Trade Adjustment Act of 2002 (Information Provided by NAHU -- National Association of Health Underwriters, www.nahu.org)

In August of 2002, President Bush signed the Trade Adjustment Act of 2002, that provides a refundable tax credit to help eligible individuals purchase health insurance from a number of different sources. Allowable purchasing options are:

Automatic options:

• COBRA
• Coverage through the group health plan of the individual's spouse
• Individual coverage if in force at least 30 days prior to separation of employment

Options offered at state's discretion:

• State-based continuation coverage
• Coverage through a high-risk pool
• Coverage through a state employee health insurance program
• Coverage through a program comparable to the state employee health insurance program
• Coverage arranged between a state and a group health plan, an issuer of health insurance coverage, an administrator, or an employer
• Coverage through a private purchasing pool
• Coverage through a state operated health plan that does not receive federal financial participation

The TAA tax credit does not require that a person be previously insured in order to qualify for the tax credit, however, individuals without prior coverage would be subject to the same pre-existing conditions limitations as participants in the type of purchasing option the state selected. If a TAA eligible individual has been previously insured for three months and has less than a 63-day break in coverage, the option selected must extend coverage without application of a preexisting conditions waiting period.

These new provisions will require state legislative or regulatory changes in many states. Therefore, coverage under TAA other than COBRA, coverage under a spouse's employer-sponsored plan, or existing individual health insurance coverage may not necessarily be immediately available options, or a state may choose not to offer them at all. Even with options of a type that may already be in existence in the state, modifications may need to be made to existing laws and regulations to allow the waiver of the preexisting conditions waiting period for those with three months of prior coverage. Some states have already implemented qualified health plans for use with the TAA tax credit. Note: Many states have qualified their state high risk pool as a purchasing option for the tax credit.

Typical modifications required to existing state risk pool legislation to enable TAA qualification

The Trade Adjustment Assistance Act and High Risk Pools
TAA also included new funding for the development of high-risk pools as well as funding to help offset pool losses. Since both health care and health insurance costs are rising, this new funding will provide improved stability for existing high-risk pools, and encourage the development of pools in the 10 states without this important safety net.

High-risk pools play in an important role in the health care system. A risk pool typically is a state-created non-profit association that offers comprehensive health insurance benefits to individuals with preexisting health problems.

People who typically seek coverage in a high-risk pool are either those who have been turned down for coverage in the private individual market due to a chronic illness or condition, those who have found they can only access restricted coverage due to their health, or those who have coverage that costs more than what is available from the pool.

Risk pool insurance typically costs more than standard insurance coverage; but by law has a cap on premiums that can be charged in order to provide cost protection. Premiums range from 125% to 200% of a standard premium and are capped by state law. Each risk pool inherently loses money, because it isn't feasible to pool a group of individuals known to have major health problems and expect their premium contributions to cover the entire cost of care. For this reason, each pool needs some form of subsidy, often an assessment made to insurance carriers in the state, or some other funding mechanism.

Seed Money
TAA authorizes grants of up to $1 million each to states for the creation of a high-risk pool if they don't have one, or if their existing pool is not currently qualified. Many states have been unable to implement high-risk pools due to funding shortfalls, and the ability to obtain initial start-up funds will be extremely helpful in getting pools started. Seed money for new pools must be applied for by March 31, 2004 and appropriated by September 30, 2004.

Funding for Pool Losses
TAA also provides funding to offset losses experienced by pools. It is important to note that this funding is not intended to be the sole source of funding for losses in excess of premiums. The funding is instead intended to stabilize existing pools, make them more affordable, and provide a means for the few pools that are either closed or have waiting lists to make the changes necessary to ensure that their pools can be open on a continual basis.

In order to qualify for this assistance with losses, high-risk pools must meet the following requirements:

• Premiums must be capped at 150% of a standard rate
• The pool must offer two or more plan options
• The pool must have a mechanism other than federal funding to ensure continual funding past the end of 2004
• The pool must be open for HIPAA eligibles.

A total of $20 million has been allocated for seed money for new pools, and a total of $80 million as been allocated for funding of losses through the end of 2004.

• Guidance on Seed Money - The Centers for Medicare and Medicaid Services
• Federal Register Rule on High Risk Pools - May 2, 2003
• HHS To Help States Create High-Risk Pools To Increase Access To Health Coverage - U.S. Department of Health and Human Services Press Release - November 26, 2002

Additional Information:
TAA Health Provisions
Eligibility under TAA
Changes to Existing State Risk Pool Statutes to all ow for TAA Eligibility
Guidance for Elections of Qualified Health Insurance Under TAA

Other Resources:
Treasury Department's TAA Site

Additional Legislation:
On October 1, 2003, Senators Charles Grassley (R-IA) and Max Baucus (D-MT) introduced S. 1693 - The Health Care Tax Credit Expansion Act of 2003. This piece of legislation would expand the TAA tax credit to those who are currently on unemployment insurance.

On March 6, 2003, Congressman Edolphus Towns (D-NY) introduced H.R. 1110 to expand federal grants to high risk pools.

For questions on this issue, please contact Janet Trautwein, Vice President of Government Affairs, at (703) 276-3806.