Health Coverage Tax Credit Authorized by the Trade Act of 2002

^Pr^ep^ar^{ed f}^o^r^M^e^m^b^ers^an^d^Com^mⁱ^t^t^ees^of^C^ong^r^e^ss

The Trade Act of 2002 (P.L. 107-210) authorized the health coverage tax credit (HCTC): a federal
income tax credit to cover 65% of the cost of “qualified health insurance” for eligible taxpayers
and their family members. The credit is refundable, so taxpayers may claim the full credit amount
even if they have little or no federal income tax liability. The credit can also be advanced, so
taxpayers need not wait until they file their tax returns in order to benefit from it.
Eligibility for the HCTC is limited to three groups of taxpayers. Two of those groups consist of
individuals who are eligible for allowances (financial assistance) through the Trade Adjustment
Assistance (TAA) program, because such individuals have lost manufacturing jobs due to
increased foreign imports or shifts in production outside the United States. The third eligibility
group consists of individuals whose defined benefit pension plans were taken over by the Pension
Benefit Guaranty Corporation because of financial difficulties. Eligible individuals cannot be
enrolled in certain other health insurance (e.g., Medicaid) or entitled to other specified coverage
(e.g., Medicare Part A).
The HCTC can be claimed for only 10 types of qualified health insurance specified in the statute,
7 of which require state action to become effective. For tax year 2007, 43 states and the District
of Columbia made at least one of these seven types of state-qualified health plans available. In the
remaining eight states, only the three types of qualified health insurance not dependent on state
action (automatically qualified health plans) were available, though not necessarily all who were
eligible for the credit could avail themselves of these options.
The HCTC is not used widely. In 2005, nearly 28,000 persons claimed the tax credit, out of
350,000 potentially eligible individuals. Possible reasons explaining the relatively low
participation rate include barriers to finding qualified insurance and difficulties paying the part of
the premium not covered by the tax credit (the remaining 35%).
The 110^th Congress is likely to consider legislation affecting the HCTC program. The federal
program that provides grants to states to cover operational losses has exhausted all appropriated
amounts. Also, the TAA program was set to expire on September 30, 2007. A number of bills
have been introduced to reauthorize the TAA program that also propose changes to the HCTC
directly. On October 31, 2007, the House passed H.R. 3920, which would reauthorize and expand
TAA. It has been referred to the Senate Finance Committee. Meanwhile, Congress passed
legislation to temporarily extend TAA. H.R. 3375/P.L. 110-89 extended the TAA program through
December 31, 2007. H.R. 2764/ P.L. 110-161 includes provisions to fully fund the TAA program
through September 30, 2008.
This report will be updated as legislative activity warrants

Introduc tion ..................................................................................................................................... 1
Eligibility ......................................................................................................................................... 2
Eligible Taxpayer Groups..........................................................................................................2
Trade Readjustment Allowance..........................................................................................2
Alternative Trade Adjustment Assistance...........................................................................3
Pension Benefit Guaranty Corporation...............................................................................3
Limitations on Eligibility..........................................................................................................3
Family Members.......................................................................................................................4
Qualified Health Insurance..............................................................................................................4
Implementation ................................................................................................................................ 6
Notifying Eligibles....................................................................................................................6
Availability of a Qualified Health Plan.....................................................................................7
Claiming the Tax Credit............................................................................................................7
Next-Year Payments...........................................................................................................8
Advance Payments..............................................................................................................8
Grants to States.........................................................................................................................8
Infrastructure Grants...........................................................................................................8
Gap Filler Grants (Formerly Bridge Grants).......................................................................9
State High Risk Pool Grants...............................................................................................9
Analysis of Program Design and Implementation.........................................................................10
Effectivenes s .................................................................................................................. ......... 10
Participation ....................................................................................................................... 11
Knowledge of HCTC benefit.............................................................................................11
Availability of Qualified Health Plans...............................................................................11
Complexity........................................................................................................................ 12
Affordabil it y .................................................................................................................. ... 13
Other Factors Affecting Participation...............................................................................13
Equity ...................................................................................................................................... 13
Effici ency ................................................................................................................................ 14
Legislation in the 110^th Congress..................................................................................................14
House ...................................................................................................................................... 14
Senate ......................................................................................................................... ............. 15
Table A-1. Infrastructure Grants from FY2002 Appropriation of $10 Million (as of March
2007) .......................................................................................................................................... 17
Table A-2. Bridge Grants from FY2002 Appropriation of $50 Million (as of September
30, 2004).....................................................................................................................................18
Table A-3. Gap Filler Grants from FY2003 Appropriation of $29.8 Million (as of March
2007) .......................................................................................................................................... 19

Appendix. Infrastructure Grants, Bridge Grants, and Gap Filler Grants, by State, FY2002-
FY2003 ....................................................................................................................................... 17
Author Contact Information..........................................................................................................19

he Trade Act of 2002 (P.L. 107-210) authorized a federal income tax credit—Health
Coverage Tax Credit (HCTC)—for certain workers displaced by international trade, and
retirees whose private pension plans were taken over by the Pension Benefit Guaranty T

Corporation. This report outlines the rules regarding eligibility for the HCTC and the types of
insurance that may be provided. In addition, it discusses both federal and state implementation of
the credit. The report then explores the effectiveness of the credit in reaching targeted populations
and discusses related equity and efficiency issues. It concludes with a brief discussion of recent ¹
legislative proposals regarding the HCTC.

The Health Coverage Tax Credit² covers 65% of the premium for qualified health insurance
purchased by an eligible taxpayer. (The taxpayer is responsible for covering the remaining 35%
of the premium.) The HCTC is refundable, so taxpayers may claim the full credit even if they
have little or no federal income tax liability. The credit also may be advanced, so taxpayers have
the option of using the credit on a monthly basis when premiums are due.
The HCTC is not used widely. In tax year 2005, nearly 28,000 persons claimed the tax credit, out ³
of 350,000 potentially eligible individuals. (“Potentially eligible” individuals are persons who
receive assistance through specific programs that make them potentially eligible for the health
coverage tax credit, provided they meet other eligibility criteria. So, while a person may be
potentially eligible for the HCTC, it does not necessarily mean that person is, in fact, eligible.)
Possible reasons explaining such low participation include barriers to finding qualified insurance
and difficulties paying the part of the premium not covered by the tax credit (the remaining 35%).
The HCTC is of interest to policy makers searching for ways to help people acquire and maintain
health insurance coverage. Debates both before and after enactment of the program reflect a
broader discussion over the use of tax incentives to finance health coverage, in contrast to
expanding public programs (e.g., Medicaid) or implementing market reforms.
The 110^th Congress is likely to consider legislation affecting the HCTC program. The federal
program that provides grants to states to cover operational losses has exhausted all appropriated
amounts. Also, the TAA program was set to expire on September 30, 2007. A number of bills
have been introduced to reauthorize the TAA program that also propose changes to the HCTC
directly (discussed under the “Federal Proposals” section).

