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Richard W. Porter Subject Files
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Originally Processed With FOIA(s):
FOIA Number:
2021-0094-F
2021-0094-F
FOIA
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This is not a textual record. This is used as an
administrative marker by the George Bush Presidential
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George H.W. Bush Presidential Records
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Cabinet Affairs, White House Office of
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Porter, Richard, Files
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Mandated Employer Provided Health Insurance [binder] [1]
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CRS
Congressional Research Service The Library of Congress Washington, D.C. 20540
Health Insurance
IP 72H
Health insurance provides compensation for medical expenses incurred
from illness or accident. Hospital confinement, surgery, medical care, and
diagnostic examinations have been included in various health insurance plans.
Most Americans have some health insurance.
While the quality, accessibility, and availability of health care and health
insurance coverage have significantly improved over the years, a number of
problems and issues remain--escalating medical care costs, groups with no
protection against the basic costs of medical care, and limited access to health
resources and services.
This Info Pack includes information on various health insurance
programs, national health insurance, catastrophic health insurance, and
provisions of Title X of the Consolidated Omnibus Budget Reconciliation Act
(COBRA).
Members of Congress who want further information on this topic may
contact CRS at 707-5700. Additional CRS Reports may be identified by
looking in the current Guide to CRS Products (for congressional use only)
under "Health Insurance" and in the latest Update under "Health."
Additional information, primarily in periodicals and newspapers, may be
found at a local library through the use of such indexes as the Readers' Guide
to Periodical Literature, Public Affairs Information Service Bulletin (PAIS), and
various newspaper indexes.
We hope this information will be helpful.
Congressional Reference
Division
Order Code IB87168
CRS Issue Brief
Mandated Employer Provided Health Insurance
Updated June 1, 1990
by
Beth C. Fuchs
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Uninsured Population
Working Uninsured
Move Toward Mandated Health Benefits
Issues Related to Mandating Employer-Provided Health Insurance
Question of Employer Responsibility
Mandated Employer-Provided Insurance and Competitiveness
Small Employers and Mandated Employer-Provided Health Insurance
Underinsurance and Catastrophic Coverage
History of Federal Employer Mandates
Title X of COBRA
Medicare Working Aged and Working Disabled Secondary Payer
Requirements
Bowen Catastrophic Proposal
Types of Mandated Coverage Proposals
Defining the Application, Nature and Scope of Mandated Health
Benefits
Defining Population to be Covered and Duration of Coverage
Defining the Liability of Employers and Employees
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
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Mandated Employer Provided Health Insurance
SUMMARY
Between 31 and 37 million Americans under the age of 65 lack health insurance.
Recent estimates have drawn special attention to the working uninsured: over 80%
of the uninsured are employed or live in families of workers.
The increased number of uninsured has occurred when changes in
reimbursement policy by private insurers and the Federal Government have made
it harder for hospitals to shift the costs of treating the uninsured to privately insured
patients. Consequently, access to health care for persons lacking insurance is a
growing concern. These developments have led to new congressional interest in the
problems of the medically uninsured. Faced with substantial Federal budget deficits
and diminished interest in Government-financed solutions, Congress has begun to
look to employers as a potential source of expanding access to health insurance
coverage.
Under one approach gaining some support in Congress, the Federal Government
would mandate that employers provide health insurance coverage and/or specific
health benefits to their employees and to their employees' families. There is,
however, substantial controversy over this approach. Proponents argue that
providing health insurance is an employer's responsibility. They say that the costs
of providing care to uninsured workers are being shifted by health care providers to
those employers who provide and pay for health insurance. Opponents of mandated
employer-provided insurance argue that it is not an employer's responsibility to
provide health insurance. They say that many employers, especially smaller ones,
cannot afford to offer insurance. Opponents also argue that the added costs of health
insurance would reduce employers' ability to compete, harming the overall national
economy.
As a result of past actions by Congress, employers who offer health insurance
have to conform to specific requirements affecting the nature of their health
insurance plans and the entitlement to those plans. Most larger employers have to
offer their employees the option of becoming members of federally qualified Health
Maintenance Organizations. Also, employers are prohibited from discriminating in
employee benefit plans on the basis of disabilities arising on account of pregnancy.
Certain employers have to offer Medicare-eligible workers and their spouses the
option to elect the employer's health plan as their primary source of insurance.
Finally, certain employers required to make available continued health insurance
coverage to qualified employees and their families who would otherwise lose coverage
as a result of specific events.
In the 101st Congress, bills have been introduced to expand access to health
insurance by mandating that employers provide basic health insurance. One such
bill, the "Basic Benefits for All Americans Act of 1989" (S. 768) has been voted out
of Committee and is awaiting action by the Senate. Other proposals, placing new
requirements on employers, may also be considered.
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ISSUE DEFINITION
Most Americans have health insurance coverage through private group plans
offered by their employer or through the two major Federal Government financed
programs, Medicare and Medicaid. A much smaller number of Americans purchase
individual policies through the private health insurance market. However, between
31 and 37 million Americans have no health insurance coverage. Moreover, the
percentage of uninsured Americans has been climbing, increasing by some estimates
by as much as 20% for the under age 65 population between 1979 and 1986. Recent
U.S. Census Bureau estimates have drawn special attention to the working
uninsured: over 80% of the uninsured are employed or live in families of workers.
For these Americans, employment or connection to employment through a working
family member has failed to result in coverage under a health insurance plan.
The increased uninsured population has occurred when changes in the
reimbursement policies of private insurers and the Federal Government have made
it more difficult for hospitals to shift the costs of treating the uninsured to privately
insured patients. Consequently, there is growing congressional concern about
decreased access to health care for persons lacking insurance. In search of a solution
that will not result in major Federal spending, Congress has turned to employers as
a potential source of expanding access to health insurance coverage. In past years,
Congress has mandated that employers who offer health insurance to their workers
must meet specific requirements affecting the nature of their health insurance plans
and the entitlement to those plans. In the 101st Congress, legislation is being
considered to mandate that employers provide basic health insurance to their
employees and to require that employers provide specific health benefits in their
insurance plans. The Pepper Commission has also recommended a "job-based"
approach to increasing access to health insurance that includes a mandate on larger
employers to provide health insurance or contribute a portion of payroll toward the
cost of covering employees and dependents in a public insurance plan. (The Pepper
Commission proposal is described in more detail in CRS Issue Brief 90005, Health
Insurance, Janet Kline, Coordinator.) These proposals are stimulating substantial
congressional debate.
BACKGROUND AND ANALYSIS
Uninsured Population
In 1987, between 31 and 37 million Americans did not have any health
insurance. [Variations in estimates of the uninsured are explained by the different
questions and methods of sampling used in the surveys.] Estimates from the March
1988 Current Population Survey (CPS) of the U.S. Census Bureau place the number
at 31.3 million; estimates from the National Medical Expenditure Survey of the
National Center for Health Research place the number at 37 million. In the late
1970s, between 13% and 14.5% of the under-65 population were uninsured. This
number increased to 17.7% in 1984 and fell back to 17.5% in 1986. Estimates vary,
and some studies report that the number of medically uninsured peaked during the
economic recession of the early 1980s, and is now on a downward trend.
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The effects on an individual of not having health insurance are not well
documented. What is known is that the uninsured are less likely to use health
services and are more likely to be in poorer health than the insured population. The
1986 National Access Survey (done for the Robert Wood Johnson Foundation) reports,
for example, that the uninsured had approximately 40% fewer ambulatory visits and
19% fewer hospitalizations than the insured. Of those individuals surveyed who had
chronic illnesses, 20% of the uninsured failed to see a physician or other provider
over the course of a year, compared to 17% of the insured.
While data on the health consequences of lacking insurance are scarce, several
studies do provide information on who make up the uninsured population. They
indicate that low-income households are more likely to lack health insurance than
those with middle or high incomes. They also indicate that the vast majority of
uninsured are employed or live in families where the head of the household is
employed. Most recent studies using Census Bureau data report that at least 80%
of the uninsured live in families where someone is employed.
Working Uninsured
Largely as a result of labor union pressures for better employee benefits, and
Federal tax incentives that allow employers to deduct the costs of providing health
benefits to their employees, employer-related health insurance became increasingly
commonplace after World War II. Today, after paid vacations, it is the most common
fringe benefit offered by employers. For the nine out of ten Americans with private
group insurance, that insurance is provided in the employment setting. As a result
(and in contrast to other western nations where health and pension benefits are
provided through public programs), workers in the United States have grown to rely
on employer-provided benefits for these basic protections. However, as the following
statistics reveal, not all employers offer health benefits and, when offered, not all
employees accept them.
Some analysts argue that the decline in coverage is due to the shifting of our
economy from jobs that carry health insurance to ones that do not. It is true that
while civilian, nonagricultural jobs increased by about 7% between 1982 and 1985,
the number of jobs with health insurance provided by an employer increased by less
than 5%. However, more important may be changing demographics. For example,
there appears to be an increase in the number of young adults without health
insurance living in households in which the parents have insurance. In addition,
dependent coverage has declined.
EBRI's May 1988 analysis of CPS data on the working uninsured reveal that
in 1986, 18.1 million workers reported no coverage from an employer plan. Of that
number, 10.9 million were the head of a family (meaning the family member with the
greatest earnings or an individual without a family). Another 7.2 million were other
family workers and not the head of the household. The majority of uncovered
workers were low wage earners. In 1986, 74% of all uninsured workers earned less
than $10,000; 93% earned less than $20,000. About 35% of all uninsured workers
earned, on average, less than the Federal minimum wage in 1986; 50% of all
uninsured workers earned less than 125% of the minimum wage. Most of these
individuals worked full-time.
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It is also useful to look at the working uninsured according to their primary
source of employment. According to EBRI, workers in certain employment sectors
are much more likely to lack health insurance coverage than the average American
worker under age 65. These include workers in agriculture; retail trade; services
(business, repair, entertainment and personal); and construction. Also included in
this category are the self-employed. Workers in other employment sectors (including
manufacturing, finance, transportation, and wholesale trade) lack insurance coverage
only one-third to one-half as often as workers in the above employment sectors.
Move Toward Mandated Health Benefits
Since the early years of this century, national health insurance has been a hotly
debated issue in the United States. While in the late 1960s and 1970s, the debate
revolved around whether to enact a program of universal national health coverage,
in the 1980s the emphasis has been on incremental expansions of health insurance
coverage. Proposals have focused on expanding coverage for specific segments of the
population (such as laid-off workers, low-income elderly, and children) and for people
who, because of a major pre-existing health condition, are unable to obtain health
insurance through the private market. Faced with substantial Federal budget deficits
and an apparent diminished interest in Government-financed solutions, Congress has
begun to look to employers as a potential source of expanding access to health
insurance coverage.
One approach gaining some support in Congress falls under the general heading
of employer mandates. Under this approach, the Federal Government would mandate
that employers (private employers as well as State and local governments) provide
insurance coverage and/or specific health benefits to their employees and, in some
cases, also to their employees' families. This approach is consistent with the current
reality that in the United States, health insurance for all but the old, disabled, and
very poor, is primarily obtained through an employer's group plan.
In the 99th Congress, legislation was enacted that required certain employers
to offer continued health insurance coverage to their employees who would otherwise
lose coverage for certain reasons. Also, certain employers were required to offer their
Medicare-eligible disabled workers primary coverage under the employers' health
insurance plans. In the 100th Congress, legislation was considered to mandate that
employers provide basic and/or catastrophic health insurance coverage. These
proposals are being considered again in the 101st Congress.
Issues Related to Mandating
Employer-Provided Health Insurance
The debate over mandating that employers provide health insurance raises
philosophical issues such as the nature of an employer's obligation to his or her
employees, and whether it is appropriate for the Federal government to require that
employers offer insurance. In addition, it raises questions about the potential
economic effects of mandates on employers as well as on the health of the national
economy.
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Question of Employer Responsibility
Proponents of mandatory employer-provided health insurance argue that
employers have a basic obligation to ensure that their employees have access to
health insurance just as they have an obligation to provide a liveable wage. They
assert that a minimum health benefits law should be established in the same manner
as the Federal Government has established a minimum wage law. They say that it
will ultimately lower the Nation's health bill because more people will have access
to health care. In addition, they argue that requiring employers to provide coverage
is in keeping with the Nation's heavy reliance on employment-related insurance.
They further assert that relying on private rather than government-provided
insurance builds upon our Nation's tradition of leaving health insurance to the
competitive market place.
Proponents also argue that this approach will increase equity across employers
and taxpayers. Currently, health insurance premiums are priced to include not only
the direct cost of providing health care services to the employer's workers, but also
other costs borne by the providers of health care for uninsured or underinsured
individuals, a substantial portion of which are uninsured workers. Employers who
are paying for health care coverage for their employees are thus subsidizing those
employers who are not paying for coverage.
Finally, proponents argue that employers who provide health benefits are also
subsidizing other employers by insuring many of the latter's workers through family
coverage. According to a CRS analysis (based on March 1987 CPS data), 23.6
million working Americans receive coverage through employers for whom they are not
directly working. Moreover, individuals who are not offered insurance by their
employers are paying some of the $37 billion in taxes that are used to subsidize
(through tax expenditures) health insurance for other, generally higher-paid workers.
The opponents of mandatory employer-provided health insurance counter by
arguing that employers have no inherent obligation to provide health benefits. They
assert that the individual has a responsibility to purchase insurance in the private
market. For those individuals who cannot afford to pay for health insurance, then
the public sector should provide a minimum level of health care. Moreover,
opponents argue that an employer's decision to provide insurance or to provide a
specific set of health benefits should not be dictated by the Government. Rather, it
is labor-management negotiations or free-market competition among insurers vying
for employers' business that should determine whether employers provide insurance
and if so what health services should be covered under the policy. Such reliance on
the marketplace will also ensure greater efficiencies in the supply and demand of
health coverage and services, thus helping to hold down costs.
There are also those who reject mandates because they would, in their view,
undermine the voluntary nature of employer-provided health insurance. They argue
that the majority of employers already provide coverage; it is a benefit that these
employers have privately chosen to provide in a form that is most appropriate to
their own employees. Some employers who already insure their employees argue
that a Federal law mandating that employers provide insurance (particularly if that
law were to require a basic minimum level of benefits) would result in higher
employee benefit costs and new administrative burdens.
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Critics of mandated employer-provided coverage also argue that such a policy
might increase the costs of labor to the point where companies, especially smaller
ones, would reduce their labor force or reduce wages. Health insurance is a relatively
expensive benefit. The Small Business Administration (SBA) reports average
employer health care costs totalled $1,500 (roughly 75 cents per hour) per worker in
1986. For the 35% of uninsured workers who are paid less than the minimum wage
($3.35 in 1987), the added hourly cost of a health insurance benefit could be
prohibitive, even if the employee were required to pay a share of the premium.
Although a mandated insurance package might be less comprehensive and therefore
less expensive than the average policy cited by the SBA, it could still produce
reductions in the employment of low wage workers as employers attempt to adjust
to higher labor costs.
Mandated Employer-Provided Insurance and Competitiveness
In addition to the debate about employer responsibility, there is a different set
of issues relating to the potential effects of mandating benefits on employers' ability
to compete in domestic and world markets. Much of the analyses of these effects is
speculative; however, the basic arguments tend to be articulated as follows.
Opponents of mandated employer-provided health coverage say that mandated
insurance would drive up the cost of doing business and reduce the ability of firms
to compete, both in the domestic and world markets. Industries that compete against
foreign manufacturers (especially those from certain Third World nations) are
competing against employers who do not as a rule provide health and other fringe
benefits. This helps foreign manufacturers to hold their prices down. Small
employers, especially, believe that mandating health insurance coverage might cause
them to lose whatever competitive edge they may have since they would have to
offset the cost of the new benefits by raising their prices. While many smaller firms
do not directly engage in international trade, some proportion of them are suppliers
to large companies that do compete internationally. Higher costs for a supplier affect
the costs of the purchasing firms: if health insurance coverage were required, small
employers might pass the cost of the coverage onto their clients. This reasoning is
also extended to domestic competition.
Proponents of mandated benefits dismiss the competitiveness argument as invalid
or not compelling. In their eyes, it is not a real issue because the companies that are
struggling to maintain their competitive edge (such as the auto manufacturers) are
the very companies that already provide health insurance. The majority of the
working uninsured are not found in the transportation and manufacturing industries
but in the service and retail trade industries, which are comparatively unaffected by
foreign competition. It is these latter industries that have experienced the most
growth since 1979: the services industry is projected by the Bureau of Labor
Statistics to increase from about 21% of total U.S. jobs in 1979 to over 26% in 1995;
the retail trade industry is projected to increase from 22% to 23% over the same
period. Manufacturing and transportation, which have traditionally covered most of
their workers, are predicted to decline. These statistics noted, mandated benefits
proponents conclude that there are more critical variables, such as exchange rates,
undermining American competitiveness than the cost to American firms of their
employee benefit packages.
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Small Employers and Mandated Employer-Provided Health Insurance
It is often assumed that smaller employers are less likely to offer health benefits
because of the high costs of premiums, administrative burdens and the perception
that workers prefer cash wages to benefits. Estimates place the costs of insurance
for small employers at anywhere from 10% to 40% higher than for large employers.
The SBA reports that very small firms that do not offer health benefits spend about
7% of payroll on fringe benefits. Those which do offer coverage spend 10%.
According to the SBA, in 1986, 46% of firms with fewer than 10 workers offered
health benefits, compared to 78% with 10 to 24 workers, 92% of firms with 25 to
99, 98% of firms with 100 to 499, and 100% of firms with 500 or more workers. 84%
of all workers who worked for employers without health plans worked in firms with
less than 25 employees.
Based on surveys and other studies, the SBA has concluded that smaller
employers tend not to offer health insurance because they (1) face higher per worker
premiums since the risk for insurers is spread over fewer persons; (2) do not benefit
to the same extent as larger firms from the tax advantages associated with offering
health insurance; (3) experience higher fixed costs in choosing and administering a
health plan; (4) have relatively higher worker turnover rates and a greater use of
part-time and seasonal employees which increase their administrative fees relative to
the fees charged for larger firms; and (5) tend to have narrower profit margins from
which to pay relatively higher premiums.
Associations representing small employers use such findings to argue that forcing
small employers to offer health insurance will result in higher prices, lower wages,
more business failures and fewer jobs. They contend that small firms simply cannot
spend more of their receipts on employee benefits.
Another argument used against mandated coverage for small employers is that
low-wage workers prefer to receive cash benefits or are already covered indirectly
through a family member's insurance policy, and should not be forced to accept
reduced earnings. However, an SBA survey of employers found that 14% of eligible
workers in small firms (less that 10 employees) which offer coverage turn it down,
compared to the 13% average across all firms.
Many proponents of mandated coverage agree that small employers might be
adversely affected if they were required to offer (as well as pay some portion of)
health insurance. They suggest, however, that potential problems for small employers
could be reduced through mechanisms designed to lower both the costs and the
administrative burdens of offering health insurance. These mechanisms are generally
designed to pool large numbers of small employers in one large group, enabling them
to obtain health insurance at lower costs. For example, the Council of Smaller
Enterprises (COSE) in Cleveland, Ohio, arranges with a number of insurance
companies group health insurance for about 8300 firms, which in turn provide
insurance to more than 120,000 employees. COSE is able to negotiate less expensive
policies than would otherwise be available to these employers if they sought the
insurance on their own.
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Such pooling mechanisms have been employed with mixed success. Observers
say that they are not as effective for the smallest employers, which are still subject
to medical underwriting. They also tend not to attract those employers who have
never offered coverage. In addition, their effectiveness in holding down premium
rates is limited by the volatility of the small group insurance market. However these
problems largely could be eliminated if employers were required to participate in the
pool.
Underinsurance and Catastrophic Coverage
Some analysts advocate that an appropriate compromise between the two
extremes of doing nothing and mandating that all employers offer health insurance
is to require that all employers offer coverage under a catastrophic illness policy.
These policies provide coverage for only very large medical expenses after the
beneficiary has paid a large deductible; the premium cost of such coverage is,
however, generally lower than for more comprehensive policies. A catastrophic illness
policy would ensure protection of individuals against the devastating financial
burdens of a major illness but would be less costly for employers to offer. On the
other hand, such an approach would not address the need of the medically uninsured
for basic health services.
History of Federal Employer Mandates
The Federal Government has traditionally left the regulation of insurance to the
states. According to Blue Cross and Blue Shield Association, there are over 680
State-mandated benefit laws governing health insurance. They include specific
services (e.g., maternity coverage and newborn care), the services of specific providers
(e.g., dentists and chiropractors), as well as requirements that plans provide for
continuation and conversion options. The States vary in the numbers and types of
mandates. Some observers in the business and insurance communities contend that
these mandated benefit laws are largely responsible for the high costs of health
insurance. Advocates of State mandates say that they increase access to needed
health services and encourage greater freedom of choice of providers, which in turn
promotes competition and lowers health care costs.
While the business of insurance has been left largely to the States to regulate,
employee welfare benefit plans are governed by the Employee Retirement Income
Security Act (ERISA), a Federal law enacted in 1974. (Hawaii is an exception.
ERISA was amended to allow Hawaii to continue its law requiring employers to
provide health insurance coverage.) Included under employee welfare benefit plans
are self-insured health plans, where the employer assumes the risk for paying claims,
instead of paying premiums to an insurance company which in turn assumes the risk.
Thus, while traditionally insured companies are affected by State mandates,
self-insured companies are regulated by ERISA. ERISA regulates such aspects of
welfare benefit plans as plan disclosure, but until recently, employers under ERISA
were relatively free to structure plans as they desired or, if their employees were
represented by a union, through the collective bargaining process. As discussed
below, this changed with the enactment of Title X of the Consolidated Omnibus
Budget Reconciliation Act (COBRA, P.L. 99-272).
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In the 1970s, changes were made in Federal law to mandate that employers
offering health insurance meet specific requirements. For example, the Health
Maintenance Organization Act of 1973 (P.L. 93-222) requires that certain employers
with 25 or more employees offer a health maintenance organization (HMO) option
in their health plan if a qualified HMO exists in their area. In 1978, Congress
amended the Civil Rights Act to extend the prohibition against sex discrimination in
employment to include discrimination on the basis of pregnancy, child birth, or
related medical conditions (P.L. 95-555). As a result, larger employer health plans
must treat women affected by these conditions similarly to other employees, based on
their ability or inability to work.
Federal proposals mandating employers to provide coverage date back to the
Nixon Administration. More recently, the Carter Administration developed legislation
to require employers to provide basic health insurance as an employee benefit. The
Carter proposal would have also expanded Federal programs to include those who
remain uncovered under employer plans. It was criticized by representatives of small
business who argued that requiring them to provide insurance would add significantly
to their labor costs and threaten their viability. It also fell victim to the absence of
consensus among other health policy actors.
Federal mandates on employers who provide health coverage have continued into
the 1980s. In addition, new efforts have been made to broaden the scope of the
mandates to those employers who do not already offer health insurance.
Title X of COBRA
The passage of Title X of the Consolidated Omnibus Budget Reconciliation Act
(COBRA) in April 1986, marked a major departure in Federal law and regulation of
employers' welfare benefit plans. It was the first time that the Federal Government
mandated a specific benefit in employee welfare benefit plans. While COBRA does
not mandate that employers provide health insurance, it does require that employers
with 20 or more employees who do provide health benefits offer qualified employees
and their families the option of continued health insurance at group rates when faced
with loss of their coverage because of certain qualifying events. The qualifying
events include termination or reduction in hours of employment, death, divorce,
eligibility for Medicare, or the end of a child's dependency under a parent's health
insurance policy. When a covered employee experiences termination or reduction of
hours of employment, then the coverage of the employee and any qualified
beneficiaries must continue for 18 months. For all the other qualifying events, the
coverage for the qualified beneficiaries must be continued for 36 months. The
employer's health plan may require the employee or beneficiary to pay the premium
for the continuation coverage, but the premium may not exceed 102% of the
otherwise applicable premium for that period. (See also CRS Issue Brief 87182,
Private Health Insurance Continuation Coverage, by Beth C. Fuchs.)
In the Tax Reform Act of 1986 (P.L. 99-514), Congress included a number of
technical corrections to Title X of COBRA. In the Omnibus Budget Reconciliation
Act of 1986 (P.L. 99-509), Title X was expanded to require continuation coverage for
retirees in cases where the employer files for bankruptcy. The Technical and
Miscellaneous Revenue Act of 1988 (P.L. 100-647) made major changes in the
penalties, and the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) extended
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continuation of coverage from 18 to 29 months for certain disabled workers and their
families. (See CRS Issue Brief 87182.)
Medicare Working Aged and Working Disabled Secondary Payer
Requirements
A different type of employer mandate was legislated through changes in the
Medicare program and amendments to the Age Discrimination in Employment Act of
1967. Prior to 1982, employers generally used Medicare coverage as the basic health
insurance for their Medicare-eligible employees supplemented by an employer-provided
policy which filled in gaps in the Medicare coverage. This tended to ensure that
health care costs for their older workers were confined to supplemental as opposed
to basic health care coverage. In 1982, as part of the Tax Equity and Fiscal
Responsibility Act (TEFRA, P.L. 97-248), Congress adopted a proposal by the Reagan
Administration to require that private employers with 20 or more employees offer
their employees and their employees' spouses, age 65-69, their health insurance plan,
which would be the primary payer for all claims. This provision was adopted to
reduce Medicare expenditures by shifting the health care costs of older workers onto
employers. The "working aged" or "secondary payer" requirement was expanded
through subsequent laws. The Deficit Reduction Act of 1984 (DEFRA, P.L. 98-369)
expanded the spousal coverage to include all beneficiaries 65-69 with working spouses
under age 65. COBRA, (P.L. 99-272) made Medicare benefits secondary to those
payable under employer group plans for employed individuals age 65 or over, and the
spouses age 65 or older, of any employed individual regardless of age. OBRA of 1986
(P.L. 99-509) included a Reagan Administration proposal requiring employers with
100 employees or more to offer their disabled workers and their spouses the option
of coverage under their employers' health plan as the primary insurance policy.
Bowen Catastrophic Proposal
In November 1986, Otis Bowen, Secretary of Health and Human Services,
released a report to President Reagan on catastrophic illness expenses. This report
was in response to the President's directive in his Feb. 6, 1986, State of the Union
address that the Secretary report to him with recommendations on "how the private
sector and Government can work together to address the problems of affordable
insurance for those whose life savings would otherwise be threatened when
catastrophic illness strikes."
While the Bowen report discussed options to encourage employers to provide
catastrophic coverage, it recommended that States require that such coverage be
offered in all employment-related plans. It specified that employers should not be
required to finance such coverage, and also recommended the extension of full tax
deductions for health insurance to the self-employed and unincorporated businesses
(currently at 25%) as long as coverage is included for catastrophic expenses.
Although the Reagan Administration promoted Secretary Bowen's proposals for
restructuring Medicare to cover catastrophic illness expenses, it did not endorse the
recommendations in the Secretary's report for mandating catastrophic illness
insurance under employer-provided health benefit plans. Some of these options were
incorporated in legislation introduced in the 100th Congress, such as H.R. 2300
CRS-10
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06-01-90
(Gradison), which would have denied the tax deduction for employer-provided health
insurance to employers who failed to provide catastrophic coverage.
Types of Mandated Coverage Proposals
A variety of approaches to mandating coverage are incorporated in legislation
that has been introduced in recent years. While most are aimed at expanding access
to basic health insurance by mandating that employers provide health coverage,
others seek also to define the nature of the benefits to be offered. There are also
proposals that require employers to provide their existing benefit packages to
employees, laid-off employees, retirees and/or dependents who experience a change in
job or family status. Finally, other proposals require employers who already offer
insurance to offer specific benefits, such as well-baby care.
Defining the Application, Nature and Scope of Mandated Health Benefits
One of the controversies in providing for any Federal mandate is whether or not
it should apply to all employers, and if not, where the limits should be drawn. The
Medicare working aged and COBRA Title X provisions exempt employers with fewer
than 20 employees, although the Medicare working disabled provisions enacted in
OBRA of 1986 (P.L. 99-509) apply to only those employers with 100 or more
employees. Congress has been wary of applying mandates to smaller employers
largely because of concerns that they are not as easily absorbed by such firms and
could create economic hardships. Congress has also excluded the Federal Government
and religious organizations from certain provisions.
The debate over mandated benefits is influenced by concerns about the lack of
coverage as well as about concerns that working Americans are not adequately
protected against the costs of a catastrophic illness. Consequently, there are
proposals to require that employers provide basic hospital and medical insurance as
well as those that would mandate only catastrophic illness protection. A more
complex issue is whether the mandate should specify the nature of health benefits
to be offered by employers. Again, the proposals vary in their approach. Some, such
as the Kennedy-Waxman proposal in the 101st Congress (S. 786, H.R. 1845), require
a minimum level of benefits in the health insurance package. However, an actuarial
equivalency provision allows employers to offer different mixes of benefits and
employee cost-sharing requirements. Other bills have left the nature of the benefit
package unspecified. There have also been narrowly defined proposals that mandate
that employers who already provide health insurance include within their benefit
package specific services, such as coverage for pediatric preventive health care. (See
S. 968 and H.R. 1449, in the 100th Congress.)
Defining the Population to be Covered and the Duration of Coverage
Whichever approach is pursued, it is necessary to define the beneficiaries who
would receive the mandated health coverage. The employer's responsibility could be
limited to active full time employees, or expanded to include any or all of the
following: part-time employees, seasonal employees, retired employees, spouses,
widowed and/or divorced spouses, dependent family members, and employees who
CRS-11
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06-01-90
have terminated their employment, either voluntarily or involuntarily. Title X of
COBRA and its subsequent amendments provide an example of a broad definition of
beneficiaries.
In the same vein, some proposals are directed at ensuring that employers offer
health benefits beyond the point at which the employee (and his/her dependents) has
an immediate connection with the employer. In the past, Congress has considered
proposals to require that employers pay for the continued group coverage of laid-off
employees for a defined period of time. In this case, the benefit package may or may
not be defined. Such continuation of coverage mandates may extend to laid-off or
otherwise terminated employees, retirees of the firm and dependent spouses and
dependents of such employees.
Defining the Liability of Employers and Employees
The proposals to mandate employer-provided insurance also generally define the
limits of the employer's financial obligation to pay for those benefits. In Title X of
COBRA, Congress authorized employers to require the employee to pay for the
continued health coverage, plus a small fee to cover the employer's administrative
costs. In other proposals, the focus is to keep the employee's costs for coverage low
by requiring employers to pay a large portion of the premium. The
Kennedy-Waxman plan in the 101st Congress (S. 768, H.R. 1845), for example,
requires that the employer pay 80% of the employee's insurance premium (and 100%
for low-income employees) which in turn is deductible from the employer's taxes as
a cost of doing business. H.R. 2563, in the 101st Congress, prohibits employers from
reducing their premium shares for certain part-time workers.
LEGISLATION
H.R. 43 (Clay)
Requires that certain contracts between the U.S. and private contractors contain
provisions requiring the contractor to provide certain pension and health benefits to
its employees. Introduced Jan. 3, 1989; referred to Committee on Education and
Labor.
H.R. 1845 (Waxman)
Basic Health Benefits for All Americans Act. Amends the Public Health Service
Act, Fair Labor Standards Act, Title XIX of the Social Security Act, and Employee
Retirement Income Security Act to require that employers enroll employees in a
health plan that covers specified health services and provides protection against
catastrophic illness expenses. Also requires that State Medicaid programs provide
health benefits on a phased-in basis to people in poverty and near poverty, and to
all other individuals not covered by employer plans. Requirements for employer-based
plans similar to S. 768 (see below). Introduced Apr. 12, 1989; referred to Committees
on Education and Labor and on Energy and Commerce.
H.R. 2563 (Schroeder)
Part-time Temporary Workers Protection Act of 1989. Amends the Employee
Retirement Income Security Act to prohibit a reduction in employer-provided
premiums for employees solely because the employee works less than full-time with
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06-01-90
less than 30 hours per week, allows employer to reduce the premium contribution to
not less than a ratable portion of the premium ordinarily provided in the case of an
employee who completes 30 hours of service per week. Introduced June 6, 1989;
referred to Committee on Education and Labor.
H.R. 4070 (Grandy)
Universal Health Benefits Empowerment and partnership Act of 1990. Amends
ERISA, the Internal Revenue Code, and the Public Health Service Act to provide for
universal and more affordable coverage under group, State, or alternative health
benefit systems. Requires employers to offer coverage for eligible individuals under
basic group health plans or group health payroll deduction plans. Introduced Feb.
22, 1990; referred to Committees on Education and Labor, Ways and Means, and
Energy and Commerce.
S. 768 (Kennedy)
Basic Health Benefits for All Americans Act. Amends the Public Health Service
Act, the Fair Labor Standards Act, and ERISA to require that employers enroll
employees in a plan that covers specified health services and provides protection
against catastrophic illness expenses. Also requires that States establish programs
to provide health benefits on a phased-in basis to people in poverty and near poverty,
and to all other individuals not covered by employer plans. Failure of an employer
to provide insurance would result in eligibility loss for grants, contracts, loans or loan
guarantees under the Public Health Service Act or civil penalties under the Fair
Labor Standards Act. Provides that an individual may sue in Federal court for
injunctive relief. Under employer plans, limits the deductible to $250 per person
($500 per family) and copayments to 20% of the cost of any service (excluding certain
services for which copayments are prohibited and other services for which different
copayments are specified). Except part-time employees, limits the employee's share
of the premium to 20% of the cost of coverage, and requires the employer to cover
the full cost of at least one health plan for low wage workers. Provides that
employers may provide benefits that are equivalent on an actuarial basis to those
specified, and that new employers with 10 or fewer employees may provide a
"tailored" plan, i.e., a plan that has one-half the actuarial value of benefits of a health
benefit plan. Certain part-time employees may waive enrollment in the employer's
plan, but the employer must pay what he/she otherwise would have paid for the
employee's health plan to the State or Federal entity providing coverage to
non-working persons. Employers without a plan meeting the minimum benefit
standards are required to join regional insurance pools to be established by the
Secretary of Health and Human Services that provide health benefits at community
rates. Provides for a Federal subsidy for small businesses where compliance costs
exceed 5% of gross revenues. Provides for Federal and State financing of the State
programs, and specifies benefit package and cost-sharing. Introduced Apr. 12, 1989;
referred to Committee on Labor and Human Resources. Hearings held May 1 and
June 23, 1989. On July 12, 1989, the Committee voted to report an amended version
of S. 768 to the Senate.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee on Education and Labor. Subcommittee on
Labor-Management Relations. Access to health insurance. Hearing, 100th
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Congress, 2d session. June 9, 1988. Washington, U.S. Govt. Print. Off., 1988.
Serial no. 100-94.
The Growing Crisis in Health Care: The Basic Health Benefits for All Americans
Act (H.R. 1845) and other National Health Care Policy Options. Hearings, 101st
Congress, 1st session. Oct. 11 and 12, 1989. Washington. Washington, U.S.
Govt. Print. Off., 1990. Serial no. 101-64.
U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on
Health. Minimum Health Benefits for All Workers Act of 1987 and related bills.
Hearing, 100th Congress, 2d session. Apr. 14-15, 1988. Washington, U.S. Govt.
Print. Off., 1988.
Serial no. 100-174
U.S. Congress. House. Committee on Small Business. The health insurance
problem. Hearings, 100th Congress, 1st session. May 6, June 16, 18, 1987.
Washington, U.S. Govt. Print. Off., 1987.
Serial no. 100-7
Health insurances pooling arrangements for small business. Hearing, 101st
Congress, 1st session., July 25, 1989. Washington, U.S. Govt. Print. Off., 1988.
Serial no. 101-18.
U.S. Congress. House. Committee on Ways and Means. Subcommittee on Health.
Insurance protection for catastrophic health expenses for individuals under age
65. Hearing, 100th Congress, 1st session. May 12, 1987. Washington, U.S.
Govt. Print. Off., 1988.
Serial no. 100-37
The Employee Health Benefits Improvement Act of 1988. Hearings, 100th
Congress, 2d session. Aug. 9 and Sept. 22, 1988. Washington, U.S. Govt. Print.
Off., 1989.
Serial no. 100-81
U.S. Congress. Senate. Committee on Finance. Hearing on the uninsured.
Hearing, 101st Congress, 1st session. July 19, 1989. Washington. Unpublished.
S.Hrg. 100-758, Part 2
U.S. Congress. Senate. Committee on Labor and Human Resources. Essential
health care: reviewing access to minimum essential health care. Hearing, 100th
Congress, 1st session. May 19, 1987. Washington, U.S. Govt. Print. Off., 1987.
S.Hrg. 100-267
Minimum Health Benefits for All Workers Act of 1987. Hearing, 100th Congress,
1st session. June 24, 1987, Nov. 4, 1987. Washington, U.S. Govt. Print. Off.,
1987.
S.Hrg. 100-376, Parts 1 and 2
Minimum Health Benefits for All Workers Act; report. May 25, 1988. (100th
Congress, 2d session. Senate. Report no. 100-360)
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Basic Health Benefits for All Americans. Hearings, 101st Congress, 1st session.
May 1, and June 23, 1989. Washington, U.S. Govt. Print. Off., 1989.
S.Hrg. 101-267
U.S. Congress. Senate. Committee on Small Business. To examine the cost and
availability of health care benefits for small businesses and proposals for
federally mandated health benefits. Hearing, 100th Congress, 1st session. Apr.
23, 1987. U.S. Govt. Print. Off., 1987.
S.Hrg. 100-144
FOR ADDITIONAL READING
Pepper Commission (U.S. Bipartisan Commission on Comprehensive Health Care),
Recommendations to the Congress. 101st Congress, 2d session. Washington,
U.S. Govt. Print. Off., Mar. 2, 1990.
U.S. Library of Congress. Congressional Research Service. Private health insurance
continuation coverage, by Beth C. Fuchs. [Washington]. (Updated regularly)
CRS Issue Brief 87182
Health insurance, by Janet Kline, Coordinator. [Washington]. (Updated
regularly.)
CRS Issue Brief 90005
Health insurance and the uninsured: background data and analysis. Prepared
for the Subcommittee on Labor - Management Relations and the Subcommittee
on Labor Standards of the House Committee on Education and Labor, and the
Subcommittee on Health and the Environment of the House Committee on
Energy and Commerce, and the Senate Special Committee on Aging, by the
Health Insurance Team. [Washington] May 1988.
CRS Report 88-537 EPW
Insuring the Uninsured: Options and Analysis, by the Health Insurance Team.
[Washington] Oct. 1988.
Education and Labor Serial no. 100-DD
Energy and Commerce Serial no. 100-BB
Special Committee on Aging Serial no. 100-O
Cost and Effects of Extending Health Insurance Coverage, by the Health
Insurance Team. [Washington] Oct. 1988.
Education and Labor Serial no. 100-EE
Energy and Commerce Serial no. 100-CC
Special Committee on Aging Serial no. 100-P
CRS-15
'IP 72 AS
HOSPITALS, May 5, 1986, pp. 95-96, 98, 100, 102, 104.
th Anniversary
Fifty years of U.S.
health care policy
W
hen Hospitals replaced the old Bulletin of
The United States began the decade between
the American Hospital Association in Janu-
1946 and 1955 with a new-and only marginally pop-
ary 1936, three events had recently occurred
ular-president, the end of a devastating world war,
that would influence much of the next 50 years of
and the beginning of a period of unparalleled prosperi-
U.S. health care:
ty. It was a golden era for prepaid health insurance.
The Social Security Act passed in 1935, inaugurat-
During the war, Congress exempted health-insurance
ing a new era of federal involvement in the welfare of
benefits from the wartime freeze on wages; the contin-
at least some U.S. citizens. Although the Social Secu-
ued tax benefits of employer-provided health insur-
rity Commission recommended that health care for
ance helped Blue Cross, Blue Shield, and indemnity
the elderly be part of the package, it was not included.
plans increase their coverage of the U.S. population.
The age of private hospitalization insurance began,
National contracts became a reality as the Blue Cross
through the work of C. Rufus Rorem. Ph.D., the Com-
and Blue Shield plans organized as associations.
mittee on the Cost of Medical Care, the American
A 25-year battle for NHI. Yet concurrent with the
Hospital Association, and the many other pioneering
triumph of private insurance, Harry S. Truman be-
entities that made what would be known as "Blue
came the first president to endorse NHI. It was the
Cross plans" a reality. Insurance for physicians' ser-
first shot in what would be a 25-year legislative battle.
vices would follow a similar track.
The concept had been around since the 19th century,
Largely (but not exclusively) as a result of the work
but Truman's call indicated a new level of support for
of Sidney Garfield, M.D., in designing health services
it. Like all NHI proponents to date, Truman would be
for migrant construction crews in the West, the idea of
frustrated in his efforts.
health maintenance organizations (or HMOs) was
Other federal health care proposals would be
born, soon to be adopted by industrialist Henry J.
more successful. The Hospital Survey and Construc-
Kaiser.
tion Act, more popularly known as the Hill-Burton
weaving influences, these three trends foreshadowed
legislation, passed in 1948, providing funds for hospi-
much of what would follow. The period from 1936 to
tal construction in return for guarantees of care for the
1945 was marked by growth of Blue Cross and Blue
poor. In 1950, in an action that drew little notice at the
Shield on the one hand and the Kaiser-Permanente
time, Congress also amended the Social Security Act
model on the other. If Blue Cross and Blue Shield
to allow federal matching funds for state vendor pay-
were creatures of the Depression, Kaiser was a crea-
ments for health care services for the elderly.
ture of World War II and the health care needs of in-
By 1956, the ground swell of support for NHI be-
dustrial workers.
came noticeable, with special interest manifested in
Government, preoccupied with depression and
some kind of relief for the elderly. But the victory of
war, was not very active in health care during this pe-
Medicare and Medicaid in 1965 is most easily seen as
riod. although one hallmark event did take place. In
the logical product of a unique decade.
1943, Congress passed the Emergency Maternal and
The day of the underdog. "America will always go
Infant Care Act in order to ensure that health care
for the underdog in the long run, even if it created the
was available to dependents of low-ranking ser-
underdog in the first place." observes Henrik Blum,
vicemen. And in the background. there were stirrings
M.D., emeritus professor at the University of Califor-
of interest in national health insurance (NHI).
nia School of Public Health. During the mid-1960s.
Hospitals May 5, 1986
95
© 1986 By American Hospitals Publishing Co. All Rights Reserved
th Anniversary
the underdog had its day.
(at best) a mereurial health care economy. First, the
John F. Kennedy, to a great degree, and Lyndon
economic fruits of Medicaid and Medicare appeared.
B. Johnson, to an unprecedented degree, believed in
The medical cost component of the Consumer Price
the federal government's right to involve itself in mat-
Index increased from 2.1 percent in 1965 to 6.5 per-
ters traditionally viewed as the business of the states.
cent in 1967. By then, Congress already was amending
Furthermore, the national desire to make sense out of
Medicaid to reduce cost overruns.
Kennedy's assassination strengthened Johnson's al-
Hospitals were singled out for special attention
ready formidable legislative hand. Johnsonian democ-
from 1971 to 1974 during the Economic Stabilization
racy, the growing pressure for health care enfranchise-
Program. Congress also approved funding for HMOs
ment of the vulnerable, and the accession of Rep. Wil-
as a means of controlling health care costs, as well as
bur Mills (D-AR) to chairmanship of the powerful
national health planning.
House Ways and Means Committee made passage of
Despite the 1968 Republican victory, NHI propo-
Medicare and Medicaid only a matter of time.
nents made their biggest congressional push in the ear-
Congress, meanwhile, had been sneaking into
ly 1970s, culminating in the 1974 failure (by only one
more health care enfranchisement anyway-by ex-
vote) of the Kennedy-Mills NHI proposal in the
panding matching funds for state health care pro-
House Ways and Means Committee. After a battle
grams for the elderly, extending health care benefits to
lasting more than a quarter of a century, the massive
military dependents, and approving state-federal fund-
escalation in health care costs would overwhelm the
ing of health care for the medically indigent. The final
appeal of NHI after 1974.
enabling event was passage of the Civil Rights Act of
Disenchantment leads to DRGs. Of the three wa-
1964, which permanently changed the relationship be-
tershed factors in health care between 1976 and 1985,
tween the federal government and the states. By the
two had nothing to do with government health policy.
time that Medicare was passed, almost everyone was
First was the recession of 1981-82 and its reper-
in favor of the program's philosophy-if not its con-
cussions, including greater awareness among em-
tent-save for the American Medical Association,
ployers of health-benefits costs and greater awareness
which inflicted significant political harm upon itself
among state governments of Medicaid costs. That
with its continued opposition.
awareness was intensified by federal cutbacks in over-
The economic fruits ripen. From 1966 to 1975, one
all health care funding.
of the greatest turnarounds began in what is normally
Second, the election of Ronald Reagan signaled a
Highlights from 50 years of American health care
1936-45
tal Association develops a seal of
duction of penicillin, discovered in
"Hospitals will endeavor to devel-
approval for prepaid insurance
1928 by Alexander Fleming,
op a service to all hospitals, and to
plans; the seal is a blue cross.
M.D.
all the friends of hospitals, that
Work begins on mass pro-
1939: Sen. Robert Wagner
will aid them in making their in-
Kaiser
(D-NY) introduces a national
stitutions better, their patients
health insurance bill, but like its
happier and more efficiently tak-
many successors, it will not pass.
en care of, and their publics more
1942: The Kaiser Perma-
interested and more generous
nente HMO is founded.
with their moral and material
1943: Congress adopts the
support."
Emergency Maternal and Infant
-From the lead editorial in
Care Act to provide medical ben-
the first issue of Hospitals, Janu-
efits for dependents of low-in-
ary 1936
come servicemen.
1936: A federal government
1944: The Social Security
report claims that 90 percent of
Board's annual report recom-
Americans are receiving inade-
mends mandatory state health in-
quate medical care.
surance.
1937: The Group Health As-
1945: California Governor
sociation HMO is founded in
Earl Warren calls for mandatory
Washington, DC.
state health insurance; the result-
1938: The American Hospi-
Kaiser and Garfield
ing bill is defeated.
96
May 5, 1986 Hospitals
th Anniversary
national disenchantment with government solutions
Policy forged by social tensions. Many years ago,
for intractable problems; private-sector solutions to
Mohandas K. Gandhi, when asked what he thought of
the health care cost dilemma became the order of the
western civilization, replied, "I think it would be a
day. They worked, too, as private employers rushed in
very good idea." One is tempted to say the same of
where government had feared, or had been unable, to
U.S. health policy: We don't have one. Rather, the
tread.
structure and financing of American health care is de-
Third, threats to the fiscal survival of Social Se-
termined by the tensions within and among a series of
curity and Medicare overwhelmed ideological niceties.
opposing forces that alternate in dominance at any
In what many observers thought was the last gasp of
given time. These forces are:
federal cost-control efforts, Jimmy Carter's hospital
Indecisiveness. Our inability as a nation to determine
cost-containment bill went down to congressional de-
whether we believe that health care is a market com-
feat twice in the late 1970s. But less than five years
modity, a social good, or both, depending on the situa-
later, Congress enacted a Medicare prospective pric-
tion. If a nation cannot make this basic determination,
ing system that set prices based on DRGs.
it is not surprising that health policy implemented in
Prospective pricing is every bit as much of a gov-
its absence tends to be quirky.
ernment cost-control program, but because of the new
Fiscal ambivalence. Although the U.S. public has de-
system's use of market language and dynamics, it be-
clared-in its political expressions, in opinion polls,
came politically acceptable. The question of whether
and by custom-that it believes health care is a right,
government should intervene was settled in the 1960s;
it has shown a marked unwillingness to come up with
today, it is only a question of how.
the money necessary to make that statement opera-
Inspired by (and, in turn, inspiring) employer and
tional. As a result, the United States and South Africa
payer activism, Medicare's new stance was that mar-
are alone among developed nations in not having for-
ket economics-not government policy-should con-
mally declared access to health services as a right of
trol the future of health care. The pendulum had
citizenship.
swung again.
Infighting. This nation's love/hate relationship be-
Highlights
March of Dimes
1946-55
bution of services and costs."
"President Truman's recent en-
-C. Rufus Rorem, Ph.D., in
dorsement of a national health
Hospitals, January 1946
program
challenges the Amer-
1946: President Harry
ican health professions and agen-
Truman announces his call for a
cies to bring their services to the
program of compulsory national
public in a manner which will best
health insurance.
remove the present uneven distri-
The Hospital Survey and
Construction Act (the "Hill-Bur-
ton Act") passes.
1948: The Association of
University Programs in Hospital
Administration holds its first
meeting.
1949: The Blue Cross Asso-
ciation is chartered in Illinois.
Morris Fishbein, M.D., con-
troversial editor of the Journal of
the American Medical Associa-
Salk
tion and the most famous health
care spokesman in the United
health care for the elderly
States, is removed from his posi-
through vendor payments.
tion.
1952: The Joint Commission
1950: In amendments to the
on Accreditation of Hospitals is
Social Security Act, Congress ap-
established.
proves provision of federal match-
1954: Jonas Salk's vaccine
Fishbein
ing funds to states that subsidize
against poliomyelitis is developed.
98
May 5. 1986 Hospitals
th Anniversary
tween its public and private sectors is probably more
Power shifts. Who wields power in health care con-
intense and more convoluted than in any other coun-
tinues to bedevil all the parties involved, particularly
try. Again and again, government, which clearly holds
those that do not hold power at the moment. At vari-
responsibility for public health, has supported private
ous times, dominant power has been in the hands of
providers while neglecting its own. Medicare and
state and local governments, the federal government,
Medicaid were designed specifically to preserve free-
physicians, providers in general, Congress, voters, in-
dom of choice of provider-a philosophical underpin-
surers, and employers. Rarely is any of these interests
ning only recently undone by the cost-containment im-
without power; but the pattern is that a disproportion-
perative-and over and over, Congress defeated gov-
ate amount of power is invested in the hands of one,
ernment health-insurance schemes in favor of making
then another, then another as we become disappointed
private insurance more available through tax incen-
by the performance of each in turn. Thus, the debate
tives and other means.
over competition versus regulation is, in fact, a false
Quality vs. cost. The merry-go-round interrelation-
one; American health care has never been without
ships among the cost of, quality of, access to, and ef-
either. The debate is really over who will be regulated,
fectiveness of health care is not a new phenomenon
and who will benefit from competition.
bred by the use of market incentives. Even a cursory
Structure vs. financing. As Professor Odin Anderson,
look at the legislation, studies, and reports of any de-
of the University of Chicago and the University of
cade in this century reveals that the pendulum of poli-
Wisconsin, points out: The United States never came
cy constantly swings toward spending to improve qual-
to grips with the fact that its health care structure de-
ity and access, and then toward controlling of the ex-
veloped almost entirely independent of its health care
penses thus engendered; toward efficiency and cost
financing. The era of third-party payment-public
control, and then toward rectification of the inequities,
and private-came well after the system's main ele-
maldistribution of care, and mortality and morbidity
ments were in place. In fact, perhaps the only really
thus engendered. And it always swings back again.
new trend of the 1980s is the attempt to interrelate
Highlights
1956-65
knowledges the possible need for
Congress passes the Kerr-
"The total operating expenses of
federally supported health insur-
Mills bill, providing joint federal-
general hospitals in 1954 were
ance for some populations.
state assistance for the medically
slightly more than half their total
1960: Hearings by the Senate
indigent.
capital assets. The problem of
Subcommittee on Problems of the
The Eisenhower Administra-
providing hospital care is an an-
Aged and Aging find wide sup-
tion presents a bill creating a
nual problem, and the problem
port for health coverage for the
"Medicare Program for the
only starts after the capital funds
elderly.
Aged" to Congress; although the
are raised."
legislation does not pass, the
-AHA President Ray E.
name sticks.
Brown in Hospitals, January
1961: The Task Force on
1956
Health and Social Security for
1956: Federal health care
the American People endorses
benefits are extended to military
health care benefits for the elder-
dependents.
ly through the Social Security
Congress expands support of
program.
state health benefits for the elder-
1963: Congress passes the
Health Professions Educational
ly.
The AFL-CIO endorses the
Assistance Act, which provides
idea of national health insurance.
federal funds to encourage train-
1957: Rep. Wilbur Mills (D-
ing of various health profession-
AR) becomes chairman of the
als, including physicians.
powerful House Ways and Means
1964: The Civil Rights Act
Committee.
of 1964 passes.
Rep. Aimé Forand (D-RI)
1965: The Social Security
proposes federal funding of care
Amendments of 1965 (P.L. 89-
for the elderly; his bill fails.
President Johnson signs
97) are passed, creating the Med-
1958: The AHA officially ac-
the 1964 Civil Rights Act.
icare and Medicaid programs.
100
May 5, 1986 Hospitals
th Anniversary
structure and financing-in the public sector (Medic-
and sometimes local governments into funding health
aid and Medicare incentives to use HMOs and outpa-
care for some 50 million people. Yet when the pro-
tient care), the provider sector (provider insurance and
grams proved expensive, everyone seems to have been
HMO formulations), and the private-payment sector
taken unaware. When cost-based reimbursement
(employers' and insurers' increasing role as providers,
fueled the enormous growth in hospital capacity, the
through HMOs or more directly). However, even here,
intensity of health care, and the development of health
predictions of revolution prove overenthusiastic.
technology, providers were blamed as though they
Americans: surprised by results. Finally, in health
somehow had reacted inappropriately. Medicare and
care as in many things, Americans continue to be sur-
Social Security alike simply did not take into account
prised by the logical results of their policy decisions.
the fact that most of the 75 million people born be-
The legal definition of competence is the ability to un-
tween 1946 and 1964 eventually would grow old.
derstand and accept the consequences of one's own ac-
The Johnsonian programs of the 1960s doubled
tions; yet a significant amount of American health
production of physicians from 7,574 medical school
care policymaking consists of efforts to cope with the
graduates in 1966 to 15,728 in 1983; but the first ma-
effects of previous U.S. health care policies.
jor statement that a physician oversupply might be in
Medicare and Medicaid brought federal, state,
the works came in 1980.
Highlights
1966-75
January 1966
and many others like it will fail in
"If the medical community and
1966: Medicare and Medic-
the 1970s.
hospitals reflect their professional
aid become operational.
1971: The Economic Stabili-
concerns in the various mecha-
Congress passes the Compre-
zation Program is inaugurated.
nisms they themselves develop,
hensive Health Planning and
1972: Congress passes the
then I think it can be predicted
Public Health Service Amend-
Social Security Amendments of
that our administrative concern
ments (P.L. 89-749).
1972, which create the Profes-
will rarely not be met."
Michael DeBakey, M.D.,
sional Standards Review Organi-
-Arthur Hess, director of
uses plastic arteries and a tempo-
zation program, fund dialysis and
the Social Security Administra-
rary artificial heart during car-
transplants for victims of end-
tion's Bureau of Health Insur-
diac valve replacement surgery.
stage renal disease, and give the
ance, talking about the new Med-
The federal government de-
federal government more cost-
icare program in Hospitals,
clares that hospitals participating
containment authority.
in Medicare are subject to the
1973: The Health Mainte-
William Pittman
provisions of the Civil Rights Act.
nance Act is passed, greatly in-
1967: The medical care com-
creasing federal financial support
ponent of the Consumer Price In-
for HMOs.
dex, which totaled 2.1 percent in
1974: Economic Stabilization
1965 and 2.9 percent in 1966,
Program controls end.
jumps to 6.5 percent.
The Kennedy-Mills bill dies
Christiaan Barnard, M.D.,
in a House committee, ending the
conducts the first human heart
high point for national health in-
transplant operation.
surance.
1968: Walter Reuther, direc-
Hawaii passes the Prepaid
tor of the United Auto Workers,
Health Care Act, thus becoming
announces that he will form a
the first (and still the only) state
"Committee of 100" to press for
to mandate employer-provided
comprehensive national health in-
health insurance for all em-
surance.
ployees.
1969: The Department of
1975: The National Health
Health, Education, and Welfare
Planning and Resources Develop-
Task Force on Medicaid and Re-
ment Act is passed.
lated Programs is created.
A New Jersey court allows
1970: The Health Security
Karen Ann Quinlan's parents to
Act, a national health insurance
withdraw life support from their
DeBakey
plan, is introduced in Congress; it
permanently comatose daughter.
102
May 5. 1986 Hospitals
th Anniversary
And almost the entire policymaking structure is
sector whose interests may not be in step with those of
still resisting the idea that when public and private
the population as a whole.
programs are cut back, that when hospital margins are
"Americans," Winston Churchill once remarked,
narrowed, that when care of the poor is concentrated
"can always be counted on to do the right thing—once
in a minority of institutions, the result is a massive in-
they have exhausted all the possible alternatives." In
crease in the number of medically indigent patients, and
the search for either a national health policy or an ac-
fiscal calamities for institutions that care for them.
ceptable substitute, many options remain unexplored.
Fifty years of no policy. The past 50 years of
And despite the eccentric, sometimes frightening, and
American health care nonpolicy have been marked by
sometimes hilarious record of that search during the
fits and starts, recurring tensions, reactions and over-
past 50 years, it is impossible to doubt the sincerity
reactions-a pendulum that ceaselessly swings from
and commitment of those individuals engaged in the
one extreme to the other, always leaving its mark, but
quest.
also always retreating back to a more moderate posi-
So who knows? Perhaps down one of those dark-
tion before it goes off in yet another direction to leave
ened pathways that still beckons, we will yet find the
another mark.
right thing to do.-Emily Friedman H
There is talk once again of national health insur-
ance, as the holes in private and public health care
The author acknowledges the contributions, intentional or not,
sponsorship become more apparent. Questions are be-
to this article of Odin Anderson, Howard Berman, Robert
ing raised about quality. As the effectiveness and the
Blendon, Frank Campion, Philip Caper, Wilbur Cohen, Karen
distribution of health care once again come under
Davis, David Drake, Thomas Granatir, Richard Harris, Rudolf
Klein, Uwe Reinhardt, C. Rufus Rorem, Robert Sigmond, Lewis
scrutiny, voices are heard asking whether government
Weeks, and many others, all of whose works and thoughts she
needs to step in and moderate the excesses of a private
drew upon.
Highlights
1976-85
submits a national health insur-
by the 1990s.
"Ironically, the strings that hold
ance bill to Congress; it doesn't
New Jersey institutes a pro-
back our imaginations are the
pass, either.
spective pricing system that uses
same ones that hamstring the hos-
1980: Per capita U.S. health
DRGs.
pital field now-rising costs, lim-
care expenditures reach $1,075,
1981: Congress passes the
ited budgets, and finite resources.
an increase of more than 300 per-
Omnibus Budget Reconciliation
It is probably safe to say that
cent since 1970.
Act.
these three problems will lead to
The Graduate Medical Edu-
The worst recession since the
an inevitable redefinition of the
cation National Advisory Com-
1930s hits the United States.
health provider's philosophy of
mittee issues a report predicting
The AHA, the AMA, the
care and to reevaluation of the
an oversupply of U.S. physicians
Blue Cross and Blue Shield Asso-
provider's commitments."
ciation, the AFL-CIO, the Busi-
-Donald Phillips, field edi-
ness Roundtable, and the Health
tor, in Hospitals, January 1976
Insurance Association of America
1977: President Jimmy Car-
endorse private-sector initiatives
ter proposes the Hospital Cost
to control health care costs.
Containment Act.
1982: Congress passes the
The AHA and fellow organi-
Tax Equity and Fiscal Responsi-
zations launch the Voluntary Ef-
bility Act.
fort to Contain Health Care
1983: Congress passes legis-
Costs.
lation establishing Medicare's
1978: Carter's hospital cost-
DRG-based prospective pricing
containment legislation fails in
system.
Congress.
1984: Per capita U.S. health
In Great Britain, the first
care expenditures reach $1,632,
baby conceived outside the hu-
an increase of more than 50 per-
man womb is born.
cent since 1980.
1979: Carter's hospital cost-
1985: In December, Hospi-
containment bill fails again.
tals concludes 50 years of pub-
The Carter Administration
Carter
lishing.
104
May 5, 1986 Hospitals
IP 72 AS
[EXCERPT FROM]
CATASTROPHIC ILLNESS
EXPENSES
Department of Health and Human Services
Report to the President
NUMAR
MEVICAL
;"
DEPARTMENT OF HEALTH & HUMAN SERVICES
November 1986
THERY
I
EXECUTIVE SUMMARY
The American health care system provides substantial
benefits to most Americans. Even so, many Americans run the risk
of financial ruin when catastrophic illness strikes. The
President, in his 1986 State of the Union address, requested a
study of how the private sector and government can work together
to address this problem.
No single policy approach provides protection for all groups
of people and for all types of health expenses; but a combination
of options can help reduce the financial risks for many people.
Options are available to redirect government health financing
programs, to encourage private saving and the purchase of private
insurance, and to stimulate development of innovative methods of
providing health care services by the private sector.
Current Coverage and Risk Patterns
Almost all Americans have some health insurance -- virtually
all of the elderly (with Medicare and two-thirds with
supplementary Medigap insurance as well), and nine out of ten
members of the general population. In addition, a wide variety
of subsidized or free health services are provided to individuals
through public and private hospitals, clinics, and other health
care programs. Some of these are sponsored by State and local
governments, some by private nonprofit organizations like the Red
Cross, some by private charity. The remainder are provided as
uncompensated care, in the form of bad debt. Even so, the
problem of catastrophic illness expense exists. The reasons fo
the problem are very different for the elderly than for the
general population.
Unfortunately, no immediate resolution of this problem is
possible without the infusion of large sums of Federal monies.
Given current budget constraints this is not a feasible solution.
Longer term private sector partial solutions are feasible.
However, decisive action is needed now if we are to have these
mechanisms in place in time to address the enormous public policy
crisis that the baby boom generation will present when they
become the elder boom in the ensuing decades. The catastrophic
problem for the general population, in contrast, is not that
people lack available insurance possibilities, but that they fai
to acquire insurance protection for themselves and their
families. About 30 million individuals are currently uninsured,
of whom over 20 million are without coverage all year. About 10
million others (most with employment-related insurance) have
insurance which is inadequate to protect them from risk of
catastrophic illness expense.
The uninsured or inadequately insured are not typically out
of the labor force; nor are they typically poor. Most of them
work or are dependents of workers, often in small businesses.
They are often part-time or part-year workers, and earn
relatively low wages.
ii
The recommendations selected for the President's
consideration recognize the dangers of fiscal expansion to
increase coverage of catastrophic health care expenditures. The
recommendations, therefore, involve at most moderate increases in
public outlays or reductions in Federal receipts. The strategy
also recognizes that much of what needs to be done can most
appropriately be done through encouraging development of private
financing mechanisms and increasing flexibility at the State and
local levels. The recommendations address three major parts of
the catastrophic illness coverage problem:
acute care catastrophic protection for the elderly;
long term care protection alternatives;
catastrophic protection for the general population.
