Bush Seeks Billions in Health Insurance Subsidies

Published November 1, 2001

President George W. Bush called on Congress to approve $3 billion in “emergency grants” to states to assist workers who were laid off following the September 11 attacks on the World Trade Center and the Pentagon. Bush also wants to allow states to use $11 billion in unused federal funds available through the Children’s Health Insurance Program to help those affected by the attacks.

States could use the federal grants plan—which coincides with a larger economic stimulus plan under consideration by Congress—to pay up to 75 percent of displaced workers’ COBRA health insurance premiums for up to 12 months. Under COBRA, employees who are laid off or leave their jobs can retain their insurance coverage but must pay 102 percent of the premium—a price often prohibitive for those without a steady income.

The states would also be permitted to use the grants for unemployment payments or job training. The Labor Department announced in October new claims for state unemployment insurance jumped to 528,000—”the highest level in more than nine years,” according to the New York Times.

S-CHIP Fund Flexibility

Bush told members of the press, “[HHS Secretary] Tommy Thompson said there’s $11 billion available to help states to provide health insurance for low-income workers and their families in the S-CHIP program. It’s an important opportunity for states to expand coverage to people whose lives have been severely affected by this September 11 attack.”

The Department of Health and Human Services’ (HHS) Report on the Health Insurance Flexibility and Accountability Initiative concluded that by 2006, 34 states are projected to spend less than three-fourths of their available funds. Fifteen states are expected to spend 100 percent of available funds, and nine states are expected to spend less than 15 percent of available funds.

The 10-page report adds the HIFA Initiative, first announced in July 2001, is “a promising new tool for states to use” to help reduce the number of uninsured by streamlining the approval process for Medicaid and CHIP waivers.

But Ron Pollack, executive director of Families USA, criticized Bush’s flexibility proposal. Using CHIP money to provide assistance to recently uninsured adults would “take funds designed to provide coverage to low-income, uninsured children,” he warned.

No Unity Here

While Republicans and Democrats alike say they favor a multi-billion-dollar economic stimulus package, the Washington Post reports Democrats “swiftly rejected” the makeup of Bush’s overall plan, saying it would “not provide enough money for individuals hurt by the economic slowdown.”

Democrats “are pushing” a $16 billion package strictly for health care subsidies. In addition, Senators Edward Kennedy (D-Massachusetts) and Max Baucus (D-Montana) have proposed the federal government subsidize 50 percent of COBRA premiums for all affected workers and their families for up to 12 months.

They also want a new state option to cover, through Medicaid, workers in small businesses and others who are not eligible for COBRA. Families USA’s Pollack, echoing the Kennedy-Baucus plan, said Bush should provide “new federal funding” by subsidizing COBRA premiums and covering those ineligible for COBRA through Medicaid.

Conservative policy experts were quick to warn that increasing federal subsidies for insurance premiums could lead to health industry-wide price inflation. In addition, increased participation in the Medicaid program could overwhelm a system barely able to serve the existing needy population.

A Better Idea

A new measure offered by Rep. Bill Thomas (R-California), chairman of the House Ways and Means Committee, would help people buy health insurance, not subsidize it. The bill would allow laid-off workers to make penalty-free withdrawals from 401(k) and other savings plans to pay for health insurance premiums.

Under the measure, the normal 10 percent tax penalty on pre-retirement distributions would be waived for laid-off employees receiving unemployment compensation payments after September 10, 2001, and before January 1, 2003.

To be eligible, an employee would have to receive unemployment benefits for at least four weeks. The package also would give the states $3 billion to help laid-off employees pay for health insurance premiums, such as COBRA continuation coverage or coverage purchased in the individual insurance market.

The measure, H.R. 3090, also would extend by one year, to December 31, 2003, a federal law that allows small employers to offer tax-favored medical savings accounts—linked to high-deductible insurance plans—to their workers.