Health Insurance: States' Protections and Programs Benefit Some  
Unemployed Individuals (25-OCT-02, GAO-03-191). 		 
                                                                 
The six states reviewed had in place a variety of protections,	 
established prior to the economic downturn, to assist unemployed 
individuals in maintaining health insurance coverage:		 
State-mandated continuation coverage, which required small	 
businesses to extend their group health coverage to former	 
employees and their families who choose to pay for it. Guaranteed
conversion, which required insurers to allow eligible individuals
to convert their group coverage to individual health insurance	 
policies. Guaranteed issue, which required insurers to offer	 
coverage to those who did not have access to group coverage or	 
public insurance. High-risk pools, state-created associations	 
that offered comprehensive health insurance benefits to 	 
individuals with acute or chronic health conditions. However,	 
individuals usually bore the full cost of the premiums, which was
usually higher than their premium cost under employer-sponsored  
plans. For individuals who relied on unemployment benefits as	 
their principal income, premiums absorbed a significant share of 
the benefit.							 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-03-191 					        
    ACCNO:   A05398						        
  TITLE:     Health Insurance: States' Protections and Programs       
Benefit Some Unemployed Individuals				 
     DATE:   10/25/2002 
  SUBJECT:   Disadvantaged persons				 
	     Health care programs				 
	     Health insurance					 
	     Unemployment compensation programs 		 
	     Managed health care				 
	     State-administered programs			 
	     Medicaid Program					 
	     State Children's Health Insurance			 
	     Program						 
                                                                 

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GAO-03-191

Report to Congressional Requesters

United States General Accounting Office

GAO

October 2002 HEALTH INSURANCE States* Protections and Programs Benefit
Some Unemployed Individuals

GAO- 03- 191

The six states reviewed had in place a variety of protections, established
prior to the economic downturn, to assist unemployed individuals in
maintaining health insurance coverage: * State- mandated continuation
coverage, which required small businesses

to extend their group health coverage to former employees and their
families who choose to pay for it.  Guaranteed conversion, which required
insurers to allow eligible

individuals to convert their group coverage to individual health insurance
policies.  Guaranteed issue, which required insurers to offer coverage to
those

who did not have access to group coverage or public insurance.  High-
risk pools, state- created associations that offered comprehensive

health insurance benefits to individuals with acute or chronic health
conditions. However, individuals generally bore the full cost of the
premiums, which

was usually higher than their premium cost under employer- sponsored
plans. For individuals who relied on unemployment benefits as their
principal income, premiums absorbed a significant share of the benefit.
State Protections that Facilitate Access to Health Insurance Coverage for
the Unemployed in

Six Selected States State

State- mandated continuation coverage State- mandated guaranteed
conversion

State- mandated guaranteed issue High- risk pool

Colorado

Page i GAO- 03- 191 Health Insurance for Unemployed Individuals Letter 1
Results in Brief 2 Background 4 Various State Protections Offer
Assistance, but Unemployed Individuals Generally Bear the Full Premium
Cost 14 Eligibility for Medicaid and SCHIP Programs Is Limited for

Unemployed Adults Despite Expansions in Some States 23 Concluding
Observations 29 State Comments 30 Appendix I HIPAA Group- to- Individual
Portability in Six States 32

Related GAO Products 34

Tables

Table 1: Insurance Status of Nonelderly Adults, by Employment Level, Firm
Size, and Industry, 2001 8 Table 2: Changes in Unemployment by State,
March 2001 to March

2002 10 Table 3: Percentage Change in Employment for Selected Industries
for Six States, March 2001 to March 2002 11 Table 4: Unemployment Benefits
in Six States, First Quarter 2002 12 Table 5: State Protections That
Facilitate Access to Health

Insurance Coverage for the Unemployed in Six Selected States 15 Table 6:
State Continuation Coverage Requirements and Benefits 17 Table 7: Selected
Characteristics of the Standard Guaranteed Issue Plans Covering Hospital
and Medical Services in New Jersey, September 2002 19 Table 8: Selected
Characteristics of High- Risk Pools in Three

States, June 2002 21 Table 9: Receipt of Unemployment Benefits Often Made
Parents Ineligible for Medicaid 24 Table 10: Asset Exclusions for Parents
under Medicaid in Six States 25 Table 11: Medicaid and SCHIP Family Income
Eligibility Limits and

Asset Tests for Children*s Eligibility in Six States, 2002 26 Contents

Page ii GAO- 03- 191 Health Insurance for Unemployed Individuals Table 12:
Eligibility Levels for Childless Adults and Parents Applying for Medicaid,
2002 27 Table 13: Approaches to Group- to- Individual Portability in Six

States 33 Figures

Figure 1: Source of Health Insurance Coverage of Nonelderly Adults and
Children, 2001 5 Figure 2: States* Shares of Nonelderly Residents Who Are

Uninsured Compared to U. S. Average, March 2002 9 Abbreviations

COBRA Consolidated Omnibus Budget Reconciliation Act of 1985 CPS Current
Population Survey HHS Department of Health and Human Services HIPAA Health
Insurance Portability and Accountability Act of 1996 HMO health
maintenance organization MEPS Medical Expenditures Panel Survey PPO
preferred provider organization SCHIP State Children*s Health Insurance
Program

Page 1 GAO- 03- 191 Health Insurance for Unemployed Individuals

October 25, 2002 The Honorable Charles E. Grassley Ranking Minority Member
Committee on Finance United States Senate

The Honorable Gordon Smith United States Senate

In March 2001, the longest economic expansion in United States history
ended, and the country entered a recession, as indicated by a significant
decline in overall business activity, including employment, over several
months. 1 From March 2001 to March 2002, the national unemployment rate
increased from 4.3 percent to 5.7 percent* or from 6.1 to 8.1 million

unemployed individuals* the highest unemployment rate in more than 6
years. 2 Since about two- thirds of nonelderly Americans obtain their
health insurance coverage through an employer, individuals who become
unemployed face not only a loss of income, but also potentially the loss
of

employer- subsidized health insurance. Although the number of people
without health insurance increases as the unemployment rate increases, the
rates of increase are not the same because a sizable number of workers (25
percent) do not have health insurance through their employers. Workers
less likely to receive insurance include those who work in industries
where employment is cyclical in nature, such as agriculture or
construction; when they lose their jobs, their health insurance status is
unaffected.

