Administration of the Proposed Bush Displaced Worker Health Insurance Tax Credit

When a worker becomes unemployed they would go to their State Workforce Agency (SWA) to apply for unemployment benefits, and would be informed of eligibility for the Bush health insurance tax credit.
The SWA would certify that the displaced worker was eligible for the credit.
The SWA would issue the worker a registration number that the worker would use to obtain an advance credit or in claiming an end-of-year credit on their income tax return.
On a continuous basis, SWAs would provide the federal government electronic records for each displaced worker, showing the worker’s eligibility for the credit.
Displaced workers would obtain an advance credit by providing their insurance provider their registration number and SSN, and reducing their premium payment by the amount of the credit (i.e., 60 percent of the premium).
Insurance providers would submit claims for reimbursements for advance credit amounts to the federal government.
The federal government would review the claim from the insurance provider, to verify that qualified insurance was provided to qualified displaced workers, and certify the correct amount of reimbursement to Treasury’s Financial Management Service (FMS).
FMS would then make payment to the insurance provider.
Displaced workers who had not obtained an advance credit during any period they were eligible and had health insurance would claim an end-of-year credit on their income tax return.
At the end of each calendar year, insurance providers who had claimed reimbursements for advance credit amounts would provide IRS a 1099 for each covered displaced worker. IRS would use the 1099s and individual income tax returns filed for compliance purposes.

BUSH TAX CREDIT: A BETTER SOLUTION
Bush Displaced Worker Tax Credit vs. COBRA Subsidy*

Provision	Bush Tax Credit	Senate Democratic Leadership Proposal
Covers all Dislocated Workers?	YES. Covers ALL displaced workers eligible for unemployment insurance – whether or not they had employment-based coverage or have COBRA coverage.	NO. Only covers individuals whose employers offer health insurance under COBRA. Does not cover laid off employees who lacked employer-based coverage. Does not cover the 45% of workers employed by small businesses (fewer than 20 employees) who may be laid off. These employers do not offer COBRA.
Allows Consumer Choice?	YES. Policies available include: COBRA – individuals can choose to stay in their employer plan (Joint Tax Committee estimates 2/3^rdswill do so). Individually purchased coverage, with guarantee issue and pre-existing condition protections. (If you’ve been in your job and had employer sponsored coverage for 1 year, the insurer must sell you a policy with no preexisting conditions limitations.) High-risk pool.	NO. Only policy available: COBRA coverage – Individual must stay in plan the employer picked.
Affordable?	YES. Allow individuals to purchase more affordable insurance. (According to CRS, individual policies average $194 per month.)	NO. Locked into COBRA coverage – which are typically the most expensive policies. (According to the Kaiser Family Foundation, average premiums are twice as expensive at $400 per month.)
Gives Help Quickly?	YES. Available in Spring 2002. Employer or insurer reimbursed directly from the Treasury.	NO. Requires employers to change tax withholding and accounting systems which will take time. Administration does not know when or if the subsidy can be implemented.
Easy to Implement?	YES. Utilizes existing Unemployment Insurance offices to assist displaced workers.	NO. Administration estimates cost of $100,000 per employer. New notice requirement. New COBRA eligibility period.
Focused on Displaced Workers?	YES. Targeted to all involuntarily unemployed individuals.	NO. Not targeted. 60% of those assisted through COBRA left their jobs voluntarily. Many are working at another job and eligible for employer-based coverage. Thus, resources are not focused on displaced workers.

*Under COBRA, employees in businesses with 20 or more workers can continue to participate in their employer-sponsored health insurance after leaving employment, if they pay 102% of the costs themselves.

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