RECOMMENDATIONS FOR IMPROVING ACUTE CARE CATASTROPHIC
EXPENSE PROTECTION FOR THE ELDERLY
The Medicare program now has coverage gaps that leave the elderly
with acute care needs vulnerable to catastrophic out-of-pocket
expenses. A restructured Medicare program can promote equity
among beneficiaries in a way that relieves the worries of the
elderly about acute care expenses, while simultaneously reducing
the out-of-pocket expenses of the majority who now purchase
limited insurance coverage. At the same time, we can ensure that
the elderly fully pay for this increased security, rather than
depending on younger generations to finance it. Restructuring is
consistent with efforts to increase competition and encourage
iii
capitated health care delivery. The recommendations presented
here are also consistent with the cost-containment objectives of
the President's 1988 budget.
We recommend that Medicare be restructured to provide
catastrophic protection with an actuarially sound additional
premium.
Medicare Part A is for inpatient and home health services
and covers all Medicare-eligible persons. Medicare Part B is for
physician and outpatient services; coverage depends on a premium
payment which is voluntary.
The recommendation would place an annual limit on each
beneficiary's out-of-pocket expenses for all Part A and Part B
deductibles and coinsurance. Part A coinsurance and lifetime
limits would be removed, and the maximum number of hospital
deductibles would be limited to two per year. Part B cost
sharing arrangements would remain unchanged. Catastrophic
coverage with a $2,000 annual limit (which corresponds to an
annual health care expenditure of over $10,000) would require an
additional premium of $4.92 a month. That additional cost would
be included in the Part B premium, which would remain voluntary.
This approach would provide the elderly with a budgetable,
predictable expenditure pattern for securing catastrophic acute
care protection and a known out-of-pocket limit for such coverage
at the beginning of each year, and would provide them with peace
of mind.
iv
This recommendation requires that the benefit be fully
funded by the premium, which would be indexed annually (up or
down) to insure budget neutrality. The $2000 out-of-pocket cap
would also be indexed each year to account for health care
inflation. Indexing assures that the tax burden of the working
age population is not increased, and that those who receive the
benefit pay their fair share of the cost.
Alternatively: We recommend that Medicare be restructured to
provide catastrophic protection through increased cost sharing
related to income.
Alternatively: We recommend that Medicare be restructured to
provide catastrophic protection through increased cost sharing
unrelated to income.
These alternative recommendations would finance catastrophic
protection under Medicare by shifting coverage away from modest
and predictable health care costs to pay for extremely high costs
incurred in any year. One approach would spread the additional
cost over the cost sharing contributions of all beneficiaries.
The other would keep the Part B coinsurance the same for the
beneficiaries whose incomes are below a certain threshold and
charge higher-income beneficiaries additional copayments
calculated to cover the total cost of the increased coverage.
The strength of financing catastrophic coverage by cost
sharing is that it provides catastrophic coverage to all Medicare
beneficiaries, not just to those who participate in Part B.
<
Unlike the premium approach, however, the cost sharing approach
can be viewed as a tax on sickness since only those persons who
use Medicare services (25% of the Medicare beneficiaries
hospitalized in any given year) are made to bear the full cost of
the catastrophic protection. The cost sharing burden on those
who use the system, moreover, could be burdensome for significant
numbers of elderly. This is the first time that cost sharing
related to income has been recommended for the Medicare program.
However, it is not an unprecedented change for those on Social
Security, because income differentials via the tax system were
introduced into the OASDI program in 1983.
RECOMMENDATIONS TO IMPROVE LONG TERM CARE PROTECTION ALTERNATIVE
Long term care is the most likely catastrophic illness risk
faced by individuals and families. There are several reasons for
this. Foremost among them is lack of comprehension on the part
of many people about the financial risk they run in the event
that they need long term care. The result is a lack of demand
for long term care risk protection, and consequently only modest
progress in developing alternatives for effective private sector
long term care financing and service provision.
Our strategy for addressing the long term care problem is
guided by four considerations. First, Americans should be
encouraged to make adequate plans for their own care in old age.
Second, the financing of long term care should not inhibit
vi
maximum choice regarding the types and level of care. Third, the
elderly prefer and should be able to receive the least
restrictive care possible. Thus, approaches should be emphasized
that allow people to remain in their own homes, or in facilities
that meet multiple personal and medical needs, such as church
homes and Continuing Care Retirement Communities. Fourth, the
public sector is already paying half the costs of formal long
term care services through Medicaid, with the remainder being
paid out-of-pocket by older persons or their families. Only 1.4%
of nursing home costs are paid by long term care insurance. In
any given year, as many as 500,000 elderly persons may exhaust
their assets and have to spend down to Medicaid while they are in
nursing homes.
We recommend that the Federal government work with the
private sector to educate the public about the risks, costs, and
financing options available for long term care, as well as the
limitations of coverage for such services under Medicare and
Medigap supplemental insurance.
The elements of a campaign might include:
O
Use of radio, television, and printed material targeted
to both the elderly and their families, providing
information regarding risks, costs, and financial
protection measures.
Continued use of currently planned official mailings to
Social Security and Medicare beneficiaries to clarify
current program coverage for long term care services.
National coordination of, and assistance for, State-led
efforts to assist consumers in understanding and
selecting financial protection for long term care
services.
vii
Educational and promotional efforts on private financing of
long term care directed toward long term care insurers and
providers.
This recommendation would have far-reaching impact on the
nation's elderly and their families and their ability to plan for
the needs of old age.
We recommend that the Federal government encourage personal
savings for long term care through a tax-favored Individual
Medical Account (IMA) combined with insurance, and amend
Individual Retirement Account (IRA) provisions to permit tax-free
withdrawal of funds for any long term care expense.
The first part of this recommendation uses tax-favored
individual savings to encourage personal responsibility to pay
for long term care expenditures. Establishing an IMA is designed
to promote private financing of long term care expenses through
tax-favored savings combined with long term care insurance.
Individuals would be permitted to deposit a certain amount of
money (e.g. $1,000 maximum) each year into a savings account
restricted for use on long term care expenses. Interest
accumulations would be tax free and withdrawals would not be
taxed or penalized as long as their use was for nursing home
care. The principal and half the interest could be used by the
individual to pay for nursing home expenses incurred after age
65; if unused it would remain in the individual's estate. The
remainder of the interest would purchase additional nursing home
care or long term care insurance for IMA holders after the
balance in their personal accounts had been exhausted.
viii
The major strengths of this part of the recommendation are
that it encourages personal responsibility for long term care
needs and enhances private sector involvement in financing those
needs. This strategy offers participants more months of
protection than savings-only plans because of the cost sharing
feature of the insurance financed by half the interest on their
savings. This option is preferable to a pure long term care
insurance option in that individuals would have an added
incentive to participate, because if they did not require long
term care services, the funds would accrue to their spouses or
their estates.
The second part of the recommendation -- tax-free withdrawal
of IRA funds for any long term care expense -- provides the
opportunity to finance a full range of care that would allow
individuals to remain in the least restrictive environment
possible. A person saving $1,000 a year (indexed for inflation)
from age 40 to 64 would cover 16 months of nursing home care.
The major strength of this part of the recommendation is
that it builds on an existing tax-favored savings mechanism. It
allows persons to save for long term care expenses, while
offering substantial flexibility and choice in purchasing
financial protection or services.
ix
We recommend encouraging development of the private market
for long term care insurance in three ways:
establish a 50 percent refundable tax credit for long
term care insurance premiums for persons over age 55
(up to an annual maximum of $1,000)
provide the same favorable tax treatment for long term
care insurance reserves as is now the case for life
insurance;
remove 1984 Deficit Reduction Act (DEFRA) barriers to
prefunding long term care benefits provided by
employers to retirees.
The major strength of this three-part recommendation is its
potential for stimulating the supply of private long term care
insurance options and for broadening the market for such policies
-- including innovative products that combine income and health
benefits for individuals in their retirement years, and
individual freedom to receive the care they need in the least
restrictive living environment. It is an important complement to
the education campaign recommended above, which would increase
awareness of the need for long term care insurance and stimulate
demand for such insurance coverage.
The specific reason for establishing the refundable tax
credit is to provide a direct incentive for potential buyers,
(particularly lower-income families) stimulated by their
increased awareness of the risks, to take action. The specific
reason for the recommended treatment of reserves is that long
term care insurance involves accumulation of reserves over a much
longer period than is necessary for acute health care coverage.
Providing favorable tax treatment would encourage development of
x
more affordable long term care insurance policies. Removal of
the DEFRA barriers is a prerequisite for gradual development of
employment-based group coverage of long term care.
The combination of incentives will encourage the development
of more flexible private insurance coverage, including home care,
case-managed social and medical services under capitation, and
different types of protected living environments where the
elderly can receive services appropriate to their needs.
We recommend that the Federal government act to set an
example for private employers and care providers. One
alternative would be to offer employee-paid long term care group
insurance as an option under the Federal Employees Health Benefit
Program.
The Federal government is the nation's largest employer.
Its leadership role would be invaluable in demonstrating the
effectiveness of using large groups as a vehicle for offering
long term care coverage to retirees at lower cost, at group
rates, and to younger employees. Retirees might be given a
choice of either paying separately for long term care insurance,
or trading some of the health insurance benefits currently
offered for better long term care insurance coverage. Although
long term care policies are not currently available extensively
to persons in their middle years, it is possible that interest in
creating such policies would be generated if a large pool of
individuals, such as Federal employees, were available.
xi
RECOMMENDATIONS FOR ACUTE CARE CATASTROPHIC PROTECTION FOR THE
GENERAL POPULATION
The general population includes many specific groups with
differing coverage availability and coverage needs. Most of the
general population are employed or dependents of an employed
worker. Their protection typically comes from employment-related
insurance, whether self-financed or as part of a fringe benefit
package. Employers must have new incentives to expand private
sector benefits to include catastrophic coverage alternatives.
Historically, coverage of the poor, the near poor, and the
related problem of uncompensated care have been the
responsibility of State and local governments. This should
continue. However, such governments need increased flexibility
to develop a wider choice of alternative ways of meeting these
coverage needs.
We recommend that States require all employers who offer
health insurance to offer a catastrophic coverage option.
State mandates that employers who offer coverage include
(but not necessarily finance) a catastrophic coverage option
would allow an opportunity for the underinsured to purchase
catastrophic coverage for a modest insurance premium since
catastrophic coverage per se is not very expensive.
xii
We recommend that full tax deductions be extended for health
insurance to the self-employed and unincorporated businesses, as
long as the coverage includes catastrophic expenses.
Until the recent tax legislation, the self-employed and
owners of unincorporated businesses could not deduct the premiums
for their own health business plans. The self-employed can now
deduct 25 percent of their premiums. While this will help, there
is little justification for not allowing certain limited portions
of the employed population the same tax subsidies available to
the rest of working population. The extension of the full tax
subsidy should require that the self-employed and unincorporated
business owners offer comparable coverage to their employees and
that the coverage include catastrophic expenses.
We recommend encouraging formation of State risk pools to
subsidize insurance for those whose medical condition makes it
impossible or prohibitively expensive to get catastrophic
insurance.
Use of an insurance pool for high risk individuals can be an
effective way of reaching this small but medically and
financially very vulnerable population. The subsidy should be
spread over a large group -- either taxpayers or the
insurer/employer community.
xiii
We recommend State innovation and initiative in such areas
as loan quarantees, high-deductible catastrophic health insuranc
requirements for motor vehicle registrations, and greater
flexibility in managing State Medicaid programs.
The catastrophic health insurance needs of persons with
employment-related coverage and persons who are medically
uninsurable or insurable only at very high cost have already been
addressed in our recommendations. Other groups in the population
can be helped substantially by the States. State and local
governments must be encouraged and enabled to foster catastrophic
health insurance in innovative ways which target particularly
vulnerable groups in their communities.
States could, for example, institute a loan guarantee
program for persons incurring high health expenses. Loan
guarantees would make credit available to individuals to spread
the costs of an expensive medical episode over several years.
Loan guarantees, coupled with possible State subsidies to broaden
the program to lower-income families, would encourage the sharing
of uncompensated care costs among providers, beneficiaries, and
State governments.
Another approach is for States to target specific activities
or groups of people for catastrophic health insurance coverage.
States could, for example, require accident-related catastrophic
health insurance for all motor vehicle registrations. Driving
accidents can cause disabling injuries, and many of the victims
receive substantial amounts of uncompensated care from hospitals
and other providers.
xiv
Increased Medicaid program flexibility will assist States in
developing programs tailored to meet local needs and preferences
for dealing with catastrophic expenses. States have proven their
ability to meet State and local health care needs in a cost-
effective manner. Among the wide range of possibilities are
inclusion of catastrophic benefits as a category of service;
shifting coverage toward catastrophic expenses and away from
optional services; waiving income determination rules to secure
family contributions toward institutional care; and other
modifications to State Medicaid programs. Several alternatives
are now available to State governments.
*
*
*
The threat of catastrophic illness is very real. Now is
time, after decades of debate, to forge a partnership between
government and the private sector which will help provide
coverage for catastrophic illness expense.
Risk of catastrophic illness expense faces persons and
families in a wide variety of economic and personal
circumstances. The range of public and private coverage that
currently exists is already wide. This diversity suggests the
need for a variety of approaches involving every segment of
employers, providers, insurers, at all levels of government; and
most importantly, individuals and their families. Approaches
must address the preservation of individual choice and individual
responsibility at the same time that they make provision for the
affordable financing of needed services.
XV
Private sector initiative and responsible government action
can lead to a strengthened health care system and the ultimate
resolution of this important problem. Failure to act now will
not make the problem disappear. Indeed, delay may make it harder
to solve as the population ages.
xvi
Order Code IB90005
CRS Issue Brief
Major Planning Issue
Health Insurance
Updated May 9, 1990
by
Janet Kline, Coordinator
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
The Uninsured
Characteristics of the Uninsured
Trends in Insurance Coverage
Implications for Access
Policy Options for the Uninsured
The Underinsured
Other Health Insurance Issues
Health Care Costs and Cost Containment
Long-Term Care
Retiree Health Benefits
LEGISLATION
Contributors to Issue Brief:
Beth Fuchs
Janet Kline
Janet Lundy
Mark Merlis
Richard Price
Joan Sokolovsky
IB90005
05-09-90
Health Insurance
SUMMARY
Rising health care costs have created increasing pressures on public and private
health care financing programs in a time of limited resources. Over the past 10
years, health care spending has grown faster than spending in the general economy.
National health expenditures were $540 billion in 1988, over 11% of the gross
national product. While payments by public and private health insurance programs
account for a majority of payments (approximately three-fourths) for health care
services, gaps in coverage and in the availability of insurance leave many persons at
risk. Between 31 and 37 million people were uninsured in 1988. Generally, the
uninsured are young (under age 24); they are poor; and they have ties to the work
force (primarily in small firms, in industries with seasonal or temporary employment,
and in firms with a lower skilled or less unionized work force). In the last decade,
there was growth in the number and proportion of the uninsured population.
Insurance status has implications for access to health services: the uninsured use
fewer health care services and have poorer health status than the insured.
Even persons who are insured can face substantial health care costs if their
insurance does not adequately cover their medical expenses. In 1986, the Department
of Health and Human Services estimated that about 10 million persons (in addition
to the number of uninsured) had insurance that was inadequate to protect them from
risk of catastrophic illness expense. Private sector health plans and public programs
such as Medicare and Medicaid all, to some degree, leave their enrollees underinsured
because of cost-sharing requirements (i.e., enrollee deductible and coinsurance
payments), limits on payment to providers, or uncovered services. A key coverage
issue, particularly for the elderly, is that most health care plans (except Medicaid)
either do not cover, or have only limited benefits for, long-term care services,
including both nursing home care and home and community-based care.
Several issues for the future will continue to affect the numbers of uninsured
and underinsured individuals. The rising cost of health care will put increasing
pressures on public budgets, employer costs, and individuals' out-of-pocket expenses
for medical care. A continuing focus of our public and private health care systems
will be attempts to control those costs. The need for expansion of limited coverage
for long-term care services will continue to be an issue. The future of employer-
provided retiree health benefits is an issue resulting from rising employer costs for
a growing retired population and questions about future commitments and funding
for these costs.
IB90005
05-09-90
ISSUE DEFINITION
Gaps in public and private health benefits coverage that result in large numbers
of uninsured and underinsured individuals and families have been of concern to
Congress for many years. There are a number of reasons for this. The rising cost
of health care, which is reflected in rising health care premiums, underlies the
problem. Cost discourages some employers and individuals from obtaining health care
coverage and results in restrictive coverage definitions that exclude certain individuals
under both public and private coverage. Other reasons for coverage gaps include the
voluntary nature of insurance in this country.
Lack of health benefits coverage may result in individuals not seeking or not
being able to obtain health care services; exposure to medical care expenses that may
consume an individual or family's income and savings; shifting of costs from those
who cannot pay to others who can; or services being provided in inappropriate
settings, such as emergency rooms.
Congress is considering alternatives for more complete health insurance coverage.
However, budgetary considerations may preclude alternatives that would involve
substantial new Federal spending. Numerous bills have been introduced in the 101st
Congress to expand health insurance coverage. The generic approaches embodied in
these bills include expanding health insurance coverage through Medicaid; providing
tax incentives to provide coverage privately; mandating employers to extend health
insurance benefits to uncovered or underinsured groups; and instituting a national
health insurance system.
There is also strong congressional interest in controlling health care costs.
Rising costs affect the Federal budget (chiefly through Medicare and Medicaid) and
State budgets (through Medicaid); access to care for the uninsured; and the
competitiveness of employers who offer health benefits or the willingness of those
employers to continue to offer benefits. Proposals have been considered by Congress
that would contain health care costs or reduce Federal expenditures (for example, by
changing the tax treatment of health benefits).
Several groups have been developing recommendations to address the issues of
health care coverage, the uninsured, and health care costs. On Mar. 2, 1990, the
U.S. Bipartisan Commission on Comprehensive Health Care (the "Pepper
Commission") announced its recommendations on comprehensive health care services
for all Americans and long-term care for the elderly. Two other groups are also
examining these issues: a task force established by the Secretary of Health and
Human Services is due to report in October 1990, and the Advisory Council on
Social Security plans to issue its findings in January 1991.
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BACKGROUND AND ANALYSIS
The Uninsured
According to a Congressional Research Service analysis of the March 1989
Current Population Survey (CPS) conducted by the Census Bureau, in 1988 most
individuals (57%) obtained insurance coverage through their own or a family
member's employment. Others received coverage through public programs such as
Medicare (13%) or Medicaid (6%) and 9% received coverage from privately purchased
policies, CHAMPUS or other health plans.
An estimated 36.8 million Americans (15%) were without any form of health
insurance coverage in 1988. Other estimates, using different surveys or different
assumptions, range from 31 to 37 million uninsured. While there is disagreement on
the exact number of uninsured Americans, there is a consensus that the proportion
of the population without coverage grew during the 1980s. The following discussion
examines the characteristics of the uninsured, some possible explanations for recent
declines in coverage, and the impact of lack of coverage on access to care. This is
followed by a review of proposals for providing coverage to the uninsured.
Characteristics of the Uninsured
Age. Because most senior citizens have Medicare or other retirement health
benefits, nearly all the uninsured are under 65, with the greatest concentration
among children and young adults. Of those under age 18, nearly 1 in 5 are without
coverage; children make up one-third of the total uninsured population. However,
the rate of uninsurance peaks in the 18-24 age group; 25% of young adults are
without coverage. The uninsured in this age group are often too old to be covered
as dependents on their parents' policies. Those in poor families are no longer part
of their parents' (often mother's) household and therefore ineligible for Medicaid.
Those working may be in entry-level jobs that do not provide coverage. Some of the
younger uninsured may also fail to obtain insurance that is available to them,
because they do not foresee the need for medical care. The rate of uninsurance
declines steadily from age 25 on, chiefly because older workers are more likely to
obtain coverage through their own employment.
Employment Status. Of Americans with health insurance, two-thirds receive
coverage through their own employment or that of another family member. (Most
of the rest are covered by Medicare or Medicaid.) Among the uninsured in 1988, 84%
had at least some ties to the work force; 35% were full-time, full-year workers or the
dependents of such workers, but failed to obtain employment-based coverage. The
uninsured are concentrated in small firms, especially those with fewer than 25
employees, in industries characterized by seasonal or temporary employment, and in
those with a lower skilled or less unionized work force. The industries with the
lowest rates of insurance coverage are agriculture, personal services, entertainment
and recreation, and retail trade.
Income. The uninsured are disproportionately poor. In 1988, 41% of the
uninsured had family incomes below 100% of the Federal poverty thresholds, and
another 17% had incomes between 100% and 150% of the poverty line. Medicaid is
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the major source of coverage for the low-income population. However, the maximum
allowable income under Medicaid for most types of persons is below the poverty line.
Also, Medicaid has categorical limits: some persons, such as single adults and childless
couples who are neither aged nor disabled, cannot qualify regardless of income. As
a result, Medicaid covered only 43% of persons in poverty in 1986.
Trends in Insurance Coverage
The proportion of the population that is uninsured rose sharply during the early
and mid-1980s. In 1979, the uninsured represented 14.6% of the nonelderly
population. By 1988, the proportion of uninsured had grown to 17.0%.
This growth in the uninsured has occurred for several reasons. First, although
the proportion of the population in the work force has been growing, the percent
receiving benefits has been dropping. Some analysts attribute this trend to shifts in
employment. Many of the new jobs created in this decade have been in the service
and other nonmanufacturing industries, the least likely to provide coverage.
However, this factor accounts for only a small part of the growth in the uninsured.
Second, the proportion of the population receiving coverage through another
family member's employment has been dropping. Several factors have contributed
to this decline. As coverage of primary workers has dropped, so too has coverage of
their dependents. Also, a growing number of workers appear to be electing coverage
for themselves but not for their dependents. In 1986, workers who were themselves
covered through employment failed to cover their spouses in about 3% of the cases.
About 8% of the children of insured workers were uninsured. This reflects in part
a decline in employer contributions to the cost of dependent coverage. In 1980,
wholly-paid health care for individual and family coverage was available to 72% and
51% of employees in medium- and large-size firms. By 1988, wholly-paid individual
coverage had dropped to 51% and family coverage to 32%. Changes have also
occurred in family structure; there are more households with older children or
unrelated individuals. Such family units are less likely to meet the definitions in
insurance coverage rules.
Third, coverage from nonemployment sources declined, particularly Medicaid
coverage. Welfare and Medicaid eligibility standards failed to keep pace with
inflation; while the absolute number of people in poverty was rising, the number of
people receiving Medicaid stayed relatively flat for a decade. Recent changes in the
Medicaid program, such as initiatives to cover more pregnant women and children,
may reverse this trend. However, data on the impact of these changes are not yet
available.
Implications for Access
Insurance status has implications for access to health services. The uninsured
use fewer health care services and have poorer health status than the insured
population. The uninsured are more likely to delay seeking care; when they finally
seek care, the ailment may be more serious and costly to treat. The uninsured also
rely more on emergency rooms for basic services.
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While the uninsured use comparatively fewer services, they nevertheless
generally do receive health care. Some of the uninsured pay for these services out-
of-pocket; some receive care from clinics and facilities that receive public subsidies;
and some get it from providers who are subsidizing the care through increased
charges to their paying customers. For example, hospitals recorded about $7 billion
in free care and bad debt for 1986. Much of that uncompensated care was financed
by increased charges to patients with insurance.
A problem facing the uninsured is that the sources of subsidized care may be
dwindling. Increasing pressures on hospitals to negotiate rates and new methods of
reimbursement are making it difficult for hospitals to make up their uncompensated
care costs by raising their charges to insurers or other third-party payers. Hospitals'
reduced profit margins and constraints on public monies are also limiting the dollars
to finance uncompensated care. If these trends continue, the access problems of the
uninsured could grow more severe. One reason these trends are likely to continue
is our nation's inability to harness health care costs. It is relatively easy to provide
free care when that care is inexpensive, but more difficult to do so when that care
becomes a major cost.
Policy Options for the Uninsured
Policy responses to the uninsured are being considered at the State and local,
as well as Federal, levels of government. The following discussion focuses on the
major options being considered or likely to be considered by Congress, including
proposals to reach specific target groups and broader proposals to cover virtually all
of the population.
Public Programs. Existing Government insurance programs, such as Medicare
and Medicaid, could be expanded to reach a larger population. There are proposals
to expand Medicare, for example by eliminating the current 24-month waiting period
for benefits for the disabled or permitting early retirees to purchase Medicare
coverage. However, most legislative interest has focused on Medicaid, the Federal-
State program for certain groups of low-income persons. In recent years, Congress
has steadily expanded Medicaid eligibility for pregnant women and young children.
Most recently, the Omnibus Budget Reconciliation Act of 1989 (OBRA 89, P.L. 101-
239) requires all States to offer coverage to pregnant women and children under age
6 with family incomes below 133% of the Federal poverty line by Apr. 1, 1990. As
passed by the House, OBRA 89 would have extended coverage of pregnant women
and infants to 185% of poverty and would have covered all children in poverty
through age 17; these provisions were omitted from the conference agreement.
Similar proposals targeted to women and children include H.R. 1573, S. 339, S. 440,
S. 949, and S. 1230. S. 768 and H.R. 1845 would extend coverage to the entire low-
income population, without regard to the current categorical limits that restrict
Medicaid to certain families with children, the aged, and the disabled. H.R. 950 takes
a similar approach.
Tax System Options. Federal or State tax law might be modified in a variety
of ways to help more individuals purchase health insurance or to encourage more
employers to provide group health plans. Some options being considered to encourage
individuals to purchase coverage include: (1) allowing people who do not itemize their
tax returns to deduct health care costs in excess of some specified percent of adjusted
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gross income; (2) providing a refundable tax credit (much like the earned income tax
credit) to low-income families to subsidize the cost of health insurance (see, for
example, S. 1185 and S. 5 as passed by the Senate and S. 2032. See also H.R. 3 as
passed by the Senate Apr. 24, 1990.); and (3) creating a voucher program using the
Federal tax system to subsidize the purchase of health insurance by low-income
families. Possible options to encourage employers to purchase group coverage include:
(1) making the cost of purchasing health insurance for sole proprietors and the self-
employed 80% or 100% deductible as opposed to the current law deduction of 25%
(see, for example H.R. 694, H.R. 4122, H.R. 1846, S. 494, S. 1168, S. 1381, and S.
1507); and (2) changing/clarifying the tax treatment of prefunding mechanisms to
encourage employers to self insure.
Another approach would be to change the tax treatment of employer
contributions to their employee's health insurance. Under current law, the
employer's premium contribution is not counted as taxable income to the employee.
A cap could be placed on any employer contribution in excess of a specified amount,
such as $100 per month for an individual and $250 per month for a family. Such
a measure would produce new revenues that could be used to finance other access
options. Such a measure might also curb medical inflation by removing the existing
tax incentive for employers to provide rich benefit packages requiring little or no
employee cost-sharing. However, it could be difficult to determine where to set the
cap on the employer contribution so that it does not discourage the purchase of
necessary health benefits. In addition, regional variations in health care costs mean
that an employer contribution that purchases an excessive benefit package in one
area might buy a much less generous package in another area. Opponents of the tax
cap add that a cap could result in the elimination of important health benefits, such
as the coverage of mental health services.
Employment-Based Options. Federal initiatives could be used to provide
employment-based coverage to more persons or to improve coverage already provided
by employers. Three distinct approaches are possible: (1) Federal requirements on
existing health insurance plans to reach greater numbers of people or requirements
on existing plans to provide specific benefits (for example, H.R. 2563 requires
employers with existing plans to provide coverage to part-time workers); (2)
requirements on employers receiving Federal funds, such as State and local
governments and government grantees or contractors, to provide coverage to their
employees (see, for example, H.R. 43); and (3) a Federal mandate on employers to
provide coverage.
Legislation was enacted as part of OBRA 1989 (P.L. 101-239) to expand Federal
health insurance continuation of coverage requirements (mandated by Title X of
COBRA) to enable individuals who are determined to be Social Security disabled at
the time of termination of employment to receive a total of 29 months of continued
coverage under their employers' group plans. (See CRS Issue Brief 87182) Bills to
mandate that employers provide health insurance and expand Medicaid to pick up
those not covered under the employer mandate (H.R. 1845, S. 768) are under active
consideration. (See CRS Issue Brief 87168.)
Universal Access. Universal access proposals were more widely considered in
the 1970s than today, but renewed momentum has been gathering in and outside of
Congress for some type of universal program. The legislative proposals have
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generally taken one of three approaches: a social insurance program modelled after
that of Canada or Western European nations in which services are primarily financed
through general revenues but are furnished by independent providers; a national
health service like the English National Health Service in which the government both
finances and furnishes health care services; and a mixed public-private program in
which the government shares the financing burden with employers (for example,
through a combination of an expanded Medicaid program and mandated employer-
provided health insurance), but health services would continue to be furnished by
independent providers.
While a number of proposals are pending, S. 768 and H.R. 1845, combining an
employer mandate and a Medicaid/Federal-State program expansion, have moved
furthest along. Hearings have been held on both proposals and on July 12, 1989, the
Senate Labor and Human Resources Committee voted to report an amended version
of S. 768 to the full Senate (reported on Nov. 20).
Expanding Availability. Some individuals or employers may wish to purchase
insurance coverage but find it unaffordable or unavailable because of characteristics
of the private insurance market or other factors. The final set of options focuses on
possible interventions that might help make coverage more accessible or affordable
for potential purchasers. These include the following:
1. Regulation of insurance underwriting practices, under which certain
individuals or groups expected to incur high medical costs may be refused coverage,
receive coverage subject to exclusion of payment for "preexisting conditions," or be
required to pay higher rates than other applicants. H.R. 2649 would require States
to regulate the treatment of preexisting conditions.
2. Federal preemption of State mandated benefit laws. These laws, which
require insurance policies to include specific types of coverage regardless of whether
the purchaser desires the coverage, are alleged to increase the price of insurance.
S. 1274 includes this approach.
3. Encouraging private insurers to develop pooling mechanisms to spread the
risks of high-cost cases. H.R. 872 combines this approach with an employer mandate.
Finally, some proposals assume that the private insurance market may not be
able to reach very low-income or high-risk individuals and would have government
assume the role of selling insurance directly. One option is the development of a
Medicaid "buy-in" program, under which individuals or families whose income exceeds
Medicaid standards could obtain coverage by paying a premium which would be
reduced through public subsidies. OBRA 89 provides for demonstrations to test this
concept for low-income women and children. H.R. 2996 would provide grants to
States to develop buy-in programs, while H.R. 2218 would establish a similar program
on a national basis. States may also establish special programs to cover high-risk,
"uninsurable" individuals. S. 1274 would provide grants to States for this purpose.
Recommendations of the Pepper Commission. The U.S. Bipartisan
Commission on Comprehensive Health Care (known as the Pepper Commission) was
established by the Medicare Catastrophic Coverage Act of 1988 (P.L. 100-230) to (1)
examine shortcomings in the current health care delivery system and its financing
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mechanisms which limit or prevent access to comprehensive health care; (2) make
specific recommendations to Congress respecting Federal programs, policies, and
financing needed to assure the availability of comprehensive health care services for
all individuals in the U.S. and comprehensive long-term care services for the elderly
and disabled; and (3) consider in making its recommendations the amount of Federal
funds necessary to finance needed services, the sources of those funds, and the most
efficient and effective manner for administering programs for those services.
The Pepper Commission recommendations, released Mar. 2, 1990, had two
components: access to health care and long-term care. The net Federal cost of a
fully phased in program based on the Commission's recommendations for both
components would be $66.2 billion (in 1990 dollars). A description of the Pepper
Commission's recommendations for access to health care follows. A description of the
long-term care recommendations can be found in the "Long-Term Care" section of this
issue brief.
Employers with more than 100 employees would be required either to provide
health insurance to their employees (with a specified benefit package and paying 80%
of the premium), or to contribute to the public plan on their behalf. Smaller
employers would be encouraged to provide insurance through insurance market
reforms (such as guaranteed acceptance of all employer groups wishing to purchase
insurance); tax credits/subsidies for certain small employers; and 100% deduction for
the self-employed and unincorporated. If small employers failed to meet specified
coverage targets, they would be required to provide health insurance or contribute
to the public plan.
The public plan would cover employees and dependents that contribute, and non-
working individuals who buy in or are subsidized. The plan would be financed and
administered primarily by the Federal government; replace Medicaid for specified
services; and pay providers according to Medicare's rules. The Commission's plan
would be phased in, beginning with coverage of children and pregnant women
through the public plan.
The Underinsured
Even persons with insurance can face substantial health care costs if their
insurance does not adequately cover their medical expenses. Private sector health
plans and public programs such as Medicare and Medicaid may all, to some degree,
leave their enrollees underinsured because of uncovered services, cost-sharing
requirements (i.e., enrollee deductible and coinsurance amounts), limits on payments
to providers, or maximums on plan benefit payments.
The extent of out-of-pocket expenses for health care can be measured in absolute
dollars (such as $2,000) or as a percent of income (such as 5% or 10%). A study by
the Department of Health and Human Services (Catastrophic Illness Expenses,
November 1986) used a combination of these methods to determine the population
at risk for out-of-pocket catastrophic medical expenses. For a catastrophic threshold
that ranged from $4,400 plus 10% of income, to $2,200 plus 5% of income, the study
reported that in 1986, the incidence of catastrophic out-of-pocket expenditures ranged
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from 2.4 million to 6.2 million persons, or from 1.2% to 3.2% of those under age 65
or in families headed by a person under age 65. About 35% of poor families (those
below poverty) and about 3% of high-income families (those above 400% of poverty)
had out-of-pocket expenses exceeding 5% of income. Overall, the Department
estimated that about 10 million persons (in addition to the approximately 35 million
uninsured) had insurance that was inadequate to protect them from risk of
catastrophic illness expense.
Several features of health insurance plans determine the extent of out-of-pocket
expense for which an enrollee is at risk. First, if a health service is excluded from
coverage, an enrollee must pay the full cost of such services. Although plans
provided by large firms cover a variety of services, plans provided by some smaller
firms may not cover services such as physician office visits, outpatient prescription
drugs and mental health care. In addition, some plans may exclude coverage for
specified conditions or diseases for a new enrollee, either permanently or for a
specified period of time (these exclusions are known as preexisting condition clauses
or exclusion waivers).
For medical care expense covered by a plan, cost sharing (deductibles,
coinsurance, or copayments) are usually required. Many plans include a limit on
enrollee out-of-pocket expenses due to cost-sharing requirements. Once the enrollee
has reached the limit, the plan pays 100% for covered services. Such limits range
from $500 to $4,000 for medium-to-large firms. Nongroup enrollees are more than
twice as likely as group enrollees to be at risk for unlimited health care expenses
due to the absence of an out-of-pocket cap.
Gaps in coverage under the Medicare program have been criticized; on average,
Medicare covers less than half of the health care costs of the elderly because of its
durational limits for certain covered services, cost-sharing requirements, rules for
payments to providers, and exclusion of certain items and services from coverage.
Congress expanded Medicare's protection by passing the Medicare Catastrophic
Coverage Act of 1988. However, opposition to the financing mechanism and
opposition from beneficiaries who felt they already had comparable protection under
private plans led to repeal of the law in late 1989. In recent years, Congress has
focussed on abuses in the sale of Medigap insurance, which is private insurance
designed to fill in certain gaps in Medicare's coverage. Numerous hearings have been
held and regulatory reform bills introduced in the 101st Congress.
Most options for improving the coverage of the underinsured do so only
incidentally as a part of broader proposals to reach the uninsured. For example,
proposals to require that employers furnish a minimum package of health benefits
to all employees could widen the coverage of some employees who are already insured.
Only a few proposals are more specifically targeted at underinsurance. First, existing
insurance policies or employer health benefit plans could be required to include
catastrophic coverage provisions. Such rules would not require any individual or
employer to obtain insurance, but would specify the minimum benefits for those
choosing to do so. Second, low-income persons enrolled in plans with deductible
and/or coinsurance requirements could be assisted in meeting those requirements
through a public program. Such assistance is already available through Medicaid for
Medicare beneficiaries with incomes below the poverty line. There are proposals to
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extend this assistance to higher-income beneficiaries or have Medicaid pay enrollee
cost-sharing for the working poor enrolled in employer plans.
Other Health Insurance Issues
Several issues will affect the cost and availability of public and private health
insurance coverage in the future. These include health care costs and efforts to
control them, coverage for long-term care, and retiree health benefits.
Health Care Costs and Cost Containment
The United States spends more per capita, and a greater proportion of its gross
domestic product (GDP), on medical care than any other nation. U.S. health
expenditures in 1987 reached $489 billion, 10.8% of GDP, as compared to 8.6% in
Canada, 6.8% in Japan, and 6.1% in the United Kingdom. All of these countries have
universal health insurance coverage and perform at least as well as the United States
on standard measures of health care outcomes, such as life expectancy or infant
mortality rates. These international comparisons have led some observers to conclude
that our medical care system is much less efficient than those elsewhere. There is
also concern about the rate of growth in health care expenditures. Inflation in the
U.S. medical sector has outpaced inflation in the rest of the economy for many years,
averaging 15% a year from 1970-80. After a brief period of moderate increases in the
mid-1980s, annual increases in health care expenditures again reached the double
digit level in 1988. Costs grew 10.5% over their 1987 level, reaching $540 billion, or
11.1 percent of GNP. Continued health care inflation could affect the Federal budget
(chiefly through Medicare and Medicaid) and State budgets, could impede efforts to
expand access to care for the uninsured, and could either damage the competitiveness
of employers who offer health benefits or lead some of those employers to reduce or
eliminate benefits. For all these reasons, there is strong congressional interest in
controlling health care costs.
Most Federal efforts in health care cost containment have focused on the
Medicare program. Past initiatives have included reviews by peer review
organizations (PROs) of the appropriateness of services furnished to beneficiaries and
the 1983 enactment of the prospective payment system (PPS) for inpatient hospital
services, which provides an incentive for greater efficiency by establishing a fixed pre-
determined payment for each Medicare patient treated. OBRA 89 includes a
revamping of the way physicians are paid. The previous system set maximum
payments by comparing physicians' charges to those of their peers. The new system
sets fixed rates for each type of service and sets overall targets for physician
spending; rates in future years could be reduced if the targets were not met. The
system is designed to encourage physicians to limit the number of services provided
to patients, especially costly surgical and diagnostic procedures. OBRA 89 also
provides for an expanded research program on the effectiveness and appropriateness
of medical treatments. The program would seek to develop medical practice
guidelines in order to improve quality and reduce the incidence of unnecessary
treatments, both for Medicare beneficiaries and for other patients.
Private sector cost containment efforts have followed three main strategies.
First, enrollees in employer plans have been held directly responsible for a larger
portion of the costs of their care, through higher deductibles or coinsurance, in order
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to discourage unnecessary utilization. Second, private insurers have followed
Medicare in increasing their scrutiny of the appropriateness of services obtained by
subscribers. Third, enrollees have been encouraged to join "managed care" programs,
such as health maintenance organizations (HMOs), which attempt to control the
care furnished to members through an organized system of health care providers.
Long-Term Care
"Long-term care" refers to a wide array of medical, social, personal, supportive,
and specialized housing services needed by individuals who have lost some capacity
for self care because of a chronic illness or condition. Long-term care services include
skilled and therapeutic care for the treatment and management of chronic conditions.
These services also include assistance with basic human functions, such as bathing,
dressing, and eating, often referred to as activities of daily living (ADLs), as well as
assistance with household tasks such as cleaning, cooking, and shopping. Major
subgroups of individuals needing long-term care include the elderly and nonelderly
disabled, the developmentally disabled (primarily the mentally retarded), and the
mentally ill.
Both public program and private insurance coverage for long-term care services
is very limited. Recent congressional action on catastrophic health insurance for the
elderly brought new attention to the uncovered liability many persons face for long-
term care services not covered by Medicare or private insurance. These services
include both nursing home care and home and community-based care.
Expenditures for long-term care services, particularly nursing home care, strain
private resources as well as the budgets of public programs. In 1988, total national
nursing home expenditures of $43.1 billion were financed about equally by private
resources and by public programs. Nearly all private spending for nursing home care
was paid directly by the consumer out of pocket. With the average annual cost of
nursing home care about $25,000, paying for such care can represent a catastrophic
expense beyond the financial reach of most persons. Moreover, private insurance to
cover the costs of both nursing home care and community-based services is very
limited. For example, in 1988, private insurance covered only 1% of total spending
on nursing home care.
The Medicare program covers principally acute health care services and was
never expected to provide protection for long-term care. Coverage of nursing home
care, for instance, is limited to short-term stays in certain kinds of nursing homes,
referred to as skilled nursing facilities, and only for those persons who can
demonstrate a need for daily skilled nursing care following a hospitalization. Many
persons who require long-term nursing home care do not need daily skilled nursing
care, and, therefore, do not qualify for Medicare's benefit. As a result of these
restrictions, Medicare paid for less than 2% of the nation's expenditures for nursing
home care in 1988.
Only one public program, Medicaid, the Federal-State health program for the
poor, covers long-term stays in nursing homes. It does so, however, only for those
persons who meet strict income and assets rules. For many persons facing the
catastrophic expenses of nursing home care, these rules require that they first apply
most of their assets and income toward the cost of their nursing home care before
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they can become eligible for Medicaid coverage. In 1988, Medicaid payments for
nursing home care amounted to 44% of total national expenditures for this care.
The great majority of Medicaid's payments for nursing home care are for persons who
are not initially poor by cash welfare standards, but who deplete their assets and
income on the cost of needed care.
Public programs provide only limited support for nonmedical home and
community-based long-term care services. The great majority of this care is provided
by relatives and friends who are not compensated for the care they provide.
Developing a strategy for providing coverage for nursing home and home and
community-based care is difficult for a number of reasons. These include uncertainty
about the costs and utilization of services, budgetary constraints, and the complex
interrelationships of Federal and State programs currently supporting long-term care.
In addition, observers differ in their views about what public and private sector
responsibilities in financing long-term care should be. Some believe that the Federal
government should assume the major role in financing long-term care for those in
need regardless of their financial circumstances. Others believe that the costs of any
public sector expansion may be prohibitive and that the private sector, through
private insurance and other risk-pooling mechanisms encouraged with tax incentives,
should take the lead. Still others believe that a combination of public and private
sector strategies is needed, including Federal benefits together with beneficiary cost-
sharing responsibilities that could be financed through the purchase of private
insurance.
Long-Term Care Legislation. A wide range of long-term care proposals,
introduced in the 100th and 101st Congresses, reflects these divergent views as to
what public and private sector responsibilities should be for financing long-term care.
Approaches range from those that would establish totally public benefits, without a
role for the private sector or specifically private insurance, to those that would rely
almost exclusively on the private sector--whether this be individuals or insurance--
to provide the additional financing needed for long-term care.
S. 2163 (Kennedy), for example, would establish, in a new title of the Public
Health Service Act, a long-term care program covering nursing home and home care
for certain chronically disabled persons of all ages regardless of financial
circumstances. Benefits would be primarily publicly financed, without deductibles or
significant copayments. This bill aims to assure that additional sources of private
financing would be unnecessary. H.R. 2263 (Pepper) takes a similar approach to
public sector financing of long-term care, but focuses coverage strictly on home and
community-based care.
At the other end of the spectrum are bills that leave to the private sector the
responsibility for providing the additional financing needed for long-term care. Some
of these bills would provide tax incentives to individuals for the care they provide
others. Other bills would provide tax incentives to individuals and employers for the
purchase of private insurance in order to encourage the growth of this fairly new
market. The cost of these approaches is limited to the revenues that would be lost
for providing tax deductions for various purposes.
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In between are bills that would establish comprehensive long-term care benefits
at the Federal level but, to a greater or lesser extent, would include with these new
benefits certain beneficiary cost-sharing responsibilities that could be paid for with
private insurance. H.R. 3140 (Waxman) and H.R. 5393 (Stark, 100th Congress)
would each establish in Medicare comprehensive nursing home and home care benefits
that would be accompanied by limited copayments and deductibles. For those below
200% of the Federal poverty level, Medicaid would share in the cost of these
copayments and deductibles. Others could purchase private long-term care insurance
to cover these costs. In this case, private insurance would function as a supplement
to Medicare benefits in the way that Medigap policies have paid for costs of acute
care benefits not covered by Medicare.
Another bill, S. 2305 (Mitchell, 100th Congress), would create a larger role for
private insurance than the Medigap model, specifically with regard to coverage of a
chronic nursing home benefit. Under this proposal, persons would be required to
incur the first 2 years of nursing home costs before a new Medicare nursing home
benefit would begin to pay. Since studies of nursing home utilization have shown
that 75% of persons entering a nursing home stay less than 1 year and 83% stay less
than 2 years, most persons would either have to rely on out-of-pocket payments for
their care or purchase private insurance to cover the costs. This benefit has been
designed to limit Federal expenditures and to encourage private insurers to develop
policies and to encourage persons to be able to afford long-term care insurance.
Pepper Commission Long-Term Care Recommendations. The Pepper
Commission's proposal for long-term care includes three components: (1) a federally
financed social insurance program covering home and community-based care for
severely disabled individuals of all ages; (2) a federally financed social insurance
program covering the first 3 months of a nursing home stay; and (3) a means-tested
Federal and State financed nursing home program covering stays beyond 3 months
that would protect certain levels of income and assets of persons needing care. For
both the home and community-based care program and first 3 months of a nursing
home stay, individuals would be responsible for 20% of the costs of care, with the
Federal government subsidizing this required cost sharing for persons with incomes
below 200% of the Federal poverty level. For the nursing home program that would
cover stays longer than 3 months, individuals would be required to apply to the cost
of their care nonhousing assets above $30,000 for single persons and $60,000 for
married persons, before the program would begin to pay for care. Individuals would
also be required to contribute to the cost of their care income that remains after
certain set-asides for housing and personal needs were made. Private long-term care
insurance could fill in the gaps not covered by this plan. The Pepper Commission
has estimated the costs of these benefits to be $42.8 billion (in 1990 dollars).
Retiree Health Benefits
Many medium and large employers offer their employees post-retirement health
benefits. Employees usually qualify for these benefits after working 10 or more years
and achieving a certain age. When a worker retires, the employer's health plan may
be his or her only source of health insurance until becoming eligible for Medicare,
and an important source of additional coverage thereafter. In 1987, an estimated
10.8 million retirees and their dependents were covered by employer-sponsored retiree
health plans.
CRS-13
IB90005
05-09-90
Congress is becoming increasingly concerned about the future of
employer-financed retiree health benefits. As more and more companies seek to
reduce or terminate their plans, the danger grows that retirees will lose an important
source of privately sponsored health insurance.
Several factors are converging to make retiree health benefits more expensive
for employers, including health care inflation, unfavorable demographic trends, and
changes in Medicare payment policy. Perhaps most important is that certain
companies have accumulated a vast unfunded liability for the coverage of current and
future retirees. All but a small percentage of firms that offer retiree health benefits
pay for the benefits as they are incurred. The total unfunded liability of employers
for current and future retiree health benefits has been estimated by the GAO to be
over $400 billion. The liability question may become explosive now that the
Financial Accounting Standards Board has issued draft rules requiring companies to
recognize the aggregate costs of their retiree health plans on financial statements.
Companies with substantial commitments to pay for their retirees' health care and
insufficient funds to pay for them may be seen as poor investment risks.
Some companies have already sought to reduce their retiree health commitment
by modifying or eliminating their plans. Others have tried to eliminate their liability
through Chapter 11 reorganization under the U.S. Bankruptcy Code. The latter
approach was taken by the LTV Corporation. After filing for reorganization in 1986,
LTV terminated health and life insurance benefits for more than 78,000 retirees. The
company restored the benefits after substantial public pressure, and Congress stepped
in with a stopgap measure to further protect the LTV retirees.
The LTV case sent a warning that retiree health benefits are uncertain for
current, let alone, future retirees. The 99th Congress enacted a law to ensure that
retirees of certain companies that had filed for bankruptcy continued to receive
health benefits. In the 100th Congress, legislation was enacted to help safeguard
retiree health benefits in cases where companies file for Chapter 11 reorganization.
In the 101st Congress, House and Senate proposals were included in the Omnibus
Budget Reconciliation Act of 1989 (H.R. 3299, S. 1750) to allow employers on a
tax-favored basis to use excess pension funds to finance the health benefits of current
retirees. These were dropped in conference although a technical provision relating
to contribution limitations on 401(h) accounts was adopted.
Legislation (S. 2199, H.R. 4134) similar to the proposals dropped in conference
has been introduced in the second session of the 101st Congress. The
Administration's fiscal year 1991 budget also includes a proposal to permit the
transfer of excess pension funds to pay current retiree health benefits. The transfer
would have to occur before Jan. 1, 1993, and in a plan year beginning after Dec. 31,
1990.
Consideration may also be given to bills imposing new Federal requirements on
employers to provide for vesting and portability of retiree health benefits, as well as
new standards for plan administration.
CRS-14
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72
AS
WASHINGTON POST, HEALTH SECTION, NOVEMBER 18, 1986, PP. 12-15.
THE
RIGHT
CHOICE
WHICH MEDICAL INSURANCE PLAN IS BEST FOR YOU?
© 1986 The Washington Post Company. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
By Victor Cohn
need psychiatric or mental health care, or
And-one of the best guides of all-ask as
There may also be a lack of continuity. You
Staff Winer
treatment for alcohol or drug abuse? Look for
many coworkers and friends as possible about
may have "your" doctor. but he or she may
good mental health benefits.
their experience with various plans. A plan may
leave the plan abruptly. Some young doctors
ore than half a million Washing-
Is there a possibility of an operation? Hos--
look good on paper, but its service may be slop-
still use HMOs as entry points in their career
ton area federal workers, re-
pitalization? Find out what your out-of-pocket
py. its doctors not to your liking. its payment
tirees and their families are in
and then join another practice.
expenses might be.
slow, its "denials"-refusals to pay because you
In addition, well-known leaders in the med-
the midst of asking themselves:
Getting older? You may want to pay special
didn't fit the fine print-frequent.
"Should we stick with our
ical community generally prefer private prac-
attention to "catastrophic" benefits. payment
present health insurance or
for massive care beyond an ordinary year's
Two Key Questions
tice or a medical school post to working for an
health plan or switch?"
HMO. The exception is the George Washing-
expense. Or home care benefits after hospi-
Their decision will determine
How much will the plan cost me?
ton University plan's main chinic, where all the
talization.
how much money they will pay for coverage,
You can often buy either a "high option" or, if
doctors are university faculty members. Over.
how much they will have to pay if they get
Five Main Types of Insurance
you think you'll be healthy or it's all you can
all, HMO doctors are well qualified. With to
sick-and what doctor or doctors and even
afford, a "low" or "standard option" plan. But
day's generous doctor supply. HMOS can hire
what hospitals they will be permitted to use.
The traditional "service" or "indemnity"
don't just look at the premium cost. Are there
good physicians.
plans-Blue Cross-Blue Shield or Aetna, for
The "feds" are in their annual open season,
extra copayments or deductibles, sums you
example, or the "self-insured" plans operated
a period ending Dec. 5 during which they
have to pay each time you use the plan?
HMO Questions
by many employers. You go to any doctor or
HMOs or IPAs often cost more per month,
If you're thinking of joining an HMO of
The Patient's Advocate
hospital you want. The plan. if you have a good
but typically they cover more services. Some
whatever type, ask:
Commentary
one, pays most-but not all-of your bills. You
HMOs do charge $4 or $5 or $10 a visit, to
may have to do the paperwork. though some
Where would I go for care? Is it conven
discourage too many visits.
ecide between a record number of 23
employers and some doctors, by no means all,
ient? What are the hours? What hospitals
To assess your real costs. see what the
will do most of it for you.
would I go to?
health plans now competing here.
plan does about "extra" items like prescrip-
The rest of us don't have that many
Cash indemnity or "supplementary" poli-
How long does it take to get an appoint
tions, mental care, eye and hearing tests,
choices. But, if you work for a firm with 25
cies. These are not one of the federal choices
ment? In some HMOs, it is only a few days. 1:
dental care and medical equipment.
employes or more, you still must be offered
but are often advertised by direct mail, news-
shouldn't be more than a week or two for
Should I join an HMO of one type or anoth-
an annual choice between several plans. It's
paper ads or TV. They typically offer so
non-urgent problems; no more than a fev
er, or buy traditional health insurance?
all part of a new day in health care, one far
many dollars a day when you're hospitalized
weeks to see a specialist.
This will determine not only the cost but also
different from the time when most people
"no matter" what other insurance you have. A
What about emergencies? After-tomrs care
the type and quality of care you will get.
were covered by Blue Cross and Blue Shield
nice sounding idea, but often not a great buy.
Nights, weekends. holidays? You should be able
The young, healthy and childless may pay
and never thought about "switching."
Health maintenance organizations, or
an HMO more than they get back in care. A
to get prompt service in all these cases. thoug
Today switching can pay in dollars and health.
HMOs, which give you all your care (almost)
family with young children who are forever
it will probably be at a specified hospital or other
But the decisions aren't necessarily easy.
for a set monthly payment. Staff-type HMOs
being lugged to the pediatrician, or an older
site, not the usual clinic. In serious emergencies
You may have to pay more to stick with your
include Group Health Association. Kaiser and
however, you should be able to go to the neare.
person with many or recurring ailments, may
present plan. Although some plans have cut
George Washington University Health Plan,
come out well ahead.
hospital, or whatever hospital a resoue service
premiums or plan no raise, premiums are going
which have their own doctors and nurses in
In a well-run HMO. you pick your own pri-
takes you to, and still be covered.
up 4 percent on the average while the next
clinics throughout the area.
mary care doctor from the plan's list. He or
Who will my doctor be? Is he or she board
federal pay raise will be 3 percent.
Individual Practice Associations, or IPAs.
she is either an internist, a family physician, a
certified (by a specialty examining board
A federal employe with a family of four can
These are also known as "HMOs without
pediatrician (for children) or, in a few plans,
Many good doctors are not certified. but this
pay up to $3,000 a year for coverage, though
walls," like MD-IPA, HealthPlus and others.
an obstetrician-gynecologist for women who
one test of excellence. How easy is it to chang
most choose a plan that costs something
These plans have many associated doctors
prefer one as primary doctor. This doctor is
doctors? Some plans limit changes to twice
around $1,500. This is only about 40 percent
who practice in their own offices but are paid
expected to coordinate all your care. This can
year to discourage doctor-hopping and encon
of the entire cost; the government pays more
by the HMO instead of billing you.
make for very good medicine, with cooper-
age continuity of care.
than 60 percent.
In both types of HMOs, you must use the
ation with the plan's specialists when needed.
What specialties does the plan have? Ho
And beware: you may switch to an appar-
plan's doctors except for referrals in special
At the same time, this doctor is also the
easy or hard is it to be referred to a speciali
ently economical plan for 1987, only to find
cases, or else pay the bill yourself.
plan's "gatekeeper," who must okay any visits to
outside the plan?
that it implements a steep rate increase next
Preferred Provider Organizations, or
specialists, inside or outside the plan. For wo-
What if 1 travel? Most HMOs will rein
year. Year to year rate changes can vary.
PPOs, a sort of insurance hybrid. Aetna's
men, this may include seeing an OB-GYN doctor
burse you only for buna fide energenci
Still, says Washington Consumers' Check-
CHOICE plan is an example. PPOs vary
book, publisher of an annual guide for federal
if the OB-GYN is not the primary physician.
elsewhere, and many will pay only a soi.
greatly. but you typically get full coverage
employes, many workers can save $1,000 in
In some plans, you may find yourself seeing a
part of what can be very high costs.
when you use the plan's "preferred" doctors
nurse-practitioner instead of a doctor, unless
I can testify from many letters and pho
1987 by picking the right plan.
or hospitals. You get perhaps 20 percent less
you specifically say, "I want to see the doctor."
calls that many people love their HMO car
Which Plan Is 'Right' for You?
reimbursement if you go elsewhere.
Some people like this-the nurse-practitioners
And some hate it. Most of the satisfied HM
How to Choose?
frequently take more time and are very caring,
patients have found a good doctor and stay
The hard fact is that there is no right plan
patients say-and some do not.
with that doctor.
for everybody, and no single "best" plan or
Consumers' Checkbook sensibly advises:
HMOs commonly offer. and even urge,
choice. The right plan for you may depend on
"Try to focus your decision on two or three
To Switch or Not to Switch
routine physical exams, well-baby care (often
paycheck, your age, your sex and
key questions. Either you are willing to join an
through age 5), immunizations and health
her you're single or part of a family, as
Traditional insurance plans have a pen
HMO or you are not. Either you expect big bills
education classes. Some traditional health
is your health and the kind of doctor and
track record. At last count, 84 percent of "
for a particular problem such as maternity or
insurance plans have recently begun offering
eral employes still belonged to Blue Cross-PI
edical care you prefer.
surgery, or not. Either you really want to have
well-baby care, too.
If you're expecting a child, for example,
Shield, Actna or similar plans.
a particular type of benefit
or
not.
Either
HMOs try hard to keep patients' waiting
you can have $4,000 in doctor and hospital
Most patients wisely put sticking with a go
you can afford a big premium to get the ben-
bills. so you want a plan with generous cov-
time down to 20 or 25 minutes. But-among
doctor ahead of choosing a health plan on I
efits you want. or you cannot and must pick a
erage of maternity expense.
HMO minuses for consumers-they keep their
basis of a few dollars' (or even many dollar
plan which has a low premium even if it ex-
Do you think you or a family member may
doctors on a tight and "efficient" schedule that
difference in costs. U you've been lucky etror
poses you to bigger risk."
often allows an average of 15 minutes a visit.
to find a doctor you're happy with, the comm
wisdom is to stay put, whether with HMO care
much the plan will pay? Deductibles for hos-
or traditional insurance.
pital and physician services? How high is the
What's more, many doctors in private
limit on catastrophic payments?
Where to Turn for Help
practice are signing up with IPA-type HMOs
or PPOs for a share of their patients. This
More Questions
Federal workers can get detailed
$5.95 by writing the same address for a
information about competing health
copy of Checkbook's summer 1986
can be worth asking about.
No matter what kind of plan you're think-
insurance plans from:
issue.
Traditional Coverage
ing about, ask:
The Office of Personnel
Though one is addressed to federal
Are all my other family members covered?
Management's free "1987 Enrollment
employes, both Checkbook publications
If you're considering traditional health in-
To what age are my children covered?
Information Guide and Plan Comparison
can be valuable to anyone.
surance, ask:
Can I renew my policy or membership as
Chart," a pamphlet available at each
For retirees, a special OPM
What's covered? What's not covered? At the
often as I like? Can I be canceled for any rea-
agency. Excellent on costs, very general
information package. available (if you
doctor's office? The hospital? The prescription
son? What happens after I reach age 65?
on benefits.
haven't received it) by writing OPM
counter? The dentist? The rehabilitation cen-
What if my spouse has our only coverage and
The health plans' own brochures-
Open Season Task Force, P.O. Box 809.
ter? The alcohol and drug abuse clinic?
I get divorced? What if I leave my employer or
essential for detailed information on
Washington, D.C. 20044. or by phoning
. Are there limits-there probably are-on
group? In many cases, you can buy coverage in
benefits-available at some agencies and
632-5272.
paying doctors' charges, which would leave you
the group plan for a period, then buy an indi-
agency "health fairs."
. Washington area retirees
to pay the rest? Health insurors usually pay
vidual plan. though it may cost you much more
The "Checkbook's Guide to 1987
United Semors' "Medigap C
bv
only "customary and reasonable" charges. Your
for fewer benefits.
Health Insurance Plans for Federal
phoning Steve Kilkelly at 393
or
doctor may charge more, sometimes a lot
What if I want to make a complaint? Is there
Employes," $4.95, published by
writing United Seniors' Consumer
more. The Checkbook guide advises: "Discuss
an ombudsman or patient representative I can
Washington Consumers' Checkbook
Cooperative, 12334 G St. NW.,
the fee with your doctor before any high-cost
talk to? If you tell me I'm "not covered" for
magazine. Available at newsstands-it's
Washington, D.C. 20005. United Seniors
service is provided. In most cases, the doctor
something. can I appeal?
digest sized. with a hot pink cover-or
will send you a form so you can indicate
will agree to accept what the plan will allow. If
This is the time to read the fine print on the
by writing Washington Consumers'
what coverage you have and what plans
not. consider using another doctor who will
brochure and ask friends about their good and
Checkbook, Suite 925. 806 15th St. NW,
you're considering, then send you a
accept the usual rate."
bad experiences. They may tell you more than
Washington, D.C. 20005.
personal analysis. $20 ($12 for
But be warned: a few plans that advertise
any guidelines can.
Checkbook's equally valuable report
members).
low rates have some fee schedules considerably
on Washington area HMOs, available for
- Victor Cohn
lower than most doctors will ordinarily accept.
Comparison of plans
Page 14
Are there lifetime dollar limits on how
The economics of insurance
Page 16
Cover Story
Standard Option (Self and Family):
metropolitan area, but patients who do
Otherwise, they are similar to
$37.61
not live near these centers can also visit
For high option, plan kicks in after
group-model HMOs in that you must
a network of affiliated doctors the HMO
choose doctors associated with the plan
$200 calendar year deductible; standard
is putting together.
and use the hospitals affiliated with the
kicks in after $250 deductible. High
option pays for 100 percent of hospital
The George Washington University
plan. Often, however, members will have
room and board charges after $175, 80
Health Plan
a greater selection of doctors to choose
percent of other hospital charges, subject
High Option (Self Only): $34.28
from than in a group model HMO.
to certain conditions. Standard pays up to
High Option (Self and Family): $121.38
- CapitalCare
$250 per day for room and board
Standard Option (Self Only): $18.49
Self Only: $20.67
charges, 80 percent of other charges.
Standard Option (Self and Family):
Self and Family: $80.79
For high option, catastrophic limit of
$77.72
$50 copayment for each day of
$2,000 for individual and $2,500 for
For high option, no copayment for
hospitalization, starting on second day of
family; for standard, catastrophic limit of
hospital care or office visits. For standard
hospitalization, up to a $150 limit. $5
$2,500.
option, $75 per day copayment for
copayment for office visit. $500
inpatient hospital care, up to $500
maximum in out-of-pocket expenses per
maximum for individual and $1,000
HMOs
member. CapitalCare is the HMO
maximum for family; $10 copayment for
offering of the area Blue Cross and Blue
Cassandra Doyle, a Navy
Unlike fee-for-service plans, HMOs
each office visit. Under high option plan,
Shield plan.
employe who lives in
offer a range of health services for one
$105 maximum in out-of-pocket expenses
pre-paid fee, including routine check-ups,
for individual, $250 for family. Under
HealthPlus
Southeast Washington,
hospitalization, and surgery. HMO
standard option, $1,707 for individual and
High Option (Self Only): $33.87
belongs to George
enrollees also agree to receive their care
$4,774 for family.