Federal laws provide some protections to help newly unemployed individuals
maintain health insurance coverage by allowing them to

1 See The Business- Cycle Peak of March 2001, National Bureau of Economic
Research (Nov. 26, 2001). The National Bureau of Economic Research
identifies recessions on the basis of several indicators, including
employment, sales in the manufacturing and trade sectors, and industrial
production.

2 The U. S. Bureau of Labor Statistics characterizes individuals as
unemployed if they are at least 16 years of age, do not have a job, have
actively looked for work in the prior 4 weeks, and are currently available
for work. Persons who were waiting to be recalled to a job from which they
had been laid off need not have been looking for work to be classified as
unemployed. Persons who have lost a job and are not looking for work are
not counted as unemployed.

United States General Accounting Office Washington, DC 20548

Page 2 GAO- 03- 191 Health Insurance for Unemployed Individuals

purchase coverage under their former employer*s group health plan or to
obtain coverage through the individual insurance market. Because states
regulate many aspects of health insurance, they may also require
additional protections for unemployed workers. Two federal- state health
financing programs for certain low- income individuals* Medicaid and the
State Children*s Health Insurance Program (SCHIP)* may also be a source of
health insurance coverage for unemployed individuals or their families.

In light of the recent rise in unemployment and its relationship to health
insurance coverage, you asked us to review selected states with
significant recent increases in unemployment to (1) identify what
protections states have to assist unemployed individuals in maintaining or
obtaining health insurance coverage and (2) assess the extent to which
unemployed

individuals and their families can rely on these states* Medicaid and
SCHIP programs as a source of health insurance coverage.

To examine these issues, we analyzed national and state employment data
from the Bureau of Labor Statistics and data on the uninsured from the
2002 Current Population Survey (CPS) Annual Demographic Supplement. 3
Also, we reviewed six states (Colorado, New Jersey, North Carolina, Ohio,

Oregon and Utah) that had above- average increases in unemployment from
March 2001 to March 2002. We also contacted representatives from states*
insurance and labor departments and Medicaid programs and

obtained statutory, regulatory and other information on state protections
and programs that assist unemployed individuals in maintaining or
obtaining health insurance coverage. We conducted our work from May 2002
through October 2002 in accordance with generally accepted government
auditing standards.

The six states we reviewed had established various protections prior to
the economic downturn to assist individuals in maintaining or obtaining
health insurance coverage. These protections benefit individuals who have
lost their jobs in maintaining coverage under their former employer*s
group plan or in obtaining individual health insurance. They included:
requiring small businesses to extend their group health coverage to former
employees and their families if the former employees pay for it; requiring
insurers to allow individuals to convert group coverage into individual

3 Our national review included the District of Columbia, which we referred
to as a state for purposes of this report. Results in Brief

Page 3 GAO- 03- 191 Health Insurance for Unemployed Individuals

coverage; and establishing high- risk pools that offer comprehensive
health insurance benefits to individuals with acute or chronic health
conditions. However, because states generally did not provide subsidies
and the individual thus bore the full cost of the premium under the state
protections, unemployed persons generally had to pay more for coverage
than they would as participants in an employer- sponsored plan. For those
relying on unemployment benefits as their principal income, the premium
costs under these various protections would absorb a significant share.
For example, the premiums for the high- risk pool in one state nearly
equaled the entire average unemployment benefit. The six states we
reviewed did not have data on the number of individuals who lost their
health insurance during the current economic downturn and therefore could
not quantify the number who might benefit from these protections. A few
states quantified the number of persons who actually used certain
protections. For example, states tracked participation in high- risk pools

and found increased enrollment from March 2001 to March 2002. However,
increased participation could not be attributed solely to increases in the
number of unemployed because other conditions, such as insurers leaving
the market in the state, may have also had an effect.

Unemployed individuals who look to states* Medicaid and SCHIP programs for
health insurance coverage for themselves and their families may find their
eligibility limited. Unemployed workers were less likely than their
children to be eligible for coverage under Medicaid or SCHIP because adult
eligibility thresholds were less generous than those for children. In four
of the six states we reviewed, average unemployment benefits were at least
twice the amount of income allowed for Medicaid eligibility. Two states
with lower income eligibility for adults* Utah and Colorado* have received
federal approval to expand Medicaid and SCHIP coverage for some adults who
would otherwise be ineligible for public coverage* a potential benefit for
some unemployed individuals. In addition, Oregon also recently received
federal approval for program expansions. In the wake of recent fiscal
pressures resulting from the economic downturn, however, New Jersey
recently suspended new enrollment for adults for its Medicaid and SCHIP
programs due to budgetary constraints. In addition, some states* efforts
to expand coverage for uninsured adults, in part by providing adult
coverage with funds intended for children, has raised significant federal
fiscal and legal issues. Representatives from these states* insurance
departments, high- risk pools,

and Medicaid programs provided technical comments on a draft of this
report, which we incorporated as appropriate. We did not obtain comments
from the Department of Health and Human Services (HHS)

Page 4 GAO- 03- 191 Health Insurance for Unemployed Individuals

because we did not assess HHS*s role or performance with respect to
protections or programs that may benefit unemployed individuals.

Employer- sponsored coverage is the predominant source of health insurance
in the United States. In 2001, 67 percent of all nonelderly adults (over
118 million) and 64 percent of all children (46 million) obtained health
insurance through an employer (see fig. 1). Nearly all large firms and
almost half of smaller firms offer health insurance coverage for their
employees. 4 Federal tax laws provide incentives for employers to pay

some or all of the premiums because their contributions are tax deductible
as a business expense; the employer- paid portion of the premiums is also
not considered taxable income for employees. Although the share of the
premiums paid by employers varies with the size of the firm and the type
of health plan, firms pay an average of more than 80 percent of the
premiums for single coverage and more than 75 percent for family coverage.
5 Also, for many individuals, the premiums for employment- based insurance
are lower than those in the private market for comparable individual
coverage.

4 According to the 2000 Medical Expenditures Panel Survey (MEPS), 59
percent of all firms offer health insurance coverage, with 97 percent of
firms with more than 50 employees and 47 percent of firms with fewer than
50 employees offering coverage.

5 According to the 2000 MEPS data, firms with fewer than 50 employees paid
an average of 85 percent of the premiums for single coverage and 72
percent for family coverage. Larger firms (with 50 or more employees),
paid an average of 82 percent of the premiums for single coverage and 77
percent for family coverage. Background

Page 5 GAO- 03- 191 Health Insurance for Unemployed Individuals

Figure 1: Source of Health Insurance Coverage of Nonelderly Adults and
Children, 2001

Note: Due to rounding, percentages may not add to 100 percent. a Includes
Medicare and military health insurance coverage.