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To claim the HCTC, taxpayers must be in one of three eligibility groups and not enrolled in (or
sometimes even eligible for) certain types of health insurance. Some other statutory limitations
also apply. In addition, eligible taxpayers must pay for qualified health insurance, the rules for
which are discussed immediately after this section.
Three groups of taxpayers are eligible to claim the HCTC:
• individuals receiving income support in the form of Trade Readjustment
Allowances (TRA) under the Trade Adjustment Assistance (TAA) program,
including persons eligible for, but not yet receiving, the allowance because they
have not yet exhausted their state unemployment benefits;
• individuals aged 50 and over receiving wage subsidies in the form of Alternative
Trade Adjustment Assistance (ATAA) allowances under the TAA program; and
• individuals between the ages of 55 and 64 who are receiving payments from the
Pension Benefit Guaranty Corporation (PBGC).
The first two groups consist of individuals who have lost manufacturing jobs due to increased
foreign imports or shifts in production outside the United States. The U.S. Department of Labor
(DOL) must certify that workers dislocated by these events are eligible for TAA assistance; this
occurs upon petition from the workers, the affected company, a union, or others. After a petition
is certified, workers are notified by a state workforce agency (SWA) and may apply for TAA ⁴
benefits at One-Stop Career Centers. TAA benefits include counseling and other employment ⁵
services, job search and relocation allowances, training, and a TRA or ATAA allowance.
To be eligible for a TRA (the first eligibility group identified above), individuals must qualify for
state unemployment compensation, have worked for the affected firm at least 26 of the 52 weeks
preceding their layoff, and had weekly wages from the firm of at least $30. Eligible individuals
must participate in TAA-approved training or receive a training waiver. The allowance is paid
after state unemployment benefits are exhausted; these benefits generally last several months for
workers in certain states to a half year for workers in other states. (In most states, the maximum
time period for unemployment benefits is 26 weeks, though workers with some employment
histories qualify for less. Benefits are sometimes extended beyond the 26-week period due to

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^l^o^cat^ed^at^h^t^t^p^:^/^/^www^.^s^er^vi^cel^o^c^a^t^o^r^.^o^rg.
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^Christine^Sc^ott.

federal legislation or triggers based on higher unemployment rates.) The basic TRA provides 26
weeks of support, though it can be followed by 52 weeks of additional allowances to assist
completion of training. Another 26 weeks is allowed for those receiving remedial education.
Persons in all these TRA groups are eligible for the HCTC as long as they are receiving either ⁶
unemployment benefits or the allowance, and for one month afterwards.
To be eligible for an ATAA allowance (the second group identified above), individuals must
obtain re-employment on a full-time basis (other than at the affected firm) within 26 weeks of
separation from employment, be at least 50 years of age, and earn less in wages at the new firm
than at the previous firm. The DOL must determine that a significant number of workers at the
affected firm were age 50 or older and had job skills not easily transferable to other employment; ⁷
competitive conditions within the workers’ industry are considered as well. The ATAA allowance
is an option to other TAA benefits. Individuals who elect this allowance receive payments equal
to 50% of the difference between their wages at the affected firm and their re-employment wages.
Payments cannot exceed $10,000 in total, and may not be provided for more than two years. ⁸
Eligibility for the ATAA allowance, and thus for the HCTC, is limited to two years.
To receive a PBGC pension benefit (the third group identified above), individuals must have
worked for a firm whose defined benefit pension plan was insured and then taken over by the ⁹
federal agency. The PBGC assumes control of defined benefit plans (pension plans that promise
to pay a specific monthly benefit at retirement) when it determines the plans must be terminated
to protect the interests of participants (for example, if currently due benefits cannot be paid) or
when employers demonstrate they cannot remain in business unless the plan is terminated. The
PBGC uses plan assets and its own insurance reserves to pay the pensions (up to a guaranteed
amount) to the former workers and their survivors. Individuals receiving PBGC-paid pensions are
eligible for the HCTC provided they are at least 55 years of age but not yet entitled to Medicare
(which usually occurs at age 65).
The HCTC program places several limitations on eligibility, even for those individuals in the
three groups just described. Persons enrolled in the following health plans are not eligible for the
tax credit:

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• a plan (including COBRA elections described below) maintained by the
individual’s employer or former employer (or the spouse’s employer or former ¹⁰
employer) that pays 50% or more of the total premium;
• Medicare Part B;
• the Federal Employees Health Benefits Program (FEHBP);
• Medicaid; or
• the State Children’s Health Insurance Program (SCHIP).
Similarly, to be eligible for the HCTC, individuals cannot be entitled to the following:
• Medicare Part A; or
• coverage provided through the U.S. military health system (e.g., Tricare or
CHAMPUS).
In addition, individuals are not eligible for the tax credit if they are incarcerated, or if they may be
claimed as a dependent by another taxpayer.
Eligible individuals may use the HCTC for health insurance that covers a spouse and dependents
who can be claimed on their tax return. For this purpose, children of divorced or separated parents
are treated as dependents of the custodial parent.
Qualifying family members cannot be enrolled in or entitled to the insurance described above.
They also cannot claim the credit on their own—when the eligible individual loses eligibility, the
credit no longer applies to the family members.

An eligible individual can claim the HCTC only to help cover the premium for “qualified health
insurance.” The statute limits qualified health insurance to 10 different categories of coverage,
identified as options (A) through (J). The tax credit cannot be claimed for any other insurance.
Three of the coverage categories are known as automatically qualified health plans. Individuals
may elect these options without involvement by their state. These options (identified by their
statutory letter designation) are as follows:

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^pa^id^by^the^e^m^ploy^e^r^.^A^dditio^na^l^e^lig^ibility^re^stric^{tions a}^ppl^y^{to A}^T^AA^indivⁱ^dua^{ls f}^o^{r c}^e^r^ta^{in ty}^pe^{s of}^insura^nc^e^if
^theⁱ^r^c^u^r^r^e^nt^or^pr^e^v^ious^e^m^ploy^er⁽^o^r^t^h^e^c^u^r^r^e^nt^or^pr^e^v^ious^e^m^ploy^e^r^o^f^a^s^pous^e⁾^pa^y^s^pa^r^t^of^the^c^o^v^e^r^a^ge^{, or}^the
^pr^e^m^iu^m^c^ould^be^pa^id^oⁿ^a^pr^e^-^t^a^x^ba^sⁱ^s^.

^A.^{Coverage under}^COBRA;¹¹
^I.^{Coverage under}^{a grou}^{p health}^p^{lan available through a}^{spouse’s e}^{mployer; and}
^J.^{Coverage under}^{individual health insuran}^ce^provided^the^{eligible ind}^{ividual was covered}
^{under t}^{his type}^{of insu}^rance^{for t}^{he entire}^30-day^{period ending on the date t}^he
^{individual became separated f}^{rom employment w}^hich^{qualified the}^{individual as a TAA,}¹²
^{ATAA, or PBGC pension recipie}^nt.
The other seven categories of coverage are known as state-qualified health plans. Individuals
may choose these options only if their state has established these plans. These options (identified ¹³
by their statutory letter designation) are as follows:
^B.^{State-based continuation coverag}^{e provided under a}^{state law re}^q^{uiring suc}^{h coverage;}
^C.^{Coverage offered th}^{rough a}^state^{high risk}^pool;¹⁴
^D.^{Coverage under}^{a plan off}^{ered fo}^{r state em}^ployees;
^E.^{Coverage under}^{a state-based}^{plan that is com}^{parable to t}^{he plan}^{offered for state}
^employees;
^F.^{Coverage throug}^{h an a}^rra^ngeme^{nt ente}^{red into by a}^{state and a g}^roup^{health plan, a}ⁿ
^{issuer of healt}^{h insu}^{rance, a}ⁿ^ad^{ministrator, or an employer;}
^G.^{Coverage throug}^{h a state a}^rrang^{ement with a}^{private se}^{ctor healt}^{h care}^pu^rchasing
^{pool; and}
^H.^{Coverage under}^{a state-operated}^{plan that}^{does not receive a}^{ny fe}^{deral financing.}
Coverage under state-qualified plans must provide four consumer protections, specified in statute, ¹⁵
to all qualifying individuals. Plans must guarantee issue (offer coverage to all qualifying
applicants), and not deny coverage based on preexisting conditions. Premiums (without regard to
subsidies) must not be greater for qualifying individuals than for other similarly situated
individuals, and benefits for qualifying individuals must be the same as or substantially similar to
those for others. In short, the statute attempts to ensure that state-qualified health plans are open

