise uninsured. In pending legislation to reauthorize Trade Adjustment Assistance, Congress has an opportunity to address HCTC's major problems, including participation by only 15 percent of eligible workers and administrative costs that consume roughly a third of federal spending on the credit. HCTC teaches lessons about how to structure tax credits serving a larger group of uninsured, such as credits proposed by Republican and Democratic Presidential candidates.
The Health Coverage Tax Credit (HCTC), which pays 65 percent of health
insurance premiums for about 16,000 trade-displaced workers, early retirees
receiving payments from the Pension Benefit Guaranty Corporation, and their
families, is the country’s only use of refundable federal income tax credits to
cover the otherwise uninsured. Available in “advanceable form” paid directly to
insurers when monthly premiums are due, similar credits play a significant role
in many national health reform proposals that seek to cover large numbers of
uninsured. For example, in the current presidential campaign, three
Democratic and three Republican candidates propose such tax credits.
HCTCs thus provide a unique opportunity to learn lessons that can shape the
design of policies intended to help large groups of uninsured. However, the
HCTC program has experienced significant problems. No more than 15
percent of eligible workers and their families participate. Moreover,
administrative costs are high, consuming roughly 34 percent of all national
spending related to HCTC advance payment.
Congressional proposals to reauthorize Trade Adjustment Assistance (TAA)
would increase the percentage of premiums covered by the credit from 65
percent to somewhere between 80 and 95 percent, depending on the bill.
Such an increase would lower the most serious barrier to participation—
namely, that most eligible workers are unable to afford their current 35 percent
premium share. However, to fully remedy the low level of HCTC participation,
proposals must also address the program’s complexity; the requirement for
workers to pay premiums in full before the credits begin in advanceable form;
and the absence of coverage options, for many workers, that are viewed as
sufficiently valuable to purchase. This paper describes these congressional
proposals and suggests additional approaches both to address HCTC’s
problems and to prevent similar difficulties with future tax credits aimed at a
larger group of uninsured Americans.
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