Source: GAO Analysis of the 2002 Current Population Survey Annual
Demographic Supplement.

Low- income individuals without access to employer- based insurance
coverage may qualify for Medicaid or SCHIP. These public insurance
financing programs covered over 40 million low- income people at a cost of
about $232 billion in federal and state expenditures in 2001.

Established in 1965, Medicaid is a joint federal- state entitlement
program that finances health care coverage for certain low- income
individuals. Medicaid eligibility is based in part on family income and
assets. States set their own eligibility criteria within broad federal
guidelines. For example, states vary in the kind and amount of income they
exclude from consideration when determining eligibility. Similarly, while
some states set a ceiling on the value of assets* such as cars, savings
accounts, or retirement income* that individuals may have available to
them in order to be deemed eligible for Medicaid, other states have no
asset test for eligibility. To the extent that asset tests are present in
a state*s Medicaid program, individuals would need to *spend down* or
dispose of their assets to become eligible for Medicaid. Medicaid and
SCHIP

Page 6 GAO- 03- 191 Health Insurance for Unemployed Individuals

More than half of the individuals enrolled in Medicaid are children.
Federal law requires states to provide Medicaid coverage to children age 5
and under if their family income is at or below 133 percent of the federal
poverty level and to children age 6 to 19 in families with incomes at or
below the federal poverty. 6 Most states have received federal approval to
set income eligibility thresholds that expand their Medicaid programs
beyond the minimum federal statutory levels for children.

Medicaid eligibility for nondisabled adults is more limited. Federal law
requires states to provide Medicaid coverage to pregnant women up to 133
percent of the federal poverty level, and mandatory eligibility for
parents is linked to the Medicaid family coverage category established in
the 1996 federal welfare reform law. 7 At a minimum, federal law requires
states to offer Medicaid coverage to parents in families that meet the
income and other eligibility rules that the state had in place on July 16,
1996, for determining eligibility for welfare assistance. Nationwide,
considerable variation in Medicaid eligibility thresholds for parents
exists. For example, Alabama covers parents whose family income is up to
13 percent of the federal poverty level. At the other end of the spectrum,
Minnesota covers

parents with family incomes up to 275 percent of the federal poverty
level. The Medicaid statute does not generally provide for mandatory or
optional coverage of nondisabled childless adults. However, some states
have

6 For 2002, the federal poverty level is $8,860 a year for a single
individual and $15,020 for a family of three. Medicaid eligibility is
mandatory for all children born after September 30, 1983, whose family
incomes are less than or equal to the federal poverty level. See 42 U. S.
C. S: 1396a( a)( 10)( A)( i)( VII), (l)( 1)( D) and (l)( 2)( C) (2000). 7
The Personal Responsibility and Work Opportunity Reconciliation Act of
1996, Pub. L. No. 104- 193, 110 Stat. 2105.

Page 7 GAO- 03- 191 Health Insurance for Unemployed Individuals

received federal approval to expand their Medicaid programs to include
coverage for some of them. 8 In 1997, the Congress created SCHIP to
provide health coverage to

children living in families whose incomes exceed the eligibility limits
for Medicaid. While SCHIP is generally targeted to children in families
with incomes at or below 200 percent of the federal poverty level, each
state may set its own income eligibility limits, within certain
guidelines. 9 As of January 2002, states* upper income eligibility
threshold for SCHIP ranged from 133 to 350 percent of the federal poverty
level. Unlike Medicaid, which entitles all those eligible to coverage,
SCHIP has a statutory funding

limit of $40 billion over 10 years (fiscal years 1998 through 2007). Under
SCHIP, states can cover the entire family* including parents or custodians
of eligible children* if it is cost- effective to do so, meaning that the
expense of covering both adults and children in a family does not exceed
the cost of covering just the children. Similar to Medicaid, states can
obtain federal approval of SCHIP expansions through a section 1115 waiver.

While more than 85 percent of Americans obtain health insurance coverage
from the private insurance market or public programs, 40.9 million
nonelderly Americans (16.5 percent) had no health insurance in 2001.
Approximately 75 percent of the uninsured nonelderly adults had jobs.
Individuals working part time, for small firms, or in certain industries,
such as agriculture or construction, were more likely to be uninsured (see
table 1). Young adults, minorities, and low- income persons

8 Under section 1115 of the Social Security Act, the Secretary of Health
and Human Services can waive many of the statutory requirements in the
case of experimental, pilot, or demonstration projects that are likely to
promote Medicaid*s objectives. See 42 U. S. C. S: 1315 (2000). Use of this
authority allows states to provide services or cover individuals not
normally eligible for Medicaid and SCHIP and to receive federal funds
under these programs for services and populations not otherwise eligible.
To receive approval for waivers, states must show that expansions of
coverage should not result in the federal government spending more money
in the state than would have been spent in the absence of the waiver. We
have reported that section 1115 waivers approved for several states were
not budget neutral. See Medicaid Section 1115 Waivers: Flexible Approach
to Approving Demonstrations Could Increase Federal Costs, GAO/ HEHS- 96-
44 (Washington, D. C.: Nov. 8, 1995) and Medicaid and SCHIP: Recent HHS
Approvals of Demonstration Waiver Projects Raise Concerns, GAO- 02- 817
(Washington, D. C.: July 12, 2002).

9 SCHIP allows a state to expand eligibility up to 50 percentage points
above its Medicaid income eligibility standard in 1997. As with the
Medicaid program, SCHIP allows states to set their own income and asset
eligibility criteria. 42 U. S. C. S: 1397jj( b)( 1)( B)( ii) (2000).
Characteristics of

Uninsured Individuals

Page 8 GAO- 03- 191 Health Insurance for Unemployed Individuals

were also more likely to be uninsured. 10 The percentage of uninsured is
generally higher in the South and West and lower in the Midwest and
Northeast (see fig. 2). Texas had the highest uninsured rate of nonelderly
Americans (25.9 percent) of any state in 2001, while Iowa had the lowest
(8.7 percent).

Table 1: Insurance Status of Nonelderly Adults, by Employment Level, Firm
Size, and Industry, 2001

Employment characteristic Percentage uninsured By employment level

Part- time 24.0 Full- time 13.8

By firm size

Fewer than 10 employees 30.3 10 to 24 employees 25.7 25 to 99 employees
18.9 100 or more employees 10.9

By industry

Agriculture, forestry and fishing 38.2 Construction 31.9 Trade 23.9
Services 15.0 Mining 12.9 Transportation and public utilities 12.7
Manufacturing 11.8 Finance, insurance and real estate 9.2 Government 4.3

Source: GAO analysis of the 2002 Current Population Survey Annual
Demographic Supplement.