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^r^e^duc^tio^{n i}ⁿ^w^o^r^k^hou^r^s^{, de}^a^t^h^,^dⁱ^v^o^r^c^e^or^le^g^a^{l s}^e^pa^r^a^{tion, a}ⁿ^d^oth^e^r^cⁱ^r^c^um^s^t^aⁿ^c^e^s⁾^f^o^r^a^lim^ite^{d tim}^e^.^Em^plo^y^e^r^s^m^a^y
^c^h^a^r^g^e^the^be^ne^fⁱ^cⁱ^a^r^y^{up to}¹⁰⁰^%^of^the^pr^e^m^iu^m⁽^c^ountiⁿ^g^bo^th^the^e^m^ploy^e^r^a^{nd e}^m^ploy^e^e^s^h^a^r^e)^plus^2%^to^c^o^v^e^r
^a^d^mⁱ^nis^t^r^a^tiv^e^ex^pe^ns^e^s^{. I}^ndivⁱ^d^u^a^ls^g^e^ne^r^a^ll^y^ha^v^e^{60 da}^y^s^f^r^o^m^f^o^r^m^a^l^notif^ic^a^{tion by}^the^e^m^ploy^er^{in w}^h^ic^{h t}^o^e^l^e^c^t
^COBRA^co^v^e^ra^ge,^t^h^o^u^{gh S}^ectⁱ^oⁿ²⁰³⁽^e)^o^f^t^h^{e T}^r^ad^{e A}^c^t^o^f²⁰^{02 au}^t^h^o^rⁱ^{zes an}^ext^eⁿ^sⁱ^o^{n o}^f^t^h^{e el}^ectⁱ^oⁿ^p^e^ri^od^f^o^r
^indivⁱ^d^u^a^l^s^w^{ho a}^r^e^e^lig^ible^f^o^r^T^A^A^as^sⁱ^s^t^aⁿ^c^e^.^For^a^ddi^tio^na^{l i}ⁿ^f^o^r^m^a^{tion, s}^e^e^C^R^S^R^e^por^{t R}^L³⁰⁶^26,^He^alth
^Iⁿ^s^u^r^a^nc^e^C^ontⁱⁿ^uati^oⁿ^C^o^v^e^r^ag^e^U^nde^r^C^O^BRA^,^by^H^e^{idi G}^.^Y^a^c^k^e^r^.
¹²^T^h^e^r^e^quir^e^m^e^{nt f}^o^r^pr^ior^c^o^v^e^r^a^g^e^doe^s^not^a^pply^{to i}^ndivⁱ^dua^{l i}ⁿ^s^u^r^a^nc^e^obtaⁱ^ne^{d t}^h^r^o^ug^{h a}^s^t^a^t^e^-^qua^lif^ie^{d pla}ⁿ^.
^T^h^{is e}^x^c^e^p^{tion is n}^o^{t e}^x^plic^itⁱⁿ^t^h^e^sta^t^ute^.
¹³^F^o^{r a l}ⁱ^st^and^co^nt^actⁱⁿ^f^o^rm^atⁱ^oⁿ^o^f^st^at^e-q^u^a^lⁱ^fⁱ^e^d^p^l^an^{s i}ⁿ^each^st^at^{e f}^o^{r t}^a^x^year²⁰⁰⁷^{, s}^e^e^the^I^R^S^w^e^bs^ite^a^t
^http:^//www^.irs.g^ov^/ⁱⁿ^d^iv^idua^ls/^a^rtic^le^/0,,i^d=¹¹⁹³^35,⁰⁰^.htm^l.
¹⁴^Sta^t^e^hig^h^rⁱ^sk^po^{ols a}^r^e^he^a^lthⁱⁿ^sura^nc^e^prog^ra^m^s^de^si^gⁿ^e^d^f^o^{r indiv}ⁱ^dua^{ls w}^ith^pre^-^e^x^isting^he^a^lth^c^ond^itio^{ns w}^ho
^e^x^pe^rieⁿ^c^e^diff^ic^ult^y^{in o}^b^taⁱⁿⁱⁿ^g^c^o^v^e^ra^ge^{in the}^priv^a^t^e^m^a^rk^e^t^{. For a}^d^d^itio^na^{l i}ⁿ^f^o^rm^a^{tion a}^bou^{t th}^e^s^e^pools^,^s^e^e^CRS
^R^e^por^{t R}^L³¹⁷⁴^5,^H^e^al^{th I}ⁿ^s^u^r^aⁿ^c^e^:^State^Hⁱ^g^h^Rⁱ^s^k^Poo^l^s^,^b^y^Bern^ad^et^t^e^F^e^rn^and^ez.^(Hereaf^t^e^{r ci}^t^e^d^as^St^ate^Hⁱ^g^h
^Risk^Pools^.)
¹⁵^T^h^e^c^ons^um^e^r^pr^ote^c^tions^a^pply^{to “}^qua^lif^yⁱ^ng^”^indivⁱ^dua^ls^,^de^fⁱ^ne^{d in}^the^s^t^a^t^ute^a^s^e^lig^ibleⁱⁿ^divⁱ^d^u^a^l^s⁽^a^s
^de^s^c^rⁱ^be^{d a}^b^ov^e⁾^w^{ho a}^l^s^o^ha^v^e^h^a^{d thr}^e^e^m^onths^of^“^c^r^e^d^ita^ble^c^o^v^e^r^a^g^e^”^unde^r^a^not^he^r^he^a^l^t^h^p^l^aⁿ^pr^ior^to^a^pplyⁱ^ng
^f^o^{r a st}^at^e-q^u^a^lⁱ^fⁱ^e^d^p^l^an^.^T^h^{e requ}ⁱ^r^em^en^t^t^h^at^credⁱ^t^a^b^l^{e co}^{verage i}^mmedⁱ^at^el^y^p^r^eced^{e t}^h^{e ap}^p^lⁱ^catⁱ^oⁿ^app^{ears i}ⁿ^t^h^e
^IRS^guⁱ^d^an^ce;ⁱ^tⁱ^sⁿ^o^t^exp^lⁱ^cⁱ^tⁱⁿ^t^h^{e st}^at^u^t^e.^E^v^en^so^,^a^b^r^{eak i}ⁿ^covera^{ge o}^f^u^p^t^o⁶²^d^a^y^sⁱ^s^al^l^o^w^e^d^b^e^t^w^een^h^a^viⁿ^g
^pr^ior^c^o^v^e^r^a^g^e^a^{nd e}ⁿ^r^o^lli^ngⁱⁿ^th^e^ne^w^plaⁿ^{. I}^R^{S g}^uⁱ^d^aⁿ^c^e^e^x^plic^it^ly^a^llo^w^s^f^o^r^pr^e^e^x^is^ting^c^ondi^tio^{n e}^x^c^l^us^ions^to^be
^im^pos^e^d^if^the^indivⁱ^dua^l^ha^s^le^s^s^thaⁿ^t^h^r^e^e^m^onths^of^c^r^e^d^ita^ble^c^o^v^e^r^a^g^e^.

to all qualifying applicants and do not charge more or provide fewer benefits to people who are
receiving the tax credit. The consumer protections do not preclude use of medical underwriting to
set premiums.
Certain types of coverage are not considered qualified plans, even if they otherwise fall in one of
the categories above. Such coverage includes accident or disability income insurance, liability
insurance, workers compensation insurance, automobile medical payment insurance, credit-only
insurance, coverage for on-site medical clinics, limited scope dental or vision benefits, long-term
care insurance, coverage for a specified disease or illness, hospital and other fixed indemnity
insurance, and supplemental insurance.

Implementation of the HCTC relies on the participation of several federal and state agencies. The
Department of the Treasury is primarily responsible for administering the advance payment
system (provides the HCTC on a monthly basis to coincide with payment of insurance premiums)
and, through the Internal Revenue Service, reviewing tax returns on which the credit is claimed.
The Department of Labor (DOL) and the Pension Benefit Guaranty Corporation (PBGC) are
responsible for helping Treasury identify who might be eligible for the credit. DOL also
coordinates the One-Stop Career Center system; these centers provide a full range of services to
assist job seekers. Lastly, DOL administers two grant programs that provide assistance to states to
establish the infrastructure to administer the program and provide temporary subsidies to
individuals waiting for their first tax credit payment.
State-level entities include state workforce agencies (SWAs)—various agencies, funded by DOL,
that administer unemployment benefits and TAA programs. Other relevant state entities include
the departments of insurance (specifically regarding state-qualified health plans) and health
agencies.
Beginning in 2002, DOL’s Employment and Training Administration requested that SWAs mail
HCTC information packets to all eligible TAA recipients or persons who would be eligible for ¹⁶
TAA allowances as soon as they exhaust their unemployment benefits. SWAs are also required ¹⁷
to submit to the HCTC office a daily listing of persons eligible for TAA and ATAA.
Similarly, the PBGC identified beneficiaries who are potentially eligible for the HCTC and
provided the IRS with their relevant personal records—including names, addresses, social ¹⁸
security numbers, and dates of birth. Starting in February 2003, the IRS sent information
packets, including forms and instructions for claiming the credit, to those persons in the PBGC
list.