High Option (Self and Family): $75.64
Standard Option (Self Only): $17.87
Washington University
from the doctors and hospitals chosen by
Doctors associated with the plan are on
the plan.
the faculty of GWU School of Medicine
Standard Option (Self and Family):
Health Plan. "I'm very
The biggest drawback of HMOs, by
and Health Sciences; the primary hospital
$39.79
satisfied," Doyle says. "I
most accounts, is that you don't have the
used is GWU Medical Center.
For high option, no copayment for
complete freedom, except in emergency
hospital care, $5 copayment for office
was in the hospital for 19
Kaiser Permanente Health Plan of the
situations, to select doctors who are not
visits. For standard option, $200
Mid-Atlantic States
days for major surgery this
affiliated with the plan. On the other
copayment per medical admission to
Self Only: $26.50
hand, HMOs charge virtually no
hospital; $400 per surgical or maternity
year, I didn't have to pay a
Self and Family: $83.24
out-of-pocket expenses and they save
admission; $50 per outpatient visit; $5
penny and I had very good
members the trouble of filling out and
No copayment for hospital care or
copayment for office visit. $650
doctors."
arguing over claims forms. The best
office visits. Plan is part of the Kaiser
maximum in out-of-pocket expenses for
HMOs also have their own philosophy of
Permanente system, the largest system
individual, $1,500 maximum for family.
health care, stressing preventive
in the country and the group that
pionneered the HMO concept before they
M.D. IPA
High Option (Self and Family): $95.58
medicine and comprehensive review of
were called HMOs.
Self Only: $20.37
andard Option (Self Only): $17.58
doctor quality.
Self and Family: $82.55
andard Option (Self and Family):
There are two main classes of HMOs:
Individual Practice Associations
No copayment for hospital care or
1.29
group practice or clinic models, and
IPAs have no central facilities, but
office visits. $938 maximum in
For high option, plan kicks in after
individual practice associations (IPAs),
rather contract with private doctors who
out-of-pocket expenses for individual,
$200 calendar year deductible. For
plus the closely related preferred
provider organizations (PPOs).
see patients in their own offices.
$2,518 for family.
standard, plan kicks in after $250
deductible. High option pays 100 percent
Network Health Plan
of hospital charges after room and board
Group Practice Models
High Option (Self Only): $38.89
charges the first day, subject to certain
Group practice HMOs offer health care
High Option (Self and Family): $110.82
conditions. Standard pays 100 percent
at central facilities staffed by their own
Standard Option (Self Only): $28.60
after $150, subject to conditions. For
personnel. Their doctors either work on
Standard Option (Self and family):
high option, catastrophic limit of $2,000;
salary for the plan directly or are part of
$85.41
for standard, catastrophic limit of $1,000
a group that contracts to provide service
For high option, no copayment for
per individual and $2,000 for family.
for the HMO.
hospital care, $5 copayment for office
One of the advantages of this model is
visit. For standard option, $200
NTEU (National Treasury Employees
the convenience of "one-stop" shopping;
copayment per medical admission; $400
Union) Health Benefit Plan
often the HMO clinics house not only
per maternity admission; $400 per
High Option (Self Only): $60.24
doctors' offices, but also laboratories,
surgical admission; $50 per outpatient
High Option (Self and Family): $143.67
pharmacies, and diagnostic equipment.
surgery; $5 copayment for office visit.
Standard Option (Self Only): $12.65
Consumers should make sure, however,
$1,000 maximum in out-of-pocket
Standard Option (Self and Family):
that the central locations are easily
expenses for individual, $2,500 maximum
$28.57
accessible from home or work. You
for family.
For high option, plan kicks in after
should also investigate how long it takes
$200 calendar year deductible; for
Physicians Care
standard, plan kicks in after $250. High
to get an appointment, and, once you get
Self Only: $39.46
option pays for 100 percent of hospital
an appointment, how long you will wait to
Navy worker A.R. Habayeb
Self and Family: $96.98
see a doctor.
room and board, 80 percent of other
No copayment for hospital care; $5
charges after $50 hospital deductible.
There are three group-model HMOs
of Boure, his wife and three
copayment for office visit.
Standard pays for 75 percent of all
operating thoughout the Washington
hospital charges after calendar year
metropolitan area:
children now have Blue
Preferred Provider Organizations
deductible is met. For high option,
Cross-Blue Shield. But "I'm
Group Health Association
A PPO is a hybrid, someplace in be-
catastrophic limit of $1,500 for individual
High Option (Self Only): $31.85
shopping around like
tween an IPA and traditional insurance.
and $2,000 for family; for standard, limit
High Option (Self and Family): $110.15
everyone else," he says and
Choice Healthcare Plan
of $2,000.
Standard Option (Self Only): $17.52
Self Only: $30.08
Standard Option (Self and Family):
is considering
Self and Family: $97.54
Postal Supervisors Health Benefit
$56.83
HealthPlus-an
$100 copayment each time you go into
Plan
For high option, $100 yearly
"independent practice"
the hospital; $5 copayment for office
Self Only: $27.30
copayment for hospital care, no
visits. $750 maximum out-of-pocket
Self and Family: $74.19
copayments for office visits. For standard
HMO, where he can see any
expenses for individual, $1,500 for
Plan kicks in after $200 calendar year
option, $200 yearly copayment for
doctor on the HealthPlus
family. Choice is sponsored by Aetna.
ductible. Plan pays for 100 percent of
hospital care, $10 copayment for each
spital charges after $165. Catastrophic
list "It's confusing,"
You pick a primary care physician (or, for
office visit. Under high option, $2,158
women, a general and an OB-GYN
unit of $1,000.
maximum in out-of-pocket expenses for
Habayeb says of the many
doctor). You are covered only for care by
Postmasters Benefit Plan
individual, $5,693 for families. Under
available plans. "Like
this physician or those be or she refers
High Option (Self Only): $59.82
standard option, $1,070 maximum for
you to, and for care at selected
High Option (Self and Family): $125.99
individual, $2,838 for families.
buying a car-so many
hospitals-in both cases, except in
Standard Option (Self Only): $15.43
GHA offers clinics throughout the
models."
emergencies.
Cover Story
Choosing a Plan:
of hospital charges. For high option,
High Option (Self and
$39
catastrophic limit of $1,000 for individual
Standard Option (Self Only): $12.77
and $2,000 for family in high option; for
Standard Option (Self and Family):
Cheaper Is Not Necessarily Better
standard option, catastrophic limit of
$30.22
$2,000.
No calendar year deductible. Plans
APWU (American Postal Workers
in full for hospital room and board, as
The following shows some basic cost
Union) Health Plan
well as 100 percent of other charges
prescription drugs and dental care. In
differences between the health plans
Self Only: $26.52
after $125. Catastrophic limit of $2,50
addition, plans have increasingly adopted
Self and Family: $50.83
for individual and $5,000 for family.
available to all federal workers in the
various cost-cutting measures, like
Plan kicks in after calendar year
NAGE (National Association of
Washington metropolitan area.
requiring you to get a second opinion for
Consumers should bear in mind,
elective surgery.
deductible of $175. Plan pays 100
Government Employees) Health Bene:
however, that cost is not the only factor in
Consumers and the federal government
percent of first five days of room and
Plan
choosing a plan. You should examine the
share the cost of premiums, according to a
board in hospital; 100 percent of the rest
High Option (Self Only): $42.90
brochures provided by the plans for
if pre-admission certification is obtained
High Option (Self and Family): $107
pre-determined formula. For this year, the
from plan; and 80 percent of other
Standard Option (Self Only): $14.87
differences in benefits, convenience, and
monthly government contribution to health
Standard Option (Self and Family):
the doctors and hospitals available under
plans is $58.82 for individuals and $129.33
hospital charges. Catastrophic limit of
$1,500.
$35.46
the plans. Consumers should also be aware
for families. Listed below is the amount of
that premiums are only one part of the
the monthly premium employes must pay.
Blue Cross and Blue Shield
For high option, plan kicks in after
Some of the union plans also require you to
High Option (Self Only): $73.65
$200 calendar year deductible; for
cost picture; many plans have significant
copayments for hospital and office visits, as
pay a small fee in addition to join.
High Option (Self and Family): $159.81
standard, after $250 deductible. High
well as other out-of-pocket expenses for
- Michael Abramowitz
Standard Option (Self Only): $18,49
option pays 100 percent of hospital
Standard Option (Self and Family):
charges after $150, subject to
Fee for Service
standard, various deductibles for
$41.14
pre-admission certification. Standard
different services. High option pays 100
For high option, plan kicks in after
pays 75 percent of hospital charges,
These are the traditional service or
percent of hospital charges after $100.
calendar year deductible of $200; for
subject to pre-admission certification. F
indemnity plans that essentially allow you
Standard option pays 100 percent of
standard, $250 deductible. High option
high option, catastrophic limit of $1,00
to go to any hospital or doctor and will
room and board after $100; 80 percent of
pays 100 percent of hospital charges
per individual and $2,000 per family. F
pay for the entire bill for covered
other services. For high option,
after $50 deductible; standard option
standard, limit of $2,000 per individual
services, subject to certain deductibles or
catastrophic limit of $1,500; for standard,
pays 100 percent after $100 deductible.
and $3,000 per family.
copayments. Such a plan is for people
catastrophic limit of $2,500 per person.
For high option, catastrophic limit of
NALC (National Association of Lett
whose paramount interest is complete
Alliance Health Benefit Plan
$1,500; for standard, limit of $2,500.
latitude in selecting physicians. At the
Carriers) Health Benefit Plan
High Option (Self Only): $39.83
same time, you may also have the hassles
- Government Employees Hospital
Self Only: $44.55
High Option (Self and Family): $131.51
of filling out your own claim forms.
Association Benefit Plan
Self and Family: $76.66
Standard Option (Self Only): $10.34
In evaluating plans, consumers should
Standard Option (Self and Family):
Self Only: $26.31
Plan kicks in after $150 calendar yea
try to anticipate the amount of medical
$27.85
Self and Family: $49.20
deductible. Plan pays 100
of
care they will need over the year. A
For high option, plan kicks in after
Plan kicks in after calendar year
hospital charges, less $12
day
rough rule of thumb is that the "high
$200 calandar year deductible; for
deductible of $200. Plan pays 100
the first five days of each
option" plans-which charge higher
standard, $300 deductible. High option
percent of hospital charges. Catastrophic
Catastrophic limit of $1,00
premiums and have lower deductibles and
limit of $2,000.
pays 100 percent of hospital room and
NFFB (National Federation of Feder
copayments-are attractive to sicker
board, 80 percent of other hospital
Mail Handlers Benefit Plan
Employees) Health Benefit Plan
patients who expect they will need a lot
charges. Standard option pays 75 percent
High Option (Self Only): $15.16
of hospitalization. By contrast, "standard
High Option (Self Only): $41.06
option" plans charge lower premiums but
also have higher out-of-pocket expenses;
these generally attract healthier
enrollees who expect to stay out of the
hospital.
Virtually all the plans have maximum
limits, beyond which you will pay DO more
out-of-pocket expenses. This way, you
are protected against catastrophic
medical costs.
There are 13 fee-for-service plans
available to all federal workers in the
Washington area. Another 12 are
available for members of specific groups,
like the Foreign Service or Secret
Service:
Aetna
High Option (Self Only): $80.78
High Option (Self and Family): $130.26
Standard Option (Self Only): $18.69
Standard Option (Self and Family):
$39.99
For high option, plan kicks in after
calendar year deductible of $200; for
standard, $250 deductible. High option
WASHINGTON POST HEALTH/NOVEMBER 18. 1986
plan pays 80 percent of hospital charges;
standard option pays 75 percent. For
both options, catastrophic limit of $1,500
for individual, $3,000 for family.
AFGE (American Federation of
Government Employees) Health Benefit
Plan
PHOTOS
&
ELLBWORTH
DAVIS-THE
POST
High Option (Self Only): $40.41
High Option (Self and Family): $83.46
Ed Corcoran of Fairfax County is both a retired military man and Navy civilian employe. At or
Standard Option (Self Only): $11.27
of a series of health insurance fairs to help federal workers choose a health plan, he tells Group
Standard Option (Self and Family):
Health Association's Lilla Oxaal that he thinks he "II join GHA. "With Gramm-Rudman cuts ar
$24.50
For high option, plan kicks in after
all," he says, he and his wife are having a "harder time" getting military care. "I've talked to m
calendar year deductible of $200; for
fellow workers and friends, and they like GHA."
14
CRS
Congressional Research Service
The Library of Congress
Washington, D.C. 20540
Health Insurance:
Employer Mandated Benefits
IP 389H
There has been increasing public and congressional concern over the large
number of Americans with no health insurance. In 1986, Congress passed
Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA, P.L. 99-272) which requires certain employers to offer continued
health insurance coverage to their employees who would otherwise lose
coverage for certain reasons. The Tax Reform Act of 1986 added
nondiscrimination rules to Section 89 of the Internal Revenue Code to ensure
that certain employee benefit plans, including health plans, are broadly based
and do not primarily favor certain categories of employees who are owners,
officers or highly placed individuals. Language repealing Section 89 and
restoring the nondiscrimination rules to what they were prior to the Tax
Reform Act of 1986 was included in P.L. 101-140, signed into law on
November 8, 1989. There is also some interest in the 101st Congress in
expanding health insurance coverage through mandated employee health
benefits. This Info Pack summarizes the provisions of Title X, Section 89,
and the subsequent changes to these laws.
Three other Info Packs are available on related topics. They are
"Catastrophic Health Insurance" (IP 370C), "Health Insurance" (IP 72H), and
"Health Care Access: Federal Policy Issues" (IP 421H).
Members of Congress who want further information on this topic may
contact CRS at 707-5700. Additional CRS Reports may be identified by
looking in the current Guide to CRS Products (for congressional use only)
under "Health Insurance" and in the latest Update under "Health."
Additional information on this subject, primarily in periodicals and
newspapers, may be found at a local library through the use of indexes such
as the Readers' Guide to Periodical Literature, Public Affairs Information
Service Bulletin (PAIS), General Science Index, and various newspaper indexes.
We hope this information will be helpful.
Congressional Reference
Division
Order Code IB87182
CRS Issue Brief
Health Insurance
Continuation Coverage
Updated May 21, 1990
by
Beth C. Fuchs
Education and Public Welfare Division
CRS
Congressional Research Service The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Expanding Access to Private Health Insurance
Debate Over Health Insurance Continuation
Legislative History of Continued Private Health Insurance Coverage
Regulatory Actions
New Law
What Does Title X of COBRA Do?
Tax Reform Act of 1986
OBRA of 1986
Action in the 100th Congress
Action in the 101st Congress
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
CHRONOLOGY
FOR ADDITIONAL READING
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Health Insurance Continuation Coverage
SUMMARY
Most Americans with private group health insurance are covered through an
employer. In the past, that coverage was generally dependent on being employed or
being related to the employed worker. A change in the individual's work or family
status often resulted in the loss of that coverage. In April 1986, a law was enacted
which helps many people retain their health insurance in the event of a change in
their work or family status for 18 or 36 months, depending on the nature of the
event. Under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985
(COBRA, P.L. 99-272), and subsequent amendments, an employer with 20 or more
employees is required to provide his or her employees and their families the option
of continued coverage under the employer's group health insurance plan in the case
of certain designated events. The employer is not required to pay for this coverage.
Employers who fail to provide the continued health insurance option are subject to
penalties under the Internal Revenue Code, and the Employee Retirement Income
Security Act (ERISA); State and local governments are subject to penalties under the
Public Health Service Act.
COBRA was signed into law on Apr. 7, 1986. Since then, Title X has been
modified several times. The Tax Reform Act of 1986 (P.L. 99-514) included technical
corrections, and the Omnibus Budget Reconciliation Act. of 1986 (P.L. 99-509)
provided for continuation coverage for retirees in cases of bankruptcy. Additional
changes were made as part of the Technical and Miscellaneous Revenue Act of 1988
(P.L. 100-647), and the Omnibus Budget Reconciliation Act of 1989 (OBRA, P.L. 101-
239). The Departments of Labor and Treasury have provided preliminary guidance
on implementation of the Title X provisions.
Title X was enacted in response to increasing congressional concern about the
large number of Americans who lack health insurance. In 1985, an estimated 37
million Americans under age 65 were without any health insurance coverage. Some
of these individuals would have retained health insurance had they not lost it as a
result of a lay-off, or as a result of the death of or divorce from the covered worker.
Congress considered and enacted continuation coverage legislation with the
expectation that it would help expand access to health insurance coverage for at least
these individuals.
Some Members of Congress believe that COBRA went too far in mandating that
employers provide their employees and their employees' families continued coverage.
They argue that it has resulted in extra costs for employers as well as added
administrative burdens. In contrast, others in Congress believe that COBRA should
be expanded to include new eligibility categories. As part of OBRA of 1989, Title X
was modified to allow persons to extend coverage from 18 to 29 months to those with
a disability at the time of termination from employment (or reduction in hours), and
to allow beneficiaries to retain their existing continued coverage if their new
employer's plan contains a preexisting condition limitation.
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ISSUE DEFINITION
Most Americans with private group health insurance are covered through an
employer. In the past, that coverage was generally dependent on being employed or
being related to the employed worker. A change in the individual's work or family
status often resulted in the loss of coverage. In April 1986, a law was enacted which
helps many individuals retain their health insurance in the event of a change in their
work or family status. Under Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985 (COBRA, P.L. 99-272), and subsequent amendments, an
employer with 20 or more employees is required to provide his or her employees and
their families the option of continued coverage under the employer's group health
insurance plan in the case of certain designated events. The employer is not required
to pay for this coverage.
Some in Congress believe that COBRA went too far in mandating that employers
provide their employees and their employees' families continued coverage. They
argue that it has resulted in new costs for employers as well as additional
administrative burdens. One bill, H.R. 585, would allow employers to terminate
continued coverage for individuals who become eligible for another group health plan.
In contrast, some Members believe that COBRA should be expanded to bring
additional individuals under the continuation of coverage option and/or to increase
the duration of COBRA coverage for specific groups of people. A proposal to extend
COBRA coverage from 18 to 29 months to those with a disability at the time of
termination from employment (or a reduction in hours) was included in the Omnibus
Budget Reconciliation Act of 1989 (P.L. 101-239). In any event, Members of Congress
have received, and are likely to continue to receive, numerous inquiries from the
public about the Title X provisions.
BACKGROUND AND ANALYSIS
Expanding Access to Private Health Insurance
Title X of COBRA is one of a number of recent laws mandating that private
(and most public) employers who offer health insurance conform to certain Federal
requirements. (See CRS Issue Brief 87168, Mandated Employer Provided Health
Insurance.) One of the factors leading to new Federal benefit requirements on
employers is the concern of Congress about the large number of medically uninsured
Americans. While most Americans under age 65 obtain private health insurance
coverage through the workplace, in 1986 there were an estimated 37 million
Americans under age 65 who were without any health insurance coverage. Surveys
indicated that a substantial number of the uninsured lost coverage as a result of the
termination of employment or a change in family status. For example, many workers
and their families lost access to an employer's health insurance plan when the
workers were laid off. Coverage for the family was also lost if the worker died.
Congress considered and enacted continuation coverage legislation with the
expectation that it would help expand access to coverage for at least these
individuals. Continuation coverage was not, however, expected to lead to coverage
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of the vast majority of uninsured Americans, a goal for which other solutions would
be more appropriate.
Prior to the enactment of Title X of COBRA, if an employee's job was
terminated (voluntarily or involuntarily), the insurance offered by the employer also
terminated. While there were exceptions, paid benefits usually terminated within 30
to 60 days after leaving the job. Continued coverage, where the employee would have
the option to buy into the employer's group plan, might be of longer duration, but
there was no certainty that an employer would provide such an option. In addition,
in 1985, 10 States mandated that insurance policies sold in their States had to
include a continuation of coverage option for laid-off workers. However, self-insured
employers (employers which assume the risk of the health care costs of their
employees rather than passing the risk onto insurers) were not regulated by these
State-mandated benefit laws, thus leaving a large portion of the workforce unaffected
by the mandates. Self-insured plans are considered employee welfare benefit plans
and are regulated by the Federal Government under the Employee Retirement Income
Security Act (ERISA). According to researchers from the National Center for Health
Services Research, 13% or 1.4 million unemployed workers lost health insurance in
1982 as a direct result of unemployment. These individuals had private health
insurance prior to the date of unemployment and were without such coverage for
several months after the termination of employment.
Also, prior to COBRA, employer practices varied greatly as to whether any
continuation of coverage would be available in the event of a change in family status.
For example, data from the Bureau of Labor Statistics for 1985 indicate that a
majority of medium and large sized firms offered some continued coverage to the
families of deceased workers. That coverage ranged, however, from less than 30 days
to indefinite coverage, sometimes lasting until the widow became eligible for Medicare.
About 12% of the firms for which there were data reported no continuation coverage.
Women were especially likely to have been affected by a change in family status
because, traditionally, their health insurance was dependent on both marital and
employment status. Most married women, whether or not in the paid labor force,
have private insurance. However, in 1977 (the last year for which data are
available), only 50% of all widows and 33% of all divorced women, ages 35-64, who
did not have paid jobs had private insurance (1977 National Medical Care
Expenditure Survey). A large number of these women and their dependent children
relied on Medicaid for health insurance. Of those women not in the paid labor force,
more than 40% of all divorced women and about 25% of all widows, ages 35 to 64,
depended on Medicaid as their only source of insurance.
Debate over Health Insurance Continuation
The principal advocates for legislation to provide for federally mandated
continuation coverage were women's organizations, although they were later joined
by other groups concerned about the medically uninsured. The arguments for and
against the continued coverage legislation changed as the various proposals were
broadened to include coverage for terminated employees.
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Proponents of a Federal health insurance continuation law observed that for a
large percentage of women, access to health insurance was through their husband's
employer-based group. It followed that a Federal continuation provision was
necessary to protect women and their families from losing access to this health
insurance when the husband died, became eligible for Medicare or retired. In
addition, it was important to protect women from the loss of coverage that resulted
from a divorce or legal separation. At best, the loss of the husband's coverage could
result in major increases in insurance costs if the woman attempted to buy coverage
through the private individual insurance market. At worst, the woman might not be
able to obtain any private coverage at all if she had a preexisting illness. She might
then go on the Medicaid rolls or remain uninsured.
Proponents of continuation also asserted that a Federal mandate would not
necessarily cost employers any money. Beneficiaries could be asked by employers to
pay the total cost of the premium, and any administrative costs. In addition,
reporting and other administrative requirements could be designed to ensure that
employers did not incur major new burdens. Finally, it was argued that employers
would ultimately share in the savings to the community that would result from
reduced stress on Medicaid and lower levels of uncompensated care, through lower
taxes and lower health insurance premiums for their active workers.
Those who strongly opposed the continuation of coverage legislation argued that
it was not appropriate for the Federal Government to regulate employer-sponsored
benefits. They pointed to data showing that large numbers of employers already
offered continuation of coverage. They also argued that by forcing employers to offer
continuation, the Federal Government would be discouraging employers from
providing health benefits, and that increasing numbers of employers, especially
smaller ones, would drop their health benefits entirely.
However, most of the groups who were opposed to continuation indicated a
willingness to accept the legislation if certain modifications were incorporated. They
unsuccessfully pressed for a shorter duration of coverage, the elimination of coverage
for laid-off employees and those who voluntarily terminated their jobs, higher
beneficiary premiums to allow for what they argued would be increased
administrative costs, and enactment of a preemption of State-mandated benefits to
allow uniform administration of health benefit plans that encompassed employees in
more than one State. In pressing for these changes, these groups argued that most
people who were laid off would obtain coverage through their spouse's
employer-provided plan. In addition, they said that a shorter duration of coverage
and more narrow definitions of qualified beneficiaries were needed to prevent adverse
selection into their plans, in which there would be an above-average probability that
individuals enrolling in the plan would use its coverage. This argument was most
often used in efforts to reduce coverage for widows, divorced spouses and dependents.
The rationale was that these individuals were likely to be higher users of health care
than, for example, active workers. The theory was that women and children used
health services more frequently than working males. They therefore, would be likely
to elect the continuation of coverage option. The insurers would factor in this higher
utilization in the rating of the employers' premiums, thereby driving up the costs of
the employers' plans.
CRS-4
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Legislative History of Continued
Private Health Insurance Coverage
The principal health insurance continuation proposals were included in the
budget reconciliation bills for the FY86 budget (H.R. 3128, H.R. 3500, and S. 1730)
and, after a set of complex procedural steps, were incorporated in the House and
Senate versions of H.R. 3128. The final version of Title X of COBRA was the
product of conference committee negotiations among five committees: three from the
House (Education and Labor, Energy and Commerce, and Ways and Means) and two
from the Senate (Finance, and Labor and Human Resources). (See CRS Report
87-613, Private Health Insurance Continuation Coverage: Legislative History of Title
X of COBRA.)
COBRA was signed into law on Apr. 7, 1986. Before the end of the year, Title
X was modified twice: The Tax Reform Act of 1986 (P.L. 99-514) included technical
corrections, and the Omnibus Budget Reconciliation Act of 1986 (P.L. 99-509)
provided for continuation coverage for retirees in cases of bankruptcy. The Technical
and Miscellaneous Revenue Act of 1988 (P.L. 100-647) made changes to the tax
penalties for noncompliance, as well as certain other technical modifications. The
Omnibus Budget Reconciliation Act of 1989 (OBRA, P.L. 101-239) contains provisions
to extend continued coverage to 29 months for persons who were disabled at the date
of job termination (or reduction in hours). OBRA 1989 makes other changes which
are described below (see Action in the 101st Congress.)
Regulatory Actions
Title X amends three statutes: the Internal Revenue Code, administered by the
Internal Revenue Service of the Department of the Treasury; ERISA, administered
by the Department of Labor; and the Public Health Service Act, administered by the
Public Health Service of the Department of Health and Human Services. In this
regard, the conference report for COBRA (H.Rept. 99-453, p. 562) states:
To avoid the issuance of duplicate and perhaps inconsistent regulations, the
conferees authorized the Secretary of Labor to promulgate regulations
implementing the disclosure and reporting requirements, and the Secretary
of the Treasury to issue regulations defining required coverage, deductions
and inclusions. The Secretary of Health and Human Services is to issue
regulations regarding the requirement that State and local governments
provide continuation coverage for qualified beneficiaries. The conferees
intend that any regulation issued by the Secretary will conform (in terms
of actual requirements) with those regulations issued by the Secretary of
the Treasury and Labor
The conference report also says that "pending the promulgation of regulations,
employers are required to operate in good faith compliance with a reasonable
interpretation of these substantive rules, notice requirements, etc. (p. 563)."
On June 26, 1986, the Department of Labor issued a technical bulletin to assist
employers and group health plans in informing workers about the availability of
CRS-5
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extended health care coverage under Title X. The bulletin contains a model notice
summarizing the rights and obligations of employees and their families under Title
X. Employers may use this model notice to satisfy the general notification
requirements of the law.
On June 15, 1987, the Internal Revenue Service issued proposed regulations
relating to Title X and the relevant provisions in the Tax Reform Act of 1986, which
"clarify which plans must offer COBRA continuation coverage and the tax
consequences of failing to do so. They also provide guidance on a variety of details,
including the scope of the continuation coverage, who is a qualified beneficiary, what
is a qualifying event, how elections [of continued coverage] are made, and when
payment must be made." The Internal Revenue Service has not yet issued proposed
rules regarding computation of the applicable premium to be charged for the
continuation coverage, something that is especially relevant to the calculation of
premiums for self-insured plans. In addition, the proposed regulations do not cover
the amendments made by OBRA of 1986 relating to certain bankruptcies as
qualifying events, or any of the Title X changes made since June 1987.
In compliance with the language of the conference report on COBRA, the Public
Health Service does not plan to issue regulations until final regulations have been
promulgated by the Departments of Treasury and Labor. The Department of Labor
is currently considering whether regulations are necessary regarding Title X's
disclosure and reporting requirements.
New Law
What Does Title X of COBRA Do?
COBRA requires employers with 20 or more employees that offer a group health
insurance plan to offer qualified employees and their families the option of continued
health insurance at group rates when faced with loss of their coverage because of
certain events. Self-insured firms (ones which assume the risk of paying for their
employees' health care costs rather than passing that risk onto insurers) are also
covered under Title X. An employer is considered as having normally employed 20
or more employees during a particular year if it had 20 employees on at least 50%
of its working days during that year.
An employer must comply with COBRA even if he does not contribute to the
health plan; he need only maintain such a plan to come under the statute. Church
plans, the Federal Government, the government of the District of Columbia, and
territories and possessions of the United States are excluded from the COBRA
continuation requirement. (However, under P.L. 100-654, enacted late in 1988,
Federal employees are entitled to continued coverage under the Federal Employees
Health Benefits Program, starting Jan. 1, 1990. See: The Federal Employees Health
Benefits Program. CRS Issue Brief 89124.)
The events that trigger COBRA continuation of coverage are defined to include:
(1) termination or reduction in hours of employment (for reasons other than gross
misconduct), (2) the death of the employee, (3) divorce or legal separation from the
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employee, (4) the employee becomes eligible for Medicare, and (5) the end of a child's
dependency under a parent's health insurance policy. An event will trigger
continuation if, under the terms of the employer's group health plan, the event
causes the employee, or the spouse, or a dependent child of the employee, to lose
coverage under the plan. The loss of coverage need not occur immediately after the
event, so long as the loss of coverage will occur before the end of the maximum
coverage period. Title X has very specific effective dates (see below). An event that
occurred prior to the effective date will not be considered a qualifying event for
continuation of coverage purposes. When a covered employee experiences
termination or reduction in hours of employment, then the continued coverage of the
employee and any qualified beneficiaries must continue for 18 months. For all the
other qualifying events, the coverage for the qualified beneficiaries must be continued
for 3 years.
The Internal Revenue Service's proposed regulations for Title X provide guidance
on who is eligible for COBRA continuation coverage and what constitutes a
qualifying event. For example, voluntary termination of employment is a qualifying
event. With the exception of gross misconduct, it does not matter whether the
employee voluntarily quit, retired, or was discharged. A strike or reduction of work
hours also are qualifying events if they result in the loss of coverage. Newborn
children, adopted children and spouses who join the family of a qualified beneficiary
after the day before a qualifying event are not included as beneficiaries for COBRA
continuation purposes.
The continuation coverage must be identical to that provided to similarly
situated beneficiaries who did not lose coverage, and it must generally be the same
as the group health plan coverage enjoyed by the qualified beneficiary immediately
before the qualifying event. The term "similarly situated" is intended to ensure that
beneficiaries who elect, for example, continued coverage under the employer's family
option (as opposed to the self-only option) receive the identical coverage as active
workers who elect the family option.
The employer's health plan may require the employee or beneficiary to pay the
premium for the continuation coverage, but the premium may not exceed 102% of the
otherwise applicable premium for that period. The plan must allow a qualified
beneficiary to pay for the coverage in monthly installments, although alternative
intervals may also be offered.
Title X spells out specific rules for notice and election of continuation coverage.
Once an employer's health insurance plan becomes subject to the Title X provisions,
the plan is required to notify in writing each covered employee and his or her spouse
of their rights to continued coverage. The plan is also required to give such notice
when an employee begins to be covered under the health plan. A person qualified
to elect continuation coverage must do so within 60 days of the date after which
coverage under the group plan would otherwise terminate, or the date that the
beneficiary is sent notice of his or her right to elect COBRA. In general, the
employer or plan administrator is responsible for determining when a qualifying
event has occurred and notifying the eligible beneficiaries. However, each covered
employee or qualified beneficiary is responsible for notifying the employer or other
plan administrator when the event is a dependent child ceasing to be a dependent
child of the covered employee or a divorce or legal separation of a covered employee.
CRS-7
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The duration of COBRA continuation coverage is for at least the period
beginning on the date of the qualifying event and ending not before the earlier of the
following dates: (a) the last day of the maximum coverage period (for example, 18
months for a covered worker who has terminated employment), (b) the first day for
which timely payment of the premium is not made to the plan with respect to the
qualified beneficiary, (c) the date on which the employer ceases to maintain any
group health plan, (d) the first date after the date of the election on which the
qualified beneficiary elects coverage (that is, is actually covered and not just eligible
to be covered) under any group health plan that is not maintained by the employer,
and (e) the date the qualified beneficiary is entitled to Medicare benefits.
COBRA also requires that, in some cases, the employer's group health plan offer
qualified beneficiaries the option of converting to an individual policy at the end of
the COBRA continuation period. This is only true for those plans which provide a
conversion option to similarly situated active employees. Conversion enables an
individual to buy health insurance from the employer's plan without being subject
to medical screening. While the premiums for an individual policy are higher than
for the group policy, the conversion option may be attractive to a person who would
otherwise have difficulty obtaining health insurance because he or she has a major
illness or disability.
Under the original Title X law, employers who failed to provide continued health
coverage could lose their tax deductibility for employer contributions to their
employees' health insurance, and be subject to penalties. In addition, the income
exclusion under section 106(a) of the Internal Revenue Code could be denied to
certain highly compensated employees of that employer. (This means that for plans
out of compliance, the IRS could deny to highly compensated employees the exclusion
from taxable gross income payments made by the employer for health insurance
coverage.) Under changes made by the Technical and Miscellaneous Revenue Act of
1988 (P.L. 100-647), these tax penalties have been replaced by an excise tax of $100
per day for each violation involving a Title X beneficiary. For group health plans
covered under ERISA, the general enforcement provisions of ERISA apply: employers
and plan administrators are subject to civil and/or criminal legal action (depending
on the alleged violation), and civil penalties of up to $100 per day would apply for
failure to provided the required notification. In addition to the requirements imposed
on private sector employees, Title X also imposes similar requirements on group
health plans maintained by any State or political subdivision that receives funds
under the Public Health Service Act.
Title X became effective for health plan years beginning on or after July 1, 1986
(generally, health insurance coverage is on a yearly basis and may start at any point
during the calendar year). In the case of plans established under collective
bargaining agreements ratified before COBRA was enacted, there is a special rule.
The continuation provisions do not apply to plan years beginning before the date on
which the agreement terminates, or before Jan. 1, 1987, whichever is later. The IRS
has provided the following example to help clarify. Assume that the plan year of a
collectively bargained group health plan is the calendar year and that, as of Apr. 7,
1986, the plan is maintained pursuant to three collective bargaining agreements
having expiration dates in October 1987, February 1988 and July 1988. The plan
must offer health insurance continuation beginning on Jan. 1, 1989. But the plan
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must begin to comply by Jan. 1, 1987, with respect to a collective bargaining unit
that was not, as of Apr. 7, 1986, covered by one of those three agreements.
Tax Reform Act of 1986
In the Tax Reform Act of 1986 (P.L. 99-514), Congress included a number of
technical corrections to Title X of COBRA. Some of the provisions were clarifications
and some imposed new parameters on the nature of the continued health insurance
benefit. Specifically, the provisions (1) establish a 60-day notification period for
certain potential beneficiaries of continuation (eg., divorced and legally separated
spouses of covered employees), (2) specify the maximum duration of continued health
coverage when there is more than one qualifying event (in no event may the coverage
period exceed 36 months), (3) clarify that each qualified beneficiary is entitled to a
separate election of continuation coverage, (4) specify the length of the grace period
for non-payment of premiums, (5) clarify that the continued health benefits are to
be treated in the same manner as benefits for similarly situated beneficiaries under
the plan, (6) define health benefits to mean health benefit plans, including dental and
vision care, and (7) exclude a non-resident alien with no earned income from sources
within the United States from the definition of "qualified beneficiary." The effective
date for these provisions is the same as for Title X of COBRA.
OBRA of 1986
In 1986, Congress considered an expansion of COBRA to require that employers
provide continued health coverage to laid-off workers for 4 months, during which
time the employer would continue to pay whatever portion of the health insurance
premium he or she was paying before the layoff (See H.R. 4742 (Stark), S. 2402
(Kennedy), and S. 2403 (Durenberger). While this provision did not pass, Congress
did enact as a part of the OBRA of 1986 (P.L. 99-509) an expansion of Title X to
require continuation coverage for retirees in cases where the employer files for
bankruptcy. This provision was motivated largely by the bankruptcy filing of LTV
Corporation, one of the Nation's major steel manufacturers. LTV had 78,000 retirees
who were receiving health benefits under the company's plan, and who were
threatened with the termination of benefits as a result of the bankruptcy action.
Specifically, OBRA adds a new qualifying event which consists of a proceeding
in a case under the bankruptcy provisions of Title XI of the United States Code,
commencing on or after July 1, 1986. In such cases, a loss of a retiree's coverage
means a substantial elimination of the beneficiary's coverage within one year before
or after the date the bankruptcy proceedings commenced. The continued coverage
extends until the death of the retiree. For the surviving spouse or the dependent
children of the covered employee, the coverage is limited to 36 months. These
amendments apply in any plan years ending during the 12-month period beginning
July 1, 1986, but only with respect to Chapter II bankruptcy qualifying events or the
death of a covered employee after the date of bankruptcy. (See CRS Report 87-196
A.)
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Action in the 100th Congress
The 100th Congress considered several modifications to Title X of COBRA. Most
significant were proposals to change the tax penalties on employers that fail to offer
continuation of coverage and proposals to allow persons to keep their continued
coverage for 18 or 36 months regardless of whether they become newly covered under
an employer's group health plan. The penalty changes were proposed in response to
concerns that the original law's tax sanctions were too severe, especially in cases
where the employer may have unintentionally violated the law. The latter set of
proposals were intended to allow continuation coverage to fill gaps created by
preexisting condition coverage exclusions in a new employer's policy.
Proposals actively considered by the House in the 100th Congress were
contained in H.R. 4333, H.R. 4845, and H.R. 5080. The Senate's proposed changes
were contained in S. 2238. Those provisions that were enacted are in the conference
agreement for H.R. 4333, the Technical and Miscellaneous Revenue Act of 1988 (see
House conference Report 100-1104). The bill was signed by President Reagan on
Nov. 10, 1988 (P.L. 100-647).
P.L. 100-647 replaced the sanctions for employers that violated Title X with an
excise tax of $100 per day for each violation involving a Title X beneficiary. When
violations involve a family, the maximum penalty would be $200 per day. The excise
tax would be assessed for each day during the noncompliance period. This period
ends on the earlier of (1) the date the failure is corrected, or (2) 6 months after the
last date on which the employer could have been required to provide continuation
coverage to the qualified beneficiary. The excise tax would not apply if the employer
could prove that the failure was inadvertent or if the failure was corrected within a
30-day grace period. The exception to this is in the case of a special audit rule. For
violations discovered by the Internal Revenue Service that were not corrected before
the employer received a "notice of examination of tax liability," employers would be
subject to a $2,500 penalty per affected beneficiary or the excise tax that would be
due based on the length of the violation, whichever is less.
P.L. 100-647 limits the annual maximum liability for employers to 10% of what
the employer paid for employee health benefits the previous year, or $500,000,
whichever was less. Multiemployer plans are to be treated as single trusts for
purposes of assessing the penalty. Under specified conditions, persons other than the
employer (such as the insurer) could be liable for the excise tax. The provisions
became effective for taxable years beginning after Dec. 31, 1988.
In a separate action, the Congress also approved legislation (H.R. 5102) to
provide health insurance continuation coverage for enrollees in the Federal
Employees Health Benefits Program. The provisions of H.R. 5102 are similar to Title
X of COBRA. H.R. 5102 was signed into law (P.L. 100-654) on Nov. 14, 1988, and
took effect Jan. 1, 1990. (See: The Federal Employees Health Benefits Program. CRS
Issue Brief 89124.)
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Action in the 101st Congress
In the first session of the 101st Congress, several proposals were considered as
part of the budget reconciliation process to modify Title X of COBRA. A proposal
to extend COBRA coverage from 18 to 29 months to those with a disability at the
time of termination from employment (or reduction in hours) was included in the
Ways and Means Committee's fiscal year 1990 budget reconciliation package (see H.R.
3150 and H.R. 3299). The House Education and Labor and Senate Finance
Committees also included changes to COBRA Title X in their reconciliation packages
(see H.R. 3299 and S. 1740 respectively).
The conference agreement for H.R. 3299, the Omnibus Budget Reconciliation Act
of 1989, (OBRA, P.L. 101-239) makes several changes in the COBRA health insurance
continuation coverage provisions that are generally effective for 1990 plan years.
These provisions are described in the "Legislation" section of this issue brief.
LEGISLATION
P.L. 101-239 (H.R. 3299)
The Omnibus Budget Reconciliation Act of 1989. Sections 6701-6801 and section
7862(c) contain the following changes to COBRA Title X: (1) Disabled Beneficiaries:
The 18-month maximum benefit period has been extended to 29 months for COBRA
beneficiaries who were determined to be disabled under the Social Security Act at the
date of the qualifying event (either reduction in hours or termination from
employment). The employer is permitted to charge the beneficiary 150% (rather
than 102%) of the premium for coverage beyond the 18 months. This provision is
designed to provide a source of coverage while individuals are waiting for Medicare.
(There is a five-month waiting period for Social Security disability cash benefits and
another 24 months waiting period for Medicare benefits.) Preexisting Conditions:
Prior to OBRA 1989, a person would generally lose their continued health benefits
once they became covered under another group health plan. This provision caused
problems for individuals whose new plan contained exclusions on preexisting
conditions. P.L. 101-239 provides that the COBRA continued coverage will
terminate only if the other plan "does not contain any exclusion or limitation with
respect to any preexisting limitation of such beneficiary." If the new plan does
include these limitations, the individual can be covered under both plans. (It is
assumed that coordination of benefit rules would apply.) The restriction on
preexisting conditions is effective (a) for qualifying events after Dec. 31, 1989; and
(b) for qualified beneficiaries electing COBRA coverage after Dec. 31, 1988 -- the
period during which the premium was paid (or attempted to be paid) by the COBRA
beneficiary, but was rejected due to the existence of coverage under another plan.
(3) Additional Changes: The conference agreement includes additional changes
relating to multiemployer plans, the definition of covered employees, timing of the
initial premium payment, and the duration of COBRA coverage of dependents of
employees when the employee becomes eligible for Medicare. (See H.R. 3299 for
legislative history.)
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H.Con.Res. 77 (Shaw)
Expresses the sense of the Congress that insurance providers should be
encouraged to permit employers to extend the opportunity to purchase health care
coverage when benefits are terminated to workers subject to collective bargaining
agreements who do not currently have such an opportunity under Title X of COBRA.
Introduced Mar. 15, 1989; referred to Committee on Education and Labor.
H.R. 585 (Henry)
Amends the Internal Revenue Code, the Employee Retirement Income Security
Act, and the Public Health Service Act to terminate a person's eligibility to receive
benefits under mandated employee health benefit continuation coverage (title X of
COBRA) as soon as that person becomes eligible for coverage under another group
health plan, as an employee or otherwise. Introduced Jan. 20, 1989; referred to
Committees on Education and Labor, Energy and Commerce, and Ways and Means.
H.R. 2308/2309/2310 (Pelosi)
H.R. 2308 amends the Employee Retirement Income Security Act, H.R. 2309
amends the Public Health Service Act, and H.R. 2310 amends the Internal Revenue
Code to require that continuation of health insurance coverage for 29 months be
offered to those with a disability at the time of termination from employment.
Introduced May 10, 1989; referred to Committee on Education and Labor (see P.L.
101-239).
H.R. 2794 (Clay)
Amends the Employee Retirement Income Security Act and related provisions of
the Internal Revenue Code of 1986 to provide for technical corrections and other
changes to the health insurance continuation provisions. Establishes monetary
penalties under ERISA to be assessed by the Secretary of Labor of $100 for each day
in which an employer is in noncompliance with the law. Similar to penalty
provisions under the IRC included in P.L. 100-647. Requires that the GAO conduct
a study of the extent to which employers have lengthened the eligibility period for
group coverage as a result of Title X of COBRA, and that the GAO report to
Congress on the study results by Aug. 31, 1990. Changes the definition of "covered
employees," and provides that continuation coverage is not terminated when the
qualified beneficiary becomes covered under another group health plan. Introduced
June 29, 1989; referred to Committee on Education and Labor. Provisions of H.R.
2794 incorporated as an amendment to the Committee's fiscal year 1990 budget
reconciliation bill, ordered to be reported by the Committee on July 13, 1989. (See
Section 3111(g) of H.R. 3299.)
H.R. 3150 (Rostenkowski)
Amends the Social Security Act and Internal Revenue Code to provide for budget
reconciliation for FY90 and FY91. Includes changes to Title X of COBRA: (1)
extends COBRA coverage to 29 months for those workers with a disability under
Titles II or XVI of the Social Security Act at the time of termination of employment
or reduction in hours. Provides that the employer may charge such individuals 150%
of the premium for any month of continued coverage after the 18th month; (2) makes
changes affecting multiemployer plans; and (3) provides that continuation coverage
would not end upon the coverage of the qualified beneficiary under a group health
plan of another employer if that plan excludes from coverage any preexisting
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condition of the beneficiary. Introduced Aug. 4, 1989; referred to Committee on Ways
and Means.
H.R. 3299 (Panetta)
Omnibus Budget Reconciliation Act of 1989. Section 3111(g) includes the
COBRA Title X changes made by the House Education and Labor Committee in H.R.
2794. Section 10181 and section 11862 include the COBRA Title X changes made by
the House Ways and Means Committee in H.R. 3150. Introduced Sept. 29, 1989;
referred to Committee on the Budget (House Report 101-247). Passed House
(amended) on Oct. 5, 1989. Passed Senate on Oct. 13, 1989, in lieu of S. 1750, after
stripping "extraneous" provision including Senate Finance Committee's COBRA Title
X changes (see S. 1750). Conference agreement approved by the House on Nov. 21,
1989, and approved by the Senate on Nov. 22, 1989. Signed into law (P.L. 101-239)
on Dec. 19, 1989. For conference agreement provisions, see P.L. 101-239.
S. 1750 (Sasser)
Omnibus Budget Reconciliation Act of 1989. Section 6862(c) provides for
changes in COBRA Title X, including changing the definition of "covered employee,"
eliminating the provision terminating continuation coverage if the qualified
beneficiary becomes covered under another group health plan, and other changes
relating to the timely payment of premiums, and the maximum period of coverage for
persons with multiple qualifying events. Introduced Oct. 12, 1989; referred to the
Committee on Budget. On Oct. 13, 1989, Senate passed amended version of H.R.
3299 in lieu of S. 1750 after stripping COBRA Title X and other "extraneous"
provisions.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee of Conference. Omnibus Budget Reconciliation
Act of 1989. Conference Report to Accompany H.R. 3299. Washington. U.S.
Govt. Print. Off., Nov. 21, 1989. 101st Congress, 1st session. House Report No.
101-386.
U.S. Congress. House. Providing for reconciliation pursuant to section 2 of the
Concurrent Resolution on the Budget for Fiscal Year 1987; conference report to
accompany H.R. 5300. Washington, U.S. Govt. Print. Off., Oct. 17, 1986. (99th
Congress, 2d session. House. Report no. 99-1012)
U.S. Congress. House. Committee of Conference. Technical and Miscellaneous
Revenue Act of 1988; Conference Report to Accompany H.R. 4333. Washington,
U.S. Govt. Print. Off., Oct. 21, 1988. (100th Congress, 2d Session, House.
Report no. 100-1104).
U.S. Congress. House. Committee of Conference. Consolidated Omnibus Budget
Reconciliation Act of 1985. Washington, U.S. Govt. Print. Off., Dec. 19, 1985.
(99th Congress, 1st session. House. Report no. 99-453)
U.S. Department of Labor. Office of Pension and Welfare Benefit Programs. ERISA
Technical Release no. 86-2. Guidance on group health continuation coverage
notification provisions. Washington, June 26, 1986.
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U.S. Department of the Treasury. Internal Revenue Service. 26 CFR Part 1.
Income tax; continuation coverage requirements of group health plans; notice of
proposed rulemaking, Federal register, June 15, 1987: 22716-22732.
CHRONOLOGY
Title X of COBRA
04/07/86 --- President signed H.R. 3128 into law as P.L. 99-272 (COBRA).
03/20/86 --- House agreed to Senate version of H.R. 3128, clearing the bill for the
President's signature.
12/19/85 --- Conference report for H.R. 3128 filed in House (H.Rept. 99-453). Senate
agreed to conference report but House rejected it.
12/05/85 --- House incorporated H.R. 3500 (containing Committee on Education and
Labor's health insurance continuation provisions) into H.R. 3128. House
asked for a conference on H.R. 3128.
11/14/85 --- Senate amended and passed H.R. 3128 (93-6) by substituting the text of
S. 1730 for House-passed provisions.
10/31/85 --- H.R. 3128 passed House (245-174).
10/24/85 --- H.R. 3500, as amended, passed House (228-199).
10/03/85 --- H.R. 3500 (Omnibus Budget Reconciliation Act) introduced in House,
containing Committee on Education and Labor's health insurance
continuation provision.
10/02/85 --- S. 1730 (Consolidated Omnibus Budget Reconciliation Act) introduced in
Senate containing a health insurance continuation provision that was a
modification of several bills: S. 1211, Health Equity and Fairness Act;
S. 1615, Health Care Improved Access Act; and S. 1632.
09/11/85 --- H.R. 3128 reported from House Committee on Education and Labor
containing a health insurance continuation coverage provision.
07/31/85 --- H.R. 3128, Deficit Reduction Amendments of 1985, introduced in House
incorporating continuation provisions of H.R. 3210 and H.R. 21,
Continued Access to Group Health Insurance Act. Reported by
Committee on Ways and Means to the House.
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Regulatory Actions
06/15/87 --- Department of Treasury published proposed rules in the Federal Register
for Continued Private Health Insurance Coverage as per P.L. 99-272
and P.L. 99-514.
06/26/86 --- Department of Labor issued ERISA Technical Release providing guidance
on group health insurance continuation coverage notification provisions.
11/04/86 --- Department of Treasury held public hearings in Washington, DC, for
continued private Health Insurance Coverage.
CRS-15
IP 389H AS
Consolidated Omnibus Budget Reconciliation Act of 1985 (COBRA)
(P.L. 99-272) Title X--Private Health Insurance Coverage
TITLE X-PRIVATE HEALTH
INSURANCE COVERAGE
SEC. 10001. EMPLOYERS REQUIRED TO PROVIDE
CERTAIN EMPLOYEES AND FAMILY
MEMBERS WITH CONTINUED HEALTH
INSURANCE COVERAGE AT GROUP
RATES (INTERNAL REVENUE CODE
AMENDMENTS).
(a) DENIAL OF DEDUCTION FOR EMPLOYER
CONTRIBUTION TO PLAN.-Subsection (i) of
section 162 of the Internal Revenue Code of
1954 (relating to deduction for trade or busi-
ness expenses with respect to group health
plans) is amended by redesignating para-
graph (2) as paragraph (3) and by inserting
after paragraph (1) the following new para-
graph:
"(2) PLANS MUST PROVIDE CONTINUATION
COVERAGE TO CERTAIN INDIVIDUALS.-
"(A) IN GENERAL-No deduction shall be
allowed under this section for expenses paid
or incurred by an employer for any group
health plan maintained by such employer
unless all such plans maintained by such
employer meet the continuing coverage re-
quirements of subsection (k).
"(B) EXCEPTION FOR CERTAIN SMALL EM-
PLOYERS. ETC.-Subparagraph (A) shall not
apply to any plan described in section
106(b)(2).
(b) DENIAL OF EXCLUSION FOR HIGHLY COM-
PENSATED INDIVIDUALS-Section 106 of the
Internal Revenue Code of 1954 (relating to
contributions by employer to accident and
health plans) is amended by inserting "(a)
IN GENERAL.-" before "Gross" and by in-
serting at the end thereof the following new
subsection:
"(b) EXCEPTION FOR HIGHLY COMPENSATED
INDIVIDUALS WHERE PLAN FAILS To PROVIDE
CERTAIN CONTINUATION COVERAGE.-
"(1) IN GENERAL-Subsection (a) shall not
apply to any amount contributed by an em-
ployer on behalf of a highly compensated
individual (within the meaning of section
Source: Congressional Record, April 8, 1986, p. S3841-S3845
Reproduced by the Library of Congress, Congressional Research Service
S 3842
CONGRESSIONAL RECORD - SENATE
April 8. 1986
105(h)(5)) to a group health plan main-
"(C) PREMIUM REQUIREMENTS.-The plan
sixth month of such preceding determina.
tained by such employer unless all such
may require payment of a premium for any
tion period.
plans maintained by such employer meet
period of continuation coverage. except that
"(iii) CLAUSE (ii) NOT TO APPLY WHERE STG.
the continuing coverage requirements of
such premium-
NIFICANT CHANGE.-A plan administrator may
section 162(k).
"(i) shall not exceed 102 percent of the ap-
not elect to have clause (ii) apply in any
"(2) EXCEPTION FOR CERTAIN PLANS.-Para-
plicable premium for such period. and
case in which there is any significant differ.
graph (1) shall not apply to any-
"(ii) may. at the election of the payor. be
ence. between the determination period and
"(A) group health plan for any calendar
made in monthly installments.
the preceding determination period. in CO:-
year if all employers maintaining such plan
If an election is made after the qualifying
erage under. or in employees covered by. the
normally employed fewer than 20 employ-
event. the plan shall permit payment for
plan. The determination under the preced-
ees on a typical business day during the pre-
continuation coverage during the period
ing sentence for any determination period
ceding calendar year,
preceding the election to be made within 45
shall be made at the same time as the deter.
"(B) governmental plan (within the mean-
days of the date of the election.
mination under subparagraph (C).
ing oi section 414(d)). or
"(D) No REQUIREMENT OF INSURABILITY.-
"(C) DETERMINATION PERIOD.-The deter.
"(C) church plan (within the meaning of
section 414(e)).
The coverage may not be conditioned upon,
mination of any applicable premium shall
Under regulations. rules similar to the rules
or discriminate on the basis of lack of. evi-
be made for a period of 12 months and shall
of subsections (a) and (b) of section 52 (re-
dence of insurability.
be made before the beginning of such
"(E) CONVERSION OPTION.-In the case of a
period.
lating to employers under common control)
shall apply for purposes of subparagraph
qualified beneficiary whose period of con-
"(5) ELECTION.-For purposes of this sub-
tinuation coverage expires under subpara-
section-
(A).
"(3) GROUP HEALTH PLAN.-For purposes of
graph (B)(i), the plan must. during the 180-
"(A) ELECTION PERIOD.-The term 'election
this subsection. the term 'group health
day period ending on such expiration date,
period' means the period which-
plan' has the meaning given such term by
provide to the qualified beneficiary the
"(i) begins not later than the date on
section 162(i)(3).".
option of enrollment under a conversion
which coverage terminates under the plan
(c) CONTINUATION COVERAGE REQUIRE-
health plan otherwise generally available
by reason of a qualifying event.
MENTS.-Section 162 of the Internal Reve-
under the plan.
"(ii) is of at least 60 days' duration. and
nue Code of 1954 is amended by redesignat-
"(3) QUALIFYING EVENT.-For purposes of
"(iii) ends not earlier than 60 days after
ing subsection (k) as subsection (1) and by
this subsection. the term 'qualifying event'
the later of-
inserting after subsection (j) the following
means, with respect to any covered employ-
"(I) the date described in clause (i). or
new subsection:
ee. any of the following events which, but
"(II) in the case of any qualified benefici-
"(k) CONTINUATION COVERAGE REQUIRE-
for the continuation coverage required
ary who receives notice under paragraph
MENTS OF GROUP HEALTH PLANS.-
under this subsection. would result in the
(6)(D). the date of such notice.
"(1) IN GENERAL-For purposes of subsec-
loss of coverage of a qualified beneficiary:
"(B) EFFECT OF ELECTION ON OTHER BENEFI-
tion (i)(2) and section 106(b)(1). a group
"(A) The death of the covered employee.
CIARIES.-Except as otherwise specified in an
health plan meets the requirements of this
"(B) The termination (other than by
election. any election by a qualified benefici-
subsection only if each qualified beneficiary
reason of such employee's gross miscon-
ary described in clause (i)(I) or (ii) of para-
who would lose coverage under the plan as a
duct). or reduction of hours. of the covered
graph (7)(B) shall be deemed to include an
result of a qualifying event is entitled to
employee's employment.
election of continuation coverage on behalf
elect. within the election period, continu-
"(C) The divorce or legal separation of the
of any other qualified beneficiary who
ation coverage under the plan.
covered employee from the employee's
would lose coverage under the plan by
"(2) *CONTINUATION COVERAGE.-For pur-
spouse.
reason of the qualifying event.
poses of paragraph (1). the term 'continu-
"(D) The covered employee becoming enti-
"(6) NOTICE REQUIREMENTS.-In accordance
ation coverage' means coverage under the
tled to benefits under title XVIII of the
with regulations prescribed by the Secre-
plan which meets the following require-
Social Security Act.
tary-
ments:
"(E) A dependent child ceasing to be a de-
"(A) the group health plan shall provide.
"(A) TYPE OF BENEFIT COVERAGE.-The COV-
pendent child under the generally applica-
at the time of commencement of coverage
erage must consist of coverage which. as of
ble requirements of the plan.
under the plan. written notice to each cov-
the time the coverage is being provided. is
"(4) APPLICABLE PREMIUM.-For purposes
ered employee and spouse of the employee
identical to the coverage provided under the
of this subsection-
(if any) of the rights provided under this
plan to similarly situated beneficiaries
"(A) IN GENERAL-The term 'applicable
subsection.
under the plan with respect to whom a
premium' means. with respect to any period
"(B) the employer of an employee under a
qualifying event has not occurred.
of continuation coverage of qualified benefi-
plan must notify the plan administrator of a
"(B) PERIOD OF COVERAGE.-The coverage
ciaries, the cost to the plan for such period
qualifying event described in subparagraph
must extend for at least the period begin-
of the coverage for similarly situated benefi-
(A), (B), or (D) of paragraph (3) with re-
ning on the date of the qualifying event and
ciaries with respect to whom a qualifying
spect to such employee within 30 days of
ending not earlier than the earliest of the
event has not occurred (without regard to
the date of the qualifying event.
following:
whether such cost is paid by the employer
"(C) each covered employee or qualified
"(i) MAXIMUM PERIOD.-In the case of-
or employee).
beneficiary is responsible for notifying the
"(I) a qualifying event described in para-
"(B) SPECIAL RULE FOR SELF-INSURED
plan administrator of the occurrence of any
graph (3)(B) (relating to terminations and
PLANS.-To the extent that a plan is a self-
reduced hours). the date which is 18 months
insured plan-
qualifying event described in subparagraph
(C) or (E) of paragraph (3). and
after the date of the qualifying event. and
"(i) IN GENERAL.-Except as provided in
"(II) any qualifying event not described in
"(D) the plan administrator shall notify-
clause (ii), the applicable premium for any
subclause (I), the date which is 36 months
period of continuation coverage of qualified
"(i) in the case of a qualifying event de-
after the date of the qualifying event.
beneficiaries shall be equal to a reasonable
scribed in subparagraph (A). (B). or (D) of
"(ii) END OF PLAN.-The date on which the
estimate of the cost of providing coverage
paragraph (3). any qualified beneficiary
employer ceases to provide any group
for such period for similarly situated benefi-
with respect to such event. and
health plan to any employee.
ciaries which-
"(ii) in the case of a qualifying event de-
"(iii) FAILURE TO PAY PREMIUM.-The date
"(I) is determined on an actuarial basis,
scribed in subparagraph (C) or (E) of para-
on which coverage ceases under the plan by
and
graph (3) where the covered employee noti-
reason of a failure to make timely payment
"(II) takes into account such factors as
fies the plan administrator under subpara-
of any premium required under the plan
the Secretary may prescribe in regulations.
graph (C). any qualified beneficiary with re-
with respect to the qualified beneficiary.
"(ii) DETERMINATION ON BASIS OF PAST
spect to such event.
"(iv) REEMPLOYMENT OR MEDICARE ELIGIBIL-
COST.-If a plan administrator elects to have
of such beneficiary's rights under this sub-
ITY.-The date on which the qualified bene-
this clause apply. the applicable premium
section.
ficiary first becomes. after the date of the
for any period of continuation coverage of
For purposes of subparagraph (D). any noti-
election-
qualified beneficiaries shall be equal to-
fication shall be made within 14 days of the
"(I) a covered employee under any other
"(I) the cost to the plan for similarly situ-
date on which the plan administrator is no-
group health plan, or
ated beneficiaries for the same period occur-
tified under subparagraph (B) or (C). which-
"(II) entitled to benefits under title XVIII
ring during the preceding determination
ever is applicable. and any such notification
of the Social Security Act.
period under subparagraph (C), adjusted by
to an individual who is a qualified benefici-
"(v) REMARRIAGE OF SPOUSE.-In the case of
"(II) the percentage increase or decrease
ary as the spouse of the covered employee
an individual who is a qualified beneficiary
in the implicit price deflator of the gross na-
shall be treated as notification to all other
by reason of being the spouse of a covered
tional product (calculated by the Depart-
qualified beneficiaries residing with such
employee. the date on which the beneficiary
ment of Commerce and published in the
spouse at the time such notification is made.
remarries and becomes covered under a
Survey of Current Business) for the 12-
"(7) DEFINITIONS.-For purposes of this
group health plan.
month period ending on the last day of the
subsection-
April 8, 1986
CONGRESSIONAL RECORD SENATE
3843
"(A) COVERED EMPLOYEE.-The term 'COV-
of the Internal Revenue Code of 1954 (relat-
duct). or reduction of hours, of the covered
ered employee' means an individual who is
ing to employers under common control)
employee's employment.
(or was) provided coverage under a group
shall apply for purposes of this subsection.
"(3) The divorce or legal separation of the
health plan by virtue of the individual's em-
"SEC. 602. CONTINUATION COVERAGE.
covered employee from the employee's
ployment or previous employment with an
"For purposes of section 601, the term
spouse.
employer.