10 See U. S. General Accounting Office, Health Insurance: Characteristics
and Trends in the Uninsured Population, GAO- 01- 507T (Washington, D. C.:
Mar. 13, 2001).

Page 9 GAO- 03- 191 Health Insurance for Unemployed Individuals

Figure 2: States* Shares of Nonelderly Residents Who Are Uninsured
Compared to U. S. Average, March 2002 Source: GAO Analysis of the 2002
Current Population Survey Annual Demographic Supplement.

Page 10 GAO- 03- 191 Health Insurance for Unemployed Individuals

From March 2001 to March 2002, the national unemployment rate increased
1.4 percentage points, from 4.3 percent to 5.7 percent, with nine states
experiencing above- average increases. The largest percentage point
increases occurred in Colorado (2.6), Oregon (2.5), and Utah (2. 0) (see

table 2).

Table 2: Changes in Unemployment by State, March 2001 to March 2002 Change
(percentage points) State

2.6 Colorado 2.5 Oregon 2.0 Utah 1.9` Ohio 1.8 Arizona, New Jersey 1.7
California, North Carolina 1.6 New York

1.5 Maryland, New Mexico, Tennessee, Texas

1.4 United States, Virginia 1.3 Florida, Mississippi, Wisconsin 1.2
Massachusetts, Michigan

1.1 Nevada, Pennsylvania 1.0 Alabama, New Hampshire, Indiana 0.9 Georgia,
Illinois, South Carolina, Washington, West Virginia 0.8 Idaho, Minnesota

0.7 Connecticut, Missouri 0.6 Maine, Nebraska, Oklahoma, Vermont 0.4
Hawaii, North Dakota 0.3 Arkansas, District of Columbia, Iowa, Kentucky
0.2 Kansas, South Dakota, Wyoming 0.1 Delaware 0.0 Alaska, Montana -0.2
Louisiana -0.5 Rhode Island Source: U. S. Bureau of Labor Statistics data.

Across the six states we reviewed* Colorado, New Jersey, North Carolina,
Ohio, Oregon and Utah* the greatest unemployment increases were generally
seen in manufacturing, construction, and transportation and public
utilities (see table 3). Changes in Employment

Page 11 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 3: Percentage Change in Employment for Selected Industries for Six
States, March 2001 to March 2002 Industry Colorado New Jersey North
Carolina Ohio Oregon Utah

Construction -5.2 2.2 -3.6 -3.2 -10.1 -8.2 Finance, insurance and real
estate -1.0 2.6 -0.8 0. 0 1.0 0.7 Government 3.9 2.0 1. 4 1.4 0.8 1.4
Manufacturing -8.8 -6. 3 -6.4 -4.1 -7.5 -6.8 Mining 8.9 0.0 2. 6 -3.1
-11.1 -5.0 Services -3.3 0.3 0. 7 0.0 -0.9 1.4 Trade -1.3 0.0 -0.6 -1.1
-1.3 -1.5 Transportation and public utilities -7.0 -3.7 -1.4 -2. 2 -3.5
-3.3

Source: U. S. Bureau of Labor Statistics data.

Unemployed individuals may be eligible for financial assistance through
the Unemployment Insurance Program, a federal- state partnership designed
to partially replace the lost earnings of individuals who become
unemployed through no fault of their own. 11 While program requirements

vary by state, individuals eligible for unemployment insurance generally
(1) have worked for a specified period in a job covered by the program,
(2) left the job involuntarily, and (3) are available, able to work, and
actively seeking employment. Most states provide a maximum of 26 weeks of
benefits, although benefits in some states have been extended for an
additional 13 weeks in times of high unemployment. 12 Benefits are
generally based on a percentage of an individual*s earnings over the prior
year, up to a maximum amount. The national average weekly

unemployment benefit was $254 in the first quarter of 2002, with benefits
lasting an average of nearly 15 weeks. In the six states we reviewed, the
weekly unemployment benefit ranged from $253.80 in Ohio to $327.15 in New
Jersey (see table 4).

11 Established in 1935 by the Social Security Act, the Unemployment
Insurance Program is funded through federal and state taxes levied on
employers. 12 On March 9, 2002, the President signed the Temporary
Extended Unemployment

Compensation Act of 2002, which provides eligible individuals with up to
13 weeks of federally financed extended unemployment benefits. Pub. L. No.
107- 147, Tit. II. 116 Stat. 21, 26.

Page 12 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 4: Unemployment Benefits in Six States, First Quarter 2002 State
Average weekly benefit amount

(in dollars) Average duration (in weeks)

Colorado 311.62 13.0 New Jersey 327.15 17.2 North Carolina 256.24 11.4
Ohio 253.80 14.4 Oregon 261.99 15.3 Utah 275.28 12.7 United States 254.00
14.7

Source: U. S. Department of Labor.

Although many aspects of health insurance, including premiums, are
regulated at the state level, 13 two federal laws* the Consolidated
Omnibus Budget Reconciliation Act of 1985 (COBRA) 14 and the Health
Insurance Portability and Accountability Act of 1996 (HIPAA) 15
*established requirements designed to help certain individuals maintain
health coverage after loss of employment.

COBRA provided that firms with 20 or more employees offer former employees
and their dependents the opportunity to continue their group coverage for
at least 18 months. 16 To qualify for COBRA benefits, former employees
must have been covered by the employer*s plan the day before they stopped
working at the firm. Former employees are eligible only for

the health plan coverage that they received while employed. COBRA coverage
is not available if the former employer discontinues health benefits to
all employees, as in a company closure.

13 While all states have enacted laws that require insurers to provide
certain health care benefits, certain types of health insurance plans are
exempt from these requirements. The Employee Retirement Income Security
Act of 1974 generally preempts states from regulating employers that
assume the risk for, or *self- fund,* their employees* health benefits.