¹⁶^U^.^{S. D}^e^pa^r^t^m^e^{nt of}^L^a^bor^{, Em}^ploy^m^e^{nt a}^{nd T}^r^aⁱ^ning^A^d^mⁱ^nis^t^r^a^tion,^A^d^vⁱ^s^o^r^y^S^y^s^t^em^,^Tr^ainin^g^a^{nd Em}^ploy^m^e^nt
^Guⁱ^d^an^{ce L}^e^t^t^e^{rs N}^o^{. 05}^-⁰³^an^d^N^o^.¹⁶^-⁰²^.
¹⁷^For^m^o^r^e^inf^o^r^m^a^{tion a}^b^o^u^{t SW}^A^’^s^r^e^por^ting^r^e^quir^e^m^e^nts^,^s^e^e^the^que^s^tio^ns^aⁿ^{d a}ⁿ^s^w^e^r^s^a^{bout H}^C^T^C^a^t
^h^ttp^:^//www^.d^o^l^eta.g^o^v^//trad^eact/d^irectiv^es/^U^IP^L³³^-⁰³^_^A^ttach^A^.^c^f^m^.
¹⁸⁶⁷^Fe^de^{ral Re}^giste^r⁶⁶⁶⁷⁴^,^No^ve^m^b^er²^,²⁰⁰²^.

The HCTC office continues to mail packets to persons whose names are included on the lists
provided to them by the SWAs and PBGC. Labor unions and advocacy groups also inform
members of their potential eligibility.
The HCTC program has had difficulty notifying one group of eligibles: persons who are receiving
unemployment compensation but have not yet applied for TAA benefits. Unless they petition the
DOL directly, their names and contact information are not easily identified. Unemployment
compensation can last up to 26 weeks in most states, and recipients often don’t apply for TAA
benefits until near the end of that period. These persons, probably the largest group of TAA
eligibles, generally will not receive notification about their HCTC eligibility until their
unemployment benefits end.
The HCTC is available only to eligible taxpayers who enroll in 1 of the 10 types of qualified
health insurance described above. The three automatically qualified plans are available in all
states, but only for certain individuals. COBRA continuation coverage (option A in the list under
the “Qualified Health Insurance” section) is available only if an individual’s previous employer
continues to offer health benefits to its remaining workers or retirees. If the company drops
coverage completely or goes out of business, a COBRA election is not possible. Coverage under a
group health plan available through the employment of a spouse (option I) is available only if one
is married and the spouse has coverage. Even if the spouse has coverage, the credit is not
available if the spouse’s employer pays 50% or more of the cost, which usually is the case under
employer-sponsored health care. Finally, coverage under an individual health insurance plan
(option J) generally is not available due to the requirement that the worker had such coverage ¹⁹
before loss of employment.
The remaining seven qualified health plans (options B through H) are available only if states
designate them as qualified insurance. In tax year 2007, 43 states and the District of Columbia ²⁰
made at least one of these seven state-qualified plan types available. In the remaining eight
states, individuals who are eligible for the HCTC can only select from the three automatically
qualified plan options, but only if it is available to them.
Eligible taxpayers with qualified insurance may choose to receive the HCTC after they file their
tax returns for the year, generally in the period February 1 through April 15 of the following year.
Alternatively, they may choose to receive advance payments for the credit, on a monthly basis,
throughout the year. Some might choose to receive a portion of the credit through advance
payments and the remainder after they file their return. Advance payments are not available for
coverage through a spouse’s employment (option I).

¹⁹^P^r^iorⁱⁿ^divⁱ^dua^l^c^o^v^e^r^a^g^e^w^ould^not^be^r^e^q^u^ir^e^d^t^o^obtaⁱ^{n i}^ndivⁱ^d^u^a^{l c}^o^v^e^r^a^ge^unde^r^a^s^t^a^t^e^-^q^u^a^lif^ie^{d pla}ⁿ^.
²⁰^T^hos^e^s^t^a^t^e^s^a^r^e^:^A^L^,^A^K^,^A^Z^{, A}^K^,^CA^{, CO}^{, CT}^{, D}^C^{, FL}^{, G}^A^{, ID}^,^IL^{, IN}^{, IA}^{, K}^S^{, K}^Y^,^LA^{, ME, M}^D^{, MA}^{, MI, MN}^,
^MO^{, MT}^{, N}^E^{, N}^H^,^N^J^{, N}^Y^,^N^C^,^N^D^,^O^H^,^O^K^,^O^R^,^P^A^{, RI, SC,}^T^N^{, T}^X^{, U}^T^{, V}^T^,^V^A^{, WA}^{, W}^V^{, a}^{nd W}^I^{. F}^o^{r c}^o^nta^c^t
^inf^o^rm^a^{tion f}^o^{r the}^s^e^sta^t^e^-^qua^lif^ie^{d he}^a^lth^plaⁿ^s,^a^t^ht^tp:/^/www^.irs.g^ov^/indivⁱ^d^u^a^l^s/a^r^tic^le^/0,,i^d=¹¹⁹³^35,^00.^htm^l^.

Taxpayers claim the HCTC after the tax year is over by completing Form 8885 and attaching it to
their standard Form 1040. The credit cannot be claimed with standard forms 1040A or 1040EZ.
Taxpayers must attach invoices and proof of payment to qualified health plans.
As the HCTC is refundable, taxpayers may receive the full amount for which they are eligible
even if they have little or no tax liability. Their other tax credits have no effect on their HCTC,
nor does the HCTC affect their other credits.
To receive advance payments of the credit, individuals register with the HCTC program through
its Customer Contact Center. They must be enrolled in a qualified health plan when they register.
The program confirms applicants’ eligibility and sends them an invoice for 35% of the total
monthly premium. Participants send payments for this share plus additional premium charges for
non-qualified family members (if applicable) to the Department of the Treasury. Upon receipt of
these funds, Treasury sends payment for 100% of the premium (35% from the participant and
65% from Treasury) to the participants’ health insurance plans. The payment system continues in
this way on a monthly basis. Advance payments became available in August 2003.
Section 203 of the Trade Act of 2002 expanded the National Emergency Grant program to ²¹
support implementation of the HCTC. It authorized two new state grant programs to be
administered by the Labor Department: Infrastructure Grants and Gap Filler Grants (previously
referred to as Bridge Grants). In addition, Section 201 of the Trade Act authorized new funding to
be made available through the Department of Health and Human Services to help states create
new high risk pools and fund existing ones.
These grants assist states in developing infrastructure to conduct eligibility verification, notify
eligible individuals, provide enrollment assistance, install data management systems, and support
other administrative functions. Once the systems and procedures are in place and the state has
begun supporting the operations of the HCTC program, the state may submit a request to modify
the grant award to cover ongoing operational costs. Distributions are based on the states’
anticipated costs.
For these grants, the Trade Act appropriated $10 million in FY2002. As of March 2007, almost $8 ²²
million had been distributed to 45 states. Table A-1 in the Appendix shows which states
received grants and how much they received. States have five years to spend the funds.