'continuation coverage' means coverage
"(4) The covered employee becoming enti-
(B) QUALIFIED BENEFICIARY.-
under the plan which meets the following
tled to benefits under title XVIII of the
"(i) IN GENERAL.-The term 'qualified bene-
requirements:
Social Security Act.
ficiary' means. with respect to a covered em-
"(1) TYPE OF BENEFIT COVERAGE.-The COV-
"(5) A dependent child ceasing to be a de-
ployee under a group health plan. any other
erage must consist of coverage which. as of
pendent child under the generally applica-
individual who. on the day before the quali-
the time the coverage is being provided. is
ble requirements of the plan.
fying event for that employee. is a benefici-
identical to the coverage provided under the
"SEC. 604. APPLICABLE PREMIUM.
ary under the plan-
plan to similarly situated beneficiaries
"(I) as the spouse of the covered employ-
"For purposes of this part-
under the plan with respect to whom a
ee. or
qualifying event has not occurred.
"(1) IN GENERAL-The term 'applicable
"(II). as the dependent child of the em-
"(2) PERIOD OF COVERAGE.-The coverage
premium' means. with respect to any period
ployee.
must extend for at least the period begin-
of continuation coverage of qualified benefi-
"(ii) SPECIAL RULE FOR TERMINATIONS AND
ning on the date of the qualifying event and
ciaries, the cost to the plan for such period
REDUCED EMPLOYMENT.-In the case of a
ending not earlier than the earliest of the
of the coverage for similarly situated benefi-
qualifying event described in paragraph
following:
ciaries with respect to whom a qualifying
(3)(B). the term qualified beneficiary' in-
"(A) MAXIMUM PERIOD.-In the case of-
event has not occurred (without regard to
cludes the covered employee.
"(i) a qualifying event described in section
whether such cost is paid by the employer
"(C) PLAN ADMINISTRATOR.-The term 'plan
603(2) (relating to terminations and reduced
or employee).
administrator' has the meaning given the
hours). the date which is 18 months after
"(2) SPECIAL RULE FOR SELF-INSURED
term 'administrator' by section 3(16)(A) of
the date of the qualifying event, and
PLANS.-To the extent that a plan is a self-
the Employee Retirement Income Security
"(ii) any qualifying event not described in
insured plan-
Act of 1974.".
clause (i). the date which is 36 months after
"(A) IN GENERAL.-Except as provided in
(d) CONFORMING AMENDMENT.-Paragraph
the date of the qualifying event.
subparagraph (B), the applicable premium
(1) of section 162(i) is amended by striking
"(B) END OF PLAN.-The date on which the
for any period of continuation coverage of
out "GENERAL RULE" in the heading thereof
employer ceases to provide any group
qualified beneficiaries shall be equal to a
and inserting in lieu thereof "COVERAGE RE-
health plan to any employee.
reasonable estimate of the cost of providing
LATING TO END STAGE RENAL DISEASE".
"(C) FAILURE TO PAY PREMIUM.-The date
coverage for such period for similarly situat-
(e) EFFECTIVE DATES.-
on which coverage ceases under the plan by
ed beneficiaries which-
(1) GENERAL RULE.-The amendments
reason of a failure to make timely payment
"(i) is determined on an actuarial basis,
made by this section shall apply to plan
of any premium required under the plan
and
years beginning on or after July 1. 1986.
with respect to the qualified beneficiary.
"(ii) takes into account such factors as the
(2) SPECIAL RULE FOR COLLECTIVE BARGAIN-
"(D) REEMPLOYMENT OR MEDICARE ELIGIBIL-
Secretary may prescribe in regulations.
ING AGREEMENTS.- the case of a group
ITY.-The date on which the qualified bene-
"(B) DETERMINATION ON BASIS OF PAST
health plan maintained pursuant to one or
ficiary first becomes, after the date of the
COST.-If an administrator elects to have
more collective bargaining agreements be-
election-
this subparagraph apply. the applicable pre-
tween employee representatives and one or
"(i) a covered employee under any other
mium for any period of continuation cover-
more employers ratified before the date of
group health plan, or
age of qualified beneficiaries shall be equal
the enactment of this Act. the amendments
"(ii) entitled to benefits under title XVIII
to-
made by this section shall not apply to plan
of the Social Security Act.
"(i) the cost to the plan for similarly situ-
years beginning before the later of-
"(E) REMARRIAGE OF SPOUSE.-In the case
ated beneficiaries for the same period occur-
(A) the date on which the last of the col-
of an individual who is a qualified benefici-
ring during the preceding determination
lective bargaining agreements relating to
ary by reason of being the spouse of a cov-
period under paragraph (3), adjusted by
the plan terminates (determined without
ered employee, the date on which the bene-
regard to any extension thereof agreed to
"(ii) the percentage increase or decrease in
ficiary remarries and becomes covered
after the date of the enactment of this Act),
the implicit price deflator of the gross na-
under a group health plan.
tional product (calculated by the Depart-
or
"(3) PREMIUM REQUIREMENTS.-The plan
(B) January 1. 1987.
ment of Commerce and published in the
may require payment of a premium for any
Survey of Current Business) for the 12-
For purposes of subparagraph (A). any plan
period of continuation coverage, except that
month period ending on the last day of the
amendment made pursuant to a collective
such premium-
sixth month of such preceding determina-
bargaining agreement relating to the plan
"(A) shall not exceed 102 percent of the
tion period.
which amends the plan solely to conform to
applicable premium for such period. and
"(C) SUBPARAGRAPH (B) NOT TO APPLY
any requirement added by this section shall
"(B) may, at the election of the payor, be
WHERE SIGNIFICANT CHANGE.-An administra-
not be treated as a termination of such col-
made in monthly installments.
tor may not elect to have subparagraph (B)
lective bargaining agreement.
If an election is made after the qualifying
apply in any case in which there is any sig-
SEC. 10002. TEMPORARY EXTENSION OF COVERAGE
event. the plan shall permit payment for
nificant difference. between the determina-
AT GROUP RATES FOR CERTAIN EM-
continuation coverage during the period
tion period and the preceding determination
PLOYEES AND FAMILY MEMBERS
preceding the election to be made within 45
(ERISA AMENDMENTS).
period. in coverage under. or in employees
days of the date of the election.
(a) IN GENERAL.-Subtitle B of title I of
covered by, the plan. The determination
"(4) No REQUIREMENT OF INSURABILITY.-
the Employee Retirement Income Security
under the preceding sentence for any deter-
The coverage may not be conditioned upon,
Act of 1974 is amended by adding at the end
mination period shall be made at the same
or discriminate on the basis of lack of, evi-
time as the determination under paragraph
thereof the following new part:
dence of insurability.
(3).
"PART 6-CONTINUATION COVERAGE UNDER
"(5) CONVERSION OPTION.-In the case of a
"(3) DETERMINATION PERIOD.-The determi-
GROUP HEALTH PLANS
qualified beneficiary whose period of con-
nation of any applicable premium shall be
"SEC. 601. PLANS MUST PROVIDE CONTINUATION
tinuation coverage expires under paragraph
made for a period of 12 months and shall be
COVERAGE TO CERTAIN INDIVIDUALS.
(2)(A), the plan must. during the 180-day
made before the beginning of such period.
"(a) IN GENERAL-The plan sponsor of
period ending on such expiration date. pro-
each group health plan shall provide. in ac-
vide to the qualified beneficiary the option
"SEC. 605. ELECTION.
cordance with this part. that each qualified
of enrollment under a conversion health
"For purposes of this part-
beneficiary who would lose coverage under
plan otherwise generally available under
"(1) ELECTION PERIOD.-The term 'election
the plan as a result of a qualifying event is
the plan.
period' means the period which-
entitled. under the plan. to elect. within the
"SEC. 603. QUALIFYING EVÉNT.
"(A) begins not later than the date on
election period. continuation coverage under
"For purposes of this part. the term
which coverage terminates under the plan
the plan.
'qualifying event' means. with respect to
by reason of a qualifying event.
"(b) EXCEPTION FOR CERTAIN PLANS.-Sub-
any covered employee, any of the following
"(B) is of at least 60 days' duration. and
section (a) shall not apply to any group
events which, but for the continuation cov-
"(C) ends not earlier than 60 days after
health plan for any calendar year if all em-
erage required under this part, would result
the later of-
ployers maintaining such plan normally em-
in the loss of coverage of a qualified benefi-
"(i) the date described in subparagraph
ployed fewer than 20 employees on a typical
ciary:
(A). or
business day during the preceding calendar
"(1) The death of the covered employee.
"(ii) in the case of any qualified benefici-
year. Under regulations. rules similar to the
"(2) The termination (other than by
ary who receives notice under section 606(4).
rules of subsections (a) and (b) of section 52
reason of such employee's gross miscon-
the date of such notice.
3844
CONGRESSIONAL RECORD - SENATE
April 8, 1986
(2) EFFECT OF ELECTION ON OTHER BENEFI-
**(1) who fails to meet the requirements of
CIARIES.-Except as otherwise specified in an
period. continuation coverage under the
paragraph (1) or (4) of section 606 with re-
plan.
election. any election by a qualified benefici-
spect to a participant or beneficiary. or (2)".
ary described in subparagraph (A)(i) or (B)
"(b) EXCEPTION FOR CERTAIN PLANS.-Sub-
(c) CLERICAL AMENDMENTS.-The table of
of section 607(3) shall be deemed to include
section (a) shall not apply to-
contents in section 1 of such Act is amended
an election of continuation coverage on
"(1) any group health plan for any calen-
by inserting after the item relating to sec-
behalf of any other qualified beneficiary
dar year if all employers maintaining such
tion 514 the following new items:
who would lose coverage under the plan by
plan normally employed fewer than 20 em-
"PART 6-CONTINUATION COVERAGE UNDER
reason of the qualifying event.
ployees on a typical business day during the
GROUP HEALTH PLANS
preceding calendar year, or
"SEC. 606. NOTICE REQUIREMENTS.
"Sec. 601. Plans must provide continuation
"(2) any group health plan maintained for
"In accordance with regulations pre-
coverage to certain individuals.
employees by the government of the Dis-
scribed by the Secretary-
"Sec. 602. Continuation coverage.
trict of Columbia or any territory or posses-
"(1) the group health plan shall provide.
"Sec. 603. Qualifying event.
sion of the United States or any agency or
at the time of commencement of coverage
"Sec. 604. Applicable premium.
instrumentality.
under the plan. written notice to each cov-
"Sec. 605. Election.
ered employee and spouse of the employee
Under regulations. rules similar to the rules
"Sec. 606. Notice requirements.
(if any) of the rights provided under this
of subsections (a) and (b) of section 52 of
"Sec. 607. Definitions.
subsection,
the Internal Revenue Code of 1954 (relating
"Sec. 608. Regulations.".
"(2) the employer of an employee under a
to employers under common control) shall
(d) EFFECTIVE DATES.-
plan must notify the administrator of a
apply for purposes of paragraph (1).
(1) GENERAL RULE.-The amendments
qualifying event described in paragraph (1).
"SEC. 2202. CONTINUATION COVERAGE
(2). or (4) of section 603 within 30 days of
made by this section shall apply to plan
"For purposes of section 2201, the term
the date of the qualifying event,
years beginning on or after July 1. 1986.
(2) SPECIAL RULE FOR COLLECTIVE BARGAIN-
'continuation coverage' means coverage
"(3) each covered employee or qualified
under the plan which meets the following
beneficiary is responsible for notifying the
ING AGREEMENTS.-In the case of a group
requirements:
health plan maintained pursuant to one or
administrator of the occurrence of any
"(1) TYPE OF BENEFIT COVERAGE.-The COV-
more collective bargaining agreements be-
qualifying event described in paragraph (3)
tween employee representatives and one or
erage must consist of coverage which. as of
or (5) of section 603, and
more employers ratified before the date of
the time the coverage is being provided. is
"(4) the administrator shall notify-
the enactment of this Act. the amendments
identical to the coverage provided under the
"(A) in the case of a qualifying event de-
plan to similarly situated beneficiaries
scribed in paragraph (1). (2). or (4) of sec-
made by this section shall not apply to plan
years beginning before the later of-
under the plan with respect to whom a
tion 603. any qualified beneficiary with re-
(A) the date on which the last of the col-
qualifying event has not occurred.
spect to such event. and
"(2) PERIOD OF COVERAGE.-The coverage
"(B) in the case of a qualifying event de-
lective bargaining agreements relating to
the plan terminates (determined without
must extend for at least the period begin-
scribed in paragraph (3) or (5) of section 603
regard to any extension thereof agreed to
ning on the date of the qualifying event and
where the covered employee notifies the ad-
after the date of the enactment of this Act).
ending not earlier than the earliest of the
ministrator under paragraph (3), any quali-
following:
or
fied beneficiary with respect to such event.
(B) January 1. 1987.
"(A) MAXIMUM PERIOD.-In the case of-
of such beneficiary's rights under this sub-
For purposes of subparagraph (A). any plan
"(i) a qualifying event described in section
section.
amendment made pursuant to a collective
2203(2) (relating to terminations and re-
For purposes of paragraph (4). any notifica-
bargaining agreement relating to the plan
duced hours), the date which is 18 months
tion shall be made within 14 days of the
which amends the plan solely to conform to
after the date of the qualifying event, and
date on which the administrator is notified
any requirement added by this section shall
"(ii) any qualifying event not described in
under paragraph (2) or (3), whichever is ap-
not be treated as a termination of such col-
clause (i), the date which is 36 months after
plicable. and any such notification to an in-
lective bargaining agreement.
the date of the qualifying event.
dividual who is a qualified beneficiary as the
(e) NOTIFICATION TO COVERED EMPLOYEES.-
"(B) END OF PLAN.-The date on which the
spouse of the covered employee shall be
At the time that the amendments made by
employer ceases to provide any group
treated as notification to all other qualified
this section apply to a group health plan
health plan to any employee.
beneficiaries residing with such spouse at
(within the meaning of section 607(1) of the
"(C) FAILURE TO PAY PREMIUM.-The date
the time such notification is made.
Employee Retirement Income Security Act
on which coverage ceases under the plan by
"SEC. GOT. DEFINITIONS.
of 1974). the plan shall notify each covered
reason of a failure to make timely payment
"For purposes of this part-
employee. and spouse of the employee (if
of any premium required under the plan
"(1) GROUP HEALTH PLAN.-The term
any). who is covered under the plan at that
with respect to the qualified beneficiary.
group health plan' means an employee wel-
time of the continuation coverage required
"(D) REEMPLOYMENT OR MEDICARE ELIGIBIL-
fare benefit plan that is a group health plan
under part 6 of subtitle B of title I of such
ITY.-The date on which the qualified bene-
(within the meaning of section 162(i)(3) of
Act. The notice furnished under this subsec-
ficiary first becomes. after the date of the
the Internal Revenue Code of 1954).
tion is in lieu of notice that may otherwise
election-
"(2) COVERED EMPLOYEE.-The term 'cov-
be required under section 606(1) of such Act
"(i) a covered employee under any other
with respect to such individuals.
group health plan. or
ered employee' means an individual who is
(or was) provided coverage under a group
SEC. 10003. CONTINUATION OF HEALTH INSURANCE
"(ii) entitled to benefits under title XVIII
health plan by virtue of the individual's em-
FOR STATE AND LOCAL EMPLOYEES
of the Social Security Act.
ployment or previous employment with an
WHO LOST EMPLOYMENT-RELATED
"(E) REMARRIAGE OF SPOUSE.-In the case
employer.
COVERAGE (PUBLIC HEALTH SERVICE
of an individual who is a qualified benefici-
ACT AMENDMENTS).
"(3) QUALIFIED BENEFICIARY.-
ary by reason of being the spouse of a cov-
(a) IN GENERAL-The Public Health Serv-
"(A) IN GENERAL-The term 'qualified ben-
ered employee. the date on which the bene-
ice Act is amended by adding at the end the
eficiary' means. with respect to a covered
ficiary remarries and becomes covered
following new title:
employee under a group health plan. any
under a group health plan.
other individual who. on the day before the
"TITLE XXII-REQUIREMENTS FOR
"(3) PREMIUM REQUIREMENTS.-The plan
qualifying event for that employee. is a ben-
CERTAIN GROUP HEALTH PLANS
may require payment of a premium for any
eficiary under the plan-
FOR CERTAIN STATE AND LOCAL
period of continuation coverage, except that
"(i) as the spouse of the covered employ-
EMPLOYEES
such premium-
ee. or
"SEC. 2201. STATE AND LOCAL GOVERNMENTAL
"(A) shall not exceed 102 percent of the
"(ii) as the dependent child of the employ-
GROUP HEALTH PLANS MUST PRO.
applicable premium for such period, and
ee.
VIDE CONTINUATION COVERAGE TO
"(B) may, at the election of the payor. be
"(B) SPECIAL RULE FOR TERMINATIONS AND
CERTAIN INDIVIDUALS.
made in monthly installments.
REDUCED EMPLOYMENT.-In the case of a
"(a) IN GENERAL.-In accordance with reg-
If an election is made after the qualifying
qualifying event described in section 603(2).
ulations which the Secretary shall pre-
event, the plan shall permit payment for
the term 'qualified beneficiary' includes the
scribe, each group health plan that is main-
continuation coverage during the period
covered employee.
tained by any State that receives funds
preceding the election to be made within 45
"SEC. 608. REGULATIONS.
under this Act. by any political subdivision
days of the date of the election.
of such a State, or by any agency or instru-
"The Secretary may prescribe regulations
"(4) No REQUIREMENT OF INSURABILITY.-
mentality of such a State or political subdi-
to carry out the provisions of this part.".
The coverage may not be conditioned upon.
vision. shall provide, in accordance with this
(b) PENALTY FOR FAILURE TO PROVIDE
or discriminate on the basis of lack of. evi-
title. that each qualified beneficiary who
NOTICE.-Section 502(c) of such Act (29
dence of insurability.
would lose coverage under the plan as a
U.S.C. 1132(c)) is amended by inserting
"(5) CONVERSION OPTION.-In the case of a
result of a qualifying event is entitled.
after "Any administrator" the following:
qualified beneficiary whose period of con-
under the plan. to elect. within the election
tinuation coverage expires under paragraph
April 8, 1986
CONGRESSIONAL RECORD - SENATE
S 3845
(2)(A). the plan must, during the 180-day
"SEC. 2205. ELECTION.
"(A) IN GENERAL.-The term qualified ben-
period ending on such expiration date. pro-
"For purposes of this title-
eficiary' means. with respect to a covered
vide to the qualified beneficiary the option
"(1) ELECTION PERIOD.-The term 'election
employee under a group health plan. any
of enrollment under a conversion health
period' means the period which-
other individual who. on the day before th
plan otherwise generally available under
"(A) begins not later than the date on
qualifying event for that employee, is a ben
the plan.
which coverage terminates under the plan
eficiary under the plan-
"SEC. 2203. QUALIFYING EVENT.
by reason of a qualifying event,
"(i) as the spouse of the covered employ-
"For purposes of this title, the term
"(B) is of at least 60 days' duration. and
ee, or
'qualifying event' means. with respect to
"(C) ends not earlier than 60 days after
"(ii) as the dependent child of the employ-
any covered employee. any of the following
the later of-
ee.
events which. but for the continuation COV-
"(i) the date described in subparagraph
"(B) SPECIAL RULE FOR TERMINATIONS AND
erage required under this title. would result
(A). or
REDUCED EMPLOYMENT.-In the case of a
in the loss of coverage of a qualified benefi-
"(ii) in the case of any qualified benefici-
qualifying event described in section
ciary:
ary who receives notice under section
2203(2). the term 'qualified beneficiary' in-
"(1) The death of the covered employee.
2206(4). the date of such notice.
cludes the covered employee.
"(2) The termination (other than by
"(2) EFFECT OF ELECTION ON OTHER BENEFI-
"(4) PLAN ADMINISTRATOR.-The term 'plan
reason of such employee's gross miscon-
CIARIES.-Except as otherwise specified in an
administrator' has the meaning given the
duct), or reduction of hours, of the
election. any election by a qualified benefici-
term 'administrator' by section 3(16)(A) of
covered employee's employment.
ary described in subparagraph (A)(i) or (B)
the Employee Retirement Income Security
"(3) The divorce or legal separation of the
of section 2208(3) shall be deemed to include
Act of 1974.".
covered employee from the employee's
an election of continuation coverage on
(b) EFFECTIVE DATES.-
spouse.
behalf of any other qualified beneficiary
(1) GENERAL RULE.-The amendments
"(4) The covered employee becoming enti-
who would lose coverage under the plan by
made by this section shall apply to plan
tled to benefits under title XVIII of the
reason of the qualifying event.
years beginning on or after July 1. 1986.
Social Security Act.
"SEC. 2206. NOTICE REQUIREMENTS.
(2) SPECIAL RULE FOR COLLECTIVE BARGAIN-
"(5) A dependent child ceasing to be a de-
"In accordance with regulations pre-
ING AGREEMENTS.-In the case of a group
pendent child under the generally applica-
scribed by the Secretary-
health plan maintained pursuant to one or
ble requirements of the plan.
"(1) the group health plan shall provide.
more collective bargaining agreements be-
"SEC. 2204. APPLICABLE PREMIUM.
at the time of commencement of coverage
tween employee representatives and one or
"For purposes of this title-
under the plan. written notice to each COV-
more employers ratified before the date of
"(1) IN GENERAL-The term 'applicable
ered employee and spouse of the employee
the enactment of this Act. the amendments
premium' means, with respect to any period
(if any) of the rights provided under this
made by this section shall not apply to plan
of continuation coverage of qualified benefi-
subsection,
years beginning before the later of-
ciaries. the cost to the plan for such period
"(2) the employer of an-employee under a
(A) the date on which the last of the col-
of the coverage for similarly situated benefi-
plan must notify the plan administrator of a
lective bargaining. agreements relating to
ciaries with respect to whom a qualifying
qualifying event described in paragraph (1).
the plan terminates (determined without
event has not occurred (without regard to
(2), or (4) of section 2203 within 30 days of
regard to any extension thereof agreed to
whether such cost is paid by the employer
the date of the qualifying event,
after the date of the enactment of this Act).
or employee).
"(3) each covered employee or qualified
or
"(2) SPECIAL RULE FOR SELF-INSURED
beneficiary is responsible for notifying the
(B) January 1. 1987.
PLANS.-To the extent that a plan is a self-
plan administrator of the occurrence of any
For purposes of subparagraph (A). any plan
insured plan-
qualifying event described in paragraph (3)
amendment made pursuant to a collective
"(A) IN GENERAL.-Except as provided in
or (5) of section 2203. and
bargaining agreement relating to the plan
subparagraph (B), the applicable premium
"(4) the plan administrator shall notify-
which amends the plan solely to conform to
for any period of continuation coverage of
"(A) in the case of a qualifying event de-
any requirement added by this-section shall
qualified beneficiaries shall be equal to a
scribed in paragraph (1). (2). or (4) of sec-
not be treated as a termination of such col-
reasonable estimate of the cost of providing
tion 2203, any qualified beneficiary with re-
lective bargaining agreement.
coverage for such period for similarly situat-
spect to such event. and
(c) NOTIFICATION TO COVERED EMPLOYEES.-
ed beneficiaries which-
"(B) in the case of a qualifying event de-
At the time that the amendments made by
"(i) is determined on an actuarial basis,
scribed in paragraph (3) or (5) of section
this section apply to a group health plan
and
2203 where the covered employee notifies
(covered under section 2201 of the Public
"(ii) takes into account such factors as the
the plan administrator under paragraph (3).
Health Service Act), the plan shall notify
Secretary may prescribe in regulations.
any qualified beneficiary with respect to
each covered employee, and spouse of the
"(B) DETERMINATION ON BASIS OF PAST
such event.
employee (if any), who is covered under the
COST.-If a plan administrator elects to have
of such beneficiary's rights under this sub-
plan at that time of the continuation cover-
this subparagraph apply, the applicable pre-
section.
age required under title XXII of such Act.
mium for any period of continuation cover-
For purposes of paragraph (4). any notifica-
The notice furnished under this subsection
age of qualified beneficiaries shall be equal
tion shall be made within 14 days of the
is in lieu of notice that may otherwise be re-
to-
date on which the plan administrator is no-
quired under section 2206(1) of such Act
"(i) the cost to the plan for similarly situ-
tified under paragraph (2) or (3). whichever
with respect to such individuals.
ated beneficiaries for the same period occur-
is applicable. and any such notification to
ring during the preceding determination
an individual who is a qualified beneficiary
period under paragraph (3). adjusted by
"(ii) the percentage increase or decrease in
as the spouse of the covered employee shall
the implicit price deflator of the gross na-
be treated as notification to all other quali-
tional product (calculated by the Depart-
fied beneficiaries residing with such spouse
at the time such notification is made.
ment of Commerce and published in the
Survey of Current Business) for the 12-
"SEC. 2207. ENFORCEMENT.
month period ending on the last day of the
"Any individual who is aggrieved by the
sixth month of such preceding determina-
failure of a State, political subdivision, or
tion period.
agency or instrumentality thereof. to
"(C) SUBPARAGRAPH (B) NOT TO APPLY
comply with the requirements of this title
WHERE SIGNIFICANT CHANGE.-A plan adminis-
may bring an action for appropriate equita-
trator may not elect to have subparagraph
ble relief.
(B) apply in any case in which there is any
"SEC. 2208. DEFINITIONS.
significant difference. between the determi-
"For purposes of this title-
nation period and the preceding determina-
"(1) GROUP HEALTH PLAN.-The term
tion period. in coverage under, or in employ-
'group health plan' has the meaning given
ees covered by. the plan. The determination
such term in section 162(i)(3) of the Inter-
under the preceding sentence for any deter-
nal Revenue Code of 1954.
mination period shall be made at the same
"(2) COVERED EMPLOYEE-The term 'cov-
time as the determination under paragraph
ered employee' means an individual who is
(3).
(or was) provided coverage under a group
(3) DETERMINATION PERIOD.-The determi-
health plan by virtue of the individual's em-
nation of any applicable premium shall be
ployment or previous employment with an
made for a period of 12 months and shall be
employer.
made before the beginning of such period.
"(3) QUALIFIED BENEFICIARY.-
IP 389H AS
Monday
June 15, 1987
Part II
Department of the
Treasury
Internal Revenue Service
26 CFR Part 1
Income Tax; Continuation Coverage
Requirements of Group Health Plans;
Notice of Proposed Rulemaking
Reproduced by the Library of Congress, Congressional Research Service.
22716
Federal Register / Vol. 52, No. 114 / Monday, June 15. 1987 / Proposed Rules
DEPARTMENT OF THE TREASURY
"qualified beneficiary" who would
(denying an income exclusion to highly
otherwise lose coverage under the plan
Internal Revenue Service
compensated employees of an employer
as a result of a "qualifying event" an
maintaining a group health plan that
26 CFR Part 1
opportunity to elect continuation of the
fails to comply with section 162(k)), but
coverage being received immediately
does not include section 162(i)(2)
[EE-143-86]
before the qualifying event. A qualified
(denying deductions to such an
beneficiary who properly elects
employer) or section 162(k) itself. A
Income Tax; Continuation Coverage
continuation coverage can be charged
technical correction to add sections
Requirements of Group Health Plans
an amount no greater than 102 percent
162(i)(2) and 162(k) to the list was
AGENCY: Internal Revenue Service.
of the "applicable premium." The
included in H.Con.Res. 395. Although the
Treasury.
"applicable premium" is based on the
99th Congress adjourned without
plan's cost of providing coverage.
ACTION: Notice of proposed rulemaking.
enacting that concurrent resolution, the
If a group health plan fails to comply
correction was identical in both House
SUMMARY: This document contains
with these continuation coverage
and Senate versions. Accordingly. the
proposed regulations relating to the
requirements, the employer will be
proposed regulations set forth employer
unable to deduct contributions made to
requirement that a group health plan
offer continuation coverage to people
that or any other group health plan
aggregation rules that anticipate a
similar technical correction with
who would otherwise lose coverage as a
(section 162(i)(2)), and certain highly
retroactive effect being enacted in the
result of certain events. They reflect
compensated individuals will be unable
current session of Congress.
changes made by the Consolidated
to exclude from income any employer-
Omnibus Budget Reconciliation Act of
provided coverage under that or any
There is no connection between the
other group health plan (section 106(b)).
proposed regulations and section 89 of
1985 (COBRA) and the Tax Reform Act
In addition, there may be non-tax
the Code. For example, the definitions
of 1986. The regulations will generally
affect sponsors of and participants in
consequences if a group health plan fails
set forth in the proposed regulations will
to comply with parallel requirements
not affect the meaning of "core
group health plans, and they provide
that section 10002 of COBRA added to
benefits." "non-core benefits." or any
plan sponsors with guidance necessary
Title I of the Employee Retirement
other terms for purposes of section 89.
to comply with the law.
Income Security Act of 1974 (ERISA).
Also, the computation of applicable
DATES: Written comments and requests
Title I of ERISA is administered by the
premiums for COBRA continuation
for a public hearing must be delivered or
Department of Labor. Governmental
coverage will not affect the
mailed on or before August 14, 1987.
plans (as defined in section 414(d) of the
determination of the value of group
These regulations are proposed to be
Code) are exempt from both the tax and
health plan benefits for purposes of
effective when final regulations are
ERISA provisions. However. State and
section 89.
published in the Federal Register as a
local governmental group health plans
Effective Date
Treasury decision.
are subject to parallel requirements that
ADDRESS: Send comments and requests
section 10003 of COBRA added to the
The regulations are proposed to be
for a public hearing to: Commissioner of
Public Health Service Act, which is
effective when final regulations are
Internal Revenue, Attention: CC:LR:T
administered by the Department of
published in the Federal Register as a
(EE-143-86) Washington, DC 20224.
Health and Human Services.
Treasury decision. Group health plans
The proposed regulations do not
become subject to the COBRA
FOR FURTHER INFORMATION CONTACT:
Mark Schwimmer of the Employee Plans
reflect section 9501 of the Omnibus
continuation coverage requirements at
and Exempt Organizations Division,
Budget Reconciliation Act of 1986, which
different times, however, depending on
Office of Chief Counsel. Internal
extended the COBRA continuation
the plan year of a plan and whether the
Revenue Service, 1111 Constitution
coverage requirements to certain
plan is a collectively bargained plan.
Avenue NW., Washington, DC 20224
individuals receiving retiree medical
With respect to qualifying events that
(Attention: CC:LR:T). Telephone 202-
benefits from employers that are
occur on or after the date that a plan
566-6212 (not a toll-free number).
involved in bankruptcy proceedings. The
became or becomes subject to those
changes made by that act will be
reguirements and before the effective
SUPPLEMENTARY INFORMATION:
addressed in a later issuance.
date of final regulations, the plan and
Background
The proposed regulations clarify
the employer must operate in good faith
which plans must offer COBRA
compliance with a reasonable
This document contains proposed
continuation coverage and the tax
interpretation of the statutory
amendments to the Income Tax
consequences of failing to do so. They
requirements (i.e., title X of COBRA).
Regulations (26 CFR Part 1) under
also provide guidance on a variety of
For the period before the effective date
sections 106(b), 162(i)(2), and 162(k) of
details. including the scope of the
of final regulations. the Internal Revenue
the Internal Revenue Code of 1986
continuation coverage, who is a
Service will consider compliance with
(Code). The proposed regulations
qualified beneficiary. what is a
the terms of these proposed regulations
conform the regulations to section 10001
qualifying event, how elections are
to constitute good faith compliance with
of the Consolidated Omnibus Budget
made, and when payment must be
a reasonable interpretation of the
Reconciliation Act of 1985 (COBRA) (100
made. Rules regarding computation of
statutory requirements (other than the
Stat. 222) and to section 1895(d) of the
the applicable premium under section
Tax Reform Act of 1986 (100 Stat. 2936).
statutory requirements regarding the
162(k)(4) will be addressed in a later
which made technical corrections to the
computation of the applicable premium
issuance.
or the treatment. under section 9501 of
COBRA provisions.
Section 414(t) as added by the Tax
the Omnibus Budget Reconciliation Act
COBRA added a new section 162(k) of
Reform Act of 1986 extends the
of 1986, of certain bankruptcies as
he Code to specify continuation
employer aggregation rules of sections
qualifying events, which are not
coverage requirements for employer-
414 (b), (c), (m), and (o) to a variety of
addressed in these proposed
provided group health plans. In general.
employee benefit provisions. The list of
regulations). Moreover. plans and
a group health plan must offer each
those provisions includes section 106
employers will be considered to be in
Federal Register / Vol. 52. No. 114 / Monday, June 15. 1987 / Proposed Rules
22717
compliance with the terms of these
List of Subjects in 26 CFR 1.61-1
proposed regulations if, between June
List of Questions
Through 1.281-4
15, 1987 and September 14, 1987, they
COBRA in General
operate in good faith compliance with a
Income taxes, Taxable Income,
reasonable interpretation of the
Deductions, Exemptions.
Question 1: What are the new health care
statutory requirements and, from
continuation coverage requirements added to
September 15, 1987 until the effective
Proposed Amendments to the
the Internal Revenue Code by the
date of final regulations, they operate in
Regulations
Consolidated Omnibus Budget Reconciliation
Act of 1985 {"COBRA")?
compliance with the terms of these
The proposed amendments to 26 CFR
Question 2 What is the effect of a group
proposed regulations. In addition, the
Part 1 are as follows:
health plan's failure to comply with section
Internal Revenue Service will not
162(k)?
consider actions inconsistent with the
PART 1-{AMENDED}
Question 3. How are employer deductions
terms of these proposed regulations
affected by a group health plan's failure to
necessarily to constitute a lack of good
Paragraph 1. The authority citation for
comply with section 162(k)?
faith compliance with a reasonable
Part 1 is amended by adding the
Question 4: How is the gross income of
interpretation of the statutory
following citation:
certain individuals affected by a group health
requirements; whether there has been
plan's failure to comply with section 162(k)?
Authority: 26 U.S.C. 7805.
good faith compliance with a reasonable
Sections
Question 5: What is the employer?
1.106-1 and 1.162-26 also issued under 26
interpretation of the statutory
Question 6: How does COBRA apply to a
U.S.C. 106(b). 162(i)(2). and 162(k).
requirements will depend on all the
group health plan before the effective date of
this section?
facts and circumstances of each case.
Par. 2. Section 1.106-1 is amended by
Special Analyses
redesignating the existing text as
Which Plans Must Comply and When
paragraph (a). revising the first sentence
The Commissioner of Internal
Question 7: What is a group health plan?
of paragraph (a), and adding a new
Revenue has determined that this
Question 8: What group health plans are
paragraph (b) to read as follows:
subject to COBRA?
proposed rule is not a major rule as
Question 9: What is a small-employer plan?
defined in Executive Order 12291.
§ 1.106-1 Contributions by employer to
Question 10: When is an arrangement
Therefore, a Regulatory Impact Analysis
accident and health plans.
considered to be two or more separate group
is not required. Although this document
(a) Except as set forth in paragraph (b)
health plans rather than a single group health
is a notice of proposed rulemaking
of this section, the gross income of an
plan?
which solicits public comment. the
employee does not include contributions
Question 11: When must group health plans
Internal Revenue Service has concluded
comply with section 162(k)?
that the regulations proposed herein are
which his employer makes to an
Question 12: What is a collectively
interpretative and that the notice and
accident or health plan for
bargained group health plan?
public procedure requirements of 5
compensation (through insurance or
Question 13: What is the plan year of a
U.S.C. 553 do not apply. Accordingly.
otherwise) to the employee for personal
group health plan?
these proposed regulations do not
injuries or sickness incurred by him, his
Question 14: How do the COBRA
consitute regulations subject to the
spouse. or his dependents. as defined in
continuation coverage requirements apply to
Regulatory Flexibility Act (5 U.S.C.
section 152.
cafeteria plans and other flexible benefit
arrangements?
chapter 6).
(b) In situations involving group
Comments and Requests for Public
health plans that do not comply with
Qualified Beneficiaries
Hearing
section 162(k). the exclusion described
Question 15: Who is a qualified
in paragraph (a) of this section is not
beneficiary?
Before adopting these proposed
available to highly compensated
Question 16: Who is a covered employee?
regulations. consideration will be given
employees (as defined in section 414(q)).
Question 17: Other than those individuals
to any written comments that are
See § 1.162-26 (regarding continuation
who are qualified beneficiaries as of the day
submitted (preferably eight copies) to
coverage requirements of group health
before a qualifying event. can any other
the Commissioner of Internal Revenue.
plans).
person (such as a newborn or adopted child
All comments will be available for
or a new spouse) obtain qualified beneficiary
public inspection and copying. A pubic
Par. 3. A new $ 1.162-26 is added
status for COBRA continuation coverage
hearing will be held upon written
immediately after § 1.162-25T to read as
purposes?
follows:
request to the Commissioner by any
Qualifying Events
person who has submitted written
§ 1.162-26 Continuation coverage
comments. If a public hearing is held.
Question 18: What is a qualifying event?
requirements of group health plans.
Question 19: Can a qualifying event result
notice of the time and place will be
published in the Federal Register.
Table of Contents
from a voluntary termination of employment?
Question 20: Can a qualifying event occur
Drafting Information
COBRA in general: Q&A-1 to Q&A-6
before the effective date of section 162(k) (as
Which plans must comply and when: Q&A-7
described in Q&A-11 of this section)?
The principal author of these
to Q&A-14
Question 21: Can a qualifying event occur
proposed regulations is Mark
Qualified beneficiaries: Q&A-15 to Q&A-17
while 8 group health plan is excepted from
Schwimmer of the Employee Plans and
Qualifying events: Q&A-18 to Q&A-21
COBRA (see Q&A-8 of this section)?
Exempt Organizations Division of the
COBRA continuation coverage: Q&A-22 to
Office of Chief Counsel. Internal
Q&A-31
COBRA Continuation Coverage
Revenue Service. However, personnel
Electing COBRA continuation coverage:
Question 22: What is COBRA continuation
from other offices of the Internal
Q&A-32 to Q&A-37
coverage?
Revenue Service and Treasury
Duration of COBRA continuation corenage:
Question 23: How is COBRA continuation
Department participated in developing
Q&A-38 to Q&A-43
coverage affected by changes in the coverage
the regulations, both on matters of
Paying for COBRA continuation coverage:
that is provided to similarly situated
substance and style.
Q&A-44 to Q&A-48
beneficiaries with respect to whom a
qualifying event has not occurred?
22718
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
Question 24: Can a group health plan
alternative coverage extend the maximum
Question-2: What is the effect of a
require a qualified beneficiary who wishes to
coverage period?
group health plan's failure to comply
receive COBRA continuation coverage to
Question 42: How can an event that occurs
with section 162(k)?
elect to receive a continuation of all of the
before a group health plan becomes subject
coverage that he or she was receiving under
to section 162(k) affect the maximum
Answer-2: If a group health plan
the plan immediately before the qualifying
coverage period when a later, qualifying
subject to COBRA fails to comply with
event?
event occurs?
section 162(k), certain deductions are
Question 25: What is core coverage?
Question 43: Must a qualified beneficiary
disallowed to the employer under
Question 26: Must a qualified beneficiary
be given the right to enroll in a conversion
section 162(i)(2) (see Q&A-3 of this
be given an opportunity to elect core
health plan at the end of the maximum
section) and the income exclusion under
coverage plus only one of two non-core
coverage period for COBRA continuation
coverages that the qualified beneficiary had
section 106(a) is denied to certain highly
coverage?
under the plan immediately before the
compensated employees of the employer
Paying for COBRA Continuation
qualifying event?
under section 106(b)(1) (see Q&A-4 of
Question 27: Must a qualified beneficiary
Coverage
this section). There may be additional
who is covered under a single plan providing
Question 44: Can a qualified beneficiary be
non-tax consequences if the plan fails to
both core coverage and non-core coverage be
required to pay for COBRA continuation
comply with parallel requirements that
offered the opportunity to elect non-core
coverage?
were added by section 10002 of COBRA
coverage only?
Question 45: After a qualified beneficiary
Question 28: What deductibles apply if
has elected COBRA continuation coverage
to Title I of the Employee Retirement
COBRA continuation coverage is elected?
under a group health plan. can the plan
Income Security Act of 1974 (ERISA).
Question 29: How do a plan's limits apply
increase the amount that the qualified
which is administered by the
to COBRA continuation coverage?
beneficiary must pay for COBRA
Department of Labor. Although
Question 30: Can a qualified beneficiary
continuation coverage?
governmental plans are not subject to
who elects COBRA continuation coverage
Question 46: Must a qualified beneficiary
section 162(k) because they are not
ever change from the coverage received by
be allowed to pay for COBRA continuation
"subject to COBRA" (see Q&A-8 of this
that individual immediately before the
coverage in installments?
section), certain governmental plans are
qualifying event?
Question 47: Can a qualified beneficiary
choose to have the first payment for COBRA
subject to parallel requirements that
Question 31: Aside from open enrollment
periods. can a qualified beneficiary who has
continuation coverage applied prospectively
were added by section 10003 of COBRA
elected COBRA continuation coverage
only?
to the Public Health Service Act, which
choose to cover individuals (such as newborn
Question 48: What is timely payment for
is administered by the Department of
children, adopted children. or new spouses)
COBRA continuation coverage?
Health and Human Services.
who join the qualified beneficiary's family on
Cobra in General
Question 3: How are employer
or after the date of the qualifying event?
Question 1: What are the new health
deductions affected by a group health
Electing COBRA Continuation Coverage
care continuation coverage requirements
plan's failure to comply with section
added to the Internal Revenue Code by
162(k)?
Question 32: What is the minimum period
during which a group health plan must allow
the Consolidated Omnibus Budget
Answer 3: (a) Under section 162(i)(2).
a qualified beneficiary to elect COBRA
Reconciliation Act of 1985 ("COBRA")?
if a group health plan subject to COBRA
continuation coverage (i.e., the election
Answer 1: Section 10001 of COBRA
fails to comply with section 162(k), each
period)?
added a new section 162(k) to the Code
employer maintaining the plan is denied
Question 33: Must a covered employee or
to provide generally that 8 group health
a deduction for any contributions or
qualified beneficiary inform the employer or
plan administrator of the occurrence of a
plan must offer each qualified
other expenses paid or incurred in
qualifying event?
beneficiary who would otherwise lose
connection with any group health plan
coverage under the plan as a result of a
that it maintains. The deduction is
Question 34: During the election period and
before the qualified beneficiary has made an
qualifying event an opportunity to elect.
denied for any taxable year of the
election. must coverage be provided?
within the applicable election period.
taxpayer during which there are one or
Question 35: Is a waiver before the end of
continuation coverage under the plan.
more days on which plan is not in
the election period effective to end a
That continuation coverage is referred
compliance with section 162(k). Thus, if
qualified beneficiary's election rights?
to in this section as "COBRA"
a failure to comply with section 162(k)
Question 36: Can an employer withhold
continuation coverage" and a group
arises in one taxable year of a taxpayer
money or other benefits owed to 8 qualified
health plan that is subject to section
and is not corrected until after the
beneficiary until the qualified beneficiary
162(k) is referred to as being "subject to
beginning of the following taxable year.
either waives COBRA continuation coverage.
COBRA" (see Q&A-8 of this section). A
the deduction for contributions or
elects and pays for such coverage. or allows
the election period to expire?
qualified beneficiary can be required to
expenses for both of those taxable years
Question 37: Can each qualified beneficiary
pay for COBRA continuation coverage.
is denied. Section 162(i)(2) operates each
make an independent election under
A qualified beneficiary is defined in
taxable year to permanently deny a
COBRA?
Q&A-15 of this section. A qualifying
deduction for amounts paid or incurred
Duration of Cobra Continuation
event is defined in Q&A-18 of this
in that year, and is applied before
Coverage
section. The election procedures are
applying any provision of the Code that
Question 38: How long must COBRA
described in Q&A-32 through Q&A-37 of
governs the timing of an otherwise
continuation coverage be available to a
this section. COBRA continuation
available deduction. Examples of such
qualified beneficiary?
coverage is described in Q&A-22
provisions include sections 263A
Question 39: When does the maximum
through Q&A-31 of this section.
(capitalization and inclusion in
coverage period end?
Payment for COBRA continuation
inventory costs), 419 (treatment of
Question 40: Can the maximum coverage
coverage is addressed in Q&A-44
funded welfare benefit plans). and 460
period ever be expanded?
through Q&A-48 of this section. Unless
(special rules for long-term contracts). In
Question 41: If coverage is provided to a
qualified beneficiary after a qualifying event
otherwise specified. any reference in
addition, section 162(i)(2) operates with
this section to "COBRA" refers to
respect to each employer maintaining
without regard to COBRA continuation
coverage (e.g., as 8 result of State or local
section 10001 of COBRA and to section
the group health plan. without regard to
law, industry practice. a collective bargaining
162(k) of the Code as added by COBRA
whether the employers are treated as a
agreement. or plan procedure). will such
(as amended).
single employer (see Q&A-5 of this
Federal Register / Vol. 52, No. 114 / Monday, June 15. 1987 / Proposed Rules
22719
section) and without regard to whether
Example 3: Assume that 8 group health
even if the coverage would otherwise be
the failure to satisfy section 162(k)
plan maintained only by M. a calendar year
excludable from income under section
occurs with respect to only an employee
employer. is subject to COBRA and fails to
comply with section 162(k) during February
106(a). The individuals referred to in the
of one of the employers. See Q&A-10 of
this section regarding when an
of 1988. that the failure is corrected during
preceding sentence consist of each
arrangement is treated as two or more
Apri! of 1988, and that on June 1. 1988
person who is. at any time during which
employer M becomes a wholly-owned
the plan is not in compliance with
separate group health plans.
subsidiary of N. a previously unrelated
(b) A failure of a group health plan to
section 162(k). a highly compensated
corporation with a taxable year ending July
comply with section 162(k) that occurs
employee (within the meaning of section
31. For 1988. M is disallowed a deduction for
before. and is not corrected by. the date
all its contributions with respect to any group
414(q) and the regulations under that
that an employer maintaining the plan
health plan. Because M and N were not
section) of any employer maintaining
and another entity are first treated as a
treated as a single employer (see Q&A-5 of
the plan. The coverage included in the
single employer under Q&A-5 of this
this section) during the period of
individual's gross income for each such
section ("the combination date") will
noncompliance by M's plan (i.e., February to
taxable year shall consist of all
not result in a denial of a deduction to
April of 1988). the failure of M's plan to
coverage provided by the employer to
comply with section 162(k) during that period
the other entity under paragraph (a) of
the individual and his or her spouse and
will not result in a disallowance of any
this Q&A-3. 50 long as (1) the other
dependent children during that taxable
deductions to N. the new parent corporation.
entity did not also maintain the plan
Even if the failure to comply that arises in
year under any group health plan (other
before the combination date, and (2) the
February of 1988 is not corrected until after
than a plan that is excepted from
failure is corrected before the end of the
June 1. 1988. it will not result in a
COBRA-see Q&A-8 of this section).
first taxable year of the other entity that
disallowance of any deductions to N. 30 long
For purposes of section 106(b) and this
begins after the combination date.
as the failure to comply is corrected by July
Q&A-4, whether an individual is a
31. 1989 (the end of N's first taxable year that
(c) The rules of this Q&A-3 are
highly compensated employee shall be
begins after June 1. 1988). However. if the
illustrated by the following examples:
determined on the basis of plan years or
failure is not corrected until August of 1969. N
will be disallowed a deduction for all its
any alternative period permitted under
Example 1: Plan A is a group health plan
contributions with respect to any group
section 414(q) and the regulations under
subject to COBRA that is maintained by two
unrelated employers. X and Y. Section 162(k)
health plan for its taxable years ending on
that section. As used in the preceding
became effective with respect to plan A
July 31 of 1988, 1969, and 1990. Alsa if
sentence, "plan year" means the plan
before April 1. 1988. The taxable year of
another failure of Ms plan to comply with
year as defined in Q&A-13 of this
employer X ends on March 31. and the
section 162(k) arises on or after June 1. 1988.
section.
taxable year of employer Y ends on April 30.
that second failure will result in a
If Plan A fails to comply with section 162(k)
disallowance of deductions to N.
(b) A failure of a group health plan to
on April 1. 1988, by not offering COBRA
Example 4: Assume that a calendar year
comply with section 162(k) that occurs
continuation coverage to a qualified
employer maintaining a group health plan
before. and is not corrected by. the date
beneficiary of an employee of employer X.
through a welfare benefit fund contributes
that an employer maintaining the plan
and the failure is not corrected until June 1.
$800,000 to the fund in 1988 and $500,000 in
and another entity are first treated as a
1988. both employers X and Y are disallowed
1989. Assume further that only $600,000 of the
single employer under Q&A-5 of this
deductions for their contributions and other
1988 contribution would be deductible under
section ("the combination date") will
expenses relating to all their group health
section 419 for 1988. and that the remaining
not result in an income inclusion for
plans (including any group health plan that is
$200,000 would be deemed to be contributed
highly compensated employees of the
maintained only by employer X or only by
in 1989 and deductible under section 419 for
employer Y) for each taxable year that
1989 along with the $500,000 actually
other entity under paragraph (a) of this
includes one or more days of noncompliance.
contributed in that year. However, the
Q&A-4. so long as (1) the other entity
Thus. the disallowance applies to employer X
deduction under section 419 is only available
did not also maintain the plan before the
for its taxable year ending March 31. 1989.
if these amounts are otherwise deductible
combination date. and (2) the failure is
and to employer Y for both its taxable year
under section 182. Therefore. if at any time
corrected before the end of the first
ending April 30 1988. and its taxable year
during 1988 the group health plan is not in
taxable year of the other entity that
ending April 30. 1969. (However. see Q&A-10
compliance with section 162(k). the $800.000
begins after the combination date.
of this section regarding when an
contributed in 1988 is disallowed in full as 8
(c) The rules of this Q&A-4 are
arrangement is considered to be two or more
deduction for 1988 and for all later years.
separate group health plans.)
However. if the plan does comply with
illustrated by the following examples. in
Example 2: Assume that companies Z and
section 162(k) throughout 1986 but at some
which it is assumed that all individuals
W are treated as a single employer under
time during 1989 is not in compliance. the
are calendar year taxpayers:
section 414(b) at all relevant times (see Q&A-
$600.000 deduction for 1988 is unaffected
5 of this section). that Z maintains group
while the $700,000 otherwise deductible for
Example 1: Employer Z maintains group
health plans P and Q. that W maintains group
1989 is permanently disallowed.
health plan T. and maintains no other group
health plans R and S. and that none of these
Question 4: How is the gross income
health plans. If plan T fails to comply with
plans is excepted from COBRA (see Q&A-8
of certain individuals affected by a
section 162(k) on November 10. 1988, and the
of this section). Assume further that the
taxable year of company Z ends on May 31,
group health plan's failure to comply
failure is not corrected until February 15,
that the taxable year of company W ends on
with section 162(k)?
1989, each individual who is a highly
July 31. and that section 162(k) becomes
Answer 4: (a) Under section 106(a).
compensated employee of Z at any time from
effective with respect to the group health
employer-provided coverage under an
November 10, 1988, through February 15.
accident or health plan is generally
1989, shall have coverage included in gross
plans as follows: for plan P on February 1.
income for that individual's 1988 and 1989
1987: for plan Q on April 1. 1987; and for
excluded from the gross income of an
plans R and S on July 1. 1987. If at any time
taxable years. If the individual was covered
employee. Under section 106(b).
during February through May of 1987 plan P
under plan T throughout those years, the
however, if a group health plan that is
is not in compliance with section 162(k). then
coverage included in 1988 is all coverage
subject to COBRA fails to comply with
company Z is disallowed all deductions with
provided by employer Z under plan T on
respect to plans P and Q for its taxable year
section 162(k). certain individuals shall
behalf of the individual and the individual's
ending May 31. 1987. and company W is
have certain employer-provided
family during 1988, and the coverage included
disallowed all deductions with respect to
coverage included in their gross income
in 1989 is all coverage provided by employer
plans R and S for its taxable year ending July
for each of their taxable years during
Z under plan T on behalf of the individual
31. 1987.
which the plan is not in compliance.
and the Individual's family during 1989.
22720
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
Example 2: The facts are the same as in
health plans become subject to the
insurance policies but also one or more
Example 1. except that employer Z's highly
COBRA continuation coverage
individual insurance policies in any
compensated employees are covered under
requirements at different times,
arrangement that involves the provision
plan U. Even if plan U complies with section
however, as set forth in Q&A-11 of this
of medical care to two or more
162(k) at all times, each individual who is a
highly compensated employee of Z at any
section. With respect to qualifying
employees. A plan "maintained by an
time for November 10. 1988, through February
events that occur on or after the date
employer" is any plan of, or contributed
15. 1989 (the period of plan T's
that a plan became or becomes subject
to (directly or indirectly) by, an
noncompliance). shall have coverage
to those requirements and before the
employer. Thus, 8 group health plan is
included in gross income for that individual's
effective date of final regulations, the
"maintained by an employer,"
1988 and 1989 taxable years. If the individual
plan and the employer must operate in
regardless of whether the employer
was covered under plan U throughout those
good faith compliance with a reasonable
contributes to it, if coverage under the
years, the coveage included in 1988 is all
interpretation of the statutory
plan would not be available at the same
coverage provided by employer Z under plan
requirements (i.e., title X of COBRA).
U on behalf of the individual and the
cost to an employee in the event that he
For the period before the effective date
individual's family during 1988, the coverage
or she were not employed by the
included in 1989 is all coverage provided by
of final regulations, the Internal Revenue
employer. However, a plan that is
employer Z under plan U on behalf of the
Service will consider compliance with
maintained by an employee
individual and the individual's family during
the terms of these proposed regulations
representative is not "maintained by an
1989.
to constitute good faith compliance with
employer" if the employer does not
Example 3: The facts are the same 83 in
a reasonable interpretation of the
contribute to the plan and has no
Example 1, except that the failure to comply
statutory requirements (other than the
involvement (e.g., payroll checkoff) in
with section 162(k) is corrected on December
statutory requirements regarding the
the operation of the plan. See Q&A-10 of
20, 1988, rather than on February 15. 1989.
computation of the applicable premium
The income inclusion for highly compensated
this section for rules governing when a
or the treatment, under section 9501 of
employees applies only for the 1988 taxable
single arrangement is considered to be
the Omnibus Budget Reconciliation Act
year and only to those individuals who are
two or more separate group health
highly compensated employees of Z at some
of 1986, of certain bankruptcies as
plans.
time from November 10 to December 20, 1988.
qualifying events, which are not
(b) Medical care (as defined in section
Example 4: The facts are the same as in
addressed in these proposed
213(d)) includes the diagnosis, cure,
Example 1. In addition. employer W
regulations). Moreover, plans and
mitigation, treatment, or prevention of
maintains group health plan V. and maintains
employers will be considered to be in
disease, and any other undertaking for
no other group health plans. Employer W's
compliance with the terms of these
taxable year ends on May 31. Employer W
the purpose of affecting any structure or
proposed regulations if, between June
becomes a wholly-owned subsidiary of
function of the body. Medical care also
15, 1987 and September 14, 1987, they
employer Z on December 1. 1988. Plan T's
includes transportation primarily for
operate in good faith compliance with a
failure to comply with section 162(k) that
and essential to medical care as
arises on November 10, 1988. does not result
reasonable interpretation of the
described in the preceding sentence.
in an income inclusion to any of employer
statutory requirements and, from
However, medical care does not include
W's highly compensated employees because
September 15, 1987 until the effective
the failure is corrected on February 15, 1989,
date of final regulations, they operate in
anything that is merely beneficial to the
compliance with the terms of these
general health of an individual, such as
which is before May 31. 1990 (the end of
a vacation. Thus, if an employer
employer W's first taxable year that begins
proposed regulations. In addition, the
after December 1. 1988). However. if another
Internal Revenue Service will not
maintains a program that furthers
failure of Plan T to comply with section
consider actions inconsistent with the
general good health, but the program
162(k) arises on December 15, 1988, and that
does not relate to the relief or
terms of these proposed regulations
failure to comply is also corrected on
alleviation of health or medical
necessarily to constitute a lack of good
February 15, 1989, each employee of employer
faith compliance with a reasonable
problems and is generally accessible to
W who is a highly compensated employee at
any time from December 15, 1988, through
interpretation of the statutory
and used by employees without regard
February 15, 1989. is also subject to the
requirements; whether there has been
to their physical condition or state of
income inclusion set forth in this Q&A-4.
good faith compliance with a reasonable
health, that program is not considered a
interpretation of the statutory
program that provides medical care and
Question 5: What is the employer?
requirements will depend on all the
80 is not a group health plan for
Answer 5: For purposes of this § 1.162-
facts and circumstances of each case.
purposes of this section.
26 and sections 106(b), 162(i), and 162(k),
(c) For example, if an employer
the term "employer" refers to the
Which Plans Must Comply and When
maintains a spa, swimming pool, or
employer and any entity that is a
Question 7: What is a group health
exercise/fitness program that is
member of a group described in section
plan?
normally accessible to and used by
414(b). (c), (m), or (o) that includes the
Answer 7: (a) A group health plan is
employees for reasons other than relief
employer. and to any successor of either
any plan maintained by an employer to
of health or medical problems, such a
the employer or such an entity.
provide medical care (as defined in
facility would not constitute medical
However, the rule of this Q&A-5 does
section 213(d)) to the employer's
care. In contrast, if the employer
not apply for purposes of determining
employees. former employees, or the
maintains a drug or alcohol treatment
whether a group health plan is a small-
families of such employees or former
program or a health clinic, or any other
employer plan (see Q&A-9 of this
employees, whether directly or through
facility or program that is intended to
section).
insurance, reimbursement, or otherwise,
relieve or alleviate a physical condition
Question 6: How does COBRA apply
and whether or not provided through an
or health problem (whether the
to a group health plan before the
on-site facility (except as set forth in
condition or problem is chronic or
effective date of this section?
paragraph (e) of this Q&A-7). or through
acute). the facility or program is
Answer 6: This section is proposed to
a cafeteria plan (as defined in section
considered to be the provision of
be effective when final regulations that
125) or other flexible benefit
medical care and so is considered a
include it are published in the Federal
arrangement. For purposes of this Q&A-
group health plan for purposes of this
Register as a Treasury decision. Group
7. insurance includes not only group
section.
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
22721
(d) Whether a benefit provided to
is administered by the Department of
in which the employer's workforce
employees constitutes medical care is
Health and Human Services.
increased. However, a plan described in
not affected by whether the benefit is
Question 9: What is a small.employer
the preceding sentence will be treated
excludable from income under section
plan?
as not having become subject to section
132 (relating to certain fringe benefits).
Answer 9: (a) A "small-employer
162(k) on that January 1 (i.e., still
For example, if a department store
plan" is a group health plan maintained
excepted from COBRA) if all the
provides its employees discounted
by one or more employers where each of
employers who did not normally employ
prices on all merchandise, including
the employers maintaining the plan for a
fewer than 20 employees in the
health care items such as drugs or
calendar year normally employed fewer
preceding calendar year have ceased to
eyeglasses, the mere fact that the
than 20 employees during the preceding
maintain the plan by February 1
discounted prices also apply to health
calendar year. For purposes of this
immediately following that January 1.
care items will not cause the program to
definition, each employer maintaining
For example. if each employer
be a plan providing medical care, 80
the plan shall, in combination with all
maintaining a group health plan
long as the discount program would
other entities under common control
normally employs fewer than 20
normally be accessible to and used by
with that employer (as determined
employees during each of 1986 and 1987
employees without regard to health
under section 52 (a) and (b)). be
but two of the employers do not
needs or physical condition. If, however,
considered a single employer. See Q&A-
normally employ fewer than 20
the employer maintaining the discount
10 of this section for rules governing
employees during 1988, the entire plan
program is a health clinic, so that the
when a single arrangement is
becomes subject to COBRA and must
program is used exclusively by
considered to be two or more separate
begin to comply with section 162(k) on
employees with health or medical needs,
group health plans.
January 1, 1989, even if the plan year is
the program is considered as a plan
(b) An employer is considered as
not a calendar year, unless those two
providing medical care and so is
having normally employed fewer that 20
employers depart from the plan before
considered a group health plan for
employees during a particular calendar
February 1, 1989.
purposes of this section.
year if, and only if, it had fewer than 20
Question 10: When is an arrangement
(e) The provision of medical care at a
employees on at least 50 percent of its
considered to be two or more separate
facility that is located on the premises of
working days during that year.
group health plans rather than a single
an employer does not constitute a group
(c) In determining the number of its
group health plan?
health plan if (1) the medical care
employees. an employer shall treat as
Answer 10: (a) The rules below in
consists primarily of first aid that is
employees all full-time and part-time
paragraphs (b) through (g) of this Q&A-
provided during the employer's working
employees, and all employees within the
hours for treatment of a health
10 determine when an arrangement is
meaning of section 401(c)(1). For
considered to be two or more separate
condition, illness, or injury that occurs
example, partners in a law firm are
group health plans. If more than one of
during those working hours. (2) the
treated as employees for this purpose.
those paragraphs applies to a particular
medical care is available only to the
An employer shall also treat as
arrangement. the paragraphs are applied
employer's current employees, and (3)
employees for this purpose all agents
in succession to break the arrangement
employees are not charged for the use of
and independent contractors (and their
into the smallest possible group health
the facility.
employees. agents, and independent
plans. For example, if an arrangement
Question 8: What group health plans
contractors, if any). and all directors (in
offers high option and low option benefit
are subject to COBRA?
the case of a corporation). but only if
schedules (see paragraph (c)) and
Answer 8: (a) All group health plans
such individuals are eligible to
constitutes a multiple employer welfare
are subject to COBRA (i.e., subject to
participate in a group health plan
arrangement maintained by three
section 162(k)) except group health plans
maintained by the employer.
different employers (see paragraph (d)).
described in section 106(b)(2). However.
(d) The determination of whether a
the arrangement consists of six separate
a group health plan is not subject to
plan is a small-employer plan on any
group health plans: Three high-option
COBRA before the effective date
particular date depends on which
plans (one for each employer) and three
prescribed for that plan in Q&A-11 of
employers are maintaining the plan on
low-option plans (one for each
this section.
that date and on the workforce of those
employer).