14 Pub. L. No. 99- 272, 100 Stat. 83, 222 (1986). 15 Pub. L. No. 104- 191,
110 Stat. 1937, 1939. 16 Under certain circumstances unrelated to job
loss, such as the case of a covered employee*s death, spouses and
dependent children are able to continue group coverage under COBRA for up
to 36 months. Federal Protections

Page 13 GAO- 03- 191 Health Insurance for Unemployed Individuals

While employers must allow COBRA- eligible former employees to continue
receiving coverage under the employer*s group health plan, the employer
does not have to pay for it. The former employee can be required to pay
the full cost of the group health premium plus 2 percent, which is

designed to cover the employer*s administrative cost of keeping the former
employee in the plan. 17 Based on data from a 2002 survey of employers,
the average cost of COBRA coverage is approximately $260 a month for an
individual and $676 a month for a family. 18 Based on a survey of a
national sample of 1,001 nonelderly adults, a recent study estimated that
because of

the cost of COBRA continuation coverage, *only 23 percent of employed,
insured adults would be very likely to participate in the COBRA program if
they lost their jobs.* 19 Unlike COBRA, which provided the opportunity for
individuals losing their

jobs to continue their private group health insurance, HIPAA provisions
guarantee certain individuals losing group coverage the right to purchase
coverage in the individual market. 20 HIPAA provides guaranteed access to
health coverage for individuals who, among other criteria, had at least 18
months of coverage without a break of more than 63 days and with the most
recent coverage being under a group health plan. HIPAA stipulates that
states must either require health insurers to make certain of their
policies available to qualifying individuals or use an *alternative

17 The Trade Act of 2002, Pub. L. No. 107- 210, enacted on August 6, 2002,
gives eligible individuals an immediate 65 percent refundable tax credit
for certain health insurance coverage, including COBRA coverage. The
credit, which takes effect in November 2002, is for workers who lose their
job as a result of trade agreements and for retirees age 55 to 64 who lack
health care benefits and whose former employer*s pension plan was taken
over by the Pension Benefit Guaranty Corporation. The Congressional Budget
Office estimated

that this legislation would increase the number of workers eligible for
coverage by about 50 percent, to nearly 200,000 annually; the refundable
portion of this credit is estimated to cost the federal government $1. 6
billion over fiscal years 2003 through 2012. 18 Costs were calculated
based on 102 percent of average monthly premiums for employersponsored
health plans. See The Kaiser Family Foundation and Health Research and
Educational Trust, Employer Health Benefits: 2002 Annual Survey (Menlo
Park, Calif.: 2002).

19 Jennifer N. Edwards, Michelle M. Doty and Cathy Shoen, The Erosion of
Employer- Based Health Coverage and the Threat to Workers* Health Care:
Findings from The Commonwealth Fund 2002 Workplace Health Insurance Survey
(New York, N. Y.: August 2002).

20 HIPAA also provides protections for individuals changing jobs and
obtaining other coverage by setting group market limitations on
preexisting conditions, exclusion periods, previous coverage credit
requirements, and prohibitions on exclusions based on health status.

Page 14 GAO- 03- 191 Health Insurance for Unemployed Individuals

mechanism* to offer them coverage. An example of an alternative mechanism
is a state- sponsored high- risk pool, which offers comprehensive
insurance coverage to individuals with preexisting health conditions who
are otherwise unable to obtain coverage in the individual

market or who may be able to obtain coverage only at a prohibitive cost.
(Appendix I describes how the six states that we reviewed guarantee access
to coverage under HIPAA.) As with COBRA, individuals bear the full cost of
individual coverage received under HIPAA. Since HIPAA provides for
coverage in the individual insurance market, in which premiums are
generally based on the characteristics of the individual applicant, this
coverage is likely to be more costly for many applicants for a similar
level of coverage than premiums for groups, where risk is spread over all
members of the group. The differences will be smaller in some states that
have imposed restrictions on how much insurers can vary premiums based on
an individual*s characteristics.

The six states we reviewed had instituted various protections that might
assist individuals who have lost their jobs in maintaining or obtaining
health insurance. Unemployed individuals, however, generally bore the full
cost of the premium. States did not have data on the number of individuals
who lost their health insurance during the economic decline and thus, who

could benefit from these protections, but did have data on the number of
individuals using some of the protections.

The six states we reviewed had in place a variety of protections, which
were established prior to the economic downturn. Unemployed individuals,
however, were generally responsible for bearing the full costs of
purchasing health insurance. Key protections to assist unemployed
individuals in maintaining health insurance coverage included:  State-
mandated continuation coverage, through which states require small

businesses to extend their group health coverage to former employees and
their families if the former employees pay for it;  Guaranteed
conversion, through which states require insurers to give

eligible individuals the ability to convert their group coverage to an
individual health insurance policy; Various State

Protections Offer Assistance, but Unemployed Individuals Generally Bear
the Full Premium Cost

States* Protections Generally Allow Unemployed Individuals to Purchase
Insurance at Full Cost

Page 15 GAO- 03- 191 Health Insurance for Unemployed Individuals

 Guaranteed issue, through which states require insurers to offer
coverage to individuals who do not have access to group coverage or public
insurance; and  High- risk pools, in which states create associations
that offer

comprehensive health insurance benefits to individuals with acute or
chronic health conditions.

Table 5 indicates the extent to which the six states we reviewed had
adopted such protections.

Table 5: State Protections That Facilitate Access to Health Insurance
Coverage for the Unemployed in Six Selected States

State Statemandated continuation coverage

Statemandated guaranteed conversion

Statemandated guaranteed issue High- risk

pool

Colorado

Page 16 GAO- 03- 191 Health Insurance for Unemployed Individuals

to budget constraints. However, in October 2002, Oregon received approval
to expand this program using federal funds. 21 Each of the six states that
we reviewed had a health care coverage

continuation law, which applied to employers with fewer than 20 employees
and thus were not subject to COBRA requirements. While the states required
that employers make health insurance coverage available to eligible
individuals, the employers were not required to pay for this coverage. In
New Jersey, North Carolina and Utah, eligible individuals can be required
to pay up to 102 percent of the cost of the premium charged

under their former employer*s plan (the full cost of the group health
premium plus a 2 percent fee to cover the employer*s administrative costs)
(see table 6). In the other three states, individuals may be required to
pay up to the full cost of the premium, but no administrative fee may be
added. Like COBRA, the state health care coverage continuation laws did
not

apply to companies that terminate coverage, such as when going out of
business. Nationally, premiums for state continuation coverage averaged
approximately $260 a month for an individual and $676 a month for a family
in 2001, which equals 24 to 61 percent of the average unemployment
benefit. 22 21 Begun in 1998 as a state- funded program, Oregon*s premium
assistance program paid

from 70 to 95 percent of the health insurance premiums for individuals
with incomes below 170 percent of the federal poverty level. The program
had over 3,300 enrollees and a waiting list of more than 29, 000 as of
June 2002. With the newly approved federal waiver,

the program will pay from 50 to 95 percent of health insurance premiums
for individuals with incomes up to 185 percent of the federal poverty
level. Expanded eligibility for premium assistance is scheduled to begin
on November 1, 2002. The state expects enrollment in the program to
increase by approximately 25,000 people, with enrollment to be limited
based on the availability of state funding.