²¹^N^a^tiona^{l Em}^e^r^g^e^ncy^G^r^aⁿ^ts^w^e^r^e^fⁱ^r^s^{t a}^u^thor^iz^e^d^by^the^W^o^r^k^f^o^r^c^{e I}ⁿ^v^e^s^t^m^e^{nt A}^c^{t of}^{1998 (}^P^.L^{. 10}^5-²²⁰⁾^.^Iⁿ
^g^e^ne^r^a^{l, the}^y^s^uppor^{t e}^m^ploy^m^eⁿ^t^a^nd^tr^aⁱⁿⁱ^ng^a^s^sⁱ^s^t^aⁿ^c^e^{to w}^o^r^k^er^s^w^{ho los}^t^t^h^eⁱ^r^jo^bs^due^t^o^la^y^o^f^f^s^or^plaⁿ^{t c}^l^osⁱⁿ^g^s^,
^a^{nd te}^m^por^a^r^y^jobs^f^o^r^w^o^r^k^e^r^s^af^f^e^c^t^e^d^by^na^tur^a^{l dis}^a^s^t^e^r^s^.
²²^T^h^e^r^e^is^{no tim}^e^lim^{it a}^s^{to w}^h^eⁿ^the^s^e^f^unds^m^u^s^t^be^dis^t^rⁱ^b^u^te^d.

The Trade Act also authorized appropriations of $60 million for each fiscal year starting in 2003
through 2007. In FY2003, Congress appropriated $29.8 million to be used for Infrastructure and
Gap Filler (see below) grant programs. None of the FY2003 appropriation was used for
Infrastructure Grants, and in FY2006, $20 million was rescinded by Congress.
These grants are awarded to states to provide eligible individuals with a subsidy during the HCTC
enrollment process when individuals are responsible for 100% of the premium. Grant
distributions are made during the months required for the IRS to enroll, process, and make the
first HCTC payment. The IRS typically takes between one to three months to complete this
process. These months are referred to as the “gap period.” These gap filler payments cover 65%
of the qualified health insurance premium, that is, the proportion that will later be covered by ²³
advance payments. (These grants, made available through the National Emergency Grant
program under the Workforce Investment Act, were originally referred to as Bridge Grants. The
purpose of the Bridge Grants was to provide individuals with a subsidy, up to 65% of the ²⁴
premium, prior to implementation of the HCTC advance payment system in August 2003.)
The amount distributed to each state is based on a formula that takes account of four factors: (1)
estimates of the total HCTC population in the state, including TAA, ATAA and PBGC eligibles;
(2) the percent of eligibles expected to enroll for advance payments; (3) the amount needed to
cover 65% of a qualified health insurance premium, and (4) the average number of months
eligibles will be expected to need the gap filler payments.
For these grants, the act appropriated $50 million for FY2002. DOL distributed all of these funds
to 13 states by the end of FY2004. Table A-2 in the Appendix displays which states received
then-Bridge Grants and how much they received. The act also authorized appropriations of $100
million for FY2003 and $50 million for FY2004. As discussed above, Congress appropriated
$29.8 million in FY2003 to be used for both Gap Filler and Infrastructure grants, but later
rescinded $20 million, which left $9.8 million to be distributed. By the end of FY2004, $3.8 ²⁵
million had been distributed for Gap Filler Grants to two states. Table A-3 in the Appendix ²⁶
shows the amounts awarded to those two states, and the funds yet to be distributed.
In an effort to expand the options for health coverage, 34 states have established high risk health
insurance pools. These programs target individuals who cannot obtain or afford health insurance ²⁷
in the private market, primarily because of pre-existing health conditions. Although the state

²³^T^h^e^De^pa^rt^m^e^{nt of}^L^a^{bor issue}^d^g^u^idaⁿ^c^e^oⁿ^usiⁿ^g^{this g}^r^aⁿ^{t f}^u^ndi^ng^f^o^{r g}^a^{p f}^ille^{r pa}^y^m^eⁿ^{ts; a}^t
^http:^//w^w^w^.ow^s^.dole^t^a^.^g^o^v^/^dm^s^t^r^e^e^/te^g^l^/^t^e^g^l2k²^/te^g^l^_20-^02c^1.h^t^m^.
²⁴^T^h^e^D^e^pa^rt^m^e^{nt of}^L^a^{bor is}^s^u^e^d^g^u^idaⁿ^c^e^oⁿ^the^orig^ina^l^us^e^of^th^e^s^e^g^r^aⁿ^{t f}^unds^{; a}^t^htt^p^://w^w^w^.dole^t^a^.^g^o^v^/^tra^d^eact^/
^dir^e^c^tiv^e^s^/te^g^l^20-^02.c^f^m^.
²⁵^A^th^ird^{state, Fl}^o^rⁱ^d^{a, receiv}^e^d^{a little o}^v^{er $}⁴^m^illioⁿ^o^f^th^{is g}^r^an^t^f^unding^{. F}^l^orⁱ^d^a^la^te^r^de^-^o^blig^a^t^e^d^the^f^uⁿ^d^s^.
²⁶^Sta^t^e^c^onta^c^t^{s f}^o^{r g}^a^{p f}^ille^{r prog}^r^a^m^s^(a^{s of}^June^5,²⁰⁰⁷^{) a}^r^e^a^v^a^ila^ble^a^t^htt^p^://w^ww^.irs.g^ov^/^pub^/ⁱ^rs-utl/
^ne^g^_^c^onta^c^t^_lis^t^.^p^d^f^.
²⁷^W^hⁱ^l^e^hⁱ^gh^ri^{sk po}^ol^{s are d}^e^si^gn^ed^f^o^{r i}ⁿ^di^vi^d^u^a^l^s^w^h^o^f^{ace h}ⁱ^gh^p^r^emⁱ^u^m^s^(p^ro^vi^d^e^d^t^h^ey^ar^{e gi}^veⁿ^anⁱⁿ^su^ran^ce
^o^f^{fer in}^th^{e f}ⁱ^{rst p}^l^{ace), th}^{ese i}ⁿ^dⁱ^vⁱ^d^u^a^{ls still m}^u^{st p}^a^y^{a p}^r^e^m^iu^m^f^o^{r co}^v^e^ra^g^eⁱⁿ^th^{ese p}^o^o^l^s.^So^m^e^p^e^rsoⁿ^s^w^h^o
^w^{ould ot}^he^rw^ise^be^e^lig^ible^f^o^{r hi}^g^h^risk^poo^{ls m}^a^y^be^una^ble^{to a}^f^{ford t}^h^e^pre^m^ium^s^a^{nd, the}^r^e^f^ore^,^w^{ill re}^m^aⁱⁿ
⁽^c^onti^nue^d.^..)

high risk pool grants authorized by the Trade Act do not directly support administration of the
HCTC, they were intended to help states provide a state-qualified plan option to HCTC eligibles
(see letter C in the list under “Qualified Health Insurance”). The Centers for Medicare and
Medicaid Services (CMS) administers the federal grant program.
The Trade Act appropriated $20 million in the form of seed grants to be awarded to states that did
not already have a high risk pool but wanted to establish one. Each qualifying state could receive
up to $1 million to support the creation and implementation of a high risk pool. In 2003, CMS
gave seed grants to six states, totaling approximately $4.2 million.
The Trade Act also appropriated $80 million to be split evenly over FY2003 and FY2004 to
defray some of the operating losses experienced by states with existing high risk pools. CMS
awarded operational grants to 19 states to help cover FY2003 expenses; for FY2004 expenses,
CMS awarded grants to 22 states. Taken together, CMS awarded the full $80 million appropriated
to fund operational grants.
Additional grant funding was authorized under H.R. 4519, the State High Risk Pool Funding
Extension Act of 2006 (P.L. 109-172). It authorized the following amounts to help cover FY2005
expenses: $75 million for operational and bonus grants, as well as $15 million for seed grants.
(Bonus grants are to be used to provide additional benefits or premium assistance.) The Deficit
Reduction Act of 2005 (P.L. 109-171) fully appropriated the amounts authorized under H.R.
4519. CMS awarded grants to 31 states that experienced operational losses in 2005. Of those 31
states, 25 also received bonus grants. In addition, CMS awarded seed grants to five states in 2006,
and to another five states in 2007. Funding for future operational and bonus grants have not been
appropriated.