(b) The following group health plans
employers during the preceding calendar
(b) The rules in this Q&A-10 apply
are described in section 106(b)(2): (1)
year. If a plan that is otherwise subject
without regard to whether the
Small-employer plans (see Q&A-9 of
to COBRA ceases to be a small-
arrangement is maintained by one or
this section), (2) church plans (within the
employer plan because of the addition
more than one employer. Moveover. the
meaning of section 414(e)). and (3)
during a calendar year of an employer
fact that a particular arrangement has
governmental plans (within the meaning
that did not normally employ fewer than
been traditionally referred to as a single
of section 414(d)). Plans that are
20 employees on a typical business day
plan or has reported as a single plan
described in section 106(b)(2) are
during the preceding calendar year. the
(e.g., by filing a single Form 5500) is not
referred to in this § 1.162-26 as
plan ceases to be excepted from COBRA
controlling in the determination of
"excepted from COBRA." The income
and section 162(k) becomes effective
whether the arrangement will be
inclusion rule of section 106(b)(1), the
with respect to it immediately upon the
considered as two or more separate
deduction denial rule of section 162(i).
addition of the new employer. In
plans for purposes of section 162(k). All
and the continuation coverage
contrast, if the plan ceases to be a small-
references elsewhere in this section to a
requirements of section 162(k) do not
employer plan by reason of an increase
"group health plan" are references to a
apply with respect to group health plans
during a calendar year in the workforce
separate group health plan as
that are excepted from COBRA. Certain
of an employer maintaining the plan, the
determined under this Q&A-10. The
governmental plans. however. are
plan ceases to be excepted from COBRA
identification of separate group health
governed by parallel requirements that
and section 162(k) becomes effective
plans is relevant to determinations such
were added by section 10003 of COBRA
with respect to it on the January 1
as those involving which coverage must
to the Public Health Service Act. which
immediately following the calendar year
be separately electable. the effective
22722
Federal Register / Vol. 52. No. 114 / Monday. June 15, 1987 / Proposed Rules
date of section 162(k), which employers
Example 2: If two types of coverage differ
employee's benefits are payable only
will be denied deductions in the event of
only because one has a $100 deductible and
out of contributions (and earnings on
a failure to comply with section 162(k),
the other has a $250 deductible. or because
contributions) made by that employee's
the cost of continuation coverage. and
one has a $1500 catastrophic limit and the
other has 8 $2500 catastrophic limit, each
employer, each employer's portion of the
the availability of the exception for
type of coverage is 8 different benefit
arrangement is considered a separate
small-employer plans (see Q&A-9 of this
package and so is treated as a separate group
group health plan. The rule of this
section). The relevance of treating an
health plan.
paragraph (f) shall apply whether or not
arrangement as two or more separate
Example 3: An arrangement has 8
a trust is used, and whether or not the
group health plans is illustrated by the
deductible equal to 1 percent of
arrangement is partially insured through
following examples:
compensation. but consists of a single plan in
stop-loss insurance, insurance for some
all other respects. The fact that employees
Example 1: If an employee is covered under
but not all benefits, or some other
with different levels of compensation will
more than one group health plan at the time
have different deductibles will not cause the
method.
of a qualifying event. the qualified
arrangement to be treated as separate group
(g) Arrangements providing medical
beneficiaries must be offered an opportunity
health plans for each resulting deductible.
benefits are broken down as described
to elect COBRA continuation coverage with
Example 4: If an arrangement consists of a
in Q&A-12 of this section into their
respect to each of the plans. In contrast, if the
single plan in all respects except that an
collectively bargained portion (if any)
arrangement in which the employee
employee can choose to have either hospital
and non-collectively-bargained portion
participates is treated as a single group
benefits or hospital benefits combined with
health plan with several features. no
mental health benefits. there are two
(if any). each of which is considered a
individual features of the plan would have to
separate plans: One providing hospital
separate group health plan.
be made available to 8 qualified beneficiary
coverage, and one providing hospitel-and-
Question 11: When must group health
unless the qualified beneficiary elects
mental-health coverage. If an employee could
plans comply with section 162(k)?
coverage under the entire plan. (But see Q&A-
instead choose independently whether to
Answer 11: (a) Non-collectively
24 of this section regarding the election to
have hospital benefits and whether to have
bargained plans: For plans that are not
receive only core coverage.)
mental-health benefits. there would also be
excepted from COBRA (see Q&A-8 of
Example 2: If an arrangement that involves
two separate plans: One providing hospital-
many employers is considered to be a single
only coverage and one providing mental-
this section) and that do not constitute
group health plan. that plan will fail to
health-only coverage. In such a case an
collectively bargained group health
qualify for the small-employer plan exception
employee receiving both hospital and mental-
plans (see Q&A-12 of this section). the
if any one of those employers had too many
health benefits would be covered under two
requirements of section 162(k) apply as
employees during the preceding calendar
separate group health plans and would have
of the first day of the first plan year
year. However, if the arrangement is
separate COBRA election rights under each
beginning on or after July 1, 1986. For
considered to be a separate plan with respect
plan.
example, if such a plan has a February 1
to each employer. then the exception would
be available for each of those particular
(d) An arrangement that constitutes a
to January 31 plan year. it must begin to
employers that normally employed fewer
multiple employer welfare arrangement
comply with section 162(k) by February
than 20 employees during the preceding
as defined in section 3(40) of the
1, 1987.
calendar year.
Employee Retirement Income Security
(b) Collectively bargained plans: For
Example 3: An arrangement covering the
Act of 1974 (ERISA). is considered 8
plans that are not excepted from
employees of unrelated employers A and B
separate group health plan with respect
COBRA and that constitute collectively
fails to comply with section 162(k) by failing
to each employer maintaining the
bargained group health plans (Bee Q&A-
to offer COBRA continuation coverage to an
employee of employer A. but complies with
arrangement. Solely for purposes of this
12 of this section), the requirements of
section 162(k) in all other respects. If the
paragraph (d), the rules of section
section 162(k) apply as of the first day of
arrangement consists of two separate group
3(40)(B) of ERISA (regarding trades or
the first plan year beginning on or after
health plans. one covering the employees of
businesses under common control) shall
the later of (1) January 1, 1987, or (2) the
A and one covering the employees of B.
apply in determining whether two or
date on which the last of the collective
employer A will lose deductions under
more employers are treated as a single
bargaining agreements relating to the
section 162(i) and A's highly compensated
employer.
plan terminates (determined without
employees will lose the benefit of the section
(e) In the case of an insured
regard to any extension thereof agreed
106(a) exclusion, but employer B and its
arrangement, if two or more groups of
to after April 7. 1986). This rule is
employees will be unaffected. In contrast. if
the arrangement consists of a single group
employees are covered under separate
illustrated by the following example:
health plan. the consquences of failing to
contracts between a participating
Example: Assume that the plan year
comply with section 162(k) will apply to both
employer or employers and an insurer or
of a collectively bargained group health
employers A and B.
insurers. each separate contract is
plan is the calendar year and that, as of
(c) Each different benefit package or
considered a separate group health plan.
even if the coverage under the separate
April 7. 1986, the plan is maintained
option offered under an arrangement is
pursuant to three collective bargaining
contracts is identical.
treated as a separate group health plan.
For this purpose. self-only coverage and
(f) In the case of a self-funded
agreements having expiration dates in
October 1987, February 1988, and July
self-and-family coverage are not
arrangement, each segregated portion of
1988. The plan must comply with section
considered to be separate packages or
the arrangement shall be considered a
162(k) beginning on January 1, 1989. Of
options. The rule of this paragraph (c) is
separate group health plan. A portion of
course, the plan must begin to comply
illustrated by the following examples:
an arrangement is a segregated portion
if and only if (1) assets available to pay
by January 1. 1987. with respect to a
Example 1: If an arrangement offers "high
benefits under that portion are
collective bargaining unit that was not.
option" and "low option" benefit schedules
unavailable to pay benefits under any
as of April 7, 1986. covered by one of
and the alternatives of self-only and self-and-
other portion. and (2) assets available to
those three agreements.
family coverage. the arrangement is
considered to be two separate plans: One
pay benefits under any other portion are
Question 12: What is a collectively
offering high option coverage (whether self-
unavailable to pay benefits out of that
bargained group health plan?
only or self-and-family). and one offering low
portion. For example, if several
Answer 12: (a) A collectively
option coverage (whether self-only or self-
employers contribute to a trust that
bargained group health plan is a group
and-family).
provides medical benefits but each
health plan covering only employees
Federal Register / Vol. 52, No. 114 / Monday, June 15. 1987 / Proposed Rules
22723
and former employees (and their
paragraph (b) of this Q&A-13. The
indemnity arrangement constitute separate
families) who are covered by an
designation of a plan year on a Form
group health plans. Assume that these group
agreement that is a collective bargaining
5500 filed by a group health plan is not
health plans are subject to COBRA (see
controlling in the determination of the
Q&A-8 of this section) and that the employer
agreement entered into between
does not provide any group health plan
employee representatives and one or
plan year under this Q&A-13.
outside of the cafeteria plan. Assume further
more employers (as determined under
(b) If the plan year of a group health
that B and C are unmarried employees. that B
section 7701(a)(46)). Thus, if an
plan is determined under this paragraph
has chosen the life insurance coverage. and
arrangement that would otherwise be
(b). the plan year is the plan's limit/
that C has chosen the indemnity
considered to be a single group health
deductible year except that (1) in the
arrangement. B does not have to be offered
plan under the standards set out in
case of an insured group health plan. the
COBRA continuation coverage upon
Q&A-10 of this section covers both (1)
plan year is the policy year if that is
terminating employment. nor must a
employees and former employees (and
later than the limit/deductible year or if
subsequent open enrollment period for active
their families) who are covered by a
the plan has no limit/deductible year.
employees be made available to B. However,
and (2) in the case of a self-funded group
if C terminates employment and the
collective bargaining agreement
termination constitutes a qualifying event. C
described in the preceding sentence and
health plan having no limit/deductible
must be offered an opportunity to elect
(2) employees and former employees
year, the plan year is the later of the
COBRA continuation coverage under the
(and their families) who are not covered
calendar year or the employer's taxable
indemnity arrangement. If C makes such an
by such an agreement, the arrangement
year. For purposes of this paragraph (b).
election and an open enrollment period for
consists of two separate group health
a plan's "limit/deductible year" means
active employees occurs while C is still
plans: one plan that is a collectively
the year that is used by the plan in
receiving the COBRA continuation coverage.
applying benefit limits and deductibles,
C must be offered the opportunity to switch
bargained group health plan and one
that is not. The plan that is collectively
except that if different years are used
from the indemnity arrangement to the HMO
bargained will have an effective date
for benefit limits and for deductibles. it
(but not to the life insurance coverage
determined under paragraph (b) of
means the later of those years. For
because that does not constitute a group
Q&A-11 of this section, and the other
purposes of this paragraph (b). one year
health plan).
Example 2: An employer maintains a group
is "later" than another if it begins later
plan will have an effective date
health plan under which all employees
determined under paragraph (a) of
in relation to the underlying date from
receive employer-paid coverage. Employees
Q&A-11 of this section. For example. if
which the effective date of section
can arrange to cover their families by paying
the plan year is the calendar year and
162(k) is determined for the plan under
an additional amount. The employer also
the only collective bargaining agreement
Q&A-11 of this section. Compare. for
maintains a cafeteria plan, under which one
in effect as of April 7, 1986, expires
example, a year that begins on March 1
of the options is to pay part or all of the
with a year that begins on December 1.
charge for family coverage under the group
March 31, 1988, the effective date of
section 162(k) is January 1, 1989, for the
The March 1 year is later than a
health plan. Thus. an employee might pay fo
family coverage under the group health plan
plan covering bargaining-unit employees
December 1 year in the case of a non-
partly with before-tax dollars and partly with
and their families, and January 1. 1987,
collectively-bargained plan, because the
after-tax dollars. If an employee's family is
for the plan covering the other
first March 1 occurring on or after July 1,
receiving coverage under the group health
1986, is March 1, 1987, which is later
employees and their families.
plan when 8 qualifying event occurs, each of
than December 1, 1986 (the first
the qualified beneficiaries must be offered an
(b) For purposes of this Q&A-12.
December 1 occurring on or after July 1.
opportunity to elect COBRA continuation
employees of an employee
1986). If. however, the plan is a
coverage. regardless of how that qualified
representative that is a party to a
collectively-bargained plan and
beneficiary's coverage was paid for before
collective bargaining agreement
described in paragraph (a) of this Q&A-
becomes subject to section 162(k) for the
the qualifying event.
Example 3: One of the choices available
12. and employees of a trust or fund
first plan year beginning on or after
under a cafeteria plan is an individual
February 1, 1987, a December 1 year is
maintained to pay benefits to
medical expense reimbursement
later than a March 1 year.
individuals covered by the collective
arrangement. At the beginning of each
Question 14: How do the COBRA
calendar year. an employee can choose.
bargaining agreement, are considered to
continuation coverage requirements
instead of being paid a specified dollar
be employees covered by that collective
bargaining agreement. Thus, a plan that
apply to cafeteria plans and other
amount of compensation. to have that amount
flexible benefit arrangements?
placed in an account to be used for
is otherwise considered a single,
Answer 14: The provision of medical
reimbursement of medical expenses incurred
collectively bargained plan will not fail
care through a cafeteria plan (as defined
during the year by the employee or the
to be a single. collectively bargained
in section 125) or other flexible benefit
employee's spouse or dependent children.
plan merely because it also covers
Any amount remaining in the account as of
arrangement constitutes a group health
employees or former employees (and
the end of the year is forfeited. The
plan. However, the COBRA continuation
reimbursement of medical expenses through
their families) of the employee
coverage requirements of section 162(k)
these arrangements constitutes a group
representative or of a trust or fund from
apply only to those medical benefits
health plan.
which the benefits are paid.
under the cafeteria plan or other
Question 13: What is the plan year of
arrangement that a covered employee
Qualified Beneficiaries
a group health plan?
has actually chosen to receive (if any).
Answer 13: (a) For purposes of
Question-15: Who is a qualified
The application of this rule to a cafeteria
determining when a group health plan
beneficiary?
plan is illustrated by the following
must begin to comply with section 162(k)
Answer-15: (a) Except as set forth in
examples:
(see Q&A-11 of this section). the plan
paragraphs (b) through (d) of this Q&A-
year of a group health plan is the year
Example 1: Under the terms of a cafeteria
15. a qualified beneficiary is any
plan. employees can choose among life
that is designated as the plan year in the
individual who. on the day before a
insurance coverage. membership in a Health
plan document. However, if the plan
qualifying event, is covered under a
Maintenance Organization (HMO). coverage
document does not designate a plan
for medical expenses under an indemnity
group health plan maintained by the
year, or if there is no plan document, the
arrangement, and cash compensation. Of
employer of a covered employee by
plan year is determined under
these available choices, the HMO and the
virtue of being on that day either (1) the
22724
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
covered employee, (2) the spouse of the
relationship to an employer maintaining
Example 1: Assume that A is a single
covered employee. or (3) the dependent
the plan. and only if that plan or some
employee who voluntarily terminates
child of the covered employee.
other group health plan maintained by
employment and properly elects COBRA
(b) An individual is not a qualified
the employer covers one or more
continuation coverage under 8 group health
beneficiary if, on the day before the
common-law employees of the
plan. Under the terms of the plan. a covered
employee who marries can choose to have
qualifying event referred to in paragraph
employer: (1) Employees within the
his or her spouse covered under the plan as
(a) of this Q&A-15. the individual (1) is
meaning of section 401(c)(1). (2) agents
of the date of marriage. One month after
covered under the group health plan by
and independent contractors (and their
electing COBRA continuation coverage. A
reason of another individual's election
employees, agents, and independent
marries and chooses, to cover A's spouse
of COBRA continuation coverage and is
contractors), and (3) directors (in the
under the plan. A's spouse is not a qualified
not already a qualified beneficiary by
case of a corporation). The rule of this
beneficiary. Thus, if A dies during the period
reason of a prior qualifying event, or (2)
paragraph (b) is illustrated by the
of COBRA continuation coverage. the plan
is entitled to Medicare benefits under
following example:
does not have to offer A's surviving spouse
Title XVIII of the Social Security Act.
an opportunity to elect COBRA continuation
Example: A law firm maintains a group
(c) A covered employee can be a
coverage.
health plan for its common-law employees. If
qualified beneficiary only in connection
Example 2: Assume that B is a married
the firm also provides group health coverage
with a qualifying event that consists of
employee who terminates employment. B
for its partners. the partners are covered
the termination (other than by reason of
properly elects COBRA continuation
employees regardless of whether their
coverage for B but not B's spouse, and B's
the covered employee's gross
coverage is provided under the same group
spouse declines to elect such coverage. B's
misconduct). or reduction of hours, of
health plan as the common-law employees or
spouse thus ceases to be 8 qualified
the covered employee's employment.
under a separate plan. In contrast. if the
beneficiary. Later. at the next open
(d) An individual is not a qualified
partners are the only individuals who receive
enrollment period, B adds the spouse as a
beneficiary if the individual's status as a
any health coverage. they are not covered
beneficiary under the plan. The addition of
covered employee is attributable to 8
employees.
the spouse during the open enrollment period
period in which the individual was a
Question 17: Other than those
does not make the spouse a qualified
nonresident alien who received no
individuals who are qualified
beneficiary. The plan will thus not have to
earned income (within the meaning of
beneficiaries as of the day before a
offer the spouse an opportunity to elect
section 911(d)(2)) from the individual's
COBRA continuation coverage upon a later
qualifying event, can any other person
divorce from or death of B.
employer that constituted income from
(such as a newborn or adopted child or
Example 3: Assume that. under the terms of
sources within the United States (within
a new spouse) obtain qualified
a group health plan, a covered employee's
the meaning of section 861(a)(3)). If,
beneficiary status for COBRA
child ceases to be a dependent eligible for
pursuant to the preceding sentence, an
continuation coverage purposes?
coverage upon attaining age 18. At that time,
individual is not a qualified beneficiary,
Answer 17: (a) No. The group of
the child must be offered an opportunity to
then a spouse or dependent child of the
qualified beneficiaries entitled to elect
elect COBRA continuation coverage. If the
individual shall not be considered a
COBRA continuation coverage as a
child elects COBRA continuation coverage.
qualified beneficiary by virtue of the
the child marries during the period of the
result of a qualifying event is closed as
relationship to the individual.
COBRA continuation coverage, and the
of the day before the qualifying event.
Question-16: Who is a covered
child's spouse becomes covered under the
Thus, newborn children. adopted
employee?
group health plan, the child's spouse would
Answer-16: (a) A covered employee is
children, and spouses who join the
not become a qualified beneficiary upon a
any individual who is (or was) provided
family of a qualified beneficiary after
later qualifying event as a result of that
coverage under a group health plan
that day do not become qualified
coverage.
beneficiaries. The new family members
Example 4: Assume that C is a single
(other than a plan that is excepted from
do not themselves become qualified
émployee who, upon retirement. is given the
COBRA on the date of the qualifying
beneficiaries even if they become
opportunity to elect COBRA continuation
event; see Q&A-8 of this section) by
virtue of the individual's employment or
covered under the plan. (For situations
coverage but declines it in favor of an
alternative offer of 12 months of employer-
previous employment with an employer.
in which 8 plan is required to make
paid retiree health benefits. C ceases to be a
For example, a retiree or former
coverage available to new family
qualified beneficiary and will not have to be
employee who is covered by such a
members of a qualified beneficiary who
given another opportunity to elect COBRA
group health plan is a covered employee
is receiving COBRA continuation
continuation coverage at the end of those 12
if the coverage results in whole or in
coverage, see Q&A-31 of this section
months. Assume further that C marries D
part from his or her previous
and paragraph (c) of Q&A-30 of this
during the period of retiree health coverage
and, under the terms of that coverage, D
employment. An individual (whether a
section.)
present or former employee) who is
(b) A qualified beneficiary who fails
becomes covered under the plan. If a divorce
merely eligible for coverage under a
to elect COBRA continuation coverage
from or death of C will result in D's losing
group health plan is not a covered
in connection with a qualifying event
coverage. D will be 8 qualified beneficiary
because D's coverage under the plan on the
employee if the individual is not and has
ceases to be a qualified beneficiary at
day before the qualifying event (i.e., the
not been actually covered under the
the end of the election period (see Q&A-
divorce) will have been by reason of C's
plan. The reason for an individual's lack
32 of this section). Thus, for example, if
acceptance of 12 months of employer-paid
of actual coverage (such as the
such a former qualified beneficiary is
coverage after the prior qualifying event (C's
individual's having declined
later added to a covered employee's
retirement) rather than by reason of an
participation in the plan or failed to
coverage (e.g., during an open
election of COBRA continuation coverage.
satisfy the plan's conditions for
enrollment period) and then another
Example 5: Assume the same facts as in
participation) is not relevant for this
qualifying event occurs with respect to
Example 4 except that, under the terms of the
purpose.
the covered employee. the former
plan. the divorce or death does not cause D to
(b) The following individuals are also
qualified beneficiary will not be treated
lose coverage 80 that D continues to be
covered for the balance of the original 12-
covered employees, but only if they are
as a qualified beneficiary
month period. D does not have to be allowed
(or were) actually covered under a group
(c) The rules of this Q&A-17 are
to elect COBRA continuation coverage
health plan by virtue of their
illustrated by the following examples:
because the divorce of death does not
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
22725
constitute a qualifying event. See Q&A-18 of
(e) The rules of this Q&A-18 are
this section.
an employee terminated employment on
illustrated by the following examples,
July 15, 1986, and the plan covering the
Qualifying Events
each of which assumes that paragraph
employee had a November 1 to October
Question 18: What is a qualifying
(d) is satisfied:
31 plan year (so that the plan became
event?
Example 1: If an employee who is covered
subject to section 162(k) on November 1.
Answer 18: (a) A qualifying event is
by a group health plan terminates
1986). the plan does not have to permit
an event that satisfies paragraphs (b),
employment (other than by reason of the
the employee to elect COBRA
(c). and (d) of this Q&A-18.
employee's gross misconduct) and, as of the
continuation coverage. Even if that
date of separation. is given 3 months of
(b) An event satisfies this paragraph
employee is given 6 months of
employer-paid coverage under the same
(b) if the event is either (1) the death of a
terms and conditions as before that date. the
additional coverage from the July 15,
covered employee, (2) the termination
termination is a qualifying event because it
1986, termination date (whether merely
(other than by reason of the employee's
satisfies both paragraphs (b) and (c) of this
as a result of the terms of the plan, or
gross misconduct). or reduction of hours,
Q&A-18.
pursuant to state or local law or
of a covered employee's employment, (3)
Example 2: Upon the retirement of an
otherwise) so that the coveráge extends
the divorce or legal separation of a
employee who, along with the employee's
beyond the November 1 effective date,
covered employee from the employee's
spouse, has been covered under a group
the employee does not have to be given
spouse, (4) a covered employee
health plan, the émployee is given identical
coverage for life but the spousal coverage
the opportunity to elect COBRA
becoming entitled to Medicare benefits
will not be continued beyond 6 months unless
continuation coverage at the end of the 6
under Title XVIII of the Social Security
premiums are then paid by the employee or
months' coverage because there will be
Act. or (5) a dependent child ceasing to
spouse. The spouse will "lose coverage" 6
no qualifying event at that time. In
be a dependent child of the covered
months after the employee's retirement when
contrast, if the employee's spouse is
employee under the generally applicable
the premium requirement takes effect. so the
covered by the 6 months' coverage and.
requirements of the plan. In the case of a
retirement is 8 qualifying event and the
88 a result of the employee's death after
covered employee who is not a
spouse must be given an opportunity to elect
the November 1 effective date and
COBRA continuation coverage.
commonlaw employee, termination of
Example 3: F is a covered employee who is
before the end of the 6-month period,
"employment" for this purpose means
married to G. and both are covered under a
the spouse will lose coverage for the
termination of the relationship (e.g.,
group health plan maintained by Fs
balance of the 6-month period. the death
directorship of a corporation or
employer. F and G are divorced and, under
will constitute a qualifying event and
membership in a partnership) giving rise
the terms of the plan. the divorce will cause
the spouse will be a qualified
to the individual's treatment as a
G to lose coverage. The divorce is a
beneficiary entitled to elect COBRA
covered employee under paragraph (b)
qualifying event. If G elects COBRA
continuation coverage. See Q&A-42 of
of Q&A-16 of this section.
continuation coverage and then remarries
during the period of COBRA continuation
this section regarding the maximum
(c) Anlevent satisfies this paragraph
coverage, G's new spouse might become
coverage period in such a case.
(c) if, under the terms of the group health
covered under the plan. (See Q&A-31 of this
Question 21: Can a qualifying event
plan, the event causes the covered
section and paragraph (c) of Q&A-30 of this
occur while a group health plan is
employee, or the spouse or a dependent
section.) However, G's later death or divorce
excepted from COBRA (see Q&A-8 of
child of the covered employee. to lose
from G's new spouse will not be a qualifying
this section)?
coverage under the plan. For this
event because C is not a covered employee.
Answer 21: No. An event that occurs
purpose, to "lose coverage" means to
Question 19: Can a qualifying event
while a group health plan is excepted
cease to be covered under the same
result from a voluntary termination of
from COBRA does not satisfy paragraph
terms and conditions as in effect
employment?
(d) of the definition of qualifying event
immediately before the qualifying event.
Answer 19: Yes. Apart from gross
in Q&A/18 of this section. Even if the
If coverage is reduced or eliminated in
misconduct, the facts surrounding a
plan later becomes subject to COBRA, it
anticipation of an event. the reduction or
termination or reduction of hours are
does not have to provide COBRA
elimination is disregarded in
irrelevant. It does not matter whether
election rights to anyone whose
determining whether the event causes a
the employee voluntarily terminated or
coverage ends as a result of such an
loss of coverage. Moreover, for purposes
was discharged. For example. a strike or
event. For example. if a group health
of this paragraph (c), a loss of coverage
walkout is a termination or reduction of
plan is excepted from COBRA as a
need not occur immediately after the
hours that constitutes a qualifying event
small-employer plan during 1988 (see
event, so long as the loss of coverage
if the strike or walkout results in a loss
Q&A-9 of this section) and an employee
will occur before the end of the
of coverage as described in paragraph
terminates employment on December 31.
maximum coverage period (see Q&A-39
(c) of Q&A-18 of this section. Similarly,
1988, the termination is not a qualifying
and Q&A-40 of this section). However, if
a layoff that results in such a loss of
event and the plan does not have to
neither the covered employee nor the
coverage is a qualifying event.
permit the employee to elect COBRA
spouse or a dependent child of the
Question 20: Can a qualifying event
continuation coverage. This is the case
covered employee will lose coverage
occur before the effective date of section
even if the plan ceases to be a small-
before the end of what would be the
162(k) (as described in Q&A-11 of this
employer plan as of January 1. 1989.
maximum coverage period, the event
section)?
Also, the same result will follow even if
does not satisfy this paragraph (c).
Answer 20: No. An event that occurs
the employee is given 3 months of
(d) An event satisfies this paragraph
before section 162(k) becomes effective
coverage beyond December 31 (i.e.,
(d) if it occurs while the plan is subject
for a group health plan does not satisfy
through March of 1989), because there
to COBRA. Thus, an event will not
paragraph (d) of the definition of
will be no qualifying event as of the
satisfy this paragraph (d) if it occurs
qualifying event in Q&A-18 of this
termination of coverage in March.
before the plan becomes subject to
section. A group health plan does not
However. if the employee's spouse is
section 162(k) (see Q&A-11 of this
have to offer individuals whose
initially provided with the 3-month
section) or while the plan is excepted
coverage ends as a result of such an
coverage through March 1989, but the
from COBRA (see Q&A-8). See Q&A-20
event the opportunity to elect COBRA
spouse divorces the employee before the
and Q&A-21 of this section.
continuation coverage. For example. if
end of the 3 months and loses coverage
22726
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
as a result of the divorce, the divorce
coverage of the qualified beneficiary
for vision benefits and dental benefits.
will constitute a qualifying event during
was subject to deductibles and the
However, coverage for vision benefits or
1989 and 80 entitle the spouse to elect
change in coverage occurs before the
dental benefits that must be provided
COBRA continuation coverage. See
end of the prescribed period for
under applicable law is core coverage.
Q&A-42 of this section regarding the
accumulating such deductibles, the new
(b) For purposes of this Q&A-25,
maximum coverage period in such a
coverage selected by the qualified
vision benefits include only those
case.
beneficiary must credit him or her with
benefits related to vision care of a type
COBRA Continuation Coverage
the amounts incurred under the original
that is not required under local law to be
coverage. The rule in the preceding
performed by 8 physician.
Question 22: What is COBRA
sentence also applies to those limits that
(c) For purposes of this Q&A-25,
continuation coverage?
are in the nature of deductibles, such as
dental benefits does not include any
Answer 22: If a qualifying event
copayment limits or catastrophic limits
benefits for dental care or oral surgery
occurs, each qualified beneficiary (other
on a covered individual's out-of-pocket
in connection with an accidental injury.
than a qualified beneficiary for whom
expenses. The qualified beneficiary can
(d) The definitions in this Q&A-25
the qualifying event will not result in
be charged the amount determined
apply only for purposes of this $ 1.162-
any immediate or deferred loss of
under Q&A-44 of this section for the
26 and sections 106, 162(i)(2), and 162(k)
coverage) must be offered an
coverage selected.
of the Code.
opportunity to elect to continue to
Question 24: Can a group health plan
Question 26: Must a qualified
receive the group health plan coverage
require a qualified beneficiary who
that he or she received immediately
beneficiary be given an opportunity to
wishes to receive COBRA continuation
before the qualifying event. This
elect core coverage plus only one of two
coverage to elect to receive a
continued coverage is "COBRA
non-core coverages that the qualified
continuation of all of the coverage that
beneficiary had under the plan
continuation coverage." Except as set
he or she was receiving under the plan
forth in Q&A-23 through Q&A-31 of this
immediately before the qualifying event?
immediately before the qualifying event?
section, if the continuation coverage
Answer 26: No. A group health plan is
Answer 24: (a) In general, no. A
offered differs in any way from the
required only to offer qualified
qualified beneficiary who, immediately
coverage enjoyed immediately before
before the qualifying event, is covered
beneficiaries the right to elect (a) core
the qualifying event, the coverage
by a plan that provides both core
coverage, or (b) core coverage plus all
offered does not constitute COBRA
coverage and non-core coverage must be
non-core coverages that the qualified
continuation coverage and the group
able to elect to receive either (1) the
beneficiary had immediately before the
health plan is not in compliance with
coverage that he or she had immediately
qualifying event. Thus, a qualified
section 182(k) unless other coverage that
before the qualifying event (including
beneficiary who has core coverage plus
does constitute COBRA continuation
the core coverage and any non-core
vision and dental coverage upon the
coverage is also offered. Any
coverage), or (2) the core coverage only.
occurrence of a qualifying event must be
elimination or reduction of coverage in
However, there are two exceptions to
offered the opportunity to continue
anticipation of a qualifying event is
this rule. as set forth in paragraphs (b)
either the core coverage or the core
disregarded for purposes of this Q&A-22
and (c) of this Q&A-24.
coverage and both dental and vision
and for purposes of any other reference
(b) If the applicable premium for core
coverage. Such a qualified beneficiary
in this section to coverage in effect
coverage would be at least 95 percent of
would not have to be offered the
immediately before (or on the day
the applicable premium for core
opportunity to elect core coverage plus
before) a qualifying event. COBRA
coverage and non-core coverage
vision coverage only or core coverage
continuation coverage must not be
combined, the plan does not have to
plus dental coverage only. Of course, if
conditioned upon, or discriminate on the
offer qualified beneficiaries the
the vision and dental coverage are
basis of lack of, evidence of insurability.
opportunity to elect core coverage only.
provided under two separate plans that
Question 23: How is COBRA
(See Q&A-44 of this section regarding
are independent of the core plan. a
continuation coverage affected by
the applicable premium.)
qualified beneficiary would be able to
changes in the coverage that is provided
(c) If an employer maintaining a group
continue one or both of the coverages.
to similarly situated beneficiaries with
health plan that includes non-core
Assume, for example, that an employer
respect to whom a qualifying event has
coverage also maintains at least one
maintains three group health plans-a
not occurred?
other group health plan for similarly
core plan, a vision plan, and 8 dental
Answer 23: COBRA continuation
situated active employees that does not
plan-and that each active employee
coverage must generally be the same as
provide any non-core coverage, the plan
can elect to be covered under one or
the group health plan coverage enjoyed
that includes non-core coverage does
more of the three plans. (Thus, an
by the qualified beneficiary immediately
not have to offer a qualified beneficiary
employee could have vision-only,
before the qualifying event. However, if
an opportunity to elect core coverage
dental-only. or core-only coverage, or
the coverage provided to similarly
only. However. the qualified beneficiary
any combination of the three.) A
situated active employees is changed or
must instead be offered the opportunity
qualified beneficiary who is covered
eliminated but the employer continues
to elect coverage under any other group
under all three plans at the time of a
to maintain one or more group health
health plan maintained by the employer
qualifying event would have separate
plans (so that the qualified beneficiary's
for similarly situated active employees.
election rights with respect to each plan,
COBRA continuation coverage cannot
Question 25: What is core coverage?
and so would be able to elect coverage
be terminated at that time-see Q&A-37
Answer 25: (a) "Core coverage" means
under the dental-only and core-only
of this section), the employer must
all of the coverage that a qualified
plans.
permit the qualified beneficiary
beneficiary was receiving under the
Question 27: Must a qualified
receiving COBRA continuation coverage
group health plan immediately before a
beneficiary who is covered under a
to elect to be covered under any of the
qualifying event that gives rise to the
single plan providing both core coverage
remaining group health plans
qualified beneficiary's COBRA election
and non-core coverage be offered the
maintained by the employer or similarly
rights. other than "non-core coverage."
opportunity to elect non-core coverage
situated active employees. If the
"Non-core coverage" means coverage
only?
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
22727
Answer 27: No. A qualified
regardless of whether the plan provides
children is divorced. that the spouse obtains
beneficiary who is covered by a single
that the family deductible is an
custody of the two oldest children, and that
plan providing both core coverage and
alternative to individual deductibles or
the spouse and those children all elect
non-core coverage need not be offered
an additional requirement.
COBRA continuation coverage to begin
the opportunity to elect only non-core
(d) Deductibles that are not described
immediately. Assume also that the family had
coverage. Of course, if immediately
in paragraphs (b) or (c) of this Q&A-28
accumulated $420 of covered expenses before
before the qualifying event the qualified
must be treated in a manner consistent
the divorce. as follows: $70 by each parent,
beneficiary is covered by a group health
with the principles set forth in those
$200 by the oldest child, $80 by the youngest
plan that provides non-core coverage
child, and none by the other two children.
paragraphs.
but no core coverage, the qualified
Each new family unit after the divorce (i.e.,
(e) If a deductible is computed on the
beneficiary must be offered the
the employee plus two children, still receiving
basis of a covered employee's
regular coverage under the plan. and the
opportunity to continue that non-core
compensation instead of being a fixed
spouse plus two children, receiving COBRA
coverage. Moreover, such an individual
dollar amount, the plan can treat the
continuation coverage) has a remaining
generally would not have to be given the
employee's compensation as frozen for
family deductible amount of $80 ($500 minus
opportunity to elect core coverage. (But
the duration of the COBRA continuation
$420).
see Q&A-30 of this section regarding
coverage at the level that was used to
Example 3: The facts are the same as in
open enrollment periods.)
compute the deductible in effect
Example 2. except that the family deductible
Question 28: What deductibles apply
is defined as two individual $200 deductibles
immediately before the COBRA
if COBRA continuation coverage is
instead of a $500 aggregate (i.e., the plan
elected?
continuation coverage began.
disregards all remaining individual
Answer 28: (a) Qualified beneficiaries
(f) If a single deductible is prescribed
deductibles after the satisfaction of any two
for core coverage and non-core coverage
individual deductibles). Before the divorce,
electing COBRA continuation coverage
are generally subject to the same
and a qualified beneficiary electing
the family has satisfied one individual
deductibles as similarly situated
COBRA continuation coverage elects to
deductible (the oldest child's). At the
employees for whom a qualifying event
receive core coverage only, the
beginning of COBRA continuation coverage,
treatment of expenses for non-core
therefore, each new family unit is treated as
has not occurred. If a qualified
having already satisfied one individual
beneficiary's COBRA continuation
coverage depends on when the expenses
deductible even though the oldest child is
coverage begins before the end of the
were incurred, as follows: If the
included in only one of the new family units.
prescribed period for accumulating
expenses were incurred before the
Example 4: Each year a group health plan
amounts toward deductibles, the
beginning of COBRA continuation
pays 70 percent of the cost of an individual's
qualified beneficiary must retain credit
coverage, they must continue to be
psychotherapy after that individual's first
for expenses incurred toward those
counted toward satisfaction of the
three visits. A qualified beneficiary who
deductible, but they need not be counted
elects COBRA continuation coverage
deductibles before the beginning of
if they were incurred after the begining
beginning August 1, 1968. and has atready
COBRA continuation coverage as
of COBRA continuation coverage.
made two visits as of that date need only pay
though the qualifying event had not
(g) The rules of the Q&A-28 are
for one more visit before the plan must begin
occurred. The specific application of this
to pay 70 percent of the cost of the remaining
rule depends on the type of deductible.
illustrated by the following examples: in
visits during 1988.
as set forth in paragraphs (b) through (d)
each example it is assumed that
Example 5: A group health plan has a $250
of this Q&A-28. Special rules are set
deductibles are determined on a
annual deductible per covered individual.
forth in paragraphs (e) and (f). and
calendar year basis:
The plan provides that if the deductible is not
examples appear in paragraph (8).
Example 1: A group health plan applies a
satisfied in a particular year. expenses
separate $100 annual deductible to each
incurred during October through December of
(b) If a deductible is computed
that year are credited toward satisfaction of
separately for each individual receiving
individual whom it covers. The plan provides
that the spouse and dependent children of a
the deductible in the next year. A qualified
coverage under the plan, each
beneficiary who has incurred covered
individual's remaining deductible
covered employee will lose coverage on the
last day of the month after the month of the
expenses of $150 from January through
amount (if any) on the date that COBRA
covered employee's death. A covered
September of 1988 and $40 during October
continuation coverage begins is equal to
employee dies on June 11. 1988. The spouse
elects COBRA continuation coverage
that individual's remaining deductible
and the two dependent children elect COBRA
begining November 1. 1988. The remaining
amount immediately before that date.
deductible amount for this qualified
continuation coverage, which will begin on
(c) If a deductible is computed on a
beneficiary is $60 at the beginning of the
August 1. 1988. As of July 31. 1988, the spouse
family basis, the deductible for each
has incurred $80 of covered expenses. the
COBRA continuation coverage. If this
older child has incurred no covered expenses,
individual incurs covered expenses of $50 in
new family unit after the beginning of
November and December of 1988 combined
COBRA continuation coverage (or the
and the younger one has incurred $120 (i.e.,
(so that the $250 deductible for 1988 is not
existing family unit, in the case of 8
already satisfied the deductible). At the
satisfied). the $90 incurred from October
qualifying event that does not result in
beginning of COBRA continuation coverage
through December of 1988 are credited
there being more than one family unit) is
on August 1. the spouse has 8 remaining
toward satisfaction of the deductible amount
deductible of $20, the older child still has the
computed as follows: On the date that
for 1989.
full $100 deductible, and the younger one has
COBRA continuation coverage begins.
no further deductible.
Question 29: How do a plan's limits
the remaining deductible amount for
Example 2: A group health plan applies a
apply to COBRA continuation coverage?
each new family unit (or the remaining
separate $200 annual deductible to each
Answer 29: (a) Limits are treated in
number of individual deductibles, in the
individual whom it covers. except that each
the same way as deductibles (see Q&A-
case of a family deductible that is
family member will be treated as having
satisfied by completing a specified
satisfied the individual deduotible once the
28 of this section). This rule applies both
number of individual deductibles) is
family has incurred $500 of covered expenses
to limits on plan benefits (e.g., a
equal to the preexisting family unit's
during the year. The plan provides that upon
maximum number of hospital days or
remaining deductible amount (or
the divorce of a covered employee. coverage
dollar amount of reimbursable
will end immediately for the employee's
expenses) and limits that are in the
remaining number of individual
spouse and any children who do not remain
nature of deductibles (e.g., a copayment
deductibles. as applicable) immediately
in the employee's custody. Assume that a
limit. or a catastrophic limit on a
before that date. This rule applies
covered employee with four dependent
covered employee's out-of-pocket
22728
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
expenses). This rule applies equally to
before the qualifying event are as set
beneficiaries must be offered the opportunity
annual and lifetime limits.
forth in paragraphs (b) and (c) of this
to switch to another plan (as though each
(b) The rule of this Q&A-29 is
Q&A-30, in Q&A-24 of this section
beneficiary were an individual employee).
illustrated by the following examples; in
(regarding core coverage), and in Q&A-
For example, each member of E's family
could choose coverage under a separate plan.
each example it is assumed that limits
23 of this section (regarding changes to
even though the family members of employed
are determined on a calendar year
or elimination of the coverage provided
individuals could not choose coverage under
basis:
to similarly situated active employees).
separate plans. Of course, if each family
Example 1: A group health plan pays for a
(b) If a qualified beneficiary
member chooses COBRA continuation
maximum of 150 days of hospital confinement
participates in a region-specific plan
coverage under a separate plan. each family
per individual per year. A covered employee
(such as an HMO or an on-site clinic)
member can be required to pay an amount for
who has had 20 days of hospital confinement
that will not service his or her health
that coverage that is based on the applicable
as of May 1. 1989, terminates employment
needs in the area to which he or she is
premium for individual coverage under that
and elects COBRA continuation coverage as
relocating (regardless of the reason for
separate plan. See Q&A-44 of this section.
of that date. During the remainder of 1989 the
the relocation) and the employer has
Example 2: The facts are the same as in
plan need only pay for a maximum of 130
Example 1. except that E's family members
days of hospital confinement for this
employees in the area to which the
are not covered under E's group health plan
individual.
qualified beneficiary relocates, the
when E terminates employment. Although the
Example 2: A group health plan reimburses
qualified beneficiary must be given an
family members do not have to be given an
a maximum of $20,000 of covered expenses
opportunity to elect alternative coverage
opportunity to elect COBRA continuation
per family per year. and the same $20,000
if (and on the same basis as) a similarly
coverage, E must be allowed to add them to
limit applies to unmarried covered
situated active employee who transfers
E's COBRA continuation coverage during the
employees. A covered employee and spouse
to that new location while continuing to
open enrollment period. This is true even
who have no children divorce on May 1. 1989,
work for the employer would be given
though the family members are not, and
and the spouse elects COBRA continuation
cannot become, qualified beneficiaries (see
coverage as of that date. If the employee and
the opportunity to elect alternative
Q&A-17 of this section).
spouse together incurred $15,000 of
coverage at the time of transfer.
reimbursable expenses during January
(c) If an employer maintains more
Question 31: Aside from open
through April of 1989, each of these
than one group health plan and an open
enrollment periods, can a qualified
individuals has a $5,000 maximum benefit for
enrollment period is available to
beneficiary who has elected COBRA
the remainder of 1989, regardless who
similarly situated active employees with
continuation coverage choose to cover
incurred what portion of the $15,000.
respect to whom a qualifying event has
individuals (such as newborn children,
Example 3: A group health plan pays for 80
not occurred, the same open enrollment
adopted children, or new spouses) who
percent of covered expenses after
period rights must be available to each
join the qualified beneficiary's family on
satisfaction of a $100-per-individual
qualified beneficiary receiving COBRA
or after the date of the qualifying event?
deductible, and 100 percent of them after a
family has incurred out-of-pocket costs of
continuation coverage. An open
Answer 31: If the plan covering the
$2,000. An employee and spouse with three
enrollment period means 8 period during
qualified beneficiary provides that such
dependent children divorce on June 1. 1989,
which an employee covered under a
new family members of active
and one of the children remains with the
plan can choose to be covered under
employees can become covered (either
employee. The spouse elects COBRA
another group health plan, or to add or
automatically or upon an appropriate
continuation coverage as of that date for the
eliminate coverage of family members.
election) before the next open
spouse and the other two children. During
(d) The rules of this Q&A-30 are
enrollment period, then the same right
January through May of 1989, all five
illustrated by the following examples:
must be extended to the new family
Individual deductibles were satisfied and the
family incurred $4,000 of covered expenses,
Example 1: Assume that (1) E is an
members of a qualified beneficiary. Of
resulting in out-of-pocket expenses totalling
employee who works for an employer that
course, if the addition of a new family
$1,200 (five $100 deductibles, plus the non-
maintains several group health plans; (2)
member will result in a higher
reimbursed 20 percent of the other $3,500. or
under the terms of the plans, if an employee
applicable premium (e.g., if the qualified
$700). For the remainder of 1989, each new
chooses to cover any family members under a
beneficiary was previously receiving
family unit has an out-of-pocket limit of $800.
plan. all family members must be covered by
COBRA continuation coverage as an
the same plan and that plan must be the same
Question 30: Can a qualified
individual, or if the applicable premium
as the plan covering the employee: (3)
beneficiary who elects COBRA
immediately before E's termination of
for family coverage depends on family
continuation coverage ever change from
employment (for reasons other than gross
size), the plan can require the qualified
the coverage received by that individual
misconduct). E is covered along with E's
beneficiary to pay a correspondingly
immediately before the qualifying event?
spouse and children by a plan that provides
higher amount for the COBRA
Answer 30: (a) In general, a qualified
only core coverage, and (4) the coverage
continuation coverage. See Q&A-44 of
beneficiary need only be given an
under that plan will end as a result of the
this section.
opportunity to continue the coverage
termination of employment. Upon E's
termination of employment. each of the four
Electing COBRA Continuation Coverage
that he or she was receiving
family members is a qualified beneficiary.
immediately before the qualifying event.
Question 32: What is the minimum
Even though the employer maintains various
This is true regardless of whether the
other plans and options, it is not necessary
period during which a group health plan
coverage received by the qualified
for the qualified beneficiaries to be allowed
must allow a qualified beneficiary to
beneficiary before the qualifying event
to switch to a new plan when E terminates
elect COBRA continuation coverage
ceases to be of value to the qualified
employment. Assume further that none of the
(i.e., the election period)?
beneficiary. such as in the case of a
four family members declines to elect
Answer 32: A group health plan can
qualified beneficiary covered under a
COBRA continuation coverage, and that 3
condition the availability of COBRA
region-specific Health Maintenance
months after E's termination of employment
continuation coverage upon a qualified
there is an open enrollment period during
Organization (HMO) who leaves the
beneficiary's timely election of such
which similarly situated active employees are
HMO's service region. The only
offered an opportunity to choose to be
coverage. An election of COBRA
situations in which a qualified
covered under 8 new plan or to add or
continuation coverage is a timely
beneficiary must be allowed to change
eliminate family coverage. During the open
election if it is made during the election
from the coverage received immediately
enrollment period. each of the four qualified
period. The election period must begin
Federal Register / Vol. 52, No. 114 / Monday, June 15, 1987 / Proposed Rules
22729
on or before the date that the qualified
employee or a divorce or legal
beneficiary would lose coverage on
continued coverage and treat the
separation of a covered employee. If the
account of the qualifying event. (See
qualified beneficiary's use of the facility
notice is not sent to the employer or
paragraph (c) of Q&A-18 of this section
as a constructive election. In such a
other plan administrator within 60 days
for the meaning of "lose coverage.") The
case, the qualified beneficiary is
after the later of (a) the date of the
election period must not end before the
qualifying event, or (b) the date that the
obligated to pay any applicable charge
date that is 60 days after the later of (a)
qualified beneficiary would lose
for the coverage, but only if the qualified
the date that the qualified beneficiary
beneficiary is informed of the meaning
coverage on account of the qualifying
would lose coverage on account of the
event, the group health plan does not
of the constructive election before using
qualifying event, or (b) the date that the
the facility.
have to offer the qualified beneficiary
qualified beneficiary is sent notice of his
Question 35: Is a waiver before the
an opportunity to elect COBRA
or her right to elect COBRA continuation
end of the election period effective to
continuation coverage. For purposes of
coverage. An election is considered to
this Q&A-33, if more than one qualified
end a qualified beneficiary's election
be made on the date that it is sent to the
rights?
beneficiary would lose coverage on
employer or plan administrator. The
account of a divorce or legal separation
Answer 35: A qualified beneficiary
rules of this Q&A-32 are illustrated by
of a covered employee, a timely notice
who, during the election period, waives
the following example:
of the divorce or legal separation that is
COBRA continuation coverage can
revoke the waiver at any time before the
Example: An unmarried employee who is
sent by the covered employee or any
receiving employer-paid coverage under a
one of those qualified beneficiaries will
end of the election peirod. However, if a
group health plan voluntarily terminates
be sufficient to preserve the election
qualified beneficiary who waives
employment on June 1. 1988. Case 1: If the
rights of all of the qualified
COBRA continuation coverage later
plan provides that the employer-paid
beneficiaries.
revokes the waiver, coverage need not
coverage ends immediately upon the
Question 34: During the election
be provided retroactively (i.e., from the
termination of employment, the election
period must begin on or before June 1. 1988,
period and before the qualified
date of the loss of coverage until the
beneficiary has made an election, must
waiver is revoked). Waivers and
and must not end earlier than July 31, 1988. If
coverage be provided?
revocations of waivers are considered
the notice of the right to elect COBRA
continuation coverage is not sent to the
Answer 34: (a) In general, each
made on the date that they are sent to
employee until June 15. 1988, the election
qualified beneficiary has until at least 60
the employer or plan administrator, as
period must not end earlier than August 14,
days after the date that the qualifying
applicable.
1988. Case 2: If the plan provides that the
event would cause him or her to lose
Question 36: Can an employer
employer-paid coverage does not end until 6
coverage to decide whether to elect
withhold money or other benefits owed
months after the termination of employment,
COBRA continuation coverage. If the
to a qualified beneficiary until the
the employee does not lose coverage until
election is made during that period,
qualified beneficiary either waives
December 1. 1988. The election period can
coverage must be provided from the
COBRA continuation coverage, elects
therefore begin as late as December 1. 1988,
and must not end before January 30, 1989.
date that coverage would otherwise
and pays for such coverage, or allows
Case 3: If employer-paid coverage for 6
have been lost (but see Q&A-35 of this
the election period to expire?
months after the termination of employment
section). This can be accomplished as
Answer 36: No. An employer must not
is offered only to those qualifed beneficiaries
described in paragraph (b) or (c) of this
withhold anything to which a qualified
who waive COBRA continuation coverage,
Q&A-34.
beneficiary is otherwise entitled (by
the employee "loses coverage" on June 1.
(b) In the case of an indemnity or
operation of law or other agreement) in
1988, so the election period is the same as in
reimbursement arrangement, the
order to compel payment for COBRA
Case 1. The difference between Case 2 and
employer can provide for plan coverage
continuation coverage or to coerce the
Case 3 is that in Case 2 the employee can
receive 6 months of employer-paid coverage
during the election period or, if the plan
qualified beneficiary to give up rights to
and then elect to pay for up to an additional
allows retroactive reinstatement, the
COBRA continuation coverage
12 months of COBRA continuation coverage,
employer can drop the qualified
(including the right to use the full
while in Case 3 the employee must choose
beneficiary from the plan and reinstate
election period to decide whether to
between 6 months of employer-paid coverage
him or her when the election is made. Of
elect such coverage). Such a withholding
and paying for up to 18 months of COBRA
course, claims incurred by a qualified
constitutes a failure to comply with
continuation coverage. In all three cases,
beneficiary during the election period do
section 162(k), and any purported
COBRA continuation coverage need not be
not have to be paid before the election
waiver obtained by means of such a
provided for more than 18 months after the
(and, if applicable, payment for the
withholding is invalid.
termination of employment (see Q&A-39 of
this section). and in certain circumstances
coverage) is made.
Question 37: Can each qualified
might be provided for a shorter period (see
(c) In the case of a group health plan
beneficiary make an independent
Q&A-38 of this section).
that provides health services (such as 8
election under COBRA?
Health Maintenance Organization or a
Question 33: Must a covered employee
Answer 37: Yes. Each qualified
walk-in clinic). the plan can require that
beneficiary must be offered the
or qualified beneficiary inform the
a qualified beneficiary who has not yet
employer or plan administrator of the
opportunity to make an independent
elected and paid for COBRA
election to receive COBRA continuation
occurrence of a qualifying event?
continuation coverage choose between
coverage and, if applicable, an
Answer 33: In general, the employer or
(1) electing and paying for the coverage
plan administrator must determine when
independent election (a) to receive
or (2) paying the reasonable and
a qualifying event has occurred.
COBRA continuation coverage that is
customary charge for the plan's services,
However, each covered employee or
limited to core coverage and (b) to
but only if a qualified beneficiary who
qualified beneficiary is responsible for
switch to another group health plan
chooses to pay for the services will be
notifying the employer or other plan
during an open enrollment period.
reimbursed for that payment within 30
administrator of the occurrence of a
However, if a qualified beneficiary who
days after electing COBRA continuation
qualifying event that is either a
is either a covered employee or the
coverage (and, if applicable, paying any
dependent child ceasing to be a
spouse of a covered employee makes an
balance due for the coverage). In the
dependent child of the covered
election to provide any other qualified
alternative, the plan can provide
beneficiary with COBRA continuation
22730
Federal Register / Vol. 52, No. 114 / Monday. June 15, 1987 / Proposed Rules
coverage (whether for core coverage
of the maximum coverage period (see
the group health plan as of the first
only or core plus non-core coverage). the
Q&A-39 of this section); (b) the first day
qualifying event and were covered
election shall be binding on that other
for which timely payment is not made to
under the plan at the time of the second
qualified beneficiary. An election on
the plan with respect to the qualified
qualifying event. No qualifying event
behalf of a minor child can be made by
beneficiary (see Q&A-48 of this section):
can give rise to a maximum coverage
the child's parent or legal guardian. An
(c) the date upon which the employer
period that ends more than 36 months
election on behalf of a qualified
ceases to maintain any group health
after the date of the first qualifying
beneficiary who is incapacitated or dies
plan (including successor plans): (d) the
event. For example, if an employee
can be made by the legal representative
first date after the date of the election
covered by a group health plan that is
of the qualified beneficiary or the
upon which the qualified beneficiary is
subject to COBRA terminates
qualified beneficiary's estate, as
covered (i.e., actually covered. rather
employment (for reasons other than
determined under applicable state law,
than merely eligible to be covered)
gross misconduct) on December 31. 1987.
or by the spouse of the qualified
under any other group health plan that is
the termination is a qualifying event
beneficiary. The rules of this Q&A-37
not maintained by the employer, even if
giving rise to 8 maximum coverage
are illustrated by the following
that other coverage is less valuable to
period that extends for 18 months to
examples:
the qualified beneficiary than COBRA
June 30, 1989. If the employee dies after
Example 1: Assume that employee H and
continuation coverage (e.g., if the other
the employee and the employee's spouse
H's spouse are covered under a group health
coverage provides no benefits for
and dependent children have elected
plan immediately before H's termination of
preexisting conditions): or (e) the date
COBRA continuation coverage and
employment (for reasons other than gross
the qualified beneficiary is entitled to
before June 30, 1989, the spouse and
misconduct). the plan provides only core
Medicare benefits under Title XVIII of
children (except anyone among them
coverage. and the coverage under the plan
the Social Security Act. However, a
whose COBRA continuation coverage
will end as a result of the termination of
group health plan can terminate for
had already ended for some other
employment. Upon H's termination of
cause the coverage of a qualified
employment both H and H's spouse are
reason) will be able to elect COBRA
qualified beneficiaries and each must be
beneficiary receiving COBRA
continuation coverage through
allowed to elect COBRA continuation
continuation coverage on the same basis
December 31. 1990.
coverage. Thus, H might elect COBRA
that the plan terminates for cause the
Question 41: If coverage is provided
continuation coverage while the spouse
coverage of similarly situated active
to a qualified beneficiary after a
declines to elect such coverage. However, if
employees with respect to whom a
qualifying event without regard to
H elects to provide COBRA continuation
qualifying event has not occurred. For
COBRA continuation coverage (e.g., as a
coverage for both of them, that election is
purposes of the preceding sentence,
binding on the spouse, and the spouse cannot
result of state or local law, industry
termination for cause does not include
decline COBRA continuation coverage. In
practice. a collective bargaining
termination based on a failure to make
contrast. H cannot decline COBRA
agreement. or plan procedure). will such
continuation coverage on behalf of H's
timely payment to the plan. (See Q&A-
alternative coverage extend the
spouse. Thus, if H does not elect COBRA
48 of this section regarding timely
maximum coverage period?
continuation coverage on behalf of the
payment.)
Answer 41: (a) The alternative
spouse, the spouse must still be allowed to
Question 39: When does the maximum
elect COBRA continuation coverage.
coverage period end?
coverage will not extend the maximum
Example 2: The facts are the same as in
Answer 39: The maximum coverage
coverage period. The end of the
Example 1. except that coverage under the
period ends (a) 18 months after the
maximum coverage period is measured
plan includes both core coverage and non-
qualifying event, if the qualifying event
solely from the date of the qualifying
core coverage, and H and H's spouse have
that gives rise to COBRA continuation
event, as described in Q&A-39 and
two dependent children who are also covered
coverage election rights is a termination
Q&A-40 of this section.
under the plan immediately before H's
or reduction of hours; and (b) 36 months
(b) If the alternative coverage does
termination of employment. All four family
members are qualified beneficiaries. each of
after the qualifying event, for any other
not satisfy all the requirements for
whom must be offered the opportunity to
type of qualifying event. The end of the
COBRA continuation coverage, the
elect COBRA continuation coverage either
maximum coverage period is measured
group health plan covering the qualified
with or without non-core coverage. One
from the date of the qualifying event
beneficiary immediately before the
possible result. therefore. is for the children
even if the qualifying event does not
qualifying event is not in compliance
to continue their full coverage while the
result in a loss of coverage under the
with section 162(k) unless the qualified
parents continue only core coverage. This
plan until some later date. See also
beneficiary receiving the alternative
result can be achieved in a variety of ways.
coverage was also offered the
including separate elections by each family
Q&A-40 of this section in the case of
member. or a single election by H that binds
multiple qualifying events. Nothing in
opportunity to elect COBRA
the entire family.
section 162(k) or this section prohibits a
continuation coverage and rejected
Duration of COBRA Continuation
group health plan from proving coverage
COBRA continuation coverage in favor
that continues beyond the end of the
of the alternative coverage. At the end
Coverage
maximum coverage period.
of that alternative coverage, the
Question 38: How long must COBRA
Question 40: Can the maximum
individual need not be offered a COBRA
continuation coverage be available to a
coverage period ever be expanded?
election. However, if the individual is a
qualified beneficiary?
Answer 40: No. with one exception.
covered employee and the spouse or a
Answer 38: Except for an interruption
The exception involves a qualifying
dependent child of the individual would
of coverage in connection with a waiver
event that gives rise to an 18-month
lose that alternative coverage as a result
as described in Q&A-35 of this section,
maximum coverage period and is
of 8 qualifying event (such as the death
COBRA continuation coverage that has
followed, within that 18-month period.
of the covered employee). the spouse or
been elected by a qualified beneficiary
by a second qualifying event (e.g., a
dependent child must be given an
must extend for at least the period
death or divorce). In such a case, the
opportunity to elect to continue that
beginning on the date of the qualifying
original 18-month period is expanded to
alternative coverage. with a maximum
event and ending not before the earliest
36 months, but only for those individuals
coverage period of 36 months measured
of the following dates: (a) The last day
who were qualified beneficiaries under
from the date of that qualifying event.
Federal Register / Vol. 52, No. 114 / Monday, June 15. 1987 / Proposed Rules
22731
(c) If the alternative coverage does
Fs termination of employment on January 1.
determination period is any 12-month
satisfy the requirements for COBRA
1986, is treated as though it were a qualifying
continuation coverage, it can be credited
event that occurred on January 1, 1987. F's
period selected by the plan, but it must
toward satisfaction of the 18- or 36-
death is thus a second qualifying event, for
be applied consistently from year to
month maximum coverage period.
which the spouse's maximum coverage
year. Thus, each qualified beneficiary
Moreover, in the case of a covered
period ends on January 1. 1990 (i.e., 36
does not have a separate determination
employee who receives more than 18
months after the first qualifying event). The
period beginning on the date (or
spouse can thus elect up to 24 months of
months of alternative coverage that
anniversaries of the date) that COBRA
COBRA continuation coverage.
satisfies the requirements for COBRA
continuation coverage begins for that
Example 2: Assume the same facts as in
continuation coverage, if the spouse or a
Example 1. except that F's death occurs after
qualified beneficiary.
dependent child of the covered
January 1, 1990. The plan does not have to
Question 46: Must a qualified
employee loses coverage as a result of a
give F's spouse an opportunity to elect
beneficiary be allowed to pay for
second qualifying event (such as the
COBRA continuation coverage.
COBRA continuation coverage in
installments?
death of the covered employee) that
Question 43: Must a qualified
occurs after the 18-month period, that
beneficiary be given the right to enroll in
Answer 48: Yes. A group health plan
spouse or dependent child need not be
a conversion health plan at the end of
must allow a qualified beneficiary to
given an election to continue coverage.
the maximum coverage period for
pay for COBRA continuation coverage
Question 42: How can an event that
COBRA continuation coverage?
in monthly installments. A group health
occurs before a group health plan
Answer 43: If a qualified beneficiary's
plan can also allow qualified
becomes subject to section 162(k) affect
COBRA continuation coverage under a
beneficiaries the alternative of paying
the maximum coverage period when a
group health plan ends as a result of the
for COBRA continuation coverage at
later, qualifying event occurs?
expiration of the maximum coverage
other intervals (e.g., quarterly or
Answer 42: (a) If there are two events
period, the group health plan must,
semiannually).
that satisfy the conditions set forth in
during the 180-day period that ends on
Question 47: Can a qualified
paragraph (b) of this Q&A-42, then the
that expiration date, provide the
beneficiary choose to have the first
first event is treated as though it were a
qualified beneficiary the option of
payment for COBRA continuation
qualifying event that occurred on the
enrolling under a conversion health plan
coverage applied prospectively only?
date that the plan became subject to
if such an option is otherwise generally
Answer 47: No. The first payment for
section 162(k) (i.e., with a maximum
available to similarly situated active
COBRA continuation coverage is
coverage period that began on that
employees under the group health plan.
applied to the period of coverage
date), so that the second event i8 not
If such a conversion option i8 not
beginning immediately after the date
merely a qualifying event but a second
otherwise generally available, COBRA
that coverage under the plan would
qualifying event. This treatment applies
does not require that it be made
have been lost on account of the
solely for purposes of determining the
available to qualified beneficiaries.
qualifying event. Of course, if the group
maximum coverage period under Q&A-
health plan allows a qualified
39 through Q&A-41 of this section in
Paying for COBRA Continuation
beneficiary to waive COBRA
Coverage
connection with that second qualifying
continuation coverage for any period
event. It does not give rise to any right
Question 44: Can a qualified
before electing to receive COBRA
to elect COBRA continuation coverage
beneficiary be required to pay for
continuation coverage, the first payment
in connection with the first event.
COBRA continuation coverage?
is not applied to period of the waiver.