22 Costs were calculated based on 102 percent of average monthly premiums
for employersponsored health plans. Actual costs of state continuation
coverage may be higher or lower depending on the characteristics of the
firm or health insurance policy. See The Kaiser

Family Foundation and Health Research and Educational Trust, Employers
Health Benefits: 2002 Annual Survey (Menlo Park, Calif.: 2002). State-
Mandated Continuation

Coverage

Page 17 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 6: State Continuation Coverage Requirements and Benefits State

Maximum premium (expressed as a

percentage of group rate)

Prior continuous coverage requirement

(in months) Maximum required

length of coverage (in months)

Colorado 100 6 18 New Jersey 102 a 12 North Carolina 102 3 18 Ohio 100 3 6
Oregon 100 3 6 Utah 102 6 6

a Individuals must have been covered by employer- sponsored insurance on
their last day of employment. Source: State continuation coverage laws, as
of October 2002.

Eligibility for, and the length of required coverage under, states*
continuation coverage laws were often more limited than under COBRA. While
under COBRA individuals must only be insured the day before they stop
working, five of the six states that we reviewed had more stringent
requirements. They required individuals to have been continuously insured
for the 3 to 6 months immediately prior to the separation from their job.
New Jersey, Ohio, Oregon, and Utah required employers to offer a year or
less of continuation coverage, compared to 18 months under COBRA and in
Colorado and North Carolina.

Once individuals exhaust their COBRA or state health care continuation
coverage, they may become eligible to convert to an individual policy.
Although the HIPAA provisions require states to ensure that eligible
individuals can move from group to individual health insurance coverage,
state guaranteed conversion is specific to an insurer. Four of the six
states

we reviewed (Colorado, North Carolina, Ohio, and Utah) required insurers
to provide individual policies to eligible individuals previously covered
under a group policy sold by their company. To be eligible for guaranteed
conversion, individuals had to have been continuously insured by the group
health plan, or its predecessor, for 3 to 12 months (depending on the
state) prior to their application for conversion* requirements that are
less stringent than the 18 months of prior continuous coverage under
HIPAA. 23 23 HIPAA does allow individuals to have a break in coverage of
63 days or less and still

remain eligible. State- Mandated Guaranteed

Conversion

Page 18 GAO- 03- 191 Health Insurance for Unemployed Individuals

State laws on guaranteed conversion contained no maximum length of
required coverage; as with other individual health insurance policies,
beneficiaries could renew the policies as long as they agreed to continue
paying the premiums and did not commit fraud. Individuals were responsible
for the conversion plan premiums, which could generally be based on the
demographic and health characteristics of the individual. Thus, individual
coverage under conversion policies* for which individuals pay the full
premium* was generally more expensive than group coverage especially for
higher- risk individuals.

Of the six states we reviewed, New Jersey and Ohio had *guaranteed issue,*
which required insurers to offer coverage to all individuals in the state
who were not eligible for group coverage or public insurance programs, if
they were willing to pay for it. According to Ohio statute, insurers in
that state could charge an individual up to 2.5 times the rate charged to
another individual with a similar policy. 24 In New Jersey, insurers were
required to charge each applicant the same price for five standard plans,
but monthly premiums varied by insurer. 25 For a policy issued by a health
maintenance organization (HMO) in New Jersey, with a $30 copayment per
visit to the doctor, monthly premiums for single coverage ranged from $324
to more than $394, depending on the insurer, while premiums for the other
standard health plans were more expensive. 26 (A comparison of the five
standard plans is in table 7.) In the four states we reviewed that did not
have guaranteed issue laws, insurance companies could choose not to offer
coverage to individual applicants and have few or no restrictions on what
they could charge individuals based on their health status, age, or other
factors.

24 For individuals eligible for HIPAA, Ohio statute limits the rate to
twice the midpoint rate charged any other individual with a policy with
similar copayments and deductibles. For individuals not eligible for
HIPAA, Ohio statute limits the rate to 2. 5 times the highest rate charged
to any other individual with a policy with similar copayments and
deductibles. 25 Although New Jersey did not regulate premium rates,
insurers were required to pay at least 75 cents in benefits for every
dollar received in premiums or refund a portion of the premiums. 26 The
four remaining standard plans can either be indemnity plans or preferred
provider organizations (PPO). The indemnity plans allow individuals to
choose any physician or hospital for care, while the PPOs pay for a
greater portion of care received from a selected

panel of doctors and hospitals typically reimbursed on a fee- for- service
basis. State- Mandated Guaranteed Issue

Page 19 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 7: Selected Characteristics of the Standard Guaranteed Issue Plans
Covering Hospital and Medical Services in New Jersey, September 2002

Indemnity/ PPO Type of plan a Plan A b Plan B Plan C Plan D HMO
Individuals* share of provider covered charges 50% 40% c 30% 20% Copayment
per visit d

Individuals* maximum out of pocket cost (above their deductible) $5,000 e
$3,000 e $2,500 e $2,000 e f

Range in monthly premiums for single coverage across carrier g Deductible
$500 Not offered Not offered Not offered $1,200 - $8,127 h

$1,000 $434 - $2,150 $480 - $2,457 $381 - $3,071 $423 - $4,914 h $2,500
$348 - $1,843 $409 - $2,150 $309 - $2,457 Not offered h $5,000 $237 - $416
Not offered Not offered Not offered h $10,000 $153 - $311 Not offered Not
offered Not offered h Copayment $10 h h h h $487 - $727

$15 h h h h $462 - $512 $20 h h h h $379 - $463 $30 h h h h $324 - $394

Note: Plans A through D, and the HMO plan, represent standard insurance
packages defined by the state, which were available from multiple
insurers. a New Jersey*s standard guaranteed issue included three
different types of health plans: (1) indemnity plans, which allowed
individuals to choose any physician or hospital for care, (2) PPOs, which
paid

for a greater portion of care received from a selected panel of doctors
and hospitals typically reimbursed on a fee- for- service basis, and (3)
HMOs, which were prospectively paid a fixed monthly fee per patient to
provide or arrange for most health services and, in turn, pay providers
either retrospectively for each service delivered on a fee- for- service
basis or through prospective capitation payment arrangements. b The state
refers to this plan as Plan A/ 50.

c Beneficiaries must pay an additional $200 per day hospital charge for
each of the first 5 days of hospitalization, up to a maximum of $2,000 per
person each year. d HMOs offered copayment options of $10, $15, $20 and
$30 for physician and outpatient services.