The Trade Act of 2002 became law on August 6, 2002 and the HCTC became effective that
December. Advance payments began August 1, 2003. During that first year, the Department of the
Treasury and the DOL established supporting administrative arrangements, which they continued
to refine after advance payments were implemented.
Throughout implementation and operation of this program, observers have raised questions about
the effectiveness of the HCTC in assisting taxpayers obtain or retain health insurance coverage.
Others question the equity of the program design (particularly with respect to eligibility) and raise
concerns about its overall efficiency. These issues are discussed in this section.
Data for the HCTC indicate that it is not widely used, raising questions about its effectiveness. At
this time, it is not clear whether more taxpayers might use the credit in the future or if
participation will always be low.

^(...c^on^tin^ue^d)
^uni^nsure^d^.^For^a^d^d^itio^na^{l i}ⁿ^f^o^rm^a^tion^a^b^o^u^t^t^h^e^s^e^po^{ols a}ⁿ^{d g}^r^aⁿ^ts^{to sta}^t^e^s^{, se}^e^Sta^t^e^Hⁱ^g^h^Ris^k^P^ool^s^.

For the 2005 tax year, 27,816 taxpayers claimed the HCTC, with 54% choosing the monthly
credit option, 21% choosing the end-of-the-year option, and the remaining 25% using both ²⁸
options. (As discussed earlier, the potentially eligible population was approximately 350,000.)
By eligibility group, TRA/ATAA recipients currently represent over a third of HCTC enrollees, ²⁹
whereas PBGC recipients represent the remaining two-thirds.
One possible reason for the low use of the tax credit among eligible persons is that many workers
may be unaware of this benefit in the first place. According to one Government Accountability
Office (GAO) study, at most of the work sites they surveyed, more than half of the workers who
visited one-stop career centers were not aware of this benefit. This is despite efforts by federal
and state programs, local officials, unions, and others to inform workers of this tax credit
program. Some workers indicated that they would have applied for the tax credit had they known ³⁰
about it.
In 2007, 43 states and the District of Columbia made at least one of the state-qualified plan types
available; most states provided multiple plan options. These states include the vast majority of
HCTC eligible individuals. In addition, eligibles may be able to access one of the three
automatically qualified plan options. As a practical matter, however, some HCTC eligibles
continue to face difficulty in finding a qualified plan.
For example, the COBRA continuation coverage option (letter A in the list under “Qualified
Health Insurance” is available only if the former employer had at least 20 workers and continues
to offer health benefits to its remaining workers. One study, citing federal officials, noted that
roughly 40% to 60% of HCTC eligibles have access to COBRA coverage; which means COBRA ³¹
is not available to the remaining HCTC eligibles. Moreover, those with access must be able to
pay the full premium cost plus a 2% administrative fee (see the discussion in the “Affordability”
section below). The spousal coverage and individual health insurance options (letters I and J)
have requirements that rule out most eligibles—for the former, one must be married to someone
with coverage not largely paid for by their employer; for the latter, one must have had individual
insurance before termination of employment.
As discussed above, a majority of states offer at least one state-qualified plan option. However,
eight states do not. Eligibles in those eight states must be eligible for the automatically qualified
plans discussed above, or they will have no qualified plan options available to them.

²⁸^Da^ta^prov^ide^d^{to CR}^{S by}^the^IRS^.
²⁹^S^{ee “IRS}^t^e^stⁱ^m^oⁿ^y^.^”
³⁰^U^.^{S. G}^o^v^e^rnm^e^nt^A^c^c^ounta^b^ility^O^f^fⁱ^c^e^,^T^r^a^d^e^A^d^j^u^st^men^t^A^ssi^st^an^{ce: Mo}^st^Wo^{rkers i}ⁿ^Fⁱ^{ve L}^a^yof^f^{s R}^ecei^ved
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^P^r^og^ra^m^O^p^e^r^a^tion,”^T^h^e^Com^m^onw^e^a^{lth Fu}^nd,^A^p^{ril 2}⁰⁰⁴^{, a}^t^htt^p^://w^w^w^.^c^om^m^oⁿ^w^ea^lthf^und.^org^/^us^r_d^o^c^/
⁷²¹^_^D^o^rⁿ^_^t^axcredⁱ^t^s^_^t^ra^d^eact²⁰⁰²^.^pd^f^?^sectⁱ^oⁿ⁼⁴⁰³⁹^.^(Hereaf^t^e^{r ci}^t^e^d^{as “Heal}^t^h^Co^verage^T^a^{x Cre}^dⁱ^t^s^.^”⁾

One issue related to state-qualified plan options is whether the consumer protection requirements
(guaranteed issue, no coverage denial based on preexisting conditions, and substantially the same
premiums and benefits for eligibles and noneligibles) reduce the availability and increase the cost
of such plans. These requirements impose stricter standards on health plans than other federal and ³²
most state laws. As a result, when the Trade Act was enacted, many health plans sponsored or
arranged by states did not meet the consumer protection requirements specified in the statute. In
order to qualify a plan for the HCTC, states have had either to modify existing plans or to
establish new ones. Sometimes this could be done by administrative action, but often it required
state legislation. For some states, approving new plans has been difficult because of budget crises.
Even if approval is achieved, budget constraints limit the amount of financial risk states are
willing to take.
Patient advocates and others contend that consumer protections, in general, make access to
insurance more equitable and should apply to everyone, regardless of insurance status or medical ³³
need. Although such observers acknowledge the consumer protections under the HCTC
program, some argue that those requirements are not comprehensive enough. They argue that
without broad requirements, health plans may still charge a high premium to persons with greater
health care needs, particularly older workers and early retirees, making it difficult for them to find ³⁴
affordable coverage.
In addition to finding an available health plan that qualifies for the HCTC, eligibles must navigate
a complicated enrollment system in order to receive the tax credit. “Workers must apply to
between two and five public and private entities and frequently must deliver to one or more of ³⁵
these entities hard-copy documents issued by the others.” This burden was highlighted in
responses to a DOL survey asking state officials for their views on the primary reason for low ³⁶
participation. Complexity was second only to affordability as the factor mentioned the most.

³²^{For e}^x^a^m^ple^,^the^H^e^a^{lth Ins}^u^ra^nc^e^Porta^b^il^ity^a^{nd A}^c^c^ounta^b^ility^A^c^{t (H}^IP^A^A^{, P}^.^L^.¹⁰^4-¹⁹¹^{) g}^e^ne^ra^lly^prohibits
^he^a^{lth p}^l^aⁿ^s^f^r^omⁱ^m^pos^ing^pr^e^e^x^is^ting^c^oⁿ^d^iti^{on e}^x^c^l^usⁱ^ons^f^o^rⁱⁿ^divⁱ^dua^ls^w^ho^pr^e^v^ious^ly^ha^{d 1}²^m^onths^of
^coⁿ^tⁱⁿ^uo^u^s^credⁱ^t^a^b^l^{e co}^verage;^fo^{r t}^h^{e HCT}^C^,^t^h^e^tⁱ^m^{e p}^e^ri^o^dⁱ^s^r^e^d^u^ced^t^o^t^h^{ree m}^oⁿ^t^h^s^.
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^http:^//w^w^w^.nam^i.or^g^{/; a}^nd^Fa^m^ili^e^s^U^S^A^s^t^ud^y^{on c}^o^ns^um^e^r^pr^ote^c^tions^{in s}^t^a^t^e^m^a^na^g^e^{d c}^a^r^e^law^s^at
^http:^//www^.fa^m^ilie^su^sa^.org^/^a^sse^ts^/pdf^s/hitm^iss64e^2.p^d^f^.
³⁴^Se^e^,^f^o^{r e}^x^a^m^ple^,^the^Sta^t^e^m^eⁿ^{t of}^{K. Polli}^tz^{in U.}^{S. C}^ong^re^{ss, House}^Com^m^itte^e^{on W}^a^y^s^a^{nd Me}^aⁿ^s,^H^e^arⁱⁿ^{g o}ⁿ
^Pr^om^oti^{ng U}^.^{S. W}^o^r^k^e^r^C^o^m^p^e^tit^iv^eⁿ^e^s^s^{in a G}^l^ob^aliz^e^d^Ec^on^om^y^{, 1}¹⁰^th^Cong^.,¹^st^s^e^s^s^{., J}^une¹⁴^{, 2}⁰^{07, a}^t
^http:^//w^ay^sa^ndm^ea^ns^.hous^e^.^g^o^v^.
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^doc^um^eⁿ^ts^_1-^05/^H^C^T^C^_T^ak^e^U^p.^pdf^.
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^Urb^aⁿ^In^sti^t^u^t^{e, Decem}^b^e^{r 2}⁰⁰⁶^,^{at h}^ttp^://w^ww^.u^rb^an^.o^rg^/Up^l^o^a^d^e^d^P^DF/⁴¹¹³⁹⁰^_^T^a^k^e^-^U^p_of^_H^e^a^lth.p^df^.