(b) The conditions referred to in
Answer 44: Yes. For any period of
Question 48: What is timely payment
paragraph (a) of this Q&A-42 are as
COBRA continuation coverage, a group
for COBRA continuation coverage?
follows: (1) The first event is listed in
health plan can require a qualified
Answer 48: (a) If a qualified
paragraph (b) of Q&A-18 of this section
beneficiary to pay an amount that does
beneficiary's election of COBRA
(regarding what i8 a qualifying event)
not exceed 102 percent of the applicable
continuation coverage is made after the
but occurs before the date that the plan
premium for that period. The
date of the qualifying event, timely
becomes subject to section 162(k). (2)
"applicable premium" is defined in
payment for any COBRA continuation
the plan provides coverage to a qualified
section 162(k)(4) of the Code. A group
coverage during the period before the
beneficiary after the first event that
health plan can terminate a qualified
date of the election means payment that
continues to or beyond the date that the
beneficiary's COBRA continuation
is made to the plan within 45 days after
plan becomes subject to section 162(k),
coverage as of the first day of any
the date of the election. Timely payment
and (3) a second event then occurs and
period for which timely payment is not
for any other period of COBRA
is a qualifying event.
made to the plan with respect to that
continuation coverage is governed by
(c) The rule of this Q&A-42 is
qualified beneficiary (see Q&A-38 of
paragraph (b) of this Q&A-48.
illustrated by the following examples:
this section). For the meaning of "timely
(b) In general, timely payment for a
payment." see Q&A-48 of this section.
Example 1: Assume that a group health
period of COBRA continuation coverage
plan became subject to section 162(k) on
Question 45: After a qualified
under a group health plan means
January 1. 1987. Employee F. who was
beneficiary has elected COBRA
payment that is made to the plan by the
covered by the plan. voluntarily terminated
continuation coverage under a group
date that is 30 days after the first day of
employment on January 1. 1986, and was
health plan, can the plan increase the
that period. However, payment that is
given employer-paid coverage that would
amount that the qualified beneficiary
made to the plan by a later date is also
continue for 5 more years. F's spouse was
must pay for COBRA continuation
considered timely payment if either (1)
also to be covered for the 5 years, except that
coverage?
under the terms of the plan, covered
the spouse's coverage would terminate upon
divorce or F's death. F dies on January 1.
Answer 45: Yes. if the applicable
employees or qualified beneficiaries are
1988. Fs death is a qualifying event. so Fs
premium increases. However, the
allowed until that later date to pay for
spouse can elect COBRA continuation
applicable premium for each
their coverage during the period, or (2)
coverage (unless the election is precluded for
determination period must be computed
under the terms of an arrangement
some independent reason. such as the
and fixed by the plan before the
between the employer and an insurance
spouse's entitlement to Medicare benefits).
determination period begins. A
company, Health Maintenance
22732
Federal Register / Vol. 52. No. 114 / Monday. June 15. 1987 / Proposed Rules
Organization, or other entity that
rovides plan benefits on the employer's
half. the employer is allowed until
at later date to pay for coverage of
similarly situated employees during the
period.
Lawrence B. Gibbs,
Commissioner of Internal Revenue.
J. Roger Mentz,
Assistant Secretary of the Treasury.
[FR Doc. 87-13366 Filed 6-10-87; 12:21 pm|
BILLING CODE 4830-01-M
IP 389H AS
1
Group Health Insurance
An Introduction
Continuation:
Most Americans with private health insur-
ance are covered through an employer. As a
covered worker or family member, you have
health coverage as long as you are employed
or are related to an employed worker. But if
your family or work status changes, you often
lose your health insurance, too.
Women often lose health insurance coverage
when they divorce, are widowed, or their
A New Law That
husbands lose a job or retire. An estimated five
million American women age 40 to 65 have no
May Help You
health insurance whatsoever.
Keep Your
Public Law 99-272, enacted in April 1986, will
help many individuals retain their health insur-
Health Insurance
ance when work or family status changes.
When Your
This new federal law begins to take effect
July 1, 1986. It may help you.
Family or
This brochure explains how to take advan-
tage of your expanded right to continue group
Work Status
health insurance. It is not intended to provide
legal advice. If you are divorcing, consult a
Changes
lawyer before making decisions that may affect
eligibility for health insurance continuation.
This new law will NOT help you if you have
already lost your health insurance before it
takes effect.
After July 1, 1986, many Americans who would
otherwise lose their group health insurance
coverage because of unemployment, divorce, or
the death or retirement of a spouse will be able
to keep their insurance-by paying their own
premiums.
Older Women's League
Reproduced with permission.
2
What Group Health Insurance Continuation Means For
Widows and Dependent Children
Spouses and Dependent Children of
Retiring Workers
If you have health insurance through your
If you have group health insurance through
spouse's employer, you and your children can
your spouse's employer and are not eligible for
continue that coverage for three years if your
Medicare, you and your children can continue
spouse dies after the group health insurance
coverage for three years if your spouse retires
continuation law takes effect. The employer
after the group health insurance continuation
should notify the health plan when a worker
law takes effect. Check with the personnel
dies; check with the pérsonnel office to con-
office to confirm that the employer has notified
firm this has been done. Within two weeks, the
the health plan of the retirement. Within two
plan must notify you of your right to continue
weeks, the plan must notify you of your right to
coverage. You MUST respond within 60 days if
continue coverage. You MUST respond within
you wish to continue on the group health insur-
60 days if you wish to continue on the group
ance plan.
health insurance plan.
Divorced or Separated Spouses and
Unemployed Workers and Dependents
Dependent Children
If you have group health insurance through
If you have health insurance through your
an employer, you and your dependents can
spouse's employer, you and your children can
continue that coverage for eighteen months if
continue that coverage for three years if you
you become unemployed or your hours are cut
divorce or are legally separated after the group
after the group health insurance continuation
health insurance continuation law takes effect.
law takes effect. This does not apply if you are
Notify the health plan of the change in marital
terminated for "gross misconduct." The
status RIGHT AWAY. Within two weeks, the
employer must notify the health plan of your ter-
plan must notify you of your right to continue
mination. Within two weeks, the plan must
coverage. You MUST respond within 60 days if
notify you of your right to continue coverage.
you wish to continue on the group health insur-
You MUST respond within 60 days if you wish
ance plan.
to continue on the group health insurance plan.
One final note: Provision for health insurance
Other Eligible Children
may be included as part of a divorce decree;
If you have group health insurance through
discuss this possibility with your lawyer. But
your parent's employer, you can continue that
remember that coverage ends if premiums are
coverage for up to three years if you become
not paid, SO you should pay the premium
ineligible (for example, because of your age).
yourself and be reimbursed by your former
Check with the plan to find out when you are no
spouse. Otherwise, late or missed payments
longer considered a "dependent child." Alert
could jeopardize your insurance.
the plan as soon as you become too old to
qualify. Within two weeks, the plan must notify
you of your right to continue coverage. You
MUST respond within 60 days if you wish to
continue on the group health insurance plan.
3
Group Health Insurance
This brochure may be reproduced in whole
Continuation
or in part, with credit given to the Older
Women's League. Single copies may be
You are eligible to continue your current
obtained by sending a stamped, self-addressed
group health insurance coverage if you are: the
envelope to OWL. Contact OWL for information
widow/er or divorced spouse of a worker; the
about the cost of bulk orders. Contributions and
Medicare-ineligible spouse of a retiring worker;
donations are welcome; membership informa-
or if you or your spouse has been laid off, termi-
tion is available from: Insurance Continuation,
nated (except for gross misconduct) or is work-
OWL, 1325 G St., NW, Lower Level, Washing-
ing reduced hours. Dependent children are
ton, D.C. 20005, (202)783-6686.
also covered.
June 1986
The new law applies to private employers
with 20 or more workers and to state and local
government health plans.
Older Women's League
You do not have to pass a physical examina-
tion, since you are already a member of the
group plan. Your coverage simply continues,
but you must pay the full monthly premiums
-both the employer and employee portions,
plus a 2% fee for administrative costs. Even so,
most people will find that their current group
health insurance plan is more affordable and
provides better coverage than an individual
policy.
The coverage ends if you fail to pay your
premium, become eligible for other group
coverage through employment, remarriage or
Medicare, or if the employer ends group health
insurance coverage for all workers.
The law is effective for health plan years
beginning after July 1, 1986. The employer or
health plan can tell you when your next plan
year begins. If the plan year begins in August,
the law takes effect for you in August 1986. If
the plan year does not start until February, the
law takes effect for you in February 1987. Some
employers are voluntarily complying earlier
than the law requires; check with your
employer. For plans subject to collective
bargaining, the law does not take effect until
January 1987, or when the current bargaining
agreements expire, whichever is later.
IP 389H AS
Wall Street Journal, June 29, 1987, P. 27
Firms Now Must Offer Health Insurance
To Some /orkers-buta What Price?
The continued-coverage law "will be a
cent Taormina, managing director of the
YOUR
real benefit." says William O'Shaugh-
benefits and compensation consulting
MONEY
nessy, insurance-risk manager for the St.
group at the Coopers & Lybrand account-
Louis police. Spouses of officers who are
ing firm. This is because such plans are of-
MATTERS
retiring, for example, will have their op-
ten provided without requiring medical
tion to buy health insurance at group rates
exams of the former employees or family
By ALEXANDRA PEERS
extended to three years from șix months.
members, as usually is required when ap-
Staff Reporter of THE WALL STREET JOURNAL
For such group-rate coverage. em-
plying for a new policy. "The assumption
In the past, an employee who quit or
ployers can charge the former workers
is that the employee, by not opting to sub-
was fired usually lost not only a paycheck,
and their families the average cost of pro-
ject himself to a medical exam, is a poor
but also health insurance. Not anymore.
viding the health benefits plus a 2% admin-
risk," Mr. Taormina says.
Under legislation passed last year-and
istrative fee. In most cases, that still would
The people most in need of continued
which companies must comply with by to-
be less than they would pay for arranging
health coverage can't always afford such
morrow-an employee's health benefits no
coverage on their own. But some may be
policies. A 60-year-old widow from Clear-
longer automatically end when the job is
better off looking for insurance outside the
water, Fla., for example. was offered med-
over. What's more, family members may
employer's continued group-rate plan.
ical coverage by her husband's former em-
be entitled to continued coverage. even if
"The amount the company can charge
ployer at an individual rate of $430 a
the employee dies or gets divorced.
(for the group-rate plan) is 102% of 'X,' but
month after her husband died, the Older
But the regulations are chock-full of ex-
Women's League says. That was $19 less
emptions, restrictions and points of conten-
Medical Coverage
than her entire monthly income from So-
tion awaiting clarification by the Treasury
These percentages of surveyed com-
cial Security.
and Labor departments. Many people still
panies require employee contributions
Not Everyone's Covered
won't qualify for continued coverage, and
to obtain medical coverage for:
in some cases those who do may face pre-
Affordability, however, isn't the only
Employee and
miums higher than on policies they could
concern for those seeking continued health
dependents
insurance. For example. employees and
buy on their own. The onus also is on the
No employee
their families aren't eligible if they have
employees and their families to comply
26%
with many of the law's deadlines and pro-
contributions
any other source of medical coverage,
cedures to ensure that the health insurance
45%
even if it's only Medicare or a private
medical plan inferior to the employer's.
is maintained.
Dependents
The new law is "a step in the right di-
21%
only
The continued-coverage provisions also
rection," says Robert Hunter, president of
don't apply to federal agencies. employees
7%
Depends on
the National Insurance Consumer Organi-
discharged for "gross misconduct," or un-
plan selected
ion workers whose contracts haven't ex-
zation, but "it's still not anything like com-
1%
Other
by employee
pired since the law went into effect. Those
plete protection."
(i.e., varies by years of service)
union members will be included under
Hope and Horror Stories
Source: Hewitt Associaten
their next contract.
Even so, the law has generated great
Also, an employee's spouse may "have
interest among people worried about loss
what exactly is 'x'?" says Marjorie O'Con-
to take a number of special steps to ensure
of health coverage. Between last July.
nell. a lawyer with the Washington, D.C.,
continued coverage" after a divorce. says
when the legislation was passed, and
firm of O'Connell & Kittrell. The individual
Ms. O'Connell. Since family members lose
year's end, the Older Women's League.
can end up paying more than the coverage
all future insurance benefits if they aren't
which lobbied for the bill, received 50,000
is worth, Ms. O'Connell says. because a
part of the health plan at the time of the
letters "from people who had questions,
company with several different medical
divorce, the spouse might consider "get-
horror stories, or who had hope against
plans-from basic benefits for part-time
ting a restraining order compelling the em-
hope that their problems would be cov-
workers to coverage for hair transplants
ployee to maintain coverage" during di-
ered," says Alice Quinlan, the league's
for directors-can average the overall
vorce proceedings, she says.
public policy director.
costs when billing for continued insurance.
Despite the loopholes, Congress did put
The law requires that companies with
Regulations clarifying how companies
some teeth in the law's enforcement. An
at least 20 employees make medical cover-
should figure the premium costs are ex-
employer that doesn't comply can be sued
age available at group insurance rates for
pected to be announced by the federal gov-
under the Employee Retirement Benefits
as long as 18 months after the employee
ernment later this summer.
Act and can be denied corporate tax de-
leaves-whether the worker left voluntar-
The main concern about costs, however,
ductions related to health benefits. If a
ily. retired or was dismissed. The law also
comes when the former employee or fam-
company refuses to provide continued COV-
provides that, following an employee's
ily members convert to the individual-rate
erage, top officers and other highly com-
death or divorce, the worker's family has
plan from group-rate coverage. The right
pensated employees could face taxation of
the right to buy group-rate health insur-
to convert to the individual-rate plan "is
their own health benefits.
ance for as long as three years.
not much of a privilege," says Mr. Hunter
The law also will deter companies from
If the group-rate coverage expires be-
of the insurance consumers group. "It's of-
dismissing certain employees. particular
fore the ex-employee gets a new job with
ten the right to convert to less comprehen-
elderly and ill workers, to get them out
health benefits. the employer must offer
sive coverage at much higher rates."
the employer's insurance risk pool, Mr.
additional coverage. although at a more
Company-arranged coverage at individ-
Hunter says. "Now. at least there's some
expensive, individual rate.
ual rates is "absurdly costly," says Vin-
protection."
© 1987 Dow Jones & Company, Inc. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
54
IP 389H AS
Nation's Business December 1986
MANAGING YOUR BUSINESS
The Bite
Employers feel
threatened by a law that
requires them to carry
Of COBRA
former employees on
company health plans.
By Joan C. Szabo
mployers are wary of the bite of
E
tinue coverage are more likely to antici-
company health plan requirements
pate needing medical care."
in COBRA-the Consolidated Om-
Quaker Oats' Corry says he "would
nibus Budget Reconciliation Act
not be surprised if the true cost of cov-
of 1985, which was signed into law
erage is more than five times the premi-
April 7.
ums paid."
"COBRA is one of the most danger-
Employers may react to the possibili-
ous intrusions on small business-I
ty of higher rates by finding additional
view it with considerable alarm," says
ways to trim health care expenses, such
Jerry Bartos, owner and president of
as asking employees to pick up more of
Bartos, Inc., a small Dallas-based man-
08
the cost of insurance, experts say. An-
ufacturer of ventilation systems. That
other cost-cutting step may include in-
is because the law "makes a business
stituting a waiting period before health
person responsible for someone who is
coverage kicks in for new employees,
no longer in his or her employ," Bartos
says consultant Linda Havlin of Hewitt
says.
Associates.
Under COBRA, businesses with more
Dallas manufacturer Bartos says he
than 20 employees that offer health in-
surance must continue coverage at
BUDGET
has decided to drop all dependent cover-
ERECONCILIATION
age because of COBRA.
group rates for up to 18 months for
Though business views the law with
employees who retire, quit, switch from
ACT
trepidation, no one knows for sure how
full-time to part-time status or are laid
much COBRA will be used. "It remains
off. Those insured must pay the full
to be seen how many people will take
cost of their insurance plus a 2 percent
ILLUSTRATION:
WANOOON
TREE
advantage of extended health bene-
surcharge to cover administrative ex-
plans for the Quaker Oats Company,
fits," Hutchings says. "In many cases,
penses.
says that "COBRA is ill-defined, lack-
employees leaving one company will
Companies are required to continue
ing both clarification and guidelines."
pick up coverage from their next em-
coverage for three years, at the 102
Many companies view the law's paper
ployer or spouse's employer, which will
percent rate, for an employee's spouse
work requirements as an administra-
almost always be less expensive for the
and dependents if the employee dies or
tive nightmare. Under COBRA, em-
former employee."
becomes entitled to Medicare. The re-
ployers must give written notice to
quirement also applies in event of a
each eligible employee and spouse of
eanwhile, companies are await-
legal separation or divorce. On top of
their right to continued health cover-
that, an employer must offer to provide
age. Written notice is also required
the same three years' continued cover-
M
ing clarifying regulations from
the Labor Department and the
when an employee or beneficiary be-
Internal Revenue Service to
age to a dependent who reaches the
comes eligible for the continued cover-
provide more guidance on COBRA. Un-
maximum age for dependent coverage.
age. The Labor Department has a mod-
til those rules are issued, employers are
Continued coverage must be the
el notice to help firms comply with the
required to show good faith in comply-
same as that offered to "similarly situ-
notification requirements.
ing with the law.
ated" beneficiaries-individuals still
Another major worry for employers
1986 by the Chamber of Commerce of the United States. All rights reserved.
As they gear up to live with COBRA,
employed by the company. Those eligi-
is COBRA's potential cost. In addition
a number of business people fear it is a
ble have at least 60 days to decide if
to their expenses in processing the pro-
harbinger of more federal regulation in
they want it.
gram, there is a possibility of higher
the employee benefits area. One much-
COBRA takes a deep gouge out of
health benefit premiums. Regulations
discussed bill in Congress that worries
employers who fail to meet its require-
are needed to explain how the cost of
them would require most employers to
ments. The penalty is loss of a compa-
health insurance should be calculated,
offer up to 18 weeks of unpaid parental
ny's entire tax deduction for contribu-
says Hewitt Associates, an employee
leave.
tions made to all health plans.
benefit consulting firm in Lincolnshire,
Another bill would require continued
Employee benefit consultants say the
III.
health coverage for former employees
complexity of COBRA's health cover-
"The 102 percent rate that companies
and their families for up to four
age provision has sparked a rash of
are permitted to charge is not likely to
months. More costly than COBRA, this
questions from employers. "We have
cover the actual claim costs of people
proposal would require an employer to
been flooded with inquiries on how to
who decide to take coverage," says Pe-
pay the same portion of the premiums
comply," says Peter Panken, a senior
ter J. Hutchings, who advises compa-
paid before termination.
member of Parker, Chapin, Flattau &
nies on their health benefits for Kwa-
Many companies, says Hewitt's Hav-
Klimpl, a New York and Washington
sha Lipton, an employee benefit
lin, see COBRA "as the beginning of a
law firm with a large practice repre-
consulting firm in Fort Lee, N.J. "The
whole new wave of federally enacted
senting management in labor relations.
102 percent is based on the average
social policies instituted by government
Dennis M. Corry, manager of benefit
employee, but people who decide to con-
through the employer."
Reproduced by the Library of Congress, Congressional Research Service
with permission of copyright claimant.
IP 389H AS
Washington Post, August
1986, PP. D1, D5
U.S. Begins Mandating Health Care
Whoever is right, more of these
But it was the passage of the so-
Another bill sponsored by Ken-
By Michael Abramowitz
so-called "mandated benefits" ap-
called "Cobra" legislation that
nedy and Orrin G. Hatch (R-Utah)
Washington Past Staff Writer
pear to be on their way at the fed-
struck a nerve among business lob-
requiring employers to provide cov-
Without much fanfare, the federal govęrnment has
eal level. The extension of cover-
byists and representatives, who say
erage for technology dependent
moved into a new era-the era of mandated health-care
provisions, part of last year's
the bill represents a forerunner to
children for care at home equal to
benefits.
bedget reconciliation act, are fol-
further federal incursions into their
what is covered in the hospital.
Under a new federal law that went into effect last
lowed by more proposed legislation
health plans. According to Cathy
Most of these measures have
requiring businesses that offer
Amkraut, manager of public policy
month, businesses with more than 20 employes who
offer group health insurance must now continue the
health insurance coverage to in-
for the Washington Business Group
drawn sharp criticism from the
business community. "Employers
coverage for up to three years to widows, divorced
chde a range of extra benefits in
their plans-from parental leave to
on Health, whose members include
are becoming increasingly con-
spouses, and their dependents. Companies must offer
preventive health care for children.
many large companies, the trend to
cerned that the voluntary employe
continued çoyerage for up to 18 months for employes
Proponents of the legislation say
federal mandates can be seen in a
benefit system is being dismantled
who have quit or been laid off.
these initiatives are needed to ad-
number of recent initiatives on Cap-
by a patchwork quilt of state and
Although the beneficiaries must pay the whole pre-
dress major gaps in the nation's
itol Hill:
federal mandates," said James A.
mium for this coverage, plus 2 percent to cover admin-
health finance system, in particular
The so-called Access to Health
Klein, a health lobbyist for the U.S.
istrative costs, employers have complained that the law
the estimated 30 million-to-35 mil-
Care Act, a recent bill sponsored
Chamber of Commerce.
has proved a logistical nightmare.
lion Americans who are not covered
principally by Sen. Edward M. Ken-
Klein and other business spokes-
by any insurance.
nedy (D-Mass.) and Rep. Fortney
men said the bills could well have an
David Glueck, who advises companies on their health
:But company officials and busi-
H. Stark (D-Cal.). The bill, among
effect opposite to that intended, and
benefits for Towers, Perrin, Forster and Crosby, said
ness representatives are seeing
other measures, would require em-
cause smaller businesses to drop
red.
he has been inundated with calls about how to deal with
ployers to continue coverage of
health coverage altogether.
:"It is scary as hell," said Flagg.
the new law. Among the problems he cited are difficul-
health insurance for four months
But the mandated-benefit bills
Congress is passing society's ob-
ties simply in keeping track of former employes, espe-
after an employe is dismissed-and
are drawing support, advocates say,
nations onto business, which is
cially for restaurants and other companies with high
pick up the same portion of the pre-
out of a need to address critical
where I don't think it should be."
mium as they did before the dis-
The issue of mandated benefits
public policy questions that haven't
employe turnover.
missal.
Another problem cited is that of "adverse selec-
his been argued at the state level
been adequately dealt with by the
The bill also encourages states to
tion"-the prospect that primarily unhealthy people will
for the past decade, with many
federal government. A good exam-
rates requiring employers to offer
establish "risk pools" to provide cov-
seek out coverage under the law. Donald C. Flagg, vice
ple is the problem of the uninsured,
coverage for psychiatric care, alco-
erage for uninsured people. Under
which has attracted increasing at-
president for human resources at Nestle Enterprises
and drug abuse, and other spe-
such pools, employers with more
tention in the last year, they said.
Inc., estimated that the new law could raise the costs of
fic ailments. Some states have
health benefits by as much as 20 percent- for some com-
dso mandated the continuation of
than 20 workers would have to make
panies-a figure the law's supporters say is vastly
overage for certain groups such as
up any shortfalls if the premiums
overstated.
laid-off workers or widowed
collected by the pools don't cover all
spouses.
claims. This part of the bill was ap-
Health-care officials say the issue
proved last month by the House
emerged at the federal level last
Ways and Means Committee.
year when Sen. John Chafee (R-
The Parental and Medical Leave
R.I.) introduced a bill requiring
Act of 1986, sponsored primarily by
businesses to include preventive
Rep. Patricia Schroeder (D-Colo).
health care for children in their
The bill, approved by two House
health plans as a condition for keep-
committees, would require most
ing the premiums tax-deductible.
employers to offer up to 18 weeks
of parental leave and 26 weeks of
medical leave. It is expected to
©
1986 The Washington Post Company. Reproduced by the Library of Congress,
come to the House floor this fall.
Congressional Research Service with permission of copyright claimant.
Order Code IB87168
CRS Issue Brief
Mandated Employer Provided Health Insurance
Updated June 1, 1990
by
Beth C. Fuchs
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Uninsured Population
Working Uninsured
Move Toward Mandated Health Benefits
Issues Related to Mandating Employer-Provided Health Insurance
Question of Employer Responsibility
Mandated Employer-Provided Insurance and Competitiveness
Small Employers and Mandated Employer-Provided Health Insurance
Underinsurance and Catastrophic Coverage
History of Federal Employer Mandates
Title X of COBRA
Medicare Working Aged and Working Disabled Secondary Payer
Requirements
Bowen Catastrophic Proposal
Types of Mandated Coverage Proposals
Defining the Application, Nature and Scope of Mandated Health
Benefits
Defining Population to be Covered and Duration of Coverage
Defining the Liability of Employers and Employees
LEGISLATION
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
FOR ADDITIONAL READING
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Mandated Employer Provided Health Insurance
SUMMARY
Between 31 and 37 million Americans under the age of 65 lack health insurance.
Recent estimates have drawn special attention to the working uninsured: over 80%
of the uninsured are employed or live in families of workers.
The increased number of uninsured has occurred when changes in
reimbursement policy by private insurers and the Federal Government have made
it harder for hospitals to shift the costs of treating the uninsured to privately insured
patients. Consequently, access to health care for persons lacking insurance is a
growing concern. These developments have led to new congressional interest in the
problems of the medically uninsured. Faced with substantial Federal budget deficits
and diminished interest in Government-financed solutions, Congress has begun to
look to employers as a potential source of expanding access to health insurance
coverage.
Under one approach gaining some support in Congress, the Federal Government
would mandate that employers provide health insurance coverage and/or specific
health benefits to their employees and to their employees' families. There is,
however, substantial controversy over this approach. Proponents argue that
providing health insurance is an employer's responsibility. They say that the costs
of providing care to uninsured workers are being shifted by health care providers to
those employers who provide and pay for health insurance. Opponents of mandated
employer-provided insurance argue that it is not an employer's responsibility to
provide health insurance. They say that many employers, especially smaller ones,
cannot afford to offer insurance. Opponents also argue that the added costs of health
insurance would reduce employers' ability to compete, harming the overall national
economy.
As a result of past actions by Congress, employers who offer health insurance
have to conform to specific requirements affecting the nature of their health
insurance plans and the entitlement to those plans. Most larger employers have to
offer their employees the option of becoming members of federally qualified Health
Maintenance Organizations. Also, employers are prohibited from discriminating in
employee benefit plans on the basis of disabilities arising on account of pregnancy.
Certain employers have to offer Medicare-eligible workers and their spouses the
option to elect the employer's health plan as their primary source of insurance.
Finally, certain employers required to make available continued health insurance
coverage to qualified employees and their families who would otherwise lose coverage
as a result of specific events.
In the 101st Congress, bills have been introduced to expand access to health
insurance by mandating that employers provide basic health insurance. One such
bill, the "Basic Benefits for All Americans Act of 1989" (S. 768) has been voted out
of Committee and is awaiting action by the Senate. Other proposals, placing new
requirements on employers, may also be considered.
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ISSUE DEFINITION
Most Americans have health insurance coverage through private group plans
offered by their employer or through the two major Federal Government financed
programs, Medicare and Medicaid. A much smaller number of Americans purchase
individual policies through the private health insurance market. However, between
31 and 37 million Americans have no health insurance coverage. Moreover, the
percentage of uninsured Americans has been climbing, increasing by some estimates
by as much as 20% for the under age 65 population between 1979 and 1986. Recent
U.S. Census Bureau estimates have drawn special attention to the working
uninsured: over 80% of the uninsured are employed or live in families of workers.
For these Americans, employment or connection to employment through a working
family member has failed to result in coverage under a health insurance plan.
The increased uninsured population has occurred when changes in the
reimbursement policies of private insurers and the Federal Government have made
it more difficult for hospitals to shift the costs of treating the uninsured to privately
insured patients. Consequently, there is growing congressional concern about
decreased access to health care for persons lacking insurance. In search of a solution
that will not result in major Federal spending, Congress has turned to employers as
a potential source of expanding access to health insurance coverage. In past years,
Congress has mandated that employers who offer health insurance to their workers
must meet specific requirements affecting the nature of their health insurance plans
and the entitlement to those plans. In the 101st Congress, legislation is being
considered to mandate that employers provide basic health insurance to their
employees and to require that employers provide specific health benefits in their
insurance plans. The Pepper Commission has also recommended a "job-based"
approach to increasing access to health insurance that includes a mandate on larger
employers to provide health insurance or contribute a portion of payroll toward the
cost of covering employees and dependents in a public insurance plan. (The Pepper
Commission proposal is described in more detail in CRS Issue Brief 90005, Health
Insurance, Janet Kline, Coordinator.) These proposals are stimulating substantial
congressional debate.
BACKGROUND AND ANALYSIS
Uninsured Population
In 1987, between 31 and 37 million Americans did not have any health
insurance. [Variations in estimates of the uninsured are explained by the different
questions and methods of sampling used in the surveys.] Estimates from the March
1988 Current Population Survey (CPS) of the U.S. Census Bureau place the number
at 31.3 million; estimates from the National Medical Expenditure Survey of the
National Center for Health Research place the number at 37 million. In the late
1970s, between 13% and 14.5% of the under-65 population were uninsured. This
number increased to 17.7% in 1984 and fell back to 17.5% in 1986. Estimates vary,
and some studies report that the number of medically uninsured peaked during the
economic recession of the early 1980s, and is now on a downward trend.
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The effects on an individual of not having health insurance are not well
documented. What is known is that the uninsured are less likely to use health
services and are more likely to be in poorer health than the insured population. The
1986 National Access Survey (done for the Robert Wood Johnson Foundation) reports,
for example, that the uninsured had approximately 40% fewer ambulatory visits and
19% fewer hospitalizations than the insured. Of those individuals surveyed who had
chronic illnesses, 20% of the uninsured failed to see a physician or other provider
over the course of a year, compared to 17% of the insured.
While data on the health consequences of lacking insurance are scarce, several
studies do provide information on who make up the uninsured population. They
indicate that low-income households are more likely to lack health insurance than
those with middle or high incomes. They also indicate that the vast majority of
uninsured are employed or live in families where the head of the household is
employed. Most recent studies using Census Bureau data report that at least 80%
of the uninsured live in families where someone is employed.
Working Uninsured
Largely as a result of labor union pressures for better employee benefits, and
Federal tax incentives that allow employers to deduct the costs of providing health
benefits to their employees, employer-related health insurance became increasingly
commonplace after World War II. Today, after paid vacations, it is the most common
fringe benefit offered by employers. For the nine out of ten Americans with private
group insurance, that insurance is provided in the employment setting. As a result
(and in contrast to other western nations where health and pension benefits are
provided through public programs), workers in the United States have grown to rely
on employer-provided benefits for these basic protections. However, as the following
statistics reveal, not all employers offer health benefits and, when offered, not all
employees accept them.
Some analysts argue that the decline in coverage is due to the shifting of our
economy from jobs that carry health insurance to ones that do not. It is true that
while civilian, nonagricultural jobs increased by about 7% between 1982 and 1985,
the number of jobs with health insurance provided by an employer increased by less
than 5%. However, more important may be changing demographics. For example,
there appears to be an increase in the number of young adults without health
insurance living in households in which the parents have insurance. In addition,
dependent coverage has declined.
EBRI's May 1988 analysis of CPS data on the working uninsured reveal that
in 1986, 18.1 million workers reported no coverage from an employer plan. Of that
number, 10.9 million were the head of a family (meaning the family member with the
greatest earnings or an individual without a family). Another 7.2 million were other
family workers and not the head of the household. The majority of uncovered
workers were low wage earners. In 1986, 74% of all uninsured workers earned less
than $10,000; 93% earned less than $20,000. About 35% of all uninsured workers
earned, on average, less than the Federal minimum wage in 1986; 50% of all
uninsured workers earned less than 125% of the minimum wage. Most of these
individuals worked full-time.
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It is also useful to look at the working uninsured according to their primary
source of employment. According to EBRI, workers in certain employment sectors
are much more likely to lack health insurance coverage than the average American
worker under age 65. These include workers in agriculture; retail trade; services
(business, repair, entertainment and personal); and construction. Also included in
this category are the self-employed. Workers in other employment sectors (including
manufacturing, finance, transportation, and wholesale trade) lack insurance coverage
only one-third to one-half as often as workers in the above employment sectors.
Move Toward Mandated Health Benefits
Since the early years of this century, national health insurance has been a hotly
debated issue in the United States. While in the late 1960s and 1970s, the debate
revolved around whether to enact a program of universal national health coverage,
in the 1980s the emphasis has been on incremental expansions of health insurance
coverage. Proposals have focused on expanding coverage for specific segments of the
population (such as laid-off workers, low-income elderly, and children) and for people
who, because of a major pre-existing health condition, are unable to obtain health
insurance through the private market. Faced with substantial Federal budget deficits
and an apparent diminished interest in Government-financed solutions, Congress has
begun to look to employers as a potential source of expanding access to health
insurance coverage.
One approach gaining some support in Congress falls under the general heading
of employer mandates. Under this approach, the Federal Government would mandate
that employers (private employers as well as State and local governments) provide
insurance coverage and/or specific health benefits to their employees and, in some
cases, also to their employees' families. This approach is consistent with the current
reality that in the United States, health insurance for all but the old, disabled, and
very poor, is primarily obtained through an employer's group plan.
In the 99th Congress, legislation was enacted that required certain employers
to offer continued health insurance coverage to their employees who would otherwise
lose coverage for certain reasons. Also, certain employers were required to offer their
Medicare-eligible disabled workers primary coverage under the employers' health
insurance plans. In the 100th Congress, legislation was considered to mandate that
employers provide basic and/or catastrophic health insurance coverage. These
proposals are being considered again in the 101st Congress.
Issues Related to Mandating
Employer-Provided Health Insurance
The debate over mandating that employers provide health insurance raises
philosophical issues such as the nature of an employer's obligation to his or her
employees, and whether it is appropriate for the Federal government to require that
employers offer insurance. In addition, it raises questions about the potential
economic effects of mandates on employers as well as on the health of the national
economy.
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Question of Employer Responsibility
Proponents of mandatory employer-provided health insurance argue that
employers have a basic obligation to ensure that their employees have access to
health insurance just as they have an obligation to provide a liveable wage. They
assert that a minimum health benefits law should be established in the same manner
as the Federal Government has established a minimum wage law. They say that it
will ultimately lower the Nation's health bill because more people will have access
to health care. In addition, they argue that requiring employers to provide coverage
is in keeping with the Nation's heavy reliance on employment-related insurance.
They further assert that relying on private rather than government-provided
insurance builds upon our Nation's tradition of leaving health insurance to the
competitive market place.
Proponents also argue that this approach will increase equity across employers
and taxpayers. Currently, health insurance premiums are priced to include not only
the direct cost of providing health care services to the employer's workers, but also
other costs borne by the providers of health care for uninsured or underinsured
individuals, a substantial portion of which are uninsured workers. Employers who
are paying for health care coverage for their employees are thus subsidizing those
employers who are not paying for coverage.
Finally, proponents argue that employers who provide health benefits are also
subsidizing other employers by insuring many of the latter's workers through family
coverage. According to a CRS analysis (based on March 1987 CPS data), 23.6
million working Americans receive coverage through employers for whom they are not
directly working. Moreover, individuals who are not offered insurance by their
employers are paying some of the $37 billion in taxes that are used to subsidize
(through tax expenditures) health insurance for other, generally higher-paid workers.
The opponents of mandatory employer-provided health insurance counter by
arguing that employers have no inherent obligation to provide health benefits. They
assert that the individual has a responsibility to purchase insurance in the private
market. For those individuals who cannot afford to pay for health insurance, then
the public sector should provide a minimum level of health care. Moreover,
opponents argue that an employer's decision to provide insurance or to provide a
specific set of health benefits should not be dictated by the Government. Rather, it
is labor-management negotiations or free-market competition among insurers vying
for employers' business that should determine whether employers provide insurance
and if so what health services should be covered under the policy. Such reliance on
the marketplace will also ensure greater efficiencies in the supply and demand of
health coverage and services, thus helping to hold down costs.
There are also those who reject mandates because they would, in their view,
undermine the voluntary nature of employer-provided health insurance. They argue
that the majority of employers already provide coverage; it is a benefit that these
employers have privately chosen to provide in a form that is most appropriate to
their own employees. Some employers who already insure their employees argue
that a Federal law mandating that employers provide insurance (particularly if that
law were to require a basic minimum level of benefits) would result in higher
employee benefit costs and new administrative burdens.
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Critics of mandated employer-provided coverage also argue that such a policy
might increase the costs of labor to the point where companies, especially smaller
ones, would reduce their labor force or reduce wages. Health insurance is a relatively
expensive benefit. The Small Business Administration (SBA) reports average
employer health care costs totalled $1,500 (roughly 75 cents per hour) per worker in
1986. For the 35% of uninsured workers who are paid less than the minimum wage
($3.35 in 1987), the added hourly cost of a health insurance benefit could be
prohibitive, even if the employee were required to pay a share of the premium.
Although a mandated insurance package might be less comprehensive and therefore
less expensive than the average policy cited by the SBA, it could still produce
reductions in the employment of low wage workers as employers attempt to adjust
to higher labor costs.
Mandated Employer-Provided Insurance and Competitiveness
In addition to the debate about employer responsibility, there is a different set
of issues relating to the potential effects of mandating benefits on employers' ability
to compete in domestic and world markets. Much of the analyses of these effects is
speculative; however, the basic arguments tend to be articulated as follows.
Opponents of mandated employer-provided health coverage say that mandated
insurance would drive up the cost of doing business and reduce the ability of firms
to compete, both in the domestic and world markets. Industries that compete against
foreign manufacturers (especially those from certain Third World nations) are
competing against employers who do not as a rule provide health and other fringe
benefits. This helps foreign manufacturers to hold their prices down. Small
employers, especially, believe that mandating health insurance coverage might cause
them to lose whatever competitive edge they may have since they would have to
offset the cost of the new benefits by raising their prices. While many smaller firms
do not directly engage in international trade, some proportion of them are suppliers
to large companies that do compete internationally. Higher costs for a supplier affect
the costs of the purchasing firms: if health insurance coverage were required, small
employers might pass the cost of the coverage onto their clients. This reasoning is
also extended to domestic competition.
Proponents of mandated benefits dismiss the competitiveness argument as invalid
or not compelling. In their eyes, it is not a real issue because the companies that are
struggling to maintain their competitive edge (such as the auto manufacturers) are
the very companies that already provide health insurance. The majority of the
working uninsured are not found in the transportation and manufacturing industries
but in the service and retail trade industries, which are comparatively unaffected by
foreign competition. It is these latter industries that have experienced the most
growth since 1979: the services industry is projected by the Bureau of Labor
Statistics to increase from about 21% of total U.S. jobs in 1979 to over 26% in 1995;
the retail trade industry is projected to increase from 22% to 23% over the same
period. Manufacturing and transportation, which have traditionally covered most of
their workers, are predicted to decline. These statistics noted, mandated benefits
proponents conclude that there are more critical variables, such as exchange rates,
undermining American competitiveness than the cost to American firms of their
employee benefit packages.
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Small Employers and Mandated Employer-Provided Health Insurance
It is often assumed that smaller employers are less likely to offer health benefits
because of the high costs of premiums, administrative burdens and the perception
that workers prefer cash wages to benefits. Estimates place the costs of insurance
for small employers at anywhere from 10% to 40% higher than for large employers.
The SBA reports that very small firms that do not offer health benefits spend about
7% of payroll on fringe benefits. Those which do offer coverage spend 10%.
According to the SBA, in 1986, 46% of firms with fewer than 10 workers offered
health benefits, compared to 78% with 10 to 24 workers, 92% of firms with 25 to
99, 98% of firms with 100 to 499, and 100% of firms with 500 or more workers. 84%
of all workers who worked for employers without health plans worked in firms with
less than 25 employees.
Based on surveys and other studies, the SBA has concluded that smaller
employers tend not to offer health insurance because they (1) face higher per worker
premiums since the risk for insurers is spread over fewer persons; (2) do not benefit
to the same extent as larger firms from the tax advantages associated with offering
health insurance; (3) experience higher fixed costs in choosing and administering a
health plan; (4) have relatively higher worker turnover rates and a greater use of
part-time and seasonal employees which increase their administrative fees relative to
the fees charged for larger firms; and (5) tend to have narrower profit margins from
which to pay relatively higher premiums.
Associations representing small employers use such findings to argue that forcing
small employers to offer health insurance will result in higher prices, lower wages,
more business failures and fewer jobs. They contend that small firms simply cannot
spend more of their receipts on employee benefits.
Another argument used against mandated coverage for small employers is that
low-wage workers prefer to receive cash benefits or are already covered indirectly
through a family member's insurance policy, and should not be forced to accept
reduced earnings. However, an SBA survey of employers found that 14% of eligible
workers in small firms (less that 10 employees) which offer coverage turn it down,
compared to the 13% average across all firms.
Many proponents of mandated coverage agree that small employers might be
adversely affected if they were required to offer (as well as pay some portion of)
health insurance. They suggest, however, that potential problems for small employers
could be reduced through mechanisms designed to lower both the costs and the
administrative burdens of offering health insurance. These mechanisms are generally
designed to pool large numbers of small employers in one large group, enabling them
to obtain health insurance at lower costs. For example, the Council of Smaller
Enterprises (COSE) in Cleveland, Ohio, arranges with a number of insurance
companies group health insurance for about 8300 firms, which in turn provide
insurance to more than 120,000 employees. COSE is able to negotiate less expensive
policies than would otherwise be available to these employers if they sought the
insurance on their own.
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Such pooling mechanisms have been employed with mixed success. Observers
say that they are not as effective for the smallest employers, which are still subject
to medical underwriting. They also tend not to attract those employers who have
never offered coverage. In addition, their effectiveness in holding down premium
rates is limited by the volatility of the small group insurance market. However these
problems largely could be eliminated if employers were required to participate in the
pool.
Underinsurance and Catastrophic Coverage
Some analysts advocate that an appropriate compromise between the two
extremes of doing nothing and mandating that all employers offer health insurance
is to require that all employers offer coverage under a catastrophic illness policy.
These policies provide coverage for only very large medical expenses after the
beneficiary has paid a large deductible; the premium cost of such coverage is,
however, generally lower than for more comprehensive policies. A catastrophic illness
policy would ensure protection of individuals against the devastating financial
burdens of a major illness but would be less costly for employers to offer. On the
other hand, such an approach would not address the need of the medically uninsured
for basic health services.
History of Federal Employer Mandates
The Federal Government has traditionally left the regulation of insurance to the
states. According to Blue Cross and Blue Shield Association, there are over 680
State-mandated benefit laws governing health insurance. They include specific
services (e.g., maternity coverage and newborn care), the services of specific providers
(e.g., dentists and chiropractors), as well as requirements that plans provide for
continuation and conversion options. The States vary in the numbers and types of
mandates. Some observers in the business and insurance communities contend that
these mandated benefit laws are largely responsible for the high costs of health
insurance. Advocates of State mandates say that they increase access to needed
health services and encourage greater freedom of choice of providers, which in turn
promotes competition and lowers health care costs.
While the business of insurance has been left largely to the States to regulate,
employee welfare benefit plans are governed by the Employee Retirement Income
Security Act (ERISA), a Federal law enacted in 1974. (Hawaii is an exception.
ERISA was amended to allow Hawaii to continue its law requiring employers to
provide health insurance coverage.) Included under employee welfare benefit plans
are self-insured health plans, where the employer assumes the risk for paying claims,
instead of paying premiums to an insurance company which in turn assumes the risk.
Thus, while traditionally insured companies are affected by State mandates,
self-insured companies are regulated by ERISA. ERISA regulates such aspects of
welfare benefit plans as plan disclosure, but until recently, employers under ERISA
were relatively free to structure plans as they desired or, if their employees were
represented by a union, through the collective bargaining process. As discussed
below, this changed with the enactment of Title X of the Consolidated Omnibus
Budget Reconciliation Act (COBRA, P.L. 99-272).
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In the 1970s, changes were made in Federal law to mandate that employers
offering health insurance meet specific requirements. For example, the Health
Maintenance Organization Act of 1973 (P.L. 93-222) requires that certain employers
with 25 or more employees offer a health maintenance organization (HMO) option
in their health plan if a qualified HMO exists in their area. In 1978, Congress
amended the Civil Rights Act to extend the prohibition against sex discrimination in
employment to include discrimination on the basis of pregnancy, child birth, or
related medical conditions (P.L. 95-555). As a result, larger employer health plans
must treat women affected by these conditions similarly to other employees, based on
their ability or inability to work.
Federal proposals mandating employers to provide coverage date back to the
Nixon Administration. More recently, the Carter Administration developed legislation
to require employers to provide basic health insurance as an employee benefit. The
Carter proposal would have also expanded Federal programs to include those who
remain uncovered under employer plans. It was criticized by representatives of small
business who argued that requiring them to provide insurance would add significantly
to their labor costs and threaten their viability. It also fell victim to the absence of
consensus among other health policy actors.
Federal mandates on employers who provide health coverage have continued into
the 1980s. In addition, new efforts have been made to broaden the scope of the
mandates to those employers who do not already offer health insurance.
Title X of COBRA
The passage of Title X of the Consolidated Omnibus Budget Reconciliation Act
(COBRA) in April 1986, marked a major departure in Federal law and regulation of
employers' welfare benefit plans. It was the first time that the Federal Government
mandated a specific benefit in employee welfare benefit plans. While COBRA does
not mandate that employers provide health insurance, it does require that employers
with 20 or more employees who do provide health benefits offer qualified employees
and their families the option of continued health insurance at group rates when faced
with loss of their coverage because of certain qualifying events. The qualifying
events include termination or reduction in hours of employment, death, divorce,
eligibility for Medicare, or the end of a child's dependency under a parent's health
insurance policy. When a covered employee experiences termination or reduction of
hours of employment, then the coverage of the employee and any qualified
beneficiaries must continue for 18 months. For all the other qualifying events, the
coverage for the qualified beneficiaries must be continued for 36 months. The
employer's health plan may require the employee or beneficiary to pay the premium
for the continuation coverage, but the premium may not exceed 102% of the
otherwise applicable premium for that period. (See also CRS Issue Brief 87182,
Private Health Insurance Continuation Coverage, by Beth C. Fuchs.)
In the Tax Reform Act of 1986 (P.L. 99-514), Congress included a number of
technical corrections to Title X of COBRA. In the Omnibus Budget Reconciliation
Act of 1986 (P.L. 99-509), Title X was expanded to require continuation coverage for
retirees in cases where the employer files for bankruptcy. The Technical and
Miscellaneous Revenue Act of 1988 (P.L. 100-647) made major changes in the
penalties, and the Omnibus Budget Reconciliation Act of 1989 (P.L. 101-239) extended
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continuation of coverage from 18 to 29 months for certain disabled workers and their
families. (See CRS Issue Brief 87182.)
Medicare Working Aged and Working Disabled Secondary Payer
Requirements
A different type of employer mandate was legislated through changes in the
Medicare program and amendments to the Age Discrimination in Employment Act of
1967. Prior to 1982, employers generally used Medicare coverage as the basic health
insurance for their Medicare-eligible employees supplemented by an employer-provided
policy which filled in gaps in the Medicare coverage. This tended to ensure that
health care costs for their older workers were confined to supplemental as opposed
to basic health care coverage. In 1982, as part of the Tax Equity and Fiscal
Responsibility Act (TEFRA, P.L. 97-248), Congress adopted a proposal by the Reagan
Administration to require that private employers with 20 or more employees offer
their employees and their employees' spouses, age 65-69, their health insurance plan,
which would be the primary payer for all claims. This provision was adopted to
reduce Medicare expenditures by shifting the health care costs of older workers onto
employers. The "working aged" or "secondary payer" requirement was expanded
through subsequent laws. The Deficit Reduction Act of 1984 (DEFRA, P.L. 98-369)
expanded the spousal coverage to include all beneficiaries 65-69 with working spouses
under age 65. COBRA, (P.L. 99-272) made Medicare benefits secondary to those
payable under employer group plans for employed individuals age 65 or over, and the
spouses age 65 or older, of any employed individual regardless of age. OBRA of 1986
(P.L. 99-509) included a Reagan Administration proposal requiring employers with
100 employees or more to offer their disabled workers and their spouses the option
of coverage under their employers' health plan as the primary insurance policy.
Bowen Catastrophic Proposal
In November 1986, Otis Bowen, Secretary of Health and Human Services,
released a report to President Reagan on catastrophic illness expenses. This report
was in response to the President's directive in his Feb. 6, 1986, State of the Union
address that the Secretary report to him with recommendations on "how the private
sector and Government can work together to address the problems of affordable
insurance for those whose life savings would otherwise be threatened when
catastrophic illness strikes."
While the Bowen report discussed options to encourage employers to provide
catastrophic coverage, it recommended that States require that such coverage be
offered in all employment-related plans. It specified that employers should not be
required to finance such coverage, and also recommended the extension of full tax
deductions for health insurance to the self-employed and unincorporated businesses
(currently at 25%) as long as coverage is included for catastrophic expenses.
Although the Reagan Administration promoted Secretary Bowen's proposals for
restructuring Medicare to cover catastrophic illness expenses, it did not endorse the
recommendations in the Secretary's report for mandating catastrophic illness
insurance under employer-provided health benefit plans. Some of these options were
incorporated in legislation introduced in the 100th Congress, such as H.R. 2300
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(Gradison), which would have denied the tax deduction for employer-provided health
insurance to employers who failed to provide catastrophic coverage.
Types of Mandated Coverage Proposals
A variety of approaches to mandating coverage are incorporated in legislation
that has been introduced in recent years. While most are aimed at expanding access
to basic health insurance by mandating that employers provide health coverage,
others seek also to define the nature of the benefits to be offered. There are also
proposals that require employers to provide their existing benefit packages to
employees, laid-off employees, retirees and/or dependents who experience a change in
job or family status. Finally, other proposals require employers who already offer
insurance to offer specific benefits, such as well-baby care.
Defining the Application, Nature and Scope of Mandated Health Benefits
One of the controversies in providing for any Federal mandate is whether or not
it should apply to all employers, and if not, where the limits should be drawn. The
Medicare working aged and COBRA Title X provisions exempt employers with fewer
than 20 employees, although the Medicare working disabled provisions enacted in
OBRA of 1986 (P.L. 99-509) apply to only those employers with 100 or more
employees. Congress has been wary of applying mandates to smaller employers
largely because of concerns that they are not as easily absorbed by such firms and
could create economic hardships. Congress has also excluded the Federal Government
and religious organizations from certain provisions.
The debate over mandated benefits is influenced by concerns about the lack of
coverage as well as about concerns that working Americans are not adequately
protected against the costs of a catastrophic illness. Consequently, there are
proposals to require that employers provide basic hospital and medical insurance as
well as those that would mandate only catastrophic illness protection. A more
complex issue is whether the mandate should specify the nature of health benefits
to be offered by employers. Again, the proposals vary in their approach. Some, such
as the Kennedy-Waxman proposal in the 101st Congress (S. 786, H.R. 1845), require
a minimum level of benefits in the health insurance package. However, an actuarial
equivalency provision allows employers to offer different mixes of benefits and
employee cost-sharing requirements. Other bills have left the nature of the benefit
package unspecified. There have also been narrowly defined proposals that mandate
that employers who already provide health insurance include within their benefit
package specific services, such as coverage for pediatric preventive health care. (See
S. 968 and H.R. 1449, in the 100th Congress.)
Defining the Population to be Covered and the Duration of Coverage
Whichever approach is pursued, it is necessary to define the beneficiaries who
would receive the mandated health coverage. The employer's responsibility could be
limited to active full time employees, or expanded to include any or all of the
following: part-time employees, seasonal employees, retired employees, spouses,
widowed and/or divorced spouses, dependent family members, and employees who
CRS-11
IB87168
06-01-90
have terminated their employment, either voluntarily or involuntarily. Title X of
COBRA and its subsequent amendments provide an example of a broad definition of
beneficiaries.
In the same vein, some proposals are directed at ensuring that employers offer
health benefits beyond the point at which the employee (and his/her dependents) has
an immediate connection with the employer. In the past, Congress has considered
proposals to require that employers pay for the continued group coverage of laid-off
employees for a defined period of time. In this case, the benefit package may or may
not be defined. Such continuation of coverage mandates may extend to laid-off or
otherwise terminated employees, retirees of the firm and dependent spouses and
dependents of such employees.
Defining the Liability of Employers and Employees
The proposals to mandate employer-provided insurance also generally define the
limits of the employer's financial obligation to pay for those benefits. In Title X of
COBRA, Congress authorized employers to require the employee to pay for the
continued health coverage, plus a small fee to cover the employer's administrative
costs. In other proposals, the focus is to keep the employee's costs for coverage low
by requiring employers to pay a large portion of the premium. The
Kennedy-Waxman plan in the 101st Congress (S. 768, H.R. 1845), for example,
requires that the employer pay 80% of the employee's insurance premium (and 100%
for low-income employees) which in turn is deductible from the employer's taxes as
a cost of doing business. H.R. 2563, in the 101st Congress, prohibits employers from
reducing their premium shares for certain part-time workers.
LEGISLATION
H.R. 43 (Clay)
Requires that certain contracts between the U.S. and private contractors contain
provisions requiring the contractor to provide certain pension and health benefits to
its employees. Introduced Jan. 3, 1989; referred to Committee on Education and
Labor.
H.R. 1845 (Waxman)
Basic Health Benefits for All Americans Act. Amends the Public Health Service
Act, Fair Labor Standards Act, Title XIX of the Social Security Act, and Employee
Retirement Income Security Act to require that employers enroll employees in a
health plan that covers specified health services and provides protection against
catastrophic illness expenses. Also requires that State Medicaid programs provide
health benefits on a phased-in basis to people in poverty and near poverty, and to
all other individuals not covered by employer plans. Requirements for employer-based
plans similar to S. 768 (see below). Introduced Apr. 12, 1989; referred to Committees
on Education and Labor and on Energy and Commerce.
H.R. 2563 (Schroeder)
Part-time Temporary Workers Protection Act of 1989. Amends the Employee
Retirement Income Security Act to prohibit a reduction in employer-provided
premiums for employees solely because the employee works less than full-time with
CRS-12
IB87168
06-01-90
less than 30 hours per week, allows employer to reduce the premium contribution to
not less than a ratable portion of the premium ordinarily provided in the case of an
employee who completes 30 hours of service per week. Introduced June 6, 1989;
referred to Committee on Education and Labor.
H.R. 4070 (Grandy)
Universal Health Benefits Empowerment and partnership Act of 1990. Amends
ERISA, the Internal Revenue Code, and the Public Health Service Act to provide for
universal and more affordable coverage under group, State, or alternative health
benefit systems. Requires employers to offer coverage for eligible individuals under
basic group health plans or group health payroll deduction plans. Introduced Feb.
22, 1990; referred to Committees on Education and Labor, Ways and Means, and
Energy and Commerce.
S. 768 (Kennedy)
Basic Health Benefits for All Americans Act. Amends the Public Health Service
Act, the Fair Labor Standards Act, and ERISA to require that employers enroll
employees in a plan that covers specified health services and provides protection
against catastrophic illness expenses. Also requires that States establish programs
to provide health benefits on a phased-in basis to people in poverty and near poverty,
and to all other individuals not covered by employer plans. Failure of an employer
to provide insurance would result in eligibility loss for grants, contracts, loans or loan
guarantees under the Public Health Service Act or civil penalties under the Fair
Labor Standards Act. Provides that an individual may sue in Federal court for
injunctive relief. Under employer plans, limits the deductible to $250 per person
($500 per family) and copayments to 20% of the cost of any service (excluding certain
services for which copayments are prohibited and other services for which different
copayments are specified). Except part-time employees, limits the employee's share
of the premium to 20% of the cost of coverage, and requires the employer to cover
the full cost of at least one health plan for low wage workers. Provides that
employers may provide benefits that are equivalent on an actuarial basis to those
specified, and that new employers with 10 or fewer employees may provide a
"tailored" plan, i.e., a plan that has one-half the actuarial value of benefits of a health
benefit plan. Certain part-time employees may waive enrollment in the employer's
plan, but the employer must pay what he/she otherwise would have paid for the
employee's health plan to the State or Federal entity providing coverage to
non-working persons. Employers without a plan meeting the minimum benefit
standards are required to join regional insurance pools to be established by the
Secretary of Health and Human Services that provide health benefits at community
rates. Provides for a Federal subsidy for small businesses where compliance costs
exceed 5% of gross revenues. Provides for Federal and State financing of the State
programs, and specifies benefit package and cost-sharing. Introduced Apr. 12, 1989;
referred to Committee on Labor and Human Resources. Hearings held May 1 and
June 23, 1989. On July 12, 1989, the Committee voted to report an amended version
of S. 768 to the Senate.
CONGRESSIONAL HEARINGS, REPORTS, AND DOCUMENTS
U.S. Congress. House. Committee on Education and Labor. Subcommittee on
Labor-Management Relations. Access to health insurance. Hearing, 100th
CRS-13
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06-01-90
Congress, 2d session. June 9, 1988. Washington, U.S. Govt. Print. Off., 1988.
Serial no. 100-94.
The Growing Crisis in Health Care: The Basic Health Benefits for All Americans
Act (H.R. 1845) and other National Health Care Policy Options. Hearings, 101st
Congress, 1st session. Oct. 11 and 12, 1989. Washington. Washington, U.S.
Govt. Print. Off., 1990. Serial no. 101-64.
U.S. Congress. House. Committee on Energy and Commerce. Subcommittee on
Health. Minimum Health Benefits for All Workers Act of 1987 and related bills.
Hearing, 100th Congress, 2d session. Apr. 14-15, 1988. Washington, U.S. Govt.
Print. Off., 1988.
Serial no. 100-174
U.S. Congress. House. Committee on Small Business. The health insurance
problem. Hearings, 100th Congress, 1st session. May 6, June 16, 18, 1987.
Washington, U.S. Govt. Print. Off., 1987.
Serial no. 100-7
Health insurances pooling arrangements for small business. Hearing, 101st
Congress, 1st session., July 25, 1989. Washington, U.S. Govt. Print. Off., 1988.
Serial no. 101-18.
U.S. Congress. House. Committee on Ways and Means. Subcommittee on Health.
Insurance protection for catastrophic health expenses for individuals under age
65. Hearing, 100th Congress, 1st session. May 12, 1987. Washington, U.S.
Govt. Print. Off., 1988.
Serial no. 100-37
The Employee Health Benefits Improvement Act of 1988. Hearings, 100th
Congress, 2d session. Aug. 9 and Sept. 22, 1988. Washington, U.S. Govt. Print.
Off., 1989.
Serial no. 100-81
U.S. Congress. Senate. Committee on Finance. Hearing on the uninsured.
Hearing, 101st Congress, 1st session. July 19, 1989. Washington. Unpublished.
S.Hrg. 100-758, Part 2
U.S. Congress. Senate. Committee on Labor and Human Resources. Essential
health care: reviewing access to minimum essential health care. Hearing, 100th
Congress, 1st session. May 19, 1987. Washington, U.S. Govt. Print. Off., 1987.
S.Hrg. 100-267
Minimum Health Benefits for All Workers Act of 1987. Hearing, 100th Congress,
1st session. June 24, 1987, Nov. 4, 1987. Washington, U.S. Govt. Print. Off.,
1987.
S.Hrg. 100-376, Parts 1 and 2
Minimum Health Benefits for All Workers Act; report. May 25, 1988. (100th
Congress, 2d session. Senate. Report no. 100-360)
CRS-14
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06-01-90
Basic Health Benefits for All Americans. Hearings, 101st Congress, 1st session.
May 1, and June 23, 1989. Washington, U.S. Govt. Print. Off., 1989.
S.Hrg. 101-267
U.S. Congress. Senate. Committee on Small Business. To examine the cost and
availability of health care benefits for small businesses and proposals for
federally mandated health benefits. Hearing, 100th Congress, 1st session. Apr.
23, 1987. U.S. Govt. Print. Off., 1987.
S.Hrg. 100-144
FOR ADDITIONAL READING
Pepper Commission (U.S. Bipartisan Commission on Comprehensive Health Care),
Recommendations to the Congress. 101st Congress, 2d session. Washington,
U.S. Govt. Print. Off., Mar. 2, 1990.
U.S. Library of Congress. Congressional Research Service. Private health insurance
continuation coverage, by Beth C. Fuchs. [Washington]. (Updated regularly)
CRS Issue Brief 87182
Health insurance, by Janet Kline, Coordinator. [Washington]. (Updated
regularly.)
CRS Issue Brief 90005
Health insurance and the uninsured: background data and analysis. Prepared
for the Subcommittee on Labor - Management Relations and the Subcommittee
on Labor Standards of the House Committee on Education and Labor, and the
Subcommittee on Health and the Environment of the House Committee on
Energy and Commerce, and the Senate Special Committee on Aging, by the
Health Insurance Team. [Washington] May 1988.
CRS Report 88-537 EPW
Insuring the Uninsured: Options and Analysis, by the Health Insurance Team.
[Washington] Oct. 1988.
Education and Labor Serial no. 100-DD
Energy and Commerce Serial no. 100-BB
Special Committee on Aging Serial no. 100-O
Cost and Effects of Extending Health Insurance Coverage, by the Health
Insurance Team. [Washington] Oct. 1988.
Education and Labor Serial no. 100-EE
Energy and Commerce Serial no. 100-CC
Special Committee on Aging Serial no. 100-P
CRS-15
IP 389H AS
1
"Falling Through the Safety Net," Washington Post,
December 2, 1986, Health Section, pp. 12-16
Reinhardt of Princeton University, a health
far short of covering potential medical costs.
By John K. Iglehart
economist, discussed in an interview:
And AIDS victims, many without insurance,
Special to The Washington Post
"Newspapers headline their health cost sto-
will consume a substantial sum of the limited
ries [with] 'Physicians' Payments Cut,' leav-
resources of large public hospitals.
n a land of medical plenty, where the
ing the impression that American society has
-
government says there is a surplus of
New Medical Marketplace
drastically reduced the money flow to its
physicians and hospital beds, roughly 37
health-care providers, forcing them to reduce
It used to be that hospitals would cover the
million Americans lack the health insur-
commensurately the care they render.
cost of patients with little or no health insur-
ance necessary to get the sometimes
"Actually, there has been no such reduction
ance by increasing the bill to well-insured pa-
very costly care they need.
in the aggregate money flow. On the con-
tients and thereby shift the burden of charity
A certain percentage of Americans have
trary, that flow has increased apace since
care to those able to pay. But this Robin Hood
always coped without health insurance and
1980, whether one measures it in current
approach is falling victim to a new way of
have survived by relying on charity care, but
dollars, in constant-purchasing-power dollars,
looking at medical care.
now the number of uncovered people in the
or by the percentage of the gross national
The new vision, which the Reagan admin-
United States has increased approximately
product devoted to health care," he said.
istration and many private third-party payers
40 percent since 1980 and no resolution of
All this is setting the politics of health care
are pressing, is essentially to recast medical
this major social problem is in sight.
on a collision course. On one hand, the total
care as an economic product rather than a so-
In the new economic conditions of the
medical bill is still going up, although at a
cial good, to consider it as a commodity pur-
1980s, which are turning medicine, into a
slower rate than in the inflationary period of
chased like an automobile or a refrigerator,
competitive marketplace, there is no one cul-
the 1970s. On the other hand, more Amer-
rather than a service available to all in need.
prit behind the swelling ranks of the medical-
icans are finding themselves without access
The shift to a more competitive health sys-
ly indigent. Rather, a number of forces in the
to medical care because they can't pay for it.
tem, intended to strip away built-in subsidies
private and public spheres of health care are
The federal government may address a
for charity care, now makes the uninsured
redefining the limits of society's benevolence
portion of this problem next year when it con-
more vulnerable and often poses an ethical di-
toward the most vulnerable segments of the
siders whether to extend Medicare benefits
lemma for hospitals and physicians as well.
population.