Other copayments applied to inpatient hospitalizations, emergency room
visits, and maternity care. Also, prescription drugs could be covered
subject to either a 50 percent coinsurance or a $15 copayment, at the
option of the carrier. e Under the PPO options, insurers paid 100 percent
of charges after total covered charges, paid by

either the individual or the insurer, reaches $10,000. f Plan did not have
a maximum out- of- pocket cost.

g All individuals, regardless of age or health status, paid the same
premium. h Plan did not have this type of deductible or copayment for
policyholders.

Source: State information.

Page 20 GAO- 03- 191 Health Insurance for Unemployed Individuals

Three of the states we reviewed (Colorado, Oregon, and Utah) have
established high- risk pools that served individuals with acute and
chronic conditions. 27 The high- risk pools in these three states began
operation in the early 1990s and also served individuals eligible for
coverage under HIPAA (see table 8). High- risk pools are subsidized.
Because enrollees often have major health problems, medical claims costs
are high and would exceed unsubsidized premiums collected from their
enrollees.

Oregon*s risk pool was subsidized by a fee assessed on insurers based on
the number of people they cover. Utah subsidized the operation of its
highrisk pool with state funds. Colorado used a combination of these
approaches. High- risk pool premiums are higher than standard premiums for
individual

insurance paid by healthy applicants although not necessarily higher than
a high- risk individual would be charged in the individual market if
coverage were available. State high- risk pool laws generally capped
premiums at 125 to 200 percent of comparable standard commercial coverage
rates. Premiums varied based on factors such as age, geographic location,
type of health plan, and deductible. One state, Colorado, provided a 20
percent premium discount to certain low- income individuals. Across the
three states we reviewed that had high- risk pools, undiscounted premiums
for nonelderly adults ranged from less than 10 percent to close to 100
percent of the average unemployment benefit in the state.

27 Nationally, 30 states have high- risk pools. See Communicating for
Agriculture & the SelfEmployed,

Comprehensive Health Insurance for High- Risk Individuals: A State- by-
State Analysis. (Fergus Falls, Minn.: 2002). High- Risk Pools

Page 21 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 8: Selected Characteristics of High- Risk Pools in Three States,
June 2002 State (year began operation) Medical eligibility requirements
Number

enrolled a Premium limits Factors used to

determine premiums for an individual

Range of individual

monthly premiums

Colorado (1991) State residents for at least 6 months

who

 were denied coverage because of a medical condition;

 were accepted for coverage, but with a premium higher than that under
the high- risk pool;

 were accepted for coverage, but with a pre- existing condition exclusion
of greater than 6 months; OR

 have one of 30 acute or chronic medical conditions but were not
necessarily denied coverage. 3,886 150 percent of the

standard individual rate

 Age

 Gender

 Smoking status  County

 Deductible amount ($ 300 to $5,000)

$75 - $1,283 b Oregon (1990)

Individuals who were denied individual health insurance coverage within
the last 6 months because of their health condition.

8,762 125 percent of the prevailing market rate for an individual policy

 Age

 Geographic location

 Type of health plan c $118 - $661 Utah (1991)

State residents for at least 12 months or dependent children 25 years of
age or younger of such individuals, who

 meet the high- risk pool*s health underwriting criteria established
under Utah statute, d  apply for coverage not more than 63 days after
being denied coverage by a private individual insurer, AND

 pay the established premium. OR Individuals who terminated similar
coverage from another state*s highrisk pool within the previous 63 days
because they were no longer a resident of that state and who pay premiums
for the entire coverage period in Utah. e 2,061 Generally set at 150

percent of the prevailing premium level for the five largest small
employer insurers in the state offering comparable coverage

 Age

 Deductible amount ($ 500 to $2,500)

$152 - $471 a Enrollment figures represent the total enrollment in the
high- risk pool and thus include individuals who qualify either because of
medical reasons or through HIPAA. b Reflects the premiums for individuals
between the ages of 20 and 64. Premiums are lower for

children and higher for individuals over age 65. Individuals with
household incomes of $32,500 or less, and with liquid assets of $50, 000
or less, can qualify for a 20 percent premium discount. c Premiums in
Oregon vary by health plan. Enrollees have a choice of four health plans:
a traditional

indemnity plan, a PPO, HMO, or low cost/ limited benefit plan.

Page 22 GAO- 03- 191 Health Insurance for Unemployed Individuals

d Under the state*s criteria, points were assigned to various medical
conditions based on the expected medical claims or complications for that
condition. Individuals with conditions that have points totaling above a
specified level were eligible for the high- risk pool. e Under certain
circumstances, individuals would be ineligible for the high- risk pool.
For example,

individuals eligible for other public programs that provide medical care
were not eligible for the highrisk pool.

Source: GAO analysis of state information.

Although Ohio, Oregon, and Utah collected data on the number of uninsured
residents, none of the states that we reviewed had data sufficiently
current to determine how many of their residents had lost health insurance
during the recent economic decline. States* knowledge of any changes in
the numbers of individuals benefiting from the different states*
protections varied by option and the state, with data most often available
for the three states* high- risk pools. None of the states we reviewed
tracked how many of its residents obtained health coverage through state-
mandated continuation coverage. Of the four states that required insurers
to offer conversion plans, only Utah tracked the number of policies issued
but it did not have data current enough to determine whether usage
increased during the current economic decline. New Jersey tracked the
number of individuals receiving individual health coverage through its
five standard plans. Enrollment in these standard plans declined in the
past year, which a state representative attributed to the rising cost of
coverage. 28 Each of the three states we reviewed that had high- risk
pools tracked

enrollment in their pools. From March 2001 to March 2002, enrollment in
high- risk pools increased by 47 percent in Colorado, almost 23 percent in
Oregon, and 37 percent in Utah. But it is not clear how much of the

increased participation came from the ranks of the unemployed. For
example, a Colorado official said a large portion of the increased
enrollment in the state*s high- risk pool was likely due to insurers
leaving the individual and small group health insurance market in the
state. Therefore, it is difficult to determine how much of the increase
included those dropped from individual or nonemployer- based group
coverage and how much included the newly unemployed.