Even if qualified insurance is available, and a person has access to the tax credit, 35% of the
premium is not covered. This contribution level may be unaffordable, especially considering most
HCTC eligibles are no longer working. In the DOL survey mentioned above, 80% of state
officials surveyed mentioned affordability as the primary factor for low use of the tax credit.
Other costs may also be important. Some people might not apply for coverage since applicants
must pay 100% of the premium pending completion of the enrollment process (unless that person
receives subsidies through the gap filler grant program). Some might calculate that the
copayments, deductibles, and other cost-sharing requirements would require sizable out of pocket
expenditures.
Additional reasons why the HCTC participation is low may include the following:
• delays in identifying dislocated workers receiving unemployment benefits who
have not yet applied for TAA benefits;
• delays in certifying that dislocated workers are eligible for TAA assistance;
• loss of eligibility by younger spouse of affected worker when that worker
becomes eligible for Medicare;
• decisions by some people that health insurance is relatively unimportant, even if
affordable.
Tax credits often are seen as a way to improve tax equity since the savings they yield are not
based on taxpayers’ marginal tax rates. In contrast, tax savings from a deduction or the widely-
used exclusion for employer-provided insurance vary with marginal rates; so taxpayers in higher-
income brackets receive greater tax savings than those in lower-income brackets. In addition, the
health coverage tax credits are refundable, so low-income taxpayers can receive the full value of
the credit even if they have little or no tax liability.
The 65% HCTC rate is available to all eligible taxpayers with qualified insurance, regardless of
income. From the standpoint of inclusiveness, this seems equitable. Considering ability to pay,
however, the one rate is inequitable. The 65% rate provides the same dollar subsidy to taxpayers
with high incomes and taxpayers with low incomes, even though the former can more readily pay
for their insurance. For example, in the case of a $3,000 self-only policy, the HCTC would
provide $1,950 in tax savings to taxpayers with incomes of $80,000, as well as those with
incomes of $20,000. Proposals for a more generally-available tax credit reflect these different
perspectives; some would have one rate for all taxpayers while others would phase out the rate for
higher income taxpayers.
Another equity issue relates to who is eligible for the tax credit. Unemployed workers who do not
receive TAA allowances may question why they are denied the credit, particularly if they too
have lost their jobs because of competition from foreign firms. Similarly, early retirees whose

pensions are not paid in part by the PBGC may question not being eligible for the credit, as may
those who receive no pension at all.
Some observers of the HCTC have voiced concerns regarding the efficiency with which the
program is run. Given the complexity involved in enrollment in the program and administration
of the tax credits themselves, it is not surprising that operational costs would constitute a
significant portion of overall program costs, especially during the start-up phase. However,
administrative costs remain high even after a few years of operation. One study estimated that of
the federal funding going towards advance payments in 2007, a full third will be spent on ³⁷
administration. This leaves only 66 cents for every federal dollar spent on the advance payment
component for purchasing health coverage.

A number of bills have been introduced that would make substantive modifications to the HCTC
program. Most of those bills have proposed HCTC changes within the broader context of
reauthorizing the TAA program. Congress currently is in the midst of discussions regarding
reauthorization. On October 31, 2007, the House passed H.R. 3920, which would reauthorize and
expand the TAA program (a more detailed description of this bill is included below). It has been
referred to the Senate Finance Committee.
Meanwhile, Congress passed legislation to temporarily extend TAA. H.R. 3375/P.L. 110-89
extended the TAA program through December 31, 2007. H.R. 2764/ P.L. 110-161 includes
provisions to fund the TAA program through September 30, 2008. According to the Department
of Labor, the department considers the appropriation amount sufficient to continue fully operating
the TAA program, including issuing new certifications for eligibility, through the end of the ³⁸
current fiscal year.
H.R. 910, the American Competitiveness and Adjustment Act, would amend the Trade Act of

1974 to increase the federal subsidy rate under the health coverage tax credit program from 65%

to 75% of the premium. The bill would also establish presumptive eligibility, up to 90 days, for
individuals who have filed petitions to receive trade adjustment assistance but have not yet
received final determination of their eligibility for such assistance. It also would clarify that the
three (or more) months of creditable coverage necessary to be considered qualified must be prior
to the separation from employment. H.R. 910 was introduced on February 8, 2007, by
Representative English, and referred to the House Ways and Means Committee, Income Security
and Family Support Subcommittee, on February 20, 2007.

³⁷^{S. Dor}ⁿ^{, “}^A^dm^inistra^tiv^e^{Costs for}^A^d^v^a^nc^e^P^a^y^m^eⁿ^{t of}^He^a^{lth Cov}^e^ra^g^e^T^a^x^Cre^d^{its: A}ⁿ^Initia^{l A}ⁿ^a^l^y^s^is,”^T^h^e
^U^r^ba^{n Ins}^tⁱ^t^ute^,^Ma^rc^{h 2}⁰⁰⁷^{, a}^t^ht^tp://w^w^w^.cm^w^f.org^/^us^r_doc^/
¹⁰¹^7_D^orⁿ^_^a^d^mⁱ^n_c^os^ts^_a^dv^aⁿ^c^e^_pa^y^m^eⁿ^t_H^C^T^C^.pdf^.
³⁸^S^{ee DOL}^l^e^t^t^e^{r t}^o^S^eⁿ^a^t^e^Fⁱⁿ^aⁿ^c^{e Co}^mmⁱ^t^t^{ee Ch}^ai^r^m^an^Bau^c^u^s^an^d^Ran^kⁱⁿ^{g M}^e^m^b^er^G^r^assl^e^y^at
^http:^//w^w^w^.s^eⁿ^a^t^e^.^g^o^v^/^~f^inaⁿ^c^e^/^pr^e^s^s^/^B^p^r^e^s^s^/²⁰⁰⁷^pr^e^s^s^/^pr^b1²¹⁹⁰⁷^e^.^pdf^.

