Individuals  receiving the HCTC in advance may claim the credit at the end of the year  for any months in which they were eligible for the HCTC but did not  receive it in advance. State high-risk pools. Once an individual  successfully enrolls for the advance HCTC, the HCTC program office  sends an invoice for the individual’s 35 percent share of the premium, and,  when this payment is received, the remaining 65 percent is added and the  full premium amount is forwarded to the participating health plan. More Than 19,000 Individuals Received HCTC for 2003, but Participation May Have Been Limited by Several Factors

For 2003, 19,410 individuals received about $37 million in payments for  themselves and dependents for the advance and end-of-year HCTC, the  majority by filing for the credit on their end-of-year tax return. For July  2004, enrollment for the advance HCTC was about 13,200, about 60  percent of whom were PBGC beneficiaries. Some of the  individuals identified by states and PBGC as potentially eligible may have  other health coverage that would disqualify them from receiving the  HCTC. Majority of Advance HCTC Enrollees Purchased Automatically Qualified Coverage, and 40 Percent Enrolled in State-Qualified Plans

Cumulatively, from the time the advance credit became available in August  2003 through April 2004, the majority (60 percent) of advance HCTC  enrollees obtained coverage through one of the automatically qualified  coverage options specified in the TAA Reform Act. Cost of HCTC Health Coverage Varied Depending on Coverage Purchased

The cost of qualified coverage for advance HCTC enrollees varied  according to the number of individuals covered, whether the advance  HCTC enrollee was a TAA recipient or a PBGC beneficiary, and the type of  qualified coverage purchased. In the eight states that we reviewed, the cost of coverage for HCTC  recipients was partly determined by the premium-setting practices of  qualified health plans. A major factor cited by many state and health plan officials as  a reason for lower than expected enrollment was the affordability of  coverage, as some eligible individuals may find it difficult to pay the entire  premium for 3 to 6 months to maintain coverage until they receive the  advance HCTC, and even the 35 percent share of premiums, once the  HCTC covers remaining premium costs can represent a high proportion of  income, particularly for displaced workers or retirees. For example,    The multitude of tax, labor, and health coverage requirements related to  the HCTC are challenging for workers and retirees to navigate. To more promptly reimburse eligible individuals for some of the health  coverage premiums they paid during the 3 to 6 months that the advance  HCTC eligibility and enrollment process typically takes, Congress may  wish to allow the HCTC program to retroactively pay the 65 percent HCTC  for the 1 to 3 months between enrollment for and receipt of the advance  HCTC, rather than requiring individuals to wait for the end-of-year credit  to receive that portion of the benefit. Appendix I: Advance Health Coverage Tax Credit Enrollees, by State, July 2004

Data for Puerto Rico are also included in this table. According to federal officials, only a small percentage of Trade  Adjustment Assistance (TAA) recipients and Pension Benefit Guaranty  Corporation (PBGC) beneficiaries eligible to receive the HCTC likely had  access to mini-COBRA coverage, as few of these individuals formerly  worked for an employer with fewer than 20 employees. Total monthly premiums—representing both  the individual and federal shares—were affected by the number of people  covered on each enrollee’s health plan and whether the advance HCTC  enrollee was a TAA recipient or a PBGC beneficiary (see table 15).
Why GAO Did This Study

Congress enacted the health coverage tax credit (HCTC) in 2002 for certain displaced workers receiving income support through the Trade Adjustment Assistance (TAA) program and for certain retirees receiving pensions from the Pension Benefit Guaranty Corporation (PBGC). The HCTC equals 65 percent of the cost of qualified health coverage, which individuals can receive in advance--the Internal Revenue Service (IRS) pays the credit to the qualifying health plan and the individual pays the remaining 35 percent--or by filing for the credit in their federal tax return. GAO was asked to review the implementation of the HCTC and examined, among other issues, how many individuals received it and factors influencing participation, and the type and cost of coverage they purchased. GAO obtained data from federal and state agencies and private health plans.

What GAO Found

For 2003, 19,410 individuals received about $37 million in benefits from IRS for the HCTC for themselves and dependents, with 12,594 (65 percent) claiming the credit on their tax returns rather than receiving it in advance. As of July 2004, about 13,200 individuals were enrolled for the advance HCTC, the majority of whom were PBGC beneficiaries. The number receiving the HCTC remains a small portion of the workers and retirees initially identified as potentially eligible. For example, some potentially eligible individuals may have other health coverage that would disqualify them from receiving the HCTC. Several additional factors may have limited participation to date. First, the advance credit only became available beginning in August 2003. Second, the enrollment process is fragmented and complex and requires individuals to meet tax, labor, and health coverage criteria before they can become eligible. Third, eligible individuals must pay the entire premium for about 3 to 6 months while completing eligibility and enrollment requirements and until IRS's first payment is made on behalf of these individuals. Fourth, the health coverage may not be affordable both in terms of an individual's ability to pay the entire premium amount while waiting to receive the advance HCTC and the ability to pay the 35 percent share once payment starts. Individuals can purchase one of several types of qualifying coverage for the HCTC: the coverage they had through their previous employer or insurance coverage options designated by states (primarily high-risk pools or arrangements with insurers). More than half of recipients chose coverage from their previous employer for the advance HCTC and another 40 percent of advance HCTC recipients enrolled in state-designated coverage options, which were available in 35 states and the District of Columbia as of July 2004. The average monthly premiums (representing both the individual and federal shares) for individuals receiving the advance HCTC were $480 for TAA recipients and $661 for PBGC beneficiaries as of April 2004. The tax credit resulted in an average monthly individual share of $168 for TAA recipients and $231 for PBGC beneficiaries. The premiums paid by advance credit recipients varied widely depending on the coverage purchased, including the type of health plan and the number of individuals covered. The cost of HCTC coverage also was affected by the premium-setting practices of qualified health plans.