On philosophical and practical grounds, ar-
At the top of the list is the Reagan admin-
guments favoring the redefinition of medical
istration's determined effort to slow the
growth of federal spending on medical care
A federal problem?
care as a product make some sense, as the
proliferation of health maintenance organi-
educe the scope of the government's so-
A state problem?
zations and other competitve health programs
genda. Indigent care, Dr. William L.
An individual problem?
attest. But according to congressional and in-
Reper, administrator of the Health Care Fi-
dustry experts, the growing problem of indi-
nancing Administration, said recently in an in-
As policymakers
gent care threatens to become the Achilles'
terview, "is strictly a state problem." For one
heel of the new medical marketplace. To
thing, Roper declared in his conversation
with State Health Notes, "the federal govern-
debate those
make competition in health care work, they
say, government must factor into its thinking
ment is broke, far more so than the states in
questions, more
the reality that a significant segment of the
the aggregate."
For their- part, state governments have
Americans are finding
population is unwanted in any price-sensitive
system, unless their care is somehow subsi-
tightened. sharply the criteria for being eli-
themselves without
dized.
gible for Medicaid, the major program that fi-
There is a strong consensus on that care of
nances care for the poor. As a consequence,
access to medical
indigent patients is becoming a crisis. Sup-
fewer than half of the people whose incomes
fall below the official poverty line ($8,800 an-
porters of the Reagan administration's deter-
care.
mined bid to transform the delivery of Amer-
nual income for a family of three in 1986)
meet the program's arbitrary and often con-
They're falling through
ican medical care through market principles
find themselves in agreement with those who
fusing eligibility standards.
These tight-fisted policies also extend to
the cracks.
would prefer to rely on regulatory policies
the private sector. Commercial health in-
legislated by Congress and state govern-
ments.
surors are less willing to subsidize the cost of
charity hospital care. And employers, worried
to include protection against illnesses of a
"As we create a price-sensitive health care
catastrophic nature. But this would affect
marketplace, accommodations must also be
about rising labor costs and increased com-
petition in international markets, are less
only the elderly, who already enjoy relatively
made," Sen. Dave Durenberger (R-Minn.),
broad health-care benefits under Medicare.
one of the congressional champions of this ap-
willing to support charity care through higher
At the same time, two recent develop-
proach, said at the opening of a 1984 hearing
premiums on their own workers.
on medical care for the disadvantaged.
Health-care providers themselves-the na-
ments are likely to exacerbate the problem of
"These accommodations are necessary on
tion's 5,800 private hospitals and 520,000
the uninsured: enactment of an immigration
moral as well as on economic grounds to as-
practicing physicians-are also adding to the
bill that grants amnesty to some of the na-
tion's estimated 3 to 6 million illegal resi-
sure access to quality services for all who
oblem. While the total cost of care contin-
dents, and the emergence of AIDS as a major
need health care."
to mount at a rate well in excess of the
umer price index, the public perception is
public health crisis. State and local govern-
Michael D. Bromberg, executive director
of the Federation of American Health Sys-
that doctors and hospitals are getting finan-
ments are worried that Congress' plan to pay
cially squeezed and that's why they can't pro-
some $4 billion over four years to provide
tems, expressed a similar notion in an inter-
vide as much charity care. As Prof. Uwe E.
services for newly legal immigrants will fall
Sce INDICENT. Page 14
© 1986 The Washington Post Company. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
2
INDIGENT, From Page 12
sector initiative, is needed to address the is-
pital for emergency surgery. Now, in addi-
sue.
tion to having no health insurance,
view. The federation includes the for-profit
"Given the vast differences in the philo-
no income until he returns to work
hospital companies in the vanguard of
sophical outlooks of these organizations, we
way to pay his hospital bills.
health interests pressing market ap-
were frankly surprised at the unanimity of
A pregnant. unmarried teen-ager does
proaches.
their views on both the seriousness of the
not seek prenatal care because she cannot
"Without closer government attention to
problem and the appropriate strategies for
the growing problem of the uninsured—
afford it on her part-time salary. She deliv-
seeking solutions," said health economist
through action, not more talk-the encour-
ers a premature, low-birth weight baby who
Gail R. Wilensky, who is vice president of
aging progress health care providers have
spends the first several weeks of life in a
Project HOPE.
made to become more efficient through
high-cost neonatal intensive care unit. gen-
market approaches stands seriously threat-
Who Is Medically Indigent?
erating thousands of dollars of unpaid bills.
ened," said Bromberg. "The administration
A Central American couple, both of
simply refuses to accept that political real-
All of the philosophical discussions about
whom are illegal aliens, avoid having their
ity."
the delivery of health care through market or
infant son immunized because they fear be-
Bromberg's organization, along with a di-
regulatory means is largely irrelevant for
ing asked for identification at the free public
verse range of other private sector groups,
people who lack adequate health insurance
clinic and cannot pay for private care. The
including the AFL-CIO, American Medical
and are hurting. Consider, for example, the
boy contracts whooping cough and is hos-
Association, the Catholic Health Associa-
cases of three individuals whose experiences
pitalized in serious condition.
tion, the U.S. Chamber of Commerce and
were cited in a "Study of Hospital Care for the
As these examples illustrate, the indigent
the Business Roundtable, have discussed
Medically Indigent" prepared by the District
health care problem strikes a heteroge-
the issue of indigent care several times over
of Columbia Hospital Association.
neous population of Americans, including
the last year. Convened under the aegis of
A self-employed carpenter without health
young people, working people, poor people,
Project HOPE, a private health policy and
insurance avoids seeing a physician about
the homeless. illegal aliens and many other
education foundation in Virginia, the groups
continuing abdominal pain in an effort to
ordinary citizens who find themselves in cir-
have agreed that additional federal and
save money for some needed new clothing
cumstances that make them economically
state government action, as well as private
for his family. Finally, he is rushed to a hos-
vulnerable to the threat of serious illness.
THE UNINSURED: BY AGE
Distribution of the Uninsured Population
55-64
Under 18
2.9 million
11.6 million
(8.3%)
(33%)
45-54
2.7 million
(7.7%)
35-44
18-24
3.4 million
8.3 million
(9.7%)
(23.6%)
24-34
6.2 million
(17.7%)
Percentages are of the entire
uninsured and underinsured
population.
CHART BY LEW AZZINARO FOR THE WASHINGTON POST
3
"Although it seems impossible in this day
icans-are insured through their places of
Last May, Durenberger, Gradison, Heinz,
of the artificial heart and organ transplants,
work. (Another 12.3 percent purchase their
Kennedy, Stark and Waxman introduced
37 million Americans are without the insur-
own private insurance. Only 12.8 percent of
legislation in the House and Senate that
ance coverage necessary to pay for a bro-
the population have public coverage from
would extend even more assistance to un-
ken arm. an appendicitis. or the birth of a
Medicaid. Medicare or Champus, the mil-
insured and other groups with high medical
baby," Durenberger said last June at a hear-
itary health program.)
risks.
ing before the Senate Governmental Affairs
Several times over the past decade, Con-
Subcommittee on Intergovernmental Re-
The legislation would require states to
gress has seriously considered legislation
lations, which he chairs. "Thirty-seven mil-
establish pools of comprehensive insurance
that would extend health insurance benefits
lion people represents a population nine
for all residents, regardless of their health
to the unemployed. The last time was dur-
times the size of my home state of Minne-
ing the economic recession of the early
sota. It is more people than live in the
status. Nine states-Connecticut, Florida,
1980s. But each time, the measures have
States of New York and California com-
Indiana, Minnesota, Montana, Nebraska,
failed.
bined."
North Dakota, Rhode Island and Wiscon-
According to a recent study by the Urban
Currently, only a relative handful of leg-
sin-already offer similar pools to their res-
Institute, a key and somewhat surprising
islators have demonstrated an ongoing in-
idents.
characteristic of the nation's uninsured is
terest in addressing the broader issue of in-
This legislation would also finance hos-
that two thirds of the adults-some 15.1
digent care: principally Durenberger and
pital care for the uninsured, provide incen-
million people-are in the labor force. More
fellow Republicans Sen. John Heinz of Penn-
tives for small businesses to offer health in-
than half of the uninsured adults are em-
sylvania and Rep. Bill Gradison of Ohio and
surance to their employes, and require em-
ployed and some 12 percent are temporar-
Democrats Sen. Edward M. Kennedy of
ployers to continue paying health premiums
ily without a job and are considered part of
Massachusetts and Reps. Fortney H. (Pete)
for laid-off workers for four months.
the work force.
Stark and Henry A. Waxman of California.
In 1983, a report of the President's Com-
Researchers Margaret B. Sulvetta and
While they have raised the level of public
mission for the Study of Ethical Problems in
Katherine Swartz, who prepared the study
concern, they have so far failed to budge
Medicine and Biomedical and Behavioral
for a National Health Policy Forum at
See INDIGENT. Page 16
Research, appointed under President Car-
ter, concluded that society has an ethical
INDIGENT, From Page 15
obligation to ensure equitable access to
Feorge Washington University, based their
estimates of the uninsured population large-
the Reagan administration and its refusal to
medical care for all. Since then, this view
ly on data from the Census Bureau's Cur-
discuss the matter seriously.
has been increasingly embraced by both the
rent Population Reports and the Current
But Congress, well intentioned if not well
conservative and liberal wings of the med-
Population Survey.
ical and political communities.
organized, has begun to recognize the need
Sulvetta and Swartz estimated that the
to restrain some types of economically mo-
Although the combination of private and
remainder of of uninsured adults are either
tivated behavior, produced by competitive
public health insurance offers protection
unemployed (2.8 million). unable to work
health care markets.
against the financial consequences of illness
(2.1 million). attending school (1.7 million)
for most Americans, these efforts fall con-
A new federal law, for example, which
or are women with children at home (3.6
siderably short of providing universal ac-
took effect in 1984, now requires states to
million).
cess to health care for all Americans.
expand their Medicaid programs to include
The risk of being uninsured is greatest
The Reagan administration clearly favors
for people whose family incomes are below
pregnant women and children under the age
less government action and lower taxes
the poverty line. Young adults and children
of 5 in families that meet the eligibility cri-
teria of public assistance.
rather than a more interventionist strategy
make up the the most vulnerable age
that would seek to deal with social problems
groups. And the risk of being medically in-
The Consolidated Omnibus Budget Rec-
through expanded or redistributed public
digent is higher for blacks and other minor-
onciliation Act (COBRA) of 1985 prohibits
support. The issue of how to provide care to
ities than for whites.
hospitals from refusing emergency treat-
some 37 million uninsured people lies at the
ment to persons without health insurance, a
The Politics of Indigent Care
heart of the matter.
response to the problem of private hospi-
A predictable cycle has developed in Con-
tals' "dumping" uninsured patients on public
John K. Iglehart is national correspondent
gress on the issue of the medically unin-
hospitals.
for The New England Journal of Medicine
sured. The highest degree of interest in leg-
COBRA also mandates that employers
and editor of the quarterly journal Health
islating a solution comes during periods of
permit laid-off workers and their divorced
Affairs, published by Project HOPE.
rising unemployment. That's because most
spouses, widows and dependent children to
people-more than 65 percent of all Amer-
retain group health insurance coverage for
four months if the person covered pays the
full premium. (The problem, however, for
many in this situation is that they can't af-
ford the premium.)
4
THE UNINSURED: BY REGION
Percentage of Each Area's Population That Lacks Adequate Health Insurance
EAST NORTH
CENTRAL
MIDDLE
PACIFIC
(Including
12%
ATLANTIC
MOUNTAIN
12.5%
Alaska and
Hawaii) 17%
19.2%
NEW ENGLAND
10.5%
WEST NORTH CENTRAL
SOUTH
13%
ATLANTIC
EAST SOUTH
16.7%
CENTRAL
16.7%
WEST SOUTH
CENTRAL
20.2%
Overall, about 17 percent
of Americans, roughly 37 million,
lack adequate health insurance.
LiAN or LEW AZZINARO
The Canadian Solution:
Guaranteed Care, Less Flexibility
"There is absolutely no way you can
Unlike the United States, Canada has
In 1971, Canada and the United
tell a patient's economic standing when
made it a health policy priority to
States spent almost the same
he is a patient in a Canadian hospital,"
guarantee its population of 25.5 million
percentage of their respective gross
Stoughton said. The only economically
universal access to care.
national products (GNPs) on health
related question patients are asked on
Canada has accomplished this by
care-a little more than 7 percent.
admission is whether they have
granting its federal and provincial
Fifteen years later, in 1985, Canada
supplemental private insurance that
governments extensive powers to
devoted $38.5 million (Canadian
would entitle them to a semiprivate or
constrain medical costs so that
dollars), or 8.6 percent of its GNP, to
private room.
universal access to care does not
health care, while the United States
Yet there is a price that Canada pays
generate expenditures that would be
spent $425 billion, or 10.6 percent of
for delegating so much authority to
considered exorbitant by public officials
provincial governments to administer
and the electorate.
its much larger GNP, for the same
its health plans. Decision-making is
As Vickery Stoughton, an American
purpose.
more bureaucratic and inflexible.
who is president of Toronto General
At the same time, there is a
What's more, innovation with new ways
Hospital, said in an interview:
remarkable egalitarian quality about
of providing health care is far less
"Canadians are simply more
Canadian health care compared with
prevalent than in the United States.
that in the United States. There are no
comfortable than are Americans with
For example, health maintenance
hospitals, for example, that serve a
granting government a central role in
organizations, which have proliferated
primarily poor clientele, even in
the financing of medical care. While
in the United States as an effective way
Toronto, the nation's largest urban
virtually all of Canada's physicians are
to constrain health spending while still
center.
private practitioners, they provide
providing comprehensive care, are
services under a payment schedule
virtually unknown in Canada, with the
negotiated with the provincial
exception of a few plans in Ontario.
- John K. Iglehart
governments."
IP 389H AS
Los Angeles Times, July 21, 1987, part II, P. 4
Worth Doing
Sen. Edward M. Kennedy's legislation mandat-
growing number of Americans, now 37 million,
ing health insurance for all working Americans
find themselves without any form of health insur-
has picked up some significant support from
ance, even though most of them have jobs. Their
American business in initial hearings in Washing-
illnesses go untreated until they are so critical that
ton. That is a welcome balance to the stubborn
the people enter hospitals through emergency
opposition from the U.S. Chamber of Commerce to
rooms and, faced with staggering costs, leave with
any federal mandate.
unpaid bills-bills that ultimately must be funded
Francis R. Carroll, president of the Small Busi-
by overcharging other patients or collecting public
ness Service Bureau representing more than
and private money.
35,000 small businesses, emphasized in his testi-
Under the Kennedy proposal, all employers
mony that "this bill is an important step toward
would be required to provide minimum health
making health insurance affordable for small
insurance. The insurance would be made available
business owners and their employees." And he
to small businesses at prices competitive with the
underscored three critical elements that critics
lower costs that are now paid for large groups
sometimes ignore: "It is not bureaucratic. It is not
through the creation of competing regional insur-
a mandate for socialized medicine. Instead, it
ance pools.
builds on the strength of America's private-sector
Opponents of the measure argue that it, like an
health-insurance system."
increase of the minimum wage, would result in
Among the other advocates were spokesmen for
business failures and overall reduced employment.
two major corporations, American Airlines and
Karen Davis, chairman of the Department of
Chrysler, both deeply concerned about the dis-
Health Policy and Management at the Johns Hop-
advantages imposed on their companies by the
kins School of Hygiene and Public Health, argued
present system through which the companies that
that the advantages would outweigh the dis-
provide health insurance also indirectly subsidize
advantages. "There is some evidence that suggests
the health care of workers of enterprises that pro-
a 10% increase in labor costs might result in a
vide no protection.
1% decline in employment," she testified. But she
Robert L. Crandall, chairman and president of
argued that the plan outlined by Kennedy would
American Airlines, said that his airline had been
not be "excessively burdensome" and would be
placed in a difficult competitive situation since
concentrated on a sector of the labor force where
Coritinental Airlines used the bankruptcy law to
job loss is less likely because it is shrinking. Fur-
abrogate its labor contracts and subsequently
thermore, arguments that these reforms would
"reduced or eliminated most employee benefits,
affect the international competitiveness of Amer-
including company-paid health benefits." He said
ican companies are exaggerated, because most of
that "as a result of the reorganization Continental's
the companies that would be affected are in the
wage and benefit costs are now about half those
service sector-not engaged in exports.
of many other airlines."
As Kennedy has pointed out, the majority of
Walter B. Maher, director of employee benefits
businesses-including small enterprises-already
at Chrysler, insisted that "companies like Chrysler,
provide health insurance equal to or better than
which have already assumed a significant financial
the basic protection that would be mandated by the
responsibility to provide health coverage, thereby
legislation. Essentially, he added, the legislation
alleviating pressures on public systems, should not
"simply extends the current American system of
be allowed to be a dumping ground for other com-
employment-based health insurance to millions
panies' health bills."
of families that are now unfairly excluded." That
Dumping is precisely what is happening as a
is something worth doing.
1987 Los Angeles Times. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
THE WALL STREET JOURNAL FRIDAY, AUGUST 14, 1987
P.
14
Insuring All Employees Could Kill the Company
By ANTHONY GAJDA
cally paying minimum or low wages. At
panies to replace labor with technology.
First, hospitals, unlike physicians. are
The minimum health insurance legisla-
the minimum wage, an employee working
The result? Job losses.
not mobile and cannot follow population
tion that the Senate Labor and Human Re-
35 hours a week earns $6,097 a year. An
It will not matter that some employees,
movements. In many areas of the country.
sources Committee is now considering
employee working half-time, or 17½ hours
such as teen-agers covered by their par-
populations have shifted away from neigh-
would cover the estimated 25 million
a week, earns $3,048.50. At the minimum
ents' health insurance or adults covered by
borhoods and communities in which hospi-
workers and dependents currently without
wage, the annual cost of $1,186 for the min-
their spouses', do not want the minimum
tals are situated. While the Kennedy pro-
health insurance, people greatly in need of
imum health insurance plan will be equal
health insurance. They will be covered.
posal might fill beds in hospitals in older
some sort of help. But the price of this leg.
to 19% of payroll for full-timers and 39% of
It will not matter that some employees
neighborhoods and communities, it would
islation would likely be business shutdowns
payroll for those who work half-time.
making over $4.19 an hour will not want to
probably exacerbate demand and raise
and layoffs that would throw many people
In light of these costs, it is difficult to
pay the typical $20 a month for their share
costs in newer areas already short of hos.
out of their jobs. In attempting to solve the
accept that the proposed legislation cre-
of health-insurance costs. They will have to
pital beds.
problem of how to relieve the pain and suf-
ates a program that, acçording to Sen.
pay it.
Second, the hospital industry has been
fering of millions of people not covered by
Kennedy, "small business cannot only live
Of course, all this presupposes that the
scaling down operations to accommodate
health insurance, the legislation would
the reduced demand resulting from cost.
cause unacceptable pain and suffering of
containment efforts in both the public and
its own.
At the minimum wage, the annual cost of $1,186 for
private sectors. The increased demand
The Minimum Health Benefits for All
from those obtaining the minimum benefits
Workers Act of 1987, sponsored by Sen. Ed-
the health insurance plan will be equal to 19% of payroll
will require the industry to begin to bid
ward Kennedy (D., Mass.), would require
for full-timers and 39% for those who work half-time.
up wage rates in order to attract nurses
employers to provide employees who work
and other health workers to hospitals.
17½ or more hours a week and their depen-
with-it can prosper under." Some large
employers and employees are totally corn-
Third, hospitals. have reorganized in or.
dents with insurance for hospital, medical,
employers also will find it difficult to ab-
mitted to complying with the law as it is
der to market outpatient services. such as
surgical, maternity and well-baby care on
sorb the cost of the legislation. An esti-
enacted. Some small employers may join
outpatient surgery and home health care.
both an in-patient and outpatient basis.
mated 4.3 million uninsured workers are in
the underground economy by paying
the prices of which are not regulated by
Employers would have to pay 80% to 100%
companies with 1,000 or more employees.
workers cash to avoid offering the Insur-
state or federal agencies. Revenue from
of the costs. By the most optimistic esti-
Companies-large and small-that now
ance. If so, tax revenue will be lost.
these outpåtient services is then used to
mate, the cost of this minimum level of
do not provide health insurance for their
It is quite possible that large firms that
subsidize losses from inpatient services.
health insurance would average $1,186 per
employees are likely to react in a number
have been providing health insurance to
the prices of which are frequently regu-
employee per year, or a first-year total
of ways If the legislation is enacted:
their employees and retirees will see
lated. It is likely that hospitals will opti-
cost of more than $25 billion.
Some marginally profitable or even
smaller increases in the cost of their
mize the mix of regulated and unregulated
Act of Faith
unprofitable concerns will view the cost of
health insurance. But that is likely to be a
services to maximize revenue and that the
Some large employers. including Amer-
minimum health insurance as the last
short-term effect. In the longer term, the
increased general demand for unregulated
ican Airlines and Chrysler, support the leg-
straw and will close. Others will provide
injection of $25 billion or more a year into
services will boost prices.
islation, arguing that companies and gov.
the Insurance, become unprofitable and
the health-care system probably will in-
Economic Impact
Dow Jones & Company, Inc. Reproduced by the Library of Congress,
ernments now providing health insurance
close. In both instances. there will be a
crease the price we pay for health care.
are indirectly paying the health-care bills
loss of jobs.
The minimum health insurance man-
Congress should carefully study the eco-
Congressional Research Service with permission of copyright claimant.
of employees who do not have health insur-
Some companies will replace part-
date may set off an era of steep increases
nomic impact of the Kennedy legislation.
ance. If hospitals and doctors cannot col-
timers with full-timers. While this response
like the one we saw after the implementa-
Health care now accounts for 10.9% of
lect their fees from patients who are unin-
may minimize the employer's Insurance
tion of Medicare and Medicaid. And those
gross national product: The proposed legis-
sured, they simply raise the fees that they
costs, his total cost of doing business could
increases may dwarf any savings that
lation would ralse it to 11.4% of GNP. Con-
charge to patients with insurance. While
increase. Companies that now provide
large firms may gain initially from no
gress should say what the actual cost of
this argument seems reasonable, it takes
health insurance to their full-time em-
longer having to subsidize the cost of
the Kennedy legislation, as well as cata-
an act of extraordinary faith to expect that
ployees but not to their part-time em-
health care for the uninsured.
strophic care, Medicare and other pending
hospitals and doctors are going to reduce
ployees may simply change work sched-
Some will say these fears are un-
health-care legislation would be in terms of
© 1987
their fees If uninsured patients suddenly
ules SO that part-time employees work less
founded. that the oversupply of health-care
increased health-care prices, job losses
become insured.
than 17 1/2 hours a week. Again, in both
providers is sufficient to absorb the addi-
and other dislocations in the economy.
Other supporters argue that small busi-
cases the result will be that some part.
tional demand. That probably would be
Businesses that are paying for this legisla-
ness, by not providing its employees with
timers will lose their jobs-or at least
true If unemployment among physicians
tion and workers whose jobs may be at.
health insurance, is failing to pay its fair
some of their wages.
were 10% or 15%. But when was the last
fected by it deserve to know how much
share of health-care costs. The implication
Other employers will simply reduce
time someone tried to make an appoint-
this approach to providing needed health
is that this problem can be solved by the
their workforce to the point at which the
ment with a doctor and was told to "come
insurance will really cost.
minimum health Insurance bill. Unfortu-
additional cost of mandated health Insur-
right over, we're kind of slow today"?
nately, the dynamics are much more com-
ance is offset by reductions in payrolls.
While a case can be made that there
Mr. Gajda is a principal of William M.
plicated than that.
Again. the result will be job losses.
are enough empty hospital beds to absorb
Mercer-Meidinger-Hansen Inc., a leading
Small businesses are frequently in the
The higher labor costs associated
the additional demand. there are three rea-
employee benefit and compensation con-
retail trade and services industries, typi-
with the legislation will cause some com-
sons that prices are likely to go up.
sulling firm.
89-682 L
CRS Report for Congress
Access to Health Care:
Selected References, 1988-1989
Charles P. Dove
Bibliographic Specialist, Education and Public Welfare
Library Services Division
December 1989
CRS
Congressional Research Service
The Library of Congress
The Congressional Research Service works exclusively for the Congress, conducting re-
search, analyzing legislation, and providing information at the request of committees,
Members, and their staffs.
The Service makes such research available, without partisan bias, in many forms includ-
ing studies, reports, compilations, digests, and background briefings. Upon request,
CRS assists committees in analyzing legislative proposals and issues, and in assessing the
possible effects of these proposals and their alternatives. The Service's senior specialists
and subject analysts are also available for personal consultations in their respective fields
of expertise.
ACCESS TO HEALTH CARE:
SELECTED REFERENCES, 1988-1989
SUMMARY
This bibliography contains references from the Public Policy Literature
Data Base of the Library of Congress. The focus of the selected references is
on the accessibility of all Americans to adequate medical care regardless of the
individual ability to pay. The groups that require improved access include the
homeless, the aged, children, and minorities. In addressing the issue of access
the material included in this bibliography discuss private health insurance,
national health insurance, patient dumping, indigent care, and closing of
hospitals.
ACCESS TO HEALTH CARE:
SELECTED REFERENCES, 1988-1989
Access to medical care for Black and white Americans. JAMA [Journal of
the American Medical Association], V. 261, Jan. 13, 1989: 278-281.
LRS89-2506
"A 1986 national survey of use of health services shows a
significant deficit in access to health care among black compared with
white Americans. This gap was experienced by all income levels of
black Americans. In addition, the study points to significant underuse
by blacks of needed medical care."
Battistella, Roger M. Weil, Thomas P.
National health insurance reconsidered: dilemmas and opportunities.
Hospital & health services administration, V. 34, summer 1989:
139-165.
LRS89-3500
"The authors conclude that government intervention in the health
sector is bound to expand rather than contract because centralization
is the key to reconciling otherwise divergent political demands for
spending controls and greater equality of access to quality care for the
increasing number of uninsured or underinsured persons."
Bishirjian, Terry.
Rural health care in the 1990s: decade of decision and change.
Appalachia, V. 22, spring 1989: 31-37.
LRS89-5321
Addresses the challenges facing Appalachian health care in the
near future: costs, competitiveness, accessibility, affordable insurance,
skilled medical professionals, geographical barriers.
Cancer and the poor: a report to the nation; findings of regional hearings
conducted by American Cancer Society. Atlanta, American Cancer
Society [1989] 33, 52 p.
LRS89-6564
Reports findings from May-June 1989 hearings in Georgia,
Mississippi, New Jersey, Missouri, Texas, California, and Arizona in
which people from 47 States and territories testified about high
mortality rates and access to health care for poor persons who develop
cancer.
CRS-2
Cleeton, David L.
The medical uninsured. Public finance quarterly, V. 17, Jan. 1989:
55-83.
LRS89-743
Argues "that the present design of public asistance programs
creates a market failure by ruling out limited ceiling coverage for
individuals who consider public assistance programs to provide at least
partial coverage against losses. This is particularly relevant to the
state Medicaid needy programs and their spend-down provisions."
Cost and effects of extending health insurance coverage. Washington,
G.P.O., 1989. 176 p.
LRS89-3043
At head of title: Committee print.
"Education and Labor serial no. 100-EE; Energy and Commerce
serial no. 100-CC; Special Committee on Aging serial no. 100-P"
"Prepared for the Subcommittee on Labor-Management Relations
and the Subcommittee on Labor Standards of the Committee on
Education and Labor and the Subcommittee on Health and the
Environment of the Committee on Energy and Commerce, House of
Representatives and the Special Committee on Aging, United States
Senate by the Congressional Research Service, Library of Congress."
Crisis in the U.S. Health Care System: how should government and
industry respond? Washington, MAPI, 1989. 31 p. (MAPI policy
review PR-108)
LRS89-6548
"Examines the current U.S. system of health care delivery and its
problems. The mandated benefit proposal, as contained in S. 768, is
then reviewed, and finally, alternative approaches to improving access
to health care without further escalation of costs are discussed."
Davis, James E.
National initiatives for care of the medically needy. JAMA [Journal of
the American Medical Association], V. 259, June 3, 1988: 3171-3173.
LRS88-4839
"The provision of medical care to the underserved, the
underprivileged, and the financially needy is a compelling concern of
medicine, perhaps the most perplexing problem that confronts the
medical profession today."
Duncan, R. Paul.
Inpatient transfers and uncompensated care. Hospital and health
services administration, V. 33, summer 1988: 237-248.
LRS88-5073
Differentiates between "the concepts of patient transfer and
dumping and presents an empirical examination of a sample of
inpatient transfers including descriptions of patient, hospital, episode,
and compensation characteristics."
CRS-3
Enfield, Lisa M.
Patient dumping in the hospital emergency department: renewed
interest in an old problem. American journal of law & medicine, V. 13,
no. 4, 1988: 561-595.
LRS88-14978
"We conclude that the currently proposed solutions to patient
dumping will have limited effectiveness without more specific
incentives for the provision of health care to the medically indigent."
Estes, Carroll L.
Aging, health, and social policy: crisis and crossroads. Journal of aging
& social policy, V. 1, 1989: 17-32.
LRS89-7783
"In the 1980s, significant and growing problems of uninsurance
and underinsurance for health care have re-emerged. Simultaneously,
state Medicaid programs are characterized by their increasing variation
and inequities, while there has been a decline in access for the poor.
The future of aging policy will be decided in the context of four
socio-demographic realities: (1) population aging (2) trends in mortality
and morbidity (3) the relationship between income and health, and (4)
aging as a woman's issue."
Friedman, Emily.
Are risk pools being oversold as a solution? Hospitals, V. 62, Nov. 5,
1988: 100-104.
LRS88-10248
Charts characteristics of current State health insurance risk pools.
Assesses finance and feasibility of State plans to provide health
insurance coverage to those unable to get access to other health
insurance. Includes a report on public opinion of hospital responsi-
bility for the care of the uninsured by Jane Edgar of the Arthur D.
Little, inc.
Ginzberg, Eli.
Medical care for the poor: no magic bullets. JAMA [Journal of the
American Medical Association], V. 259, June 10, 1988: 3309-3311.
LRS88-5163
"The thrust of my analysis has been to highlight the inherent
limitations in a nonegalitarian society of continental proportions to
establishing a single acceptable level of care for all its population and
the inability to achieve this goal by passing more laws and
appropriating more money, although some new laws and more money
are definitely needed."
CRS-4
Goodman, John C. Robbins, Gary. Robbins, Aldona.
Mandating health insurance. Dallas, National Center for Policy
Analysis, 1989. 21, 14 p.
LRS89-1542
Argues against proposals for mandated health insurance and
concludes that "it would be far less expensive to subsidize unpaid
hospital bills from public funds. And close inspection of the market
for health insurance reveals that existing government regulation is a
major cause of the rising number of people without health insurance.
Before enacting new regulations, we should first repeal old ones and
give market forces a chance to work."
Haislmaier, Edmund F.
The health care quagmire. Consumers' research, V. 72, Sept. 1989:
10-16.
LRS89-7745
"There is a growing concern in America that the nation's health
care system needs intensive care. The most obvious problems are the
rapid escalation in the cost of medical care and, in part as a result of
such high costs, the fact that many Americans effectively are denied
access to necessary medical treatment."
Minimum Health Benefits Act: mandating new problems. Washington,
Heritage Foundation, 1988. 15 p. (Issue bulletin no. 136)
LRS88-3154
"There is a real danger, however, that this [minimum health
benefits] legislation would do more harm than good. While these
proposals might help some workers and employers, they still would
leave many Americans unprotected and, at the same time, would
destroy jobs and drive health care spending and costs even higher, to
the detriment of all Americans and the U.S. economy."
Hansen, Karen.
A painful prescription. State legislatures, V. 14, Nov.-Dec. 1988: 20-21.
LRS88-12431
"In this country, good medical care is available for the rich and
the middle class. For the poor and near poor it is being rationed, by
design or by default."
CRS-5
Health insurance and the uninsured: background data and analysis.
Washington, G.P.O., 1988. 172 p.
LRS88-14353
At head of title: Committee print.
"Education and Labor serial no. 100-Z; Energy and Commerce
serial no. 100-X; Special Committee on Aging serial no. 100-1"
"Prepared for the Subcommittee on Labor-Management Relations
and the Subcommittee on Labor Standards of the Committee on
Education and Labor and the Subcommittee on Health and the
Environment of the Committee on Energy and Commerce, House of
Representatives and the Special Committee on the Aging, United
States Senate by the Congressional Research Service, Library of
Congress."
Healthy children: investing in the future. Washington, Office of
Technology Assessment, for sale by the Supt. of Docs., G.P.O., 1988.
301 p.
LRS88-5975
Partial contents.-Children's access to health care.--Prevention of
childhood illness: selected topics.--Prenatal care.--Newborn screening.--
Wellchild care. Prevention of accidental childhood injuries. Prevention
of child maltreatment.
Hegarty, Stephen H. Kinzer, David M.
Mandated coverage: Massachusetts' ordeal. Hospitals, V. 62, July 20,
1988: 66-73.
LRS88-6519
"A Massachusetts law, signed in April 1988, provides health
coverage to all of that state's uninsured citizens. The law is a U.S.
'first' in the sense that it promises coverage to all citizens, regardless
of their employment status. The law, which will not be fully phased
in until 1992, is a complex one that not only addresses the uninsured
issue but also redesigns a regulatory system that for some years has
made the state's hospitals--voluntary and governmental-subject to
overall revenue controls."
Hospital closures and access to medical care. Lexington, Ky., Council of
State Governments, 1989. 11 p. (CSG backgrounder 078901)
LRS89-7029
"There is much debate concerning the economics of our nation's
health care system, and whether these hospital closings are the result
of unfair regulation practices, the health industry's own glut, or poor
fiscal management. The purpose of this paper is not to argue these
points, but to address the occurrence of hospital closings as a concern
for state and local officials who must deal with the consequences as
they affect public access to medical care."
CRS-6
Inequities in health services among insured Americans: do working-age
adults have less access to medical care than the elderly? New England
journal of medicine, V. 318, June 9, 1988: 1507-1512.
LRS88-5075
Concludes "that insured, working-age adults have less access to
medical care than the elderly, and that poor, black, or Hispanic
persons in this group are at risk for even greater problems with access
to care."
Insuring the uninsured: options and analysis. Washington, G.P.O., 1988.
212 p.
LRS88-14354
At head of title: Committee print.
"Education and Labor serial no. 100-DD; Energy and Commerce
serial no. 100-BB; Special Committee on Aging serial no. 100-O."
"Prepared for the Subcommittee on Labor-Management Relations
and the Subcommittee on Labor Standards of the Committee on
Education and Labor and the Subcommittee on Health and the
Environment of the Committee on Energy and Commerce, House of
Representatives and the Special Committee on Aging, United States
Senate by the Congressional Research Service, Library of Congress.
Jackson, Jesse L.
A prescription for America's health. State government news, V. 31,
Dec. 1988: 6-8.
LRS88-11806
Urges a national health program to support health care as a
constitutional right. "A federally administered program is the only way
to ensure adequate funding in poorer areas and to prevent regressive
state governments from blocking access to care."
Koska, Mary T.
Alternate care: indigent care and overcrowding threaten EDs
(emergency departments). Hospitals, V. 63, July 20, 1989: 66, 68, 70.
LRS89-5934
Presents evidence that for a growing number of hospital
emergency departments, "the constant flow of indigent patients and
increasing instances of overcrowding," are straining the acute health
care system.
Main, Karen.
1988 report on the medically indigent. Frankfort, Ky., Legislative
Research Commission, 1988. 96 p. (Research report no. 236)
LRS88-12401
Reports on Kentucky's problems involving "the uninsured and
people whose insurance is insufficient for any reason, including
exhausted benefits, exclusions on allowable procedures or types of care
and pre-existing conditions." Includes reports on trends in other
States' Medicaid programs for 1986 and 1987.
CRS-7
Man, Anthony.
Rural health care: closed hospitals only part of problem. Illinois
issues, V. 15, May 1989: 12-15.
LRS89-3490
"As the most visible symptoms of the ailments plaguing rural
health in Illinois, hospital closings will continue to get lots of
attention--the kind that spurs political and government activity."
Mueller, Keith J.
The role of policy analysis in agenda setting: applications to the
problem of indigent health care in the United States. Policy studies
journal, V. 16, spring 1988: 441-453.
LRS88-6004
"This discussion of the shaping of policies concerning indigent
health care is a call for more research concerning the shaping of state
policies using the agenda setting approach to explain the roles played
by various actors in shaping legislative suggestions. This approach can
also explain the difficulty experienced in moving from general
knowledge of a problem to actual policies."
Orr, Suezanne Tangerose. Charney, Evan. Straus, John.
Use of health services by Black children according to payment
mechanism. Medical care, V. 26, Oct. 1988: 939-947.
LRS88-11089
"The use patterns of approximately 2,600 black children,
categorized according to type of insurance (Medicaid, private health
insurance or no insurance), were analyzed. All children were enrolled
in an urban pediatric primary care program that attempted to increase
access to health care by poor children. Medicaid recipients used
health-care services more than their counterparts who had private or
no insurance. All groups received significant levels of preventive care."
Patricelli, Robert E.
Statement of the U.S. Chamber of Commerce on problems in access to
affordable health insurance for small business. Washington, U.S.
Chamber of Commerce, 1989. 7 p.
LRS89-9164
Addresses the problem of rising costs of health care plans in the
small business market.
Pincus, Carol R.
How your colleagues care for the uninsured. Medical economics, V. 65,
Aug. 1, 1988: 60-65.
LRS88-6439
A nationwide survey of doctors indicates that the uninsured can
make up 15% of a physician's practice and in some depressed areas the
numbers can be as high as 55%. Doctors cope by making special
payment arrangements, offering credit, and referring patients to clinics.
Some doctors require cash payments from uninsured patients.
CRS-8
Rosenbaum, Sara. Hughes, Dana C. Johnson, Kay.
Maternal and child health services for medically indigent children and
pregnant women. Medical care, V. 26, Apr. 1988: 315-332.
LRS88-2435
"Millions of low-income children and women of childbearing age
are completely uninsured. Medicaid, the nation's largest public health
financing program for the poor, is an inadequate resource for
uninsured families with children. By 1984, the program served only
46% of the poor and near-poor, down from 65% in 1976."
Russell, Louise B.
Proposed: a comprehensive health care system for the poor. Brookings
review, V. 7, summer 1989: 13-20.
LRS89-5107
Outlines a program that would make health care available to the
poor, even those not now covered by Medicaid.
Sager, Alan.
Prices of equitable access: the new Massachusetts health insurance law.
Hastings center report, V. 18, June-July 1988: 21-25.
LRS88-5805
"Massachusetts's new health insurance law has been shaped by
much more than presidential politics. Ten years of evolving policy on
health insurance and hospital finance have exerted powerful influences.
Ironically, enacting universal access required paying hospitals much
more money for their currently insured patients. This costly
compromise may destabilize the law's implementation."
Thorpe, Kenneth E. Siegel, Joanna E. Dailey, Theresa.
Including the poor: the fiscal impacts of medicaid expansion. JAMA
[Journal of the American Medical Association], V. 261, Feb. 17, 1989:
1003-1007.
LRS89-1801
"We estimate that expanding Medicaid coverage to all currently
uninsured nonelderly persons below the federal poverty line would cost
approximately $9 billion."
U.S. Congress. House. Committee on Education and Labor.
Subcommittee on Labor-Management Relations.
Oversight hearing on access to health insurance. Hearing, 100th
Congress, 2nd session. June 9, 1988. Washington, G.P.O., 1988.
367 p.
LRS88-12396
"Serial no. 100-94"
U.S. Congress. House. Committee on Energy and Commerce.
Subcommittee on Health and the Environment.
Health insurance coverage and reform. Hearing, 101st Congress, 1st
session. Mar. 9, 1989. Washington, G.P.O., 1989. 137 p.
"Serial no. 101-18"
LRS89-4792
CRS-9
Minimum health benefits for all workers. Hearings, 100th Congress,
2nd session on H.R. 2508. Apr. 14 and 15, 1988. Washington, G.P.O.,
1988. 345 p.
LRS88-12106
"Serial no. 100-174"
Includes discussion of the impact of the proposed bill on employers
and businesses.
U.S. Congress. House. Committee on Government Operations. Human
Resources and Intergovernmental Relations Subcommittee.
Equal access to health care: patient dumping. Hearing, 100th
Congress, 1st session. July 22, 1987. Washington, G.P.O., 1988.
463 p.
LRS88-1973
U.S. General Accounting Office.
Health insurance: a profile of the uninsured in Ohio and the nation;
report to the Honorable Howard M. Metzenbaum, U.S. Senate.
Aug. 30, 1988. Washington, G.A.O., 1988. 66 p.
LRS88-8683
"GAO/HRD-88-83, B-232117"
"Data compiled annually by the Bureau of the Census to identify
characteristics of the uninsured and changes in the uninsured
population since 1982."
Health insurance: an overview of the working uninsured; report to the
chairman, Committee on Finance, U.S. Senate. Feb. 24, 1989.
Washington, G.A.O., 1989. 54 p.
LRS89-1515
"GAO/HRD-89-45, B-230452"
Discusses "the characteristics of the working uninsured, [and] the
kinds of employers that do not offer health insurance."
Long-term care for the elderly: issues of need, access, and cost; report
to the Chairman, Subcommittee on Health and Long-Term Care, Select
Committee on Aging, House of Representatives. Nov. 28, 1988.
Washington, G.A.O., 1988. 54 p.
LRS88-14243
"GAO/HRD-89-4, B-226097"
Provides information on "(1) the number of elderly estimated to
need long-term care now and in the next century, (2) the types of
available long-term care services and access to them, and (3) public and
private expenditures to finance and deliver long-term care."
CRS
Congressional Research Service
The Library of Congress
Washington, D.C. 20540
Health: Long-Term Care for the Elderly
IP 402H
Why is the financing and delivery of long-term care services an important
policy issue for Congress? There are several reasons. First, the nation has
a rapidly growing elderly population. Second, studies show major increases
in the need for institutional and community-based long-term care services in
the future. Today approximately 1.3 million elderly persons are residents of
nursing homes. For every elderly person residing in a nursing home, there
are at least twice as many elderly persons living in the community requiring
various kinds of care. Estimates for the future show that the nursing home
population might be as high as 4.4 million persons by the year 2040, and the
disabled elderly population living in the community might include up to 14.4
million persons by that time.
Third, while no one Federal program has been designed to support the
comprehensive long-term care needs of the elderly, public expenditures for
long-term care service, principally nursing home care, already strain Federal
and State budgets. In addition, paying for nursing home care is beyond the
resources of most elderly persons. Nearly all private spending for nursing
home care was paid directly by the consumer out-of-pocket. With nursing
home care costing in the range of $20,000 to $25,000 per year, out-of-pocket
spending for this care may represent a catastrophic expenditure for many.
This Info Pack provides an overview of these issues. In addition, it
provides information on how Federal programs currently finance long-term
care and how some private sector options might assist in providing alternative
financing for some older persons.
Members of Congress who want further information on this topic may
contact CRS at 707-5700. Additional CRS Reports may be identified by
looking in the current Guide to CRS Products (for congressional use only)
under "Medical Economics" and in the latest Update under "Health."
Additional information on this subject, primarily in periodicals and
newspapers, may be found at a local library through the use of indexes such
as the Readers' Guide to Periodical Literature, Public Affairs Information
Service Bulletin (PAIS), General Science Index, and various newspaper indexes.
We hope this information will be helpful.
Congressional Reference
Division
IP402H
AS
Washington Post, March 3, 1990, pp. Al, A4
Hill Group
HEALTH CARE, From A1
Backs Broad
"Pete" Stark (D-Calif.), chairman of
the law creating the panel directed
the House Ways and Means sub-
it to make "specific recommenda-
committee on health. He voted
tions" on financing and "consider"
Health Plan
against both parts of the plan.
the amount of federal funds necces-
"It does not get down to the bot-
sary and "the sources of those
tom line," said Rep. Willis D.
funds."
$66 Billion Tax Cost
Gradison Jr. (R-Ohio). "On that
In general terms, the panel
point, we have made no useful rec-
agreed that "the final tax package
ommendation whatsoever."
ought to be progressive," taxpayers
Is Left Unresolved
But Sen. Jay D. "Jay" Rockefeller
of all ages should contribute and
IV (D-W.Va.), the commission
revenues would need to grow 8 per-
cent to 9 percent a year. In addition
chairman, called the proposal a
By Kenneth J. Cooper
to federal costs of $42.8 billion for
"blueprint" and suggested it was the
Washington Post Staff Writer
long-term care and $23.4 billion for
role of the tax-writing committees
covering the uninsured, businesses
A bipartisan congressional com-
of Congress to decide on financing.
would absorb an estimated $20 bil-
mission yesterday endorsed a com-
He said the panel had made a break-
lion in costs.
prehensive plan for providing health
through by estimating the cost of
coverage for 31 million uninsured
Under the long-term care pro-
the health care expansions. "This
Americans and long-term care for
posal, state and federal govern-
commission has laid out a plan, and
the elderly and disabled. The ex-
ments would finance a nursing
it can work," Rockefeller said.
pansive plan, which would require
home program that would provide
$66 billion in new federal funding,
Sen. Edward M. Kennedy (D-
social insurance for a three-month
came under immediate attack for
Mass.), another member, denied it
stay and would not require resi-
failing to specify how the govern-
was the commission's role to recom-
dents to be impoverished before
ment would raise the money.
mend a financing mechanism. "We're
becoming eligible, as has tradition-
The commission was established
not the [Senate] Finance Committee
ally happened under Medicaid. An
to devise solutions to two major
or the [House] Ways and Means
individual could keep $30,000 in
problems of the nation's health care
Committee," Kennedy said.
assets and a couple, $60,000. Pri-
system: providing coverage to un-
Rep. Dan Rostenkowski (D-III.),
vate insurance would fill gaps in the
insured people, who often delay
the Ways and Means chairman, crit-
nursing home program. In-home
treatment until they must seek free
icized the panel for producing what
care would be provided to severely
care in hospital emergency rooms,
he called incomplete recommenda-
disabled persons through the social
and providing long-term care to the
insurance.
tions, saying "when the question of
elderly with chronic diseases and
To cover uninsured persons,
the disabled of all ages, groups of
financing arose, it ducked. That sort
most of whom are employed, large
people often bankrupted by the cost
of evasion is unacceptable in today's
businesses would be required to
of nursing home care.
budget climate."
offer specific health benefits to
The panel's work, which began a
Congress established the U.S.
their workers or pay into a public
year ago, was intended to produce a
Bipartisan Commission on Compre-
health plan. The same mandate
report that would frame the issues
hensive Health Care in the 1988
would apply to businesses with few-
for Congress, which avoided action
legislation that created "catastroph-
er than 100 employees if 80 per-
on them when it voted to expand
ic" health coverage under Medi-
cent of the uninsured in their ranks
Medicare in 1988.
care, benefits that were repealed
were not voluntarily covered. Small
Several members said the 15-
last year. The panel is commonly
businesses would receive tax cred-
member commission, by failing to
called "the Pepper Commission"
its and subsidies.
agree on financing methods, had not
after the late Rep. Claude Pepper of
The public health plan would re-
fulfilled its mandate and would have
Florida, its first chairman and a
place Medicaid, the state-federal
little practical impact on congres-
sional deliberations. The part of the
tireless advocate for the elderly. At
program for the poor. The unem-
plan covering the uninsured was
Pepper's insistence, the panel was
approved on an 8-to-7 vote, while
established as a way to ensure Con-
the long-term care section was ac-
gress would return to the issues of
cepted 11 to 4.
long-term care and the uninsured.
"It won't work. There's no fi-
A fact sheet distributed on com-
nancing, no way to pay for it. It's
mission letterhead yesterday said
dead," declared Rep. Fortney H.
See HEALTH CARE, A4, Col. 1
Copyright 1990 The Washington Post Company.
Reproduced by the Library of Congress, Congressional
Research Service with permission of copyright claimant.
P. A4 (continued)
ployed could buy coverage in the
benefits. The Health Insurance As-
plan or would be subsidized.
sociation of America complained
A range of reactions to the com-
that costly health coverage would
mission's proposals came from busi-
go to "middle and upper income
ness, health and elderly groups as
Americans who are able to pay for
well as public officials.
that coverage themselves."
Health and Human Services Sec-
Reviews from groups represent-
retary Louis W. Sullivan, whom
ing the elderly were mixed. Fam-
President Bush has asked to study
ilies United for Senior Action em-
the same issues, said disagreement
braced the proposal. The National
among panel members "reflects the
Council of Senior Citizens criticized
simple fact that there is no consen-
the lack of a financing plan. And the
sus in our country today on how to
American Association of Retired
achieve the kind of health care sys-
Persons, battered by some mem-
tem we want."
bers for backing the catastrophic
The U.S. Chamber of Commerce
coverage law, said it would withhold
reiterated its traditional opposition
judgment until its board meets later
to government mandates on health
this month.
COMMISSION RECOMMENDATIONS
UNIVERSAL HEALTH CARE COVERAGE
Businesses with more than 100 employees would provide
private health insurance (for a specific benefit package) or
contribute to a public plan for all employees and non-working
dependents.
Businesses with 100 or fewer employees would be encouraged
to provide health insurance for employees and non-working
dependents. Tax credits for some small employers would be
available.
The public plan would cover employees and dependents that
contribute and non-working individuals who buy in or are
subsidized. The plan would replace Medicaid for the specified
services and would pay providers according to Medicare rules.
The minimum benefit package would include primary and
preventive care, physician and hospital care and other services.
Services are subject to cost-sharing, with subsidies for low-income
people and limits on out-of-pocket spending.
LONG-TERM CARE
The commission plan would establish a Nursing Home Program
for nursing home care that would provide financial protection and
ensure that no one faces impoverishment.
Nursing home patients would be entitled to social insurance for
the first three months of nursing home care. Such "front-end"
insurance would allow people who have short stays to return home
with resources intact.
Severely disabled persons would be eligible for social insurance
for home and community-based care.
The federal government would finance the home and
community-based care program and the "front end" nursing home
care. The federal and state governments would share in financing
the Nursing Home Program.
Private long-term care insurance would fill gaps not covered by
the plan, subject to government oversight.
SOURCE: U.S. Bipartisan Commission on Comprehensive Health Care
THE WASHINGTON POST
IP402H
A&S
Washington Post, January 31, 1989, p. D5
Consummate Consumer
The Long-Term-Care Tangle
Too Often Medical Misfortune & Financial Ruin Go Hand-in-Hand
their assets on medical bills. When
By Nancy L. Ross
ic. Moreover, there are 1 million chil-
Washington Post Staff Writer
Social Security disability ran out last
dren with severe chronic illnesses,
year, Medicare would not pay for
When 86-year-old Mabel Crim's
custodial care for him, estimated at
some of whom require nursing care in
a facility or at home. The Health
88-year-old husband became incapaci-
around $30,000. year. Eventually he
Insurance Association of America
tated by a series of strokes, she put
was accepted at a Pennsylvania veter-
him in a nursing home near her Flori-
(HIAA) estimates that by 1990 about
ans hospital where the annual fee is
7.7 million Americans will need some
da apartment. Little did she realize
about $2,000.
form of long-term care. The collective
that paying for his care meant she was
Too often a medical misfortune be-
obliged by the state to exhaust all but
annual bill for nursing homes now
comes a financial misfortune as well.
exceeds $35 billion.
$1.200 of their savings and live on
The changes in Medicare that went
$100 a month before her husband
The average stay for elderly pa-
into effect at the beginning of the year
could get public assistance.
tients in a nursing home is 2.5 years.
help ease the costs of catastrophic
The average annual cost of skilled
"My parents-hard-working good
illness but do little or nothing for the
care runs $25,000; custodial care
citizens-hadn't ever dreamed they
kind of extended care needed by the
costs $11.000 or more. In the Wash-
would
end
up
destitute,"
recalls
people in the aforementioned cases.
ington area. nursing-home-care costs
their daughter, Iona Gilbert of Arling-
The outcome might have been dif-
average $42,000.
ton, who had to support her mother.
ferent if they had been covered by
Most individual LTC insurance of-
Washington painter and musician
private long-term-care (LTC) insur-
fers a fixed amount per day-typically
James McLaurin, 38, had his group
ance. This quite new form of coverage
$50-80-over a set period of, say,
health insurance policy canceled after
is being promoted as a means of
two to four years. It may also pay for
he was fired from his job. Broke,
protecting policyholders and their
some home care. Premiums depend
evicted from his apartment and diag-
families against the financial hardships
on the benefit level selected and the
nosed with AIDS, he was too weak to
of prolonged nursing-home stays or
age of the new policyholder. A 70-
work. After two years on Medicaid,
medical care at home.
year-old woman might pay $900 a
during which he got free treatment at
"Most people can contemplate the
year for a $50 daily benefit for two
a veterans hospital, he became eligible
inevitability of their own death, but
years: $80 a day for four years would
for Medicare, but Medicare doesn't
very few can envision being incapaci-
cost 3½ times that. Options like no
pay enough to afford him the better
tated," says William Arnone of Buck
limit on length of stay or benefits
care he seeks at a private hospital. He
Consultants, a New Jersey benefits
adjusted for inflation boost rates even
has made a public appeal for funds for
consulting firm. Americans routinely
more.
the Whitman-Walker Clinic in whose
buy insurance that amounts to a bet
Selling LTC policies to young adults
house he lives. "If you have AIDS, you
with a company on when they will die,
would reduce the cost for all. But
are going to go broke; that's just a
but they are loath to bet on how that
there are both financial and psycho-
fact," says McLaurin.
will happen.
logical hurdles. These people willingly
Michael Sheekey, 5, has a rare
The lifetime odds that a person will
buy life insurance that pays off a set
chronic degenerative disease called
wind up in a nursing home for a
amount years later. What at the time
Hurler's syndrome. His sister died of
prolonged, financially ruinous stay are
of purchase seems like a reasonable
it two years ago. Because health in-
small, far less than those of contract-
amount to help the family if the bread-
surance did not cover home care and
ing cancer. Yet, by the time a person
winner dies young, often erodes to a
his parents, Marilyn and Arthur
gets older and starts to think about
token sum for the heirs if the policy-
Sheekey of Springfield, are not
the possibility of infirmity, the risk has
holder dies old. Yet that kind of policy
wealthy, Laura was forced to spend
greatly increased: Almost a third of
will not pay for a nursing home stay
her short life in a hospital. The Sheek-
males over 65 will spend some time in
down the road.
eys say they hope they will not have
a nursing home, as will 54 percent of
While many employers have been
to face the same travail with Michael.
women.
slow to offer workers LTC insurance
Daniel DiManna, 62, of Gaithers-
In the future, the number of pa-
at low group rates, a score of major
burg has had Alzheimer's disease for
tients is expected to grow rapidly, due
corporations have begun the trend,
eight years. He and his wife, Virginia,
not only to the graying of America,
according to the Chicago-based con-
also 62 and disabled, spent a third of
but also because of the AIDS epidem-
sulting firm Hewitt & Associates.
© 1989 The Washington Post Company. Reproduced by the Library of Congress,
Congressional Research Service with permission of copyright claimant.
(continued)
Workers usually are required to con-
Consumers Union, the nonprofit
er's disease.
tribute. Participants often are in their
testing organization that publishes
Do not buy a policy unless it has a
forties. Still, only 7 or 8 percent of
Consumer Reports, found the 53 poli-
guaranteed renewability clause.
active workers elect LTC coverage,
cies it studied "a crazy quilt
that
Do not buy a policy unless it offers a
compared with twice as many retir-
confuses even the insurance agents
guard against inflation for a reason-
ees, Hewitt notes.
who sell the policies." Its executive
able additional premium.
The purpose of LTC insurance is to
director. Rhoda H. Karpatkin, de-
Other general cautions include not
guard one's assets, with Medicaid pro-
clared, "Even if people could afford
buying multiple policies, reading the
viding for one's medical needs, if nec-
the premiums, these policies don't
terms before purchase and dealing
essary. The United Seniers Health
usually cover existing health problems
only with insurance companies that
Cooperative (USHC), a nonprofit
until six months have passed, and
carry an industry rating of A or bet-
Washington group concerned with the
they're often unclear about whether
ter.
quality and cost of health care, makes
they cover Alzheimer's disease."
Consumers Union found that 72
this recommendation: "If you have a
An example of the differing costs is
percent of the policies it analyzed
substantial estate, over $50,000 ex-
offered by Joe A. Mintz of Dallas, a
required prior hospitalization, yet
cluding home and cars, then insurance
former insurance agent turned con-
about 60 percent of insured patients
may make sense for you. If you have
sumer advocate. He recently analyzed
enter a nursing home without prior
less than $50,000 in savings, even
individual LTC policies issued by five
hospitalization, so they collect noth-
with an insurance policy paying, you
insurers by applying the contract
ing.
quickly will spend your savings for
terms to a hypothetical case: Five
There have been some recent im-
nursing-home care, making you eligi-
men, 65, felled by a mysterious dis-
provements in coverage:
ble for Medicaid."
ease, all received the same treatment.
Starting this year, Medicare will
For example, a person with an
During their four months' illness, each
pay more for skilled nursing home
annual income of $40,000 and
had two separate stays in a nursing
care and some home health care.
$100,000 in assets who takes out a
home, convalescent care at home and
Moreover, HIAA observes, "Newer
policy in 1989, will through private
spent time at an adult day-care cen-
products are providing more compre-
funds and insurance be able to finance
ter. The total bill for each, excluding
hensive noninstitutional benefits, in-
4.5 years in a nursing home in the
physician's fees, medication, private
cluding adult day care."
year 2000. On the other hand, a
duty nurses and amenities such as
In late 1988 the National Associa-
person with income of $15,000 and
television, was about $30,000.
tion of Insurance Commissioners
$25,000 in assets would need public
The amount paid by the carriers
(NAIC), a body of state executives
assistance after the first year. The
ranged from a low of $10,750 for one
that develops model legislation on in-
average length of custodial care, the
man to a high of $25,250 for another.
surance, passed an amentment that
most common type of nursing home
And, although the five paid different
closed the loophole that carriers ex-
care, is 2.2 years.
annual premiums, ranging from $735
ploited to avoid paying for Alzheim-
Another financing method is self-
to $1,180, the disparity in claims paid
er's: NAIC now recommends that no
insurance, which requires the disci-
ranged from 9.1 times the premium to
prior hospitalization be required be-
pline to set aside an amount equiva-
32.8 times the premium. In fact, the
fore a policyholder is eligible for bene-
lent to a premium in a safe invest-
man who paid the highest premium
fits. It-also voids the need for getting
ment. The money remains the
actually received the smallest benefit
skilled care first in order to collect for
property of the owner, not the insur-
due to the restrictions and exclusions
custodial care.
ance company, in case it is not needed
in his policy. (If his stay in the nursing.
Half of the states-including Mary-
for nursing-home care. A person who
home had been lengthy, however, he
land, Virginia and D.C.-have passed
saves $1,000 a year, starting at age
would have received the most benefits
the original LTC model legislation;
40, would be able to pay for 16
of the five.)
they now will have to pass or adopt
months of nursing-home care by age
The comparison illustrates the im-
the amendment before many more
65, according to consumer advocate
portance of checking restrictions and
persons can benefit. It is not retroac-
Esther Peterson.
limitations-the proverbial fine print
tive for policies in effect. Upgrading
The number of companies selling
in the contract that can often mean
coverage probably will increase the
individual LTC coverage has quadru-
the difference between collecting ben-
premium significantly, maybe even
pled to about 100 in the past four
efits and receiving nothing at all-in
doubling it.
years. There now are an estimated
selecting LTC insurance coverage.
Of the factors determining the fu-
half-million LTC policies in force, of
A 1988 study by USHC found that
ture of LTC insurance, none is more
which about 18,000 are employer-
the chances a policyholder will collect
important than the role of the federal
sponsored.
no benefits after entering a nursing
government. Despite recent growth,
In 1987 the General Accounting
home were 61 percent. Only 18 per-
LTC insurance is on hold at many
Office reviewed 33 policies offered by
cent of the policies issued offered an
companies as they await word from
25 insurers and concluded, "The po-
even chance of ever paying benefits.
Congress on whether they will as-
tential for abuse related to both un-
To improve the odds, USHC makes
sume primary responsibility or will fill
clear policy language, especially with
the following recommendations:
in the gaps as they do with Medicare.
regard to coverage. limitations, and
Do not buy a policy that requires a
The issue of who should pay for
abusive marketing practices exists
prior hospitalization.
long-term care is hotly debated. In
just as it does in the Medigap market."
Do not buy a policy without a writ-
1987 a presidential task force on LTC
ten statement that it covers Alzheim-
insurance recommended that it be
(continued)
handled primarily through the private
St. NW, Suite 500. Washing-
day for skilled nursing care at
ton, D.C. 20005. $6.95.
home. It covers hospice care for
market, with a safety net for very
low-income people.
"Long-Term-Care Insur-
the terminally ill.
Alice M. Riviin. former director of
ance: Tips and Traps, 50 Ma-
Medicare does not cover inter-
the Congressional Budget Office, and
jor Questions." by Joe A.
mediate care, defined as occasional
Joshua M. Wiener, both of the presti-
Mintz, P.O. Box 12066, Dai-
nursing and rehabilitation based on
gious Brookings Institution, last year
las, Tex. 75225. $2.
a physician's orders in a licensed
called for a combined approach. They
"Who Can Afford a Nursing
facility where a registered nurse is
recommend treating LTC like any
Home." Consumers Union Re-
on daytime duty. It does not cover
other medical expense; i.e., people
prints. P.O. Box CS 2010-A,
custodial care, or assistance with
contribute to a government program
Mt. Vernon, N.Y. 10551. $3.
and draw benefits "without the stigma
"The Consumer's Guide to
daily activities like eating, bathing
of a means test."