H.R. 1729, the Trade Adjustment Assistance Reform Act, would amend the Trade Act of 1974
to increase the federal subsidy rate under the health coverage tax credit program to 80% of the
premium. It would also delegate authority to the Secretaries of Treasury and Labor to simplify the
enrollment process for receiving trade readjustment allowances, and the process for claiming and
receiving the tax credit, including through the advance payment system. H.R. 1729 was
introduced on March 28, 2007, by Representative Hayes, and referred to the House Ways and
Means Committee on the same date.
H.R. 2764, Consolidated Appropriations Act, 2008 (P.L. 110-161), appropriated $888.7 million
for the TAA for workers program for FY2008. The Act prohibits any of the funds made available
from being used to finalize or implement any proposed regulation until TAA is reauthorized.
President Bust signed H.R. 2764 into law on December 26, 2007.
H.R. 3589, a bill to amend the Trade Act of 1974, would extend trade adjustment assistance to
certain service workers This bill would amend the Trade Act of 1974 to extend eligibility for TAA
(and, therefore, HCTC) assistance to service workers who work in the information technology
sector or provide “other high technology services.” H.R. 3589 was introduced on September 19,
2007, by Representative King, and referred to the House Ways and Means Committee on the
same date.
H.R. 3920, the Trade and Globalization Assistance Act of 2007, would amend the Trade Act of
1974 to (among other provisions) extend eligibility for TAA (and, therefore, HCTC) assistance to
service workers and workers in public agencies, and broaden the basis on which the Labor
Secretary may determine that workers in a firm, agency, or an entire occupational category are
eligible for trade adjustment assistance. The bill also extends the time period that COBRA
continuation coverage is available to a TAA-eligible worker to last at least as long as the time
period that the worker is eligible for TAA. With respect to HCTC-specific provisions, the bill
would increase the federal subsidy rate under the health coverage tax credit program from 65% to
85% of the premium, and make retroactive HCTC payments to eligible persons for the one or
more months needed by the IRS to certify eligibility and make the first HCTC payment under the
advance payment system. It also would allow qualified family members to continue to receive the
HCTC even in the event that the qualified worker becomes eligible for Medicare, the worker and
spouse are divorced, or the worker dies. H.R. 3920 was introduced on October 22, 2007, by
Representative Rangel. It passed the House on October 31, 2007, on a vote of 264-157, and was
referred to the Senate Finance Committee on November 5, 2007.
H.R. 3943, the Trade Adjustment Assistance and Training Improvements Act of 2007, would
amend the Trade Act of 1974 to reauthorize the TAA for workers program. It is similar to H.R.
3920 in approach. The bill includes provisions to expand TAA eligibility to workers that create
intangible products such as computer programs, and allow participants to simultaneously work
and receive job training. H.R. 3943 was introduced on October 23, 2007, by Representative
Herger, and referred to the House Ways and Means Committee on the same date.
S. 1652, Trade Adjustment Assistance Reform Act, is identical to H.R. 1729. S. 1652 was
introduced on June 19, 2007, by Senator Dole, and referred to the Finance Committee on the
same date.

S. 1739, the TAA Health Coverage Improvement Act of 2007, would amend the Internal
Revenue Code of 1986 to (among other provisions) increase the federal subsidy rate under the
health coverage tax credit program from 65% to 95% of the premium, and provide a 100%
subsidy to eligible individuals in the months prior to issuance of certificates stating their
eligibility for the tax credit. It also would establish presumptive eligibility, up to 90 days, for
individuals who have filed petitions to receive trade adjustment assistance but have not yet
received final determination of their eligibility for such assistance. The bill would allow qualified
family members to continue to receive the HCTC even in the event that the qualified worker
becomes eligible for Medicare, the worker and spouse are divorced, or the worker dies. In
addition, it would clarify that the three (or more) months of creditable coverage necessary to be
considered qualified must be prior to the separation from employment, and the calculation of a
lapse in coverage of 63 days (in relation to consumer protections for “qualifying” individuals)
begins following TAA certification. Moreover, the bill would allow funds through the National
Emergency Grants program to be used to provide health insurance coverage to PBGC pension
recipients and their families for three months preceding the first month they must have qualified
health insurance in order to be eligible to claim the tax credit. S. 1739 was introduced on June 28,

2007, by Senator Rockefeller, and referred to the Finance Committee on the same date.

S. 1848, the Trade and Globalization Adjustment Assistance Act of 2007, is similar to H.R.
3920, with respect to provisions affecting the HCTC program. All the provisions described above
under H.R. 3920 also apply to S. 1848. In addition, the Senate bill allows funds through the
National Emergency Grants program to be used to provide health insurance coverage to workers
and their families for three months preceding the first month they must have qualified health
insurance in order to be eligible to claim the tax credit. S. 1848 was introduced on July 23, 2007,
by Senator Baucus, and referred to the Finance Committee on the same date.

Table A-1. Infrastructure Grants from FY2002 Appropriation of $10 Million (as of
March 2007)
^State^Amou^{nt awar}^ded
^Alabama^$55,2⁰⁶
^Alaska^$13^5,00⁰
^Arizona^$74,7¹⁷
^Arkansas^$20^0,00⁰
^California^$50,0⁰⁰
^Colorad^o^$18^4,61⁵
^Connecticut^$18^9,70⁰
^Delaware^$50,5⁰⁰
^Florida^$28^8,02⁰
^Georgia^$1,00^0,00⁰
^Hawaii^$23,4⁰⁰
^Idaho^$15^0,00⁰
^Illinois^$12^7,26⁶
^Iowa^$20^0,00⁰
^Kansas^$15^0,00⁰
^Kentucky^$50,0⁰⁰
^Louisiana^$50,0⁰⁰
^Maine^$13^6,85³
^Maryland^$65^7,86⁷
^Massach^usetts^$15^0,00⁰
^Michigan^$12^8,38⁴
^Minnesota^$81,5⁵¹
^Missouri^$98,4⁵⁶
^Montana^$36,5⁷²
^Nebras^ka^$97,1⁵⁶
^Nevada^$92,7³⁸
^{New Ham}^pshire^$15^0,00⁰
^{New Jers}^ey^$20^0,00⁰
^{New Me}^xico^$78,4⁹⁹
^{New York}^$21^4,42⁵
^{North Carolina}^$14^1,97¹

^{State Amou}^nt^awar^ded
^Ohio^$22^2,10⁵
^Oregon^$14^4,36⁹
^Pennsylvania^$39^4,90⁸
^{Rhode Island}^$15^2,00⁰
^{South Carolina}^$20^0,00⁰
^{South Dakota}^$57,7⁶⁰
^Tennessee^$24^4,77⁹
^Texas^$20^0,00⁰
^Utah^$42^8,94⁶
^Vermont^$50,0⁰⁰
^Virginia^$12,7⁰²
^Washington^$74,2¹⁹
^{West Virginia}^$11^7,05³
^Wisconsin^$25^6,24⁵
^{Total awar}^{ds to states}^$7,99^7,9³⁵
^Amou^{nt of}^{unspent allocatio}ⁿ^$2,00^2,0⁶⁵
^Source:^{Provided to CRS by the Departme}^{nt of Labor}^{in Mar}^ch²^007.
Table A-2. Bridge Grants from FY2002 Appropriation of $50 Million (as of
September 30, 2004)
^State^Amou^{nt awar}^ded
^Florida^$8,54^2,97⁸
^Illinois^$2,80^2,96⁶
^Maine^$7,50^0,00⁰
^Maryland^$5,63^2,00⁰
^Minnesota^$2,96^5,26⁴
^Montana^$11^4,54⁸
^{New Jers}^ey^$1,93^0,00⁰
^{North Carolina}^$7,61^4,68⁴
^Ohio^$1,56^9,49³
^Utah^$3,78^6,89²
^Virginia^$3,17^6,80⁰
^Washington^$1,51^2,00⁰
^{West Virginia}^$2,85^2,37⁴
^{Total awar}^{ds to states}^$49,9^99,⁹⁹⁹
^Amou^{nt unspent of}^allocatioⁿ^$1
^Source:^{Provided to CRS by the Departme}^{nt of Labor}^{in Jan}^uary²⁰⁰^5.

Table A-3. Gap Filler Grants from FY2003 Appropriation of $29.8 Million (as of
March 2007)
^State^Amou^{nt awar}^ded
^Kentucky^$2,31^7,86⁵
^{North Carolina}^$1,50^0,00⁰
^{Total awar}^{ds to states}^$3,81^7,8⁶⁵
^Amou^{nt rescinded by C}^ong^r^ess^$20,0^00,⁰⁰⁰
^Amou^{nt unspent of}^allocatioⁿ^$5,98^7,1³⁵
^Source:^{Provided to CRS by th}^{e Departme}^{nt of La}^{bor in Ma}^rch²⁰⁰^7.
^B^e^rn^{adette Fern}^an^dez
^Aⁿ^a^l^ystⁱⁿ^H^e^a^l^t^h^Ca^r^e^Fi^na^ncⁱ^ng
^bf^ern^aⁿ^d^ez^@^c^rs^.l^oc.g^o^v^{, 7-}⁰³²²