28 The number of individuals covered by standard plans in New Jersey
declined by almost 14,000, from 97, 790 individuals in the first quarter
of 2001 to 83,896 people in the first quarter of 2002. States Lack Data on

Current Numbers of Uninsured; Knowledge of Beneficiaries* Use of State
Protections Varies

Page 23 GAO- 03- 191 Health Insurance for Unemployed Individuals

Given the cost of maintaining coverage under their former employers*
health insurance plan or obtaining alternative coverage, unemployed
individuals may look to states* Medicaid and SCHIP programs for coverage
for themselves and their families. Unemployed adults, however, are less
likely to qualify for these programs than their children due, in part, to
less generous eligibility levels set for adults than for children.
Colorado, Oregon, and Utah have recently received federal approval for
waivers to expand eligibility for adults in Medicaid and SCHIP, which may
increase coverage for unemployed individuals. In the wake of recent fiscal
pressures resulting from the economic downturn, however, New Jersey has
suspended its Medicaid and SCHIP coverage expansion for new applicants.
Efforts by some states to expand Medicaid and SCHIP coverage for uninsured
adults have raised significant federal fiscal and legal issues, at times
providing adult coverage with funds intended for children.

As unemployed adults seek health insurance, they will likely find it more
difficult to secure coverage under Medicaid or SCHIP for themselves than
for their children. Under Medicaid, the majority of states had set
eligibility levels for nondisabled adults that were less generous than
those for children.

In the six states we reviewed, Medicaid*s maximum income eligibility
levels for non- disabled adults were lower than the levels for children.
29 In Colorado, New Jersey, North Carolina, and Utah, the maximum income
levels for coverage for these adults were under 50 percent of the federal
poverty level. 30 In contrast, Medicaid and SCHIP coverage for children

ranged from those in families with incomes up to 170 percent of the 29
However, on October 15, 2002, Oregon received federal approval to expand
Medicaid and SCHIP eligibility for children and adults in families with
incomes up to 185 percent of the federal poverty level. Increased
eligibility levels for most adults will be phased in over time while
eligibility for children and pregnant women is scheduled to be increased
to 185

percent of the federal poverty level on February 1, 2003. 30 While income
eligibility levels for adults in New Jersey is currently under 50 percent
of the federal poverty level, adults already enrolled in Medicaid may have
higher incomes due to increased eligibility levels established by the
state in the past. Eligibility for

Medicaid and SCHIP Programs Is Limited for Unemployed Adults Despite
Expansions in Some States

Unemployed Adults Are Less Likely Than Children to Qualify for Medicaid
and SCHIP Coverage

Page 24 GAO- 03- 191 Health Insurance for Unemployed Individuals

federal poverty level to those in families with incomes up to 350 percent
of the federal poverty level (in Oregon and New Jersey, respectively). 31
In four of six states, adults eligible for unemployment benefits might not

have qualified for Medicaid because the average of their unemployment
benefits would have been at least twice as much income as allowed for
Medicaid eligibility. In the remaining two states* Ohio and Oregon* adults
that received the average unemployment benefit would have met the income
eligibility requirements for Medicaid in those states (see table 9).

Table 9: Receipt of Unemployment Benefits Often Made Parents Ineligible
for Medicaid

State Average monthly

unemployment benefit (in dollars)

Monthly Medicaid income eligibility level for parents a

(in dollars) Income within Medicaid eligibility

levels

Colorado 1,350 421 No New Jersey 1,418 443 No North Carolina 1,110 544 No
Ohio 1,100 1,252 Yes b Oregon 1,135 1,252 c Yes b Utah 1,193 583 d No

a Medicaid income eligibility levels for parents are based on a family of
three. b To qualify for Medicaid, an individual would also need to meet
asset test and other eligibility requirements. c On October 15, 2002,
Oregon received federal approval to expand Medicaid and SCHIP coverage

for adults, including parents, up to 185 percent of the federal poverty
level, or $2,316 per month for a family of three. The state plans to
implement this expansion in increments beginning November 1, 2002. d In
Utah, some adults with incomes above this eligibility level may qualify
for Medicaid under another

eligibility category that limits benefits to primary and preventive care.
Sources: State and U. S. Bureau of Labor Statistics data, 2002.

In Colorado, North Carolina, Oregon, and Utah, Medicaid coverage for
unemployed adults was more restricted than it was for children because
adults* accumulated assets could have made them ineligible for coverage

31 Upon implementation of Oregon*s expansion, which is expected to begin
on February 1, 2003, Medicaid and SCHIP coverage for children will
increase from 170 percent of the federal poverty level to 185 percent of
the federal poverty level.

Page 25 GAO- 03- 191 Health Insurance for Unemployed Individuals

even after their unemployment benefits run out. The amount of assets
allowed and the types of assets included for eligibility purposes varied
by state (see table 10). For purposes of determining whether individuals
reached or exceeded their asset limit, North Carolina included the cash
value of life insurance, checking and savings accounts, and other
investments, but excluded the value of an applicant*s primary residence
and vehicle. Utah required that families with children over age 6 have
assets below $3,000 (with allowances for an additional $25 in assets for
each additional family member) but excluded the value of one home and of
one vehicle, up to $15,200.

Table 10: Asset Exclusions for Parents under Medicaid in Six States State
Asset limit Treatment of home Treatment of vehicle

Colorado $2,000 Excluded Value of one vehicle excluded New Jersey None N/
A N/ A North Carolina $3,000 Excluded Value of one vehicle

excluded per adult age 18 or older Ohio None N/ A N/ A Oregon $2,000
Excluded Value of vehicles

excluded Utah $2,000 -$ 3,000 Home occupied or being

purchased by the applicant is excluded

Value of one vehicle excluded (up to $15,200); OR $1,500 of the value of
any vehicle

Source: State information, October 2002.

In contrast, most states nationwide have eliminated family asset tests in
determining Medicaid and SCHIP eligibility for children. As of January
2002, 44 states had eliminated family asset tests for all children in
families with incomes at or below the poverty level and two other states
dropped it for certain categories of children. Among the six states we
reviewed, four states did not have asset tests for children in Medicaid,
while five states

did not have asset tests for children in SCHIP (see table 11).

Page 26 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 11: Medicaid and SCHIP Family Income Eligibility Limits and Asset
Tests for Children*s Eligibility in Six States, 2002

Family asset test applies to children*s