Long-Term Care Insurance,"
by nonmedical personnel but based
The American Association of Re-
Health Insurance Association
on a physician's orders. This is the
tired Persons suggests a program of
of America, 1025 Connecticut
most frequent type of nursing home
Ave. NW, Washington, D.C.
care.
long-term care for people of all ages,
based on expanded Medicare and sup-
20036. Free.
Medicaid: Federal and state pro-
piemented by private insurance. In
Insurance company ratings,
gram for financially needy persons.
the 100th Congress about haif a dozen
A.M. Best Co., Ambest Road,
The spouse of a nursing home pa-
bills were introduced to augment the
Oldwick, NJ. 08858. $10 for
tient can keep about $786 of in-
government's role.
2 to 25 companies.
come a month and $12,000 in as-
The recent change in Medicare
sets. It covers intermediate,
means that at-home spouses like Ma-
custodial and home care, which in-
bei Crim could have kept more of her
cludes skilled nursing, adult day
assets and income. Elimination of the
Ways, Means
care, and respite care to give family
prior hospitalization requirement by
members a break.
private insurers could aid Alzheimer's
Medigan: Private insurance sup-
patients like Daniel DiManna. But
Medicare: Federal program for
plementing Medicare. It does not
James McLaurin, who has AIDS, and
those over 65 and some disabled
cover long-term care.
Michael Sheekey with Hurier's syn-
persons. It covers up to 150 days a
drome, probably would benefit only
year of skilled care in a nursing
Long-term care insurance: It
from passage of legisiation increasing
home, defined as däily-nursing and
may or may not cover custodial
the federal government's role.
rehabilitative care in an approved
nursing home care, depending on
facility where a registered nurse is
policy terms.
Resources
always on duty and supervised by a
physician. The patient pays $20.50
per day for the first eight days,
Among publications and
nothing more until day 151. It COV-
other resources:
ers 38 consecutive days of care, six
"Long-Term Care: A Dollar
days a week, one or more visits per
and Sense Guide." by Susan
Poiniaszek, United Seniors
Health Cooperative, 1334 G
Order Code IB88098
CRS Issue Brief
Long-Term Care for the Elderly
Updated May 29, 1990
by
Richard J. Price and Carol O'Shaughnessy
Education and Public Welfare Division
CRS
Congressional Research Service
The Library of Congress
CONTENTS
SUMMARY
ISSUE DEFINITION
BACKGROUND AND ANALYSIS
Public and Private Spending for Long-Term Care
Major Federal Programs Supporting Long-Term Care
Major Themes of Reform
Issues in 101st Congress Legislation
Public and/or Private Sector Strategies
Issues Related to Services, Eligibility, Management, and
Financing
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Long-Term Care for the Elderly
SUMMARY
Policymakers over the years have struggled with issues related to the potentially
catastrophic expenses of nursing home care as well as the need and demand for
expanded home and community-based care by impaired elderly and their families.
Recent congressional legislation on catastrophic health insurance for the elderly
focused new attention on the uncovered liability many elderly face for long-term care
services.
Expenditures for long-term care services, principally nursing home care, strain
the private resources as well as the budgets of public programs. Nearly all private
spending for nursing home care is paid directly by the consumer out-of-pocket, since
only very limited third party insurance is available to cover this care. With average
annual nursing home care costs about $25,000, out-of-pocket spending for long-term
care services of an extended duration can represent an expenditure beyond the
financial reach of most elderly persons. Medicaid, the Federal-State program for the
poor, pays for long-term stays in nursing homes, but only for persons who meet strict
income and assets rules.
While significant public resources are devoted to institutional care, comparatively
limited funding supports home and community-based services, which are preferred by
the elderly and their families over institutional care. Legislation enacted over the
years has taken an incremental approach to expansion of such services.
Developing a strategy for changes in public sector programs to address these two
broad problems, namely, assisting the elderly to pay for the catastrophic costs of
nursing home care as well as expanding support for nonmedical home and
community-based services, is difficult for a number of reasons. These include the
complex interrelationships of Federal and State programs currently supporting
long-term care, but especially, uncertainty about future costs of expanded benefits and
eligibility. In addition, observers differ in their views about what the respective
public and private sector responsibilities should be in financing long-term care.
Bills introduced in the 101st Congress, and others introduced in the 100th
Congress, reflect a wide range of approaches for reforming the way long-term care
services are financed, as well as divergent views on what the public and private sector
roles should be in any reform. Some bills have taken an incremental approach to
public sector financing. Others propose a social insurance program providing
universal and comprehensive long-term care coverage for those in need of care
regardless of their financial circumstances. Still others define for the private sector
a role in financing the costs of long-term care. The U.S. Bipartisan Commission on
Comprehensive Health Care, often referred to as the Pepper Commission, recently
reported its recommendations for revising the way long-term care should be financed
in this country.
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ISSUE DEFINITION
The financing and delivery of long-term care for the elderly is an important
policy issue for the Congress for a number of reasons. Paying for long-term care
services, especially nursing home care, can represent a catastrophic expenditure that
impoverishes many elderly persons and their families. In addition, significant Federal
resources are devoted to nursing home care through the Medicaid program, while only
limited funding supports home and community-based services that the elderly and
their families generally prefer over institutional care. These problems are expected
to become more acute as a rapidly aging population faces the need for long-term care.
The Medicare Catastrophic Coverage Act of 1988, P.L. 100-360, did not address the
uncovered liability many elderly face for long-term care costs. This gap in coverage
was criticized by many observers during the recent debates on repeal or amendment
of that legislation.
The 101st Congress has seen a broad range of long-term care bills introduced
for consideration. Some bills focus on large scale revision of the way long-term care
is financed through public programs, primarily through an expansion of Medicare
coverage of institutional and/or home and community-based services. Out of concern
for the costs of any expansion of publicly financed long-term care benefits, Congress
has also become interested in private sector approaches to the financing of long-term
care. Among private sector approaches, private insurance has received the most
attention and a variety of proposals have been introduced to define a broader role for
private insurance in financing long-term care for the elderly. In addition to bills
introduced, the Pepper Commission has developed a long-term care proposal to be
considered by Congress.
BACKGROUND AND ANALYSIS
"Long-term care" refers to a wide array of medical, social, personal, supportive,
and specialized housing services needed by individuals who have lost some capacity
for self-care because of a chronic illness or condition. Although chronic conditions
occur in individuals of all ages, their incidence, especially as they result in disability,
increases with age. These illnesses and conditions include heart disease, strokes,
arthritis, vision and hearing impairments, and dementia.
Long-term care services range from skilled medical and therapeutic services for
the treatment and management of these conditions to assistance with basic activities
and routines of daily living, such as bathing, dressing, eating, and housekeeping.
These services are provided by skilled personnel, such as registered nurses, therapists,
and social workers as well as other personnel, such as homemakers and home health
aides. Family members and friends also play a key role in providing long-term care
services. Services can be provided in institutions (generally nursing homes), in the
community, or in the home.
Congress has considered issues related to the financing of long-term care services
for the elderly for many years. Recent congressional legislation on catastrophic
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health insurance for the elderly (P.L. 100-360) focused new attention on the
potentially high out-of-pocket payments many Medicare beneficiaries face for services
not covered by Medicare, especially nursing home care, and their lack of coverage for
home and community-based long-term care services.
The average annual cost of nursing home care is about $25,000, representing a
catastrophic expenditure beyond the financial reach of most elderly persons. Only
one public program, Medicaid, the Federal-State health program for the poor, covers
long-term stays in nursing homes. It does so, however, only for those persons who
meet strict income and assets rules. For many elderly persons facing the catastrophic
expenses of nursing home care, these rules require that they first apply most of their
assets and income toward the cost of their nursing home care before they can become
eligible for Medicaid coverage.
Medicaid rules also affect the income and assets of spouses of nursing home
residents needing assistance with the cost of their care. Under Medicaid rules, the
amount of income protected for the basic living expenses of the spouse remaining in
the community has been limited in most States to levels below the Federal poverty
level. As a result, these Medicaid rules have had the effect of impoverishing spouses
of Medicaid-eligible nursing home residents. P.L. 100-360 liberalized these rules to
protect higher levels of income and assets for the spouse remaining in the
community.
By far the great majority of Federal and State spending for long-term care is for
nursing home care under the Medicaid program. Public programs provide only
limited support for nonmedical home and community-based long-term care services.
Over the years, Congress has struggled with ways to expand public financing for
home and community-based care, especially in view of the fact that the elderly and
their families prefer this care to nursing home care. Congress has proceeded very
cautiously in expanding public financing for home and community-based care out of
concern with its costs.
Long-term care financing issues are expected to become more pressing in years
to come, given demographic trends of the elderly population and projections of
utilization of long-term care services. Currently 1.3 million elderly persons are
residents of nursing homes. For every elderly person in a nursing home, there are
at least twice as many persons living in the community requiring various kinds of
care and assistance. Estimates show that if rates of nursing home use remain the
same, about 3.8 million elderly will reside in nursing homes by 2030. The disabled
elderly population living in the community might include up to 10.1 million persons
by 2020 and 14.4 million persons by 2040.
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Public and Private Spending for Long-Term Care
Comprehensive data on total national spending for long-term care, from public
and private sources, through Federal and State programs, and for institutional and
non-institutional care, are difficult to obtain. The most recent attempt to quantify
this spending was made by the Congressional Budget Office (CBO) for FY1985, shown
in TABLE 1. CBO preliminary estimates show that in FY1985 total public and
private spending for both nursing home and certain home health care services
amounted to about $45 billion. This total is for all age groups using long-term care.
Of this total, about $36 billion, or about 80% of total long-term care expenditures,
was spent for nursing home care. Public programs paid $19 billion, or 53% of the
Nation's total spending for nursing home care. Federal and State Medicaid payments
for nursing home care accounted for $17 billion of this $19 billion total.
TABLE 1. Summary of Spending for Long-Term Care, FY1985
by Source of Payment and Type of Service
(in billions of dollars)
Private sources
Public programs
(out-of-pocket,
Total
(Federal and
insurance, and
all
State/local)
other)
services
Nursing home care
$19.0
$16.7
$35.8
Home health care
4.5
4.6
9.1
Total
23.5
21.3
44.9
Source: Preliminary Congressional Budget Office estimates, based on data
supplied by the Actuarial Research Corp. Totals may not add due to
rounding. Home health services exclude certain nonmedical services.
Private spending for nursing home care amounted to about $17 billion in
FY1985. Nearly all (97%) private spending for nursing home care is paid directly by
consumers out-of-pocket. Private insurance coverage for long-term nursing home care
is very limited, with private insurance payments amounting to less than 1% of total
spending for nursing home care in FY1985.
CBO estimates that total spending for home health care amounted to about $9
billion in FY1985. This amount represents about 20% of total spending for all
long-term care services. These estimates for home health care should be approached
with caution since certain public program and private spending data for home health
care are especially difficult to aggregate. In addition, CBO's total for home health
care does not include spending for certain nonmedical home and community-based
care services. CBO estimates that the $9 billion total for home health care spending
was about evenly split between public and private sources of payment. Out-of-pocket
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expenditures accounted for about 80% of private spending, private insurance again
being very limited for this care. Most home and community-based care is provided
by family and friends. One recent survey found that more than 70% of the
functionally impaired elderly living in the community relied exclusively on unpaid
sources, generally family and friends, for the assistance they need.
Major Federal Programs Supporting Long-Term Care
Five programs represent the major source of Federal financial support available
for nursing home and community-based long-term care -- Medicaid, Medicare, the
Social Services Block Grant (SSBG), the Older Americans Act, and the Supplemental
Security Income (SSI) program. No one of these programs supports the full range
of long-term care services. Certain programs provide health services while excluding
social services. Others provide strictly social services. Some have income eligibility
requirements, others do not. Some observers contend that these varying
characteristics reflect the fragmented and uncoordinated nature of Federal support
for long-term care.
Medicaid is the Nation's major program of financial support for long-term care,
principally because of its coverage of nursing home care. Medicaid payments for
nursing home care (excluding nursing homes for the mentally retarded) amounted to
30% of total Medicaid spending in FY1986, and two-thirds of Medicaid payments
made on behalf of the elderly that year. Comparatively little funding is devoted to
home and community-based care. Coverage of both nursing home and home and
community-based services is restricted to those persons who have limited income and
assets. In general, Medicaid rules limit eligibility to those persons who qualify for
cash welfare assistance or who incur large health care expenses that deplete their
income and assets.
Medicare, the Federal health insurance program for the elderly and disabled, is
focused primarily on acute health care and was never envisioned to provide protection
for long-term care. Coverage of nursing home care, for instance, is limited to
short-term stays in certain kinds of nursing homes, referred to as skilled nursing
facilities, and only for those persons who demonstrate a need for daily skilled nursing
care. Many persons who require long-term nursing home care do not need daily
skilled nursing care, and, therefore, do not qualify for Medicare's benefit. As a result
of this restriction, Medicare paid for less than 2% of the Nation's expenditures for
nursing home care in 1988.
For similar reasons, Medicare pays for only limited amounts of community-based
long-term care services, primarily through the program's home health benefit. To
qualify for home health services, the person must be in need of skilled nursing care
on an intermittent basis, or physical or speech therapy. Most chronically impaired
persons do not need skilled care to remain in their homes, but rather nonmedical
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supportive care and assistance with basic self-care functions and daily routines that
do not require skilled personnel.
Three other Federal programs -- SSBG, the Older Americans Act, and the SSI
program -- provide support for community-based long-term care services for impaired
elderly persons. The SSBG provides block grants to the States for a variety of
home-based services for the elderly as well as the disabled and children. The Older
Americans Act also funds a broad range of in-home services for the elderly. Under
the SSI program, the federally-administered income assistance program for aged,
blind, and disabled persons, many States provide supplemental payments to the basic
SSI payment to support selected community-based long-term care services for certain
eligible persons, including the frail elderly. However, since funding available for
these three programs is limited, their ability to address the financing problems in
long-term care is also very limited.
Major Themes of Reform
While issues related to the financing of long-term care have received a great deal
of attention recently, this concern is not new. Creation of Federal task forces on
long-term care issues, as well as Federal investment in research and demonstration
efforts to identify cost-effective "alternatives to institutional care," date back to the
late 1960s and early 1970s when it was becoming evident that payments for
institutional care were consuming a growing proportion of public expenditures. The
awareness that public programs provided only limited support for community-based
care, as well as concern about the fragmentation and lack of coordination in Federal
support for long-term care, also led to the development of a number of legislative
proposals beginning in the mid-1970s. Over the years, bills have variously proposed
(1) establishing in Medicare new comprehensive long-term care benefits; (2)
consolidating certain existing benefits of the Medicare, Medicaid, and SSBG programs
into a new program of Federal support for long-term care with uniform benefits and
eligibility; and (3) providing block grants to the States for expanded home and
community-based care.
While a number of proposals to provide for large scale reform have been
considered by Congress over the years, enacted long-term care legislation has taken
an incremental approach, principally through limited expansion of existing program
support for home and community-based services. Congress has proceeded cautiously
in expanding community-based care for a number of reasons. Federal long-term care
demonstrations have generally shown that expanded community-based services
represent new costs that are not offset by reductions in nursing home spending. In
addition, policymakers are concerned about the unpredictability of the demand for
community-based care.
Incremental changes enacted into law have included 1981 legislation authorizing
the Secretary of the Department of Health and Human Services (DHHS) to approve
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waivers of certain Medicaid requirements to allow States to broaden coverage for a
range of community-based long-term care services under their Medicaid plans (known
as the "2176 home and community-based waiver" program). In 1982, Congress also
established a new Medicare hospice benefit that provides broad home care coverage
to terminally ill Medicare beneficiaries. Another incremental change enacted by
Congress in 1987 gave States limited new authority to provide in-home services for
the frail elderly under the Older Americans Act. While the Medicare Catastrophic
Coverage Act of 1988 did not comprehensively address long-term care, it contained
a limited respite care benefit for certain chronically dependent beneficiaries, and a
liberalization of certain income and asset requirements for spouses of Medicaid
nursing home residents.
Issues in 101st Congress Legislation
Legislation introduced in the 101st Congress includes a variety of approaches to
financing long-term care services. Many bills share with past proposals goals of
providing additional financing for home and community-based care. For example,
H.R. 2263 (Pepper) would establish in Medicare new home care benefits for
chronically ill aged, disabled and children; H.R. 3933 (Wyden)/S. 1942 (Rockefeller)
would allow States to cover a broad range of nonmedical home and community-based
services for disabled elderly as an optional service under their Medicaid programs;
H.R. 3203 (Stark) would amend SSI to provide targeted income supplements to low
income aged and disabled persons in need of home and community-based care. Other
bills, H.R. 3140 (Waxman) and S. 2163 (Kennedy), would finance comprehensive home
and community-based services and establish new nursing home benefits. Other bills
provide various tax incentives for private financing of long-term care services.
While there seems to be a consensus on the problems that exist, Congress has
not yet agreed on a strategy for addressing them. Policymakers differ in their views
about what the respective public and private sector responsibilities should be in
financing long-term care services. Some believe that the Federal Government should
assume the major role in financing additional long-term care services. Others believe
that the costs of any public sector expansion may be prohibitive and that the private
sector, through insurance and other risk-pooling mechanisms, should take the lead.
Still others believe that a combination of public and private sector strategies is
needed.
Public and/or Private Sector Strategies
Whereas in the past the focus of debate on long-term care reform had been
almost exclusively on public program support, today there is interest in defining for
the private sector a role in financing the costs of long-term care. This interest has
occurred as a result of concern with large Federal budget deficits as well as
increasing expenditures under the Medicare and Medicaid programs. Also, some
analysts point out that the economic status of future generations of the elderly may
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improve so as to allow them to protect themselves against some of their long-term
care costs, if only a risk-sharing mechanism were available to make these costs
affordable.
The wide range of proposals of the 100th and 101st Congresses reflects the
divergent views as to what public and private sector responsibilities should be for
financing long-term care. Approaches range from those that would establish totally
public benefits, without a role for the private sector, or private insurance, in
particular, to those that would rely almost exclusively on the private sector --
whether this be individuals or insurance -- to provide the additional financing needed
by the elderly for long-term care.
S. 2163 (Kennedy), for example, would establish in a new title of the Public
Health Service Act, a long-term care program covering nursing home and home care
for certain chronically disabled persons of all ages regardless of financial
circumstances. Benefits would be primarily publicly financed, without deductibles or
significant copayments. This bill aimed to assure that additional sources of private
financing are unnecessary. H.R. 2263, introduced in the 101st Congress, takes a
similar approach to public sector financing of long-term care, but focuses coverage
strictly on home and community-based care.
At the other end of the spectrum are bills that leave to the private sector the
responsibility for providing the additional financing needed for long-term care. Some
of these bills would provide tax incentives to individuals for the care they provide
others. Other bills would provide tax incentives for saving for long-term care needs.
Still others would provide tax incentives to individuals and employers for the
purchase of private insurance to encourage the growth of this market. These bills
include, among others, H.R. 388, H.R. 421, H.R. 1010, S. 139, S. 140, and S. 141, all
of the 101st Congress. The cost of this approach is limited to the revenues that
would be lost for providing tax deductions for various purposes.
In between are bills that would establish comprehensive long-term care benefits
at the Federal level, but to a greater or lesser extent, would include with these new
benefits certain beneficiary cost-sharing responsibilities that could be financed
through the purchase of private insurance. H.R. 3140 (Waxman), introduced in the
101st Congress, and H.R. 5393 (Stark), introduced in 1988, would each establish in
Medicare comprehensive nursing home and home care benefits that would be
accompanied by limited copayments and deductibles. For those below 200% of the
Federal poverty level, Medicaid would share in the cost of these copayments and
deductibles. Others who could afford to do so could purchase private long-term care
insurance. In this case, private insurance would function as a supplement to
Medicare benefits in the way that "medigap" policies have paid for costs of acute care
benefits not covered by Medicare.
Another bill introduced in 1988, S. 2305 (Mitchell), would create a larger role
for private insurance than the medigap model, specifically with regard to coverage of
a chronic nursing home benefit. Under this proposal, persons would be required to
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incur the first 2 years of nursing home costs before a new Medicare nursing home
benefit would begin to pay. Since studies of nursing home utilization have shown
that 75% of persons entering a nursing home stay less than 1 year, and 83% stay less
than 2 years, most persons would either have to rely on out-of-pocket payments for
their care or purchase insurance to cover the costs. This benefit has been designed
to encourage private insurers to develop policies and persons to be able to afford
long-term care insurance.
Pepper Commission Long-Term Care Recommendations. The Pepper
Commission's recommendations for long-term care reform would also use a
public/private insurance model for financing expanded long-term care benefits. The
Commission's proposal includes three components: (1) a federally financed social
insurance program covering home and community-based care for severely disabled
individuals of all ages; (2) a federally financed social insurance program covering the
first 3 months of a nursing home stay; and (3) a means-tested Federal and State
financed nursing home program covering stays beyond 3 months that would protect
certain levels of income and assets of persons needing care. For both the home and
community-based care program and the first 3 months of a nursing home stay,
individuals would be responsible for 20% of the costs of care, with the Federal
government subsidizing this required cost sharing for persons with incomes below
200% of the Federal poverty level. For the nursing home program that would cover
stays longer than 3 months, individuals would be required to apply to the cost of
their care non-housing assets above $30,000 for single persons and $60,000 for
married persons, before the program would begin to pay for care. Individuals would
also be required to contribute to the cost of their care income that remains after
certain set-asides for housing and personal needs were made. Private long-term care
insurance could fill in the gaps not covered by this plan. The Pepper Commission
has estimate the costs of these benefits to be $42.8 billion (in 1990 dollars).
Private Long-Term Care Insurance. Private long-term care insurance is a
relatively new, but rapidly growing, market. In 1987, a DHHS Task Force on
Long-Term Care Insurance found 73 companies writing long-term care insurance
policies covering 423,000 persons. As of December 1989, the Health Insurance
Association of America found that more than 1.5 million policies had been sold, with
118 insurers selling this coverage.
While private insurance is considered a promising option for providing the
elderly additional protection for long-term care, observers have expressed concern with
the quality of coverage offered under existing policies. Most plans are sold on an
individual basis and provide indemnity benefits that pay only a fixed amount for each
day of covered service, thereby limiting the insurers' liability. Generally these
payment amounts are not indexed for increases due to inflation. In addition, policies
often exclude from coverage certain preexisting conditions and have often required
that covered care be medically necessary or follow a hospitalization. These provisions
may be particularly restrictive for persons needing certain home care and personal
care assistance.
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In addition, long-term care insurance policies are considered to be unaffordable
for large numbers of elderly persons. Many agree that a key to the future
development and growth of the long-term care insurance market is increasing the
affordability of premiums. One of the ways suggested to accomplish this is to expand
the pool of persons to whom policies are sold. Some argue that employer-based group
coverage, not available until recently, offers significant potential for expanding the
long-term care insurance pool and reducing premium cost. Premiums should be lower
in employer-based group coverage because younger age groups with lower levels of
risk of needing long-term care would be included, allowing reserves to be built up.
In addition, group coverage has lower administrative expenses. As of the end of
1989, 54 employers offered long-term care coverage to their employees, and these
group policies covered about 51,000 persons. About half of the enrollees were active
employees, and other half were retirees and their spouses and immediate relatives of
the employee.
But just how broad-based employer interest is in a new employee benefit, let
alone a long-term care benefit, is unclear at the present. Many employers currently
face large unfunded liabilities for retiree pension and health benefits. Also, many
employers have recently experienced fairly substantial increases in premiums for their
current health benefits plans. In addition, employers offering coverage for long-term
care have required their employees to assume the full premium cost of these plans.
In contrast, the majority of medium and large size employers pay the full premium
cost of regular health care benefits for their employees.
One other suggestion has been offered for increasing the affordability of
long-term care insurance. This would involve limiting the exposure of the insurance
company to the costs of long-term care services by creating new Federal benefits that
would assume some portion of these costs. By defining in advance the specific
liability for costs that private insurance companies would face, and limiting these
costs, this approach assumes that private insurance companies will be able to offer
policies that more people can afford and, at the same time, share substantially in the
costs of care. This approach, often referred to as "stop/loss," is currently focused on
nursing home care. Persons who need nursing home care would be responsible for
the first 2 or 3 years of the costs of care and would presumably buy an insurance
policy to provide that protection. After that exposure, a government program would
pick up the cost, without requiring persons to deplete their income and assets on
their care as is currently required under Medicaid.
There is interest at both the Federal and State levels in this idea. As noted, S.
2305, introduced in the 100th Congress, includes a 2-year exclusionary period for
nursing home care before a new Medicare nursing home benefit would begin to cover
the costs of care. Various States have begun to explore options for encouraging
persons to purchase long-term care insurance by extending to those persons buying
policies the protection of Medicaid without requiring depletion of income and assets.
What impact this approach will have on the premium costs and marketability of
private insurance for long-term care is unclear at the present time. It should be
noted that the private insurance industry has expressed reservations about S. 2305's
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approach for covering nursing home care and has suggested that premium costs may
not be significantly reduced when a government program begins to pick up the costs
for long-stay nursing home patients. The insurance industry suggests that initial age
of purchase has more of an impact on premium cost than duration of coverage.
According to the industry, when persons at younger ages purchase policies, the size
of the pool sharing the risk expands greatly and reserves can be accumulated over
longer periods to cover costs when benefits must be paid.
Issues Related to Services, Eligibility, Management, and Financing
Long-term care bills that propose new publicly funded long-term care benefits
generally require resolution of a number of other issues including the following:
what services should be covered; what eligibility criteria should be used for
determining participation and how care for participants should be managed; what
share of the costs of the program should be born by beneficiaries; what respective
roles the Federal and State governments should play in the organization and
management of the program; what provider reimbursement strategies should be used;
and what financing mechanisms should be used.
Covered Services. Services that are generally considered critical services for
chronically impaired elderly persons to remain in their homes are nonmedical support
services, such as homemaker/home health aide services, adult day care, and services
that relieve family caregivers from their responsibilities (generally referred to as
respite care). Bills proposing new publicly funded long-term care benefits would
provide broader coverage for some or all of these services. It should be noted that
the insurance industry has approached coverage of these services with caution.
Insurance companies have argued that many personal care and homemaker services
tend to be uninsurable because of difficulty in confining eligibility to a limited
number of persons. In addition, given the nature of many chronic conditions,
insurance companies might face an open-ended liability for coverage of these services.
Some bills would also provide broader coverage of nursing home care. One
approach would provide coverage after a person had first spent a certain length of
time in a nursing home -- 2 months in the case of H.R. 3140 and 2 years in the case
of S. 2305. Private insurance could play a role in covering these costs. Another
approach contained in S. 2163 would cover the first 6 months of nursing home care
under a public program; longer stays would be covered under a voluntary program
financed by premiums and Federal revenues.
Eligibility. Bills proposing publicly financed benefits generally define eligibility
for long-term care benefits according to a person's inability to perform one or more
basic self-care functions called activities of daily living (ADLs). ADLs include such
functions as bathing, dressing, eating, toileting, and/or mobility from one place to
another. Using ADLs allows long-term care benefits to be targeted to a limited
number of persons, and also enables the new benefit to be provided without regard
to certain medical criteria commonly used to establish eligibility for health benefits.
Eligibility criteria for health benefits, such as prior hospitalization or need for skilled
nursing care, often have little to do with the social service needs of a chronically
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impaired population and can limit access to services needed by a long-term care
population.
Some proposals would also establish eligibility for expanded benefits on the
basis of the existence of cognitive impairments. Many persons suffering from
dementia or Alzheimer's disease, for example, may not have limitations in ADLs, but
require supervision to carry out these functions.
While surveys have found up to 6 million elderly persons living in the
community with varying ADL limitations, the number of such persons who would try
to establish eligibility for new publicly financed benefits cannot be determined with
any certainty. There is a paucity of data on utilization of long-term care services in
an insured environment. Studies have shown that the great majority of elderly
currently rely on family and friends to provide assistance with their needs. While
studies have shown that families do not withdraw their support when expanded home
and community-based care are provided under government demonstration projects,
information does not exist to show what demand for services will be when a program
permanently establishes new publicly financed long-term care benefits.
Role of the States. Currently State governments have substantial
responsibility for long-term care. Not only do States administer home and
community-based services authorized under the Medicaid, SSBG, and Older Americans
Act programs, they also have responsibility for implementation and oversight of
Federal standards governing nursing homes and home health care agencies receiving
reimbursement under the Medicaid and Medicare programs. Over the past 10 to 15
years some States have made major strides in dealing with the complexities involved
in coordinating the various Federal home and community-based long-term care
programs and to overcome what they believe is a bias in Federal funding for
institutional care.
State initiatives have included development of methods to control access to
institutions through preadmission screening mechanisms; development of case
management systems to authorize and control use of community-based services
(sometimes through designation of local agencies to act as single entry points for
long-term care services); and/or consolidation of State administration of the various
long-term care services programs. In addition, some States have spent substantial
State dollars to support home and community-based long-term care services to be
responsive to the strong preference of the elderly for such care.
Some observers point out that a State role in the administration of an expanded
publicly funded long-term care program may compromise a uniform benefit, with
different and inconsistent determinations made about similar cases of need for
long-term care services. Given the complexities involved in implementing and
coordinating nonmedical long-term care benefits, however, other analysts and State
officials argue that local governments must be involved in the administration of new
Federal long-term care benefits and that States not only have the experience but are
also in a good position to work with the multiplicity of local providers of care.
CRS-12
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Enacted legislation that has incrementally expanded nonmedical home and
community-based services, such as the Medicaid 2176 waiver program and the Older
Americans Act, has built upon existing State roles. H.R. 3140 would require the
Secretary to designate for each State a public or nonprofit agency to be responsible
for assessment and eligibility determination for long-term care benefits. S. 2163
would require the Secretary to contract with a State or, if the State declines, a
private nonprofit organization, to administer long-term care services. Other bills,
such as S. 2305 and H.R. 5393, did not create specific roles for State government.
Role of Case Management. Case management generally refers to ways of
matching services to an individual's needs. In the long-term care services context,
case management generally includes the following components: screening and
assessment to determine an individual's eligibility and need for a given service or
program; development of a plan of care specifying the types and amounts of care to
be provided; authorization and arrangement for delivery of services; and monitoring
and reassessment of the need for services on a periodic basis.
Some State and local agencies have incorporated case management as a basic
part of long-term care system development. The availability of Medicaid funds under
the 2176 home and community-based waiver program has spurred the development
of case management services; but, other sources of funds have been used by States
to develop case management systems, including SSBG, Older Americans Act, and
State funds.
Case management is carried out in a wide variety of ways. Organizational
arrangements may range from systems in which case management functions are
centralized in one agency to those in which some case management functions are
conducted by different agencies. Case management may be provided by many
community organizations, including home health agencies, area agencies on aging, and
other social service or health agencies. In some cases where statewide long-term care
systems have been developed, one agency at the community level has been designated
to perform case management functions, thereby establishing a single point of access
to long-term care services.
While there seems to be a certain degree of consensus as to the promise case
management offers as a means to control utilization of long-term care services as well
as to coordinate services, there does not yet appear to be an agreed upon strategy as
to the most effective way to incorporate case management functions into expanded
long-term care benefits. However, because there is a recognition that responsibility
for client assessment and eligibility should be vested in a designated entity, most bills
proposing new Federal long-term care benefits designate specific agencies to carry out
some or all of the case-management functions.
Cost Sharing. Traditionally cost sharing through deductibles and copayments
has been included in private and public health insurance plans as a way to control
utilization of benefits and limit a plan's liability for the costs of services. Cost
sharing in long-term care bills has taken two major forms. First, bills often include
CRS-13
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05-29-90
deductibles that require beneficiaries to incur certain expenditures out-of-pocket
before payments can be made on behalf of an individual. Cost-sharing can also take
the form of copayments and coinsurance that require the beneficiary to share in the
cost of any services received under the program.
The deductible and copayment requirements of some bills, e.g., S. 2305 and H.R.
5393, are also intended to define a role for private long-term care insurance in
financing a portion of the costs of services. Another approach contained in S. 2163
would require individuals to pay 35% of nursing home costs for stays longer than 6
months. This amount is intended to represent the cost of room and board which the
resident would have to pay if living in the community. This bill intends that new
Federal long-term care benefits offer comprehensive protection, with additional
insurance coverage unnecessary.
Reimbursement. The way long-term care services are reimbursed will have a
significant impact on expenditures under any new program. Medicare currently
reimburses covered home health and nursing home services on the basis of reasonable
costs (defined by the program) that have actually been incurred for care provided to
program beneficiaries, up to specified limits. This method has been criticized on a
number of grounds, including its lack of incentives for providers to maximize
efficiency and minimize costs. Most States use, at least in part, a prospective
payment method for reimbursing nursing home care under their Medicaid programs.
Prospective payment reimbursement establishes in advance of the time when services
are provided, payment rates for care on a per visit, per case, per month, or other
basis. Many bills would require that reimbursement for community and/or nursing
home care be based on a fee schedule, or other prospectively-determined
reimbursement mechanism, established by the Secretary.
Various Federal long-term care demonstrations have attempted to control
payments for expanded home and community-based care by establishing caps on
amounts that can be spent for services. Generally these have been linked to average
Medicaid payments for nursing home care in the State, on the assumption that
expanded services will serve as a substitute for institutional care and should cost less.
The National Long-Term Care Channeling Demonstration, for example, required that
average per client expenditures for expanded community-based care not exceed 60%
of the average of the State's Medicaid rates for nursing homes in the demonstration
area. Bills generally use some variation of this cap concept. Other bills, e.g., H.R.
3140, would limit payment for services based on an individual's level of impairment.
Financing. Bills proposing new publicly funded long-term care benefits
recognize that new revenues would be required to finance these benefits. Cost
estimates for these bills range from $7 to $9 billion per year for H.R. 3436
(introduced in the 100th Congress), very similar to this year's H.R. 2263, to $50 to
$60 billion per year for H.R. 3140.
Financing issues in long-term care involve not only questions of how revenues
will be raised, but also who should be paying the costs of expanded long-term care
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benefits. To finance new expenditures, bills variously proposed increases in the
Medicare payroll tax, increases in the Social Security payroll tax (generally, by
applying these taxes to all income above the wage cap, currently $48,000), increases
in Medicare Part B premiums, increases in supplemental premiums (or surtaxes) that
finance Medicare catastrophic insurance, new estate taxes (on the grounds that
expanded long-term care coverage under a public program protects assets that would
be inherited by children or others), and deductibles and copayments for services
received. Bills that proposed to provide tax incentives for the purchase of private
insurance for long-term care also required new Federal expenditures, specifically tax
expenditures that represent revenues lost to the Treasury. These various tax
approaches are discussed in CRS Report 89-329, Tax Options for Financing Long-
Term Care for the Elderly.
Financing questions also include concern about the adequacy of revenues to
cover costs into the future. There is a good deal of uncertainty that accompanies any
estimate of costs of new long-term care benefits for the future. Because of the lack
of experience with utilization of long-term care in an insured environment,
information does not exist to show what demand will be when a formal program of
coverage is available for care. Nor does information exist about what the demand for
services will be in the future as the population ages.
LEGISLATION
H.R. 3933 (Wyden)/S. 1942 (Rockefeller)
Medicaid Frail Elderly Community Care Amendments of 1990. Amends Medicaid
to allow States to cover, for certain functionally disabled elderly persons, a broad
range of nonmedical home and community-based care services as an optional service
under their Medicaid programs. H.R. 3933 introduced February 1; referred to the
Committee on Energy and Commerce. S. 1942 introduced Nov. 20, 1989; referred to
the Committee on Finance. Earlier versions of these bills had been considered as
part of the reconciliation process of 1989, but not included in the enacted OBRA 89,
P.L. 101-239.
H.R. 2263 (Pepper)
Long-Term Home Care Act of 1989. Amends Medicare to provide coverage of
long-term home care services to chronically ill elderly, disabled, and children who are
functionally dependent in at least two ADLs. Limits payments for services to a
certain percentage of institutional care costs, depending on the eligibility category
of the individual and degree of impairment. Finances benefits through the
elimination of the cap on income subject to the Medicare payroll tax. Introduced May
4, 1989; referred to Committees on Ways and Means and Energy and Commerce.
H.R. 3203 (Stark)
SSI Community Living Amendments of 1989. Authorizes funds to States for
targeted income supplements on behalf of low income aged and disabled persons who
need regular assistance with ADLs in their place of residence. Authorizes grants to
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05-29-90
States to assist them in identifying and investigating unlicensed group living
arrangements where SSI recipients live. Ties a State's eligibility for targeted income
supplements for individuals to State implementation of procedures to identify and
investigate unlicensed or unsafe group living arrangements. Introduced Aug. 4, 1989;
referred to the Committee on Ways and Means.
H.R. 3140 (Waxman)
Elder-Care Long-Term Care Assistance Act of 1989. Amends Medicare to provide
coverage of nursing facility and home and community-based services to chronically
dependent persons. Payment for home and community services would be dependent
upon an individual's degree of impairment and coverage would be limited to a
specified number of hours per week. Payment for nursing facility care would be
shared with beneficiaries who would pay 10% of the cost of care after 2 years of care
and lower amounts before that time. Finances benefits through the elimination of
the cap on income subject to the social security and Medicare payroll tax. Introduced
Aug. 4, 1989; referred to the Committees on Energy and Commerce and Ways and
Means.
S. 2163 (Kennedy)
Lifecare Long-Term Care Protection Program. Amends the Public Health Service
Act to provide coverage for home and community-based care and nursing home care
for functionally impaired persons. Payment for home and community-based care
would be based on severity of dependency in ADLs, cognitive impairment, age, and
other factors. Nursing home care would be covered in full for the first 6 months of
needed care. An optional nursing home program would cover stays longer than 6
months if persons had enrolled by paying premiums beginning at age 45 or age 65.
Introduced Feb. 22, 1990; referred to Committee on Labor and Human Resources.
CRS-16
89-42 L
CRS Report for Congress
Long-Term Care Financing:
Selected References
Peter Giordano
Bibliographer, Education and Public Welfare
Library Services Division
January 1989
CRS
Congressional Research Service The Library of Congress
The Congressional Research Service works exclusively for the Congress, conducting re-
search, analyzing legislation, and providing information at the request of committees,
Members, and their staffs.
The Service makes such research available, without partisan bias, in many forms includ-
ing studies, reports, compilations, digests, and background briefings. Upon request,
CRS assists committees in analyzing legislative proposals and issues, and in assessing the
possible effects of these proposals and their alternatives. The Service's senior specialists
and subject analysts are also available for personal consultations in their respective fields
of expertise.
LONG-TERM CARE FINANCING:
SELECTED REFERENCES
SUMMARY
This bibliography includes references on financing long-term care as
a national issue. The articles cited discuss both public and private funding
as well as the impact of catastrophic illness on long-term care policy.
Materials were drawn from the CRS Public Policy Literature file (PPLT) and
include articles from 1981 through 1988.
LONG-TERM CARE FINANCING:
SELECTED REFERENCES
Brody, Stanley J.
Strategic planning: the catastrophic approach. Gerontologist, V. 27,
Apr. 1987: 131-138.
LRS87-2489
"Three major societal responses to the perceptions of catastrophe
for the aging family are traced. The first two, the needs for basic
subsistence and for access to acute care medicine, were resolved
The third and unresolved catastrophe, the need for continuity of care,
is defined, popular perceptions of that need evaluated, and a policy
solution suggested."
Chollet, Deborah J. Friedland, Robert B.
Employer financing of long-term care. Washington, Employee Benefit
Research Institute, 1987. 36 p.
LRS87-14407
"Examines the potential for employer-based financing of long-term
care among current and future retirees in the United States. Two
assertions underlie our discussion: (1) employer-based plans have been
and will continue to be a successful means of retirement saving; and
(2) for most people, saving over one's working years is the most
efficient way to finance long-term care."
Clinkscale, Robert M. Ray, Sheila S.
Survey of Medicaid home and community-based care waivers: FY1986.
Columbia, Md., La Jolla Management Corp., 1987. ca. 75 p. in various
pagings (Medicaid program evaluation working paper MPE 1.11)
LRS87-14406
Partial contgents.-Status of waiver program implementation.-
Waiver programs serving the aged and/or physically disabled.--Waiver
programs serving the developmentally disabled and chronically mentally
ill.-State perspectives on administration of the waiver programs.
Committee on Aging Society (U.S.).
America's aging: health in an older society. Washington, National
Academy Press, 1985. 241 p.
LRS85-15409
Partial contents.--Demographic aspects of the older population.--
Waxing of the gray, waning of the green.--Active life expectancy:
societal implications.--Health, disease, and cardiovascular aging.--
Depressive illness in late life.--Aging and age-dependent disease:
cognition and dementia.--Informal social support systems for the frail
elderly.--Financing long-term care for the elderly: institutions,
incentives, issues.
CRS-2
Completing the long term care continuum: an income supplement strategy.
Washington, Center for the Study of Social Policy, 1988. 235 p.
LRS88-1407
Provides in-depth profiles of State SSI supplement programs.
Asks "does an income supplementation strategy possibly offer the kind
of individualized, flexible and need-targeted resource that will best
contribute to a desirable long term care system? What are its specific
problems and limitations, and how can it be integrated with health
care, housing and social services?"
Doty, Pamela, Korbin Liu, and Joshua Wiener.
An overview of long-term care. Health care financing review, V. 6,
spring 1985: 69-78.
LRS85-12908
"Long-term care (LTC) refers to health, social, and residential
services provided to chronically disabled persons over an extended
period of time. Especially during the last 20 years, State and Federal
Governments have played an increasing role in the financing of long-
term care. The aging of the population underlines the future
importance of this topic. This article provides background data on
need, supply, and expenditures; discusses government financing
programs; and addresses quality of care concerns and options for LTC
reform."
England, Robert S.
The catastrophic health care blunder. American spectator, V. 21,
Nov. 1988: 25-28, 30.
LRS88-9054
"The story of how Ronald Reagan, Otis Bown, and a rogue
Congress came up with what might be the most expensive piece of
social legislation since the Great Society--and still failed to provide real
catastrophic care for our elderly."
Feder, Judith, and John Holahan.
Financing long-term care. National journal, V. 15, June 4, 1983: 1203-
1205.
LRS83-5958
"Describes the current state of long-term care financing, explains
why improved efficiency is unlikely to solve its problems, and briefly
considers options for improved financing from private and public
sources."
Feder, Judith, and William J. Scanlon.
Federal financing and fiscal incentives: shuffling Federal programs to
pay for long-term care. Washington, Urban Institute, 1983. 45 p.
(Working paper 1466-15)
LRS83-19791
CRS-3
Firman, James P.
Private long term care insurance: how well is it meeting consumer
needs and public policy concerns? Washington, United Seniors Health
Cooperative, 1988. 46 p.
LRS88-12063
Addresses "three questions about private long-term care insurance
policies: 1. What is the probability that a person will collect any
benefits from a long-term care insurance policy if he or she is admitted
to a nursing home? 2. If a person is in a nursing home for a long
period of time and qualifies for coverage, how much of the total bill
will the policy pay? How much will the consumer have to pay out of
pocket? 3. How comprehensive is the home care coverage?"
The Financial capacity of the elderly to insure for long-term care.
Gerontologist, V. 27, no. 4, 1987: 494-502.
LRS87-7550
"Considered was the financial capacity of the elderly for
purchasing any of four emerging long-term care plans: Social/Health
Maintenance Organizations, long-term care insurance, Life Care at
Home, and Continuing Care Retirement Communities. Between 50%
to 80% of all elderly could afford to purchase one of these plans
depending on the amount of discretionary income they would be
willing to spend. The market for these options will largely be
determined by the willingness of the elderly to spend assets."
Financing care for patients with Alzheimer's disease and related disorders;
a briefing by the Subcommittee on Human Services of the Select
Committee on Aging, House of Representatives, 99th Congress, 2nd
session. Washington, G.P.O., 1986. 35 p.
LRS86-12720
At head of title: Committee print.
"Comm. pub. no. 99-596"
"Outgrowth of a one-day workshop held in May, 1986 and
sponsored by seven Representatives and ten Senators," which "focused
on a paper that was written by Dr. Karen Davis and Ms. Patricia
Neuman of Johns Hopkins University."
Financing long-term care. EBRI [Employee Benefits Research Institute]
issue brief, no. 48, Nov. 1985: 1-11.
LRS85-11660
"Evaluates demographic changes and health care expenditures of
the elderly and the risks associated with chronic health conditions.
Existing financial mechanisms are explored, as are alternative
approaches to long-term care financing. The financing of long-term
care is the most fundamental issue discussed."
Haislmaier, Edmund F.
Catastrophic health legislation: Congress's case of Medicare
malpractice. Washington, Heritage Foundation, 1988. 15 p. (Issue
bulletin no. 139)
LRS88-4257
CRS-4
Hay, Joel W., and Richard L. Ernst.
The economic costs of Alzheimer's disease. American journal of public
health, V. 77, Sept. 1987: 1169-1175.
LRS87-6797
"The estimated present value of total net costs to society for all
persons first diagnosed with Alzheimer's Disease in 1983 was $27.9--
31.2 billion. Development of a public or private insurance market for
the economic burdens of Alzheimer's Disease would fill some of the
gaps in the current US system of financing long-term chronic disease
care."
Increasing private financing of long-term care: opportunities for
collaborative action. Prepared for SRI Conference on Private
Financing of Long-Term Care. Menlo Park, Calif., SRI International,
1985. 56 p.
LRS85-11601
Identifies "an action agenda for promoting public-private
partnerships; and reviews alternative models for private financing of
long-term care. Both insurance instruments and non-insurance
instruments, often termed cash accumulation approaches, are
considered. Design issues such as reimbursement methods and types of
services to cover are assessed, as well as implementation problems such
as product design, state regulation, and the availability of Medicaid
benefits."
Isaacs, Mareasa R. Goldman, Sybil K.
State initiatives in long-term care: report of a survey of 32 states.
Washington U.S. Dept. of Health and Human Services, Bureau of
Health Maintenance Organizations and Resources Development, Office
of Health Planning; reproduced by NTIS, 1984. 62, 18 p.
LRS84-13157
"HRP-0905897, Aug. 1984"
Partial contents.-Key state policy issues in long-term care.--
Federal and private sector demonstration projects: new resources for
the provision and financing of long-term care services.--State
coordination of long-term care.--Changes in the delivery and financing
of long-term care services.
Jacobs, Bruce, and William Weissert.
Using home equity to finance long-term care. Journal of health
politics, policy and law, V. 12, spring 1987: 77-95.
LRS87-2290
"Analyzes the potential of using home equity to finance long-term
care of the elderly, including payments for home care and for long-
term care insurance
First estimates each homeowner's risk of
need for care (and risk of institutionalization) and then calculates the
degree to which home equity could be used to cover the costs of home
care (or of insurance premiums)."
CRS-5
Kemper, Peter. Applebaum, Robert. Harrigan, Margaret.
Community care demonstrations: what have we learned? Health care
financing review, V. 8, summer 1987: 87-100.
LRS87-13422
"Policymakers should move beyond asking whether expanding
community care will reduce costs to addressing how much community
care society is willing to pay for, who should receive it, and how it can
be delivered efficiently."
Kosterlitz, Julie.
The graying of America spells trouble for long-term health care for
elderly. National journal, V. 17, Apr. 13, 1985: 798-801. LRS85-3065
Sees a worsening crisis in provision for the health needs of
nursing home patients, many of whom end up receiving Medicaid.
Describes how both State and Federal officials are concerned with who
will pay and how to limit costs.
Lave, Judith R.
Cost containment policies in long-term care. Inquiry (Chicago), V. 22,
spring 1985: 7-23.
LRS85-3250
"The rapidly increasing growth of the elderly population in the
United States, especially the increasing proportion of the 'old old'
among the elderly, has thrust long-term care--its evolution,
organization, and financing--into the national limelight. In this report
of the effectiveness of various policies to contain the costs of long-term
care, the author focuses on the aggregate public costs of providing this
care. Also discusses the impact of public policy on access to needed
services by the vulnerable population, the quality of these services, and
the quality of life of the recipients of long-term care."
Long-term care financing and delivery systems: exploring some alternatives:
conference proceedings. Edited by Patrice Hirsch Feinstein, Marian
Gornick, and Jay N. Greenberg. Baltimore, Md., U.S. Health Care
Financing Administration, for sale by the Supt. of Docs., G.P.O., 1984.
135 p. (HFCA publication no. 03174)
LRS84-13251
Partial contents.--Long-term care insurance.--Life care
communities.- Social/health maintenance organization.--Housing.--Home
equity conversion.-State and Federal tax modifications.-Family care.--
Volunteerism.
Moon, Marilyn.
Private capacity to finance long term care. Washington, Urban
Institute, 1983. 52 p. (Working paper 1466-12)
LRS83-19787
Partial contents.--A conceptual approach to assessing resources for
financing long-term care.--Empirical results for the elderly.--Empirical
results for impaired persons.--Future direction for research.
CRS-6
Neuschler, Edward, and Claire Gill.
Medicaid eligibility for the elderly in need of long term care.
Sept. 1987. Washington, Congressional Research Service, 1987. 152 p.
87-986 EPW
The purpose of this report is to begin to explore the process by
which elderly persons become eligible for skilled and intermediate
nursing home care under Medicaid. Based on a survey of 50 States'
Medicaid programs, the report discusses the basic criteria elderly people
must meet in order to become eligible for Medicaid and presents
limited information on the availability of nursing home beds and on
the process by which the need for nursing home care is certified.
State and Federal rules governing the income and assets of the non-
institutionalized spouse of a Medicaid nursing home resident are also
discussed.
Excerpts appear in Senate document no. 100-26. What should the
Federal Government do to enhance the quality of life for United States
citizens over age 65? National debate topic for high schools, 1988-
1989, pursuant to Public Law 88-246. 1988. p. 308-310.
O'Shaughnessy, Carol, and Richard Price.
Financing and delivery of long-term care services for the elderly.
Revised May 25, 1988. Washington, Congressional Research Service,
1988. 109 p.
88-379 EPW
This report provides an overview of information on these two
major issues in long-term care--(1) the potentially catastrophic expenses
elderly persons can incur as the result of chronic illness or disability
and (2) the need and demand for additional home and community-
based care. It includes information on characteristics of the elderly
and their utilization of long-term care services as well as their
projected utilization of services in the future. It also reviews public
sector programs that support long-term care and private sector
approaches that have been suggested in the past few years as feasible
alternatives for financing this care.
Paringer, Lynn.
The forgotten costs of informal long-term care. Washington, Urban
Institute, 1983. 41 p. (Working paper 1466-28)
LRS83-19786
Partial contents.-Characteristics of the functionally disabled.--The
care givers.-Allocation of time to informal care giving.--The cost of
informal care.
CRS-7
Price, Richard J., and Carol O'Shaughnessy.
Long-term care for the elderly: issue brief. Updated regularly.
Washington, Congressional Research Service.
IB88098
Financing and providing for long-term care for the elderly is an
important issue for the Congress for a number of reasons. Paying for
long-term care services, especially nursing home care, can represent a
catastrophic expenditure that improvishes many elderly persons and
their families. In addition, significant Federal resources are devoted to
nursing home care through the Medicaid program, while only limited
funding supports home and community-based services that the elderly
and their families prefer over institutional care. In the 100th
Congress, bills have been introduced proposing large scale reform of
the way long-term care is financed through public programs, primarily
through an expansion of Medicare coverage of institutional and/or
home and community-based services. This new issue brief explores the
major considerations related to this timely topic.
Rivlin, Alice M., and Joshua M. Wiener.
Caring for the disabled elderly: who will pay? Washington, Brookings
Institution, 1988. 318 p.
LRS88-5000
Partial contents.-Private sector strategies for reform.--Private
long-term care insurance.-Continuing care retirement communities.--
Social/health maintenance organizations. Home equity conversions.--
Public sector strategies.--Block grants.--Family responsibility.-Support
for unpaid caregivers.--Liberalized Medicaid.--Recommendations for
financing long-term care.
Who should pay for long-term care for the elderly? Brookings review,
V. 6, summer 1988: 3-9.
LRS88-5155
"The disabled elderly must rely on their own resources or, when
these have been exhausted, turn to welfare
Americans should
carefully consider alternative ways of financing long-term care."
Rovner, Julie.
Long-term care: the true 'catastrophe'? Congressional Quarterly
weekly report, V. 44, May 31, 1986: 1227-1231.
LRS86-4494
Examines the question of who pays for long-term care and looks
at proposals to deal with these costs. The proposals include expanding
Medicare coverage as well as a number of private sector initiatives.
CRS-8
Scanlon, William J., and Judith Feder.
The long-term care marketplace: an overview. Healthcare financial
management, V. 14, Jan. 1984: 18-19, 24-26, 28, 30, 34, 36.
LRS84-18975
"Provides an overview of the long-term care marketplace,
identifying the long-term care population, examining how population
and policy changes have affected the use and nature of long-term care
services up to now, and exploring how future population and socio-
economic changes are likely to influence the long-term care market."
Sherwood, Sylvia, John N. Morris, and Hirsch S. Ruchlin.
Alternative paths to long-term care: nursing home, geriatric day
hospital, senior center, and domiciliary care options. American journal
of public health, V. 76, Jan. 1986: 38-44.
LRS86-1725
"Examines certain quality of life outcomes, as well as comparative
costs of care, for selected types of persons entering three very distinct
types of alternative service programs that address the long-term care
needs of vulnerable elderly persons.
Except for the issue of
institutionalization, quality of life impact analysis showed only a few
more post-test differences than would be expected by chance (although
the few post-test differences that were observed in each case favored
less restrictive settings). This more general similarity of outcome is
indeed provocative, suggesting that in many ways the applicants
adapted similarly to these quite distinct programs. Cost analyses
found that nursing home and geriatric day hospital care, the two most
restrictive settings, were also the two most expensive interventions."
Smeeding, Timothy M. Straub, Lavonne.
Health care financing among the elderly: who really pays the bills?
Journal of health politics, policy and law, V. 12, spring 1987: 35-52.
LRS87-2288
"Investigates the issue of who pays the health care bills of the
elderly by considering the types of subsidized health insurance
protection enjoyed by the noninstitutionalized elderly and the way that
increased Medicare cost-sharing efforts in the 1980s are affecting those
without additional health insurance subsidies
Found that
increased cost sharing is likely to fall most heavily on those elderly
least likely to afford it: the poor and near-poor elderly who have only
Medicare as a health insurance subsidy, particularly those who are
older and sicker and who use Medicare services more heavily."
CRS-9
Smith, Mary F.
Medicaid services for persons with mental retardation or related
conditions. Dec. 8, 1988. Washington, Congressional Research Service,
1988. 52 p.
88-759 EPW
The major source of Federal financing for services for persons
with mental retardation or related conditions is the Medicaid program,
authorized under title XIX of the Social Security Act. This report
discusses the service needs, service delivery issue, and costs and trends
related to services for this population.
Somers, Anne R.
Insurance for long-term care: some definitions, problems, and
guidelines for action. New England journal of medicine, V. 317, July 2,
1987: 23-29.
LRS87-5344
"The costs of long-term care should and will almost certainly
continue to be met through multiple sources (including personal
savings, family responsibility, private insurance, and state and local
assistance), but federal leadership, standards, revenue collection, and
some form of coordinating framework are essential for equitable access;
adequate risk pooling, income, and benefits; continuity of care and
records; and avoidance of wasteful duplication."
Stone, Robyn. Cafferata, Gail Lee. Sangl, Judith.
Caregivers of the frail elderly: a national profile. Gerontologist, V. 27,
Oct. 1987: 616-626.
LRS87-12243
Reports on a 1982 survey of caregivers to noninstitutionalized
disabled people over age 65.
Tell, Eileen J., Marc A. Cohen, and Stanley S. Wallack.
Life care at home: a new model for financing and delivering long-term
care. Inquiry, V. 24, fall 1987: 245-252 p.
LRS87-11374
"In this paper we describe the Life Care at Home (LCAH) concept,
a new long-term care insurance and service delivery model that
combines the financial and health security of a continuing care
retirement community (CCRC) with the freedom and independence of
living at home."
U.S. Congress. House. Committee on Ways and Means. Subcommittee on
Health.
Long-term care. Hearing, 100th Congress, 1st session. Mar. 31, 1987.
Washington, G.P.O., 1987. 220 p.
LRS87-11125
"Serial 100-19"
Examines the projected need for long-term care services and the
problems of the existing financing and delivery systems. Discusses
options for financing long-term care including expanded Medicare
benefits, home equity conversions, and private long-term care
insurance.
CRS-10
U.S. Congress. House. Select Committee on Aging.
Catastrophic health costs: broad problem demanding equally broad
solution. Joint hearing before Select Committee on Aging, House of
Representatives and the Special Committee on Aging, United States
Senate, 100th Congress, 1st session. Jan. 28, 1987. Washington,
G.P.O., 1987. 102 p.
LRS87-4433
"House Select Committee on Aging pub. nbr. 100-618; Senate
Sepcial Committee on Aging pub. nbr. 100-2"
Examines the Dept. of Health and Human Services' report
(LRS86-12213) on catastrophic illness coverage for Medicare
beneficiaries and individuals under age 65.
U.S. Congress. House. Select Committee on Aging. Subcommittee on
Health and Long-term Care.
Paying the price of catastrophic illness: from accidents to Alzheimer's.
Hearing, 100th Congress, 1st session. Jan. 28, 1987. Washington,
G.P.O., 1987. 176 p.
LRS87-3574
"Comm. pub. no. 100-616"
Presents examples of long-term care needs, illustrating the
inadequacy of public policies and private health insurance coverage.
U.S. Congress. Senate. Special Committee on Aging.
Developments in aging: 1987; vol. 3--the long-term care challenge; a
report
pursuant to S. Res. 80, Sec. 19, January 28, 1987 resolution
authorizing a study of the problems of the aged and aging.
Washington, G.P.O., 1988. 67 p. (Report, Senate, 100th Congress, 2nd
session, no. 100-291, V. 3)
LRS88-3551
U.S. Congress. Senate. Committee on Finance.
Catastrophic health insurance. Hearing, 100th Congress, 1st session.
Part 1 of 3. Jan. 28, 1987. Washington, G.P.O., 1987. 122 p.
(Hearing, Senate, 100th Congress, 1st session, S. Hrg. 100-169, pt. 1)
LRS87-11121
Discusses the issue of coverage of catastrophic illness expense and
reviews proposals made by the Dept. of Health and Human Services
(See also LRS86-12213).
U.S. Congress. Senate. Committee on Finance. Subcommittee on Health.
Long-term health care. Hearing, 100th Congress, 1st session. Feb. 24,
1987. Washington, G.P.O., 1987. 405 p. (Hearing, Senate, 100th
Congress, 1st session, S. Hrg. 100-35)
LRS87-4115
Examines long-term health care issues and options for improving
delivery and financing of long-term care for the elderly, including
Medicare and Medicaid coverage revisions and expansion of home and
community-based alternatives to nursing home care.
CRS-11
U.S. Congress. Senate. Committee on Governmental Affairs.
Subcommittee on Government Efficiency, Federalism and the District
of Columbia.
Resolving catastrophic health problems in the Medicare program.
Hearings, 100th Congress, 1st session. Washington, G.P.O., 1988.
376 p. (Hearings, Senate, 100th Congress, 1st session,
S. Hrg. 100-365)
LRS88-435
Hearings held August 27, 1987 (Nashville, TN); August 28, 1987
(Memphis, TN); and August 29, 1987 (Chattanooga, TN).
Presents examples of the impact of catastrophic illness on families
illustrating the inadequacy of Medicare coverage and the need for
programs for the financing of long-term care.
U.S. Congress. Senate. Special Committee on Aging.
Catastrophic health care costs. Hearing, 100th Congress, 1st session.
Jan. 26, 1987. Washington, G.P.O., 1987. 199 p. (Hearing, Senate,
100th Congress, 1st session, S. Hrg. 100-69)
LRS87-4981
"Serial no. 100-1"
Discussion of catastrophic health care costs and coverage issues,
including Medicare, Medicaid, and private health insurance
reimbursement limitations.
U.S. Dept. of Health and Human Services.
Catastrophic illness expenses; report to the President. Washington,
The Department, 1986. 117 p.
LRS86-12213
Partial contents.-The current health care system and the problem
of catastrophic expenses.--Coverage and risk patterns: acute care for
the elderly.--Long term care for the elderly.--Coverage and risk
patterns: the working age population.-Catastrophic illness coverage
policy options.--More complete coverage of catastrophic illness expense
for Americans: recommended strategy.
Weissert, William G.
Seven reasons why it is so difficult to make community-based long-
term care cost-effective. Health services research, V. 20, Oct. 1985:
423-431.
LRS85-15871
"A decade of research on home- and community-based long-term
care shows that few of the assumptions behind expectations of its
potential cost- effectiveness were warranted. Few who use home- and
community-based long-term care would otherwise have been long-
stayers in nursing homes. Long-stayers tend to be older, sicker, more
dependent, and poorer in social resources than those who use
community care. Fewer still who use community care actually have
their institutional stay averted or shortened by its use, even if they are
at risk. But more effective targeting on those most likely to be
institutionalized may lead to high screening costs and small, inefficient
programs, because few patients in the community fit the profile for
high risk of institutionalization."
CRS-12
Where coverage ends: catastrophic illness and long-term health care costs.
Washington, Employee Benefit Research Institute, 1988. 274 p.
(EBRI-ERF policy forum)
LRS88-6789
Concludes that "many millions of Americans face possible financial
ruin from uninsured health care expenses that are potentially
catastrophic in nature. What is not clear is whose responsibility it is
to pay these expenses."
Who can afford a nursing home? Consumer reports, V. 53(s), May 1988:
300-311.
LRS88-12062
Discusses the rising costs of nursing home care and the
effectiveness of long-term care insurance in helping people cope with
these costs. Argues that the federal government should create
universal coverage for long-term care no matter where the service is
rendered.
Wiener, Joshua M.
Private long-term care insurance: cost, coverage, and restrictions.
Gerontologist, V. 27, no. 4, 1987: 487-493.
LRS87-6798
"A descriptive analysis of 31 private long-term care insurance
policies was conducted. Policies were examined for premium rates,
extent and levels of coverage, restrictions on eligibility to purchase a
policy, and indemnity payment levels. Findings suggested that policies
are expensive, impose numerous eligibility restrictions, offer limited
coverage for certain services, and provide indemnity payments that fail
to account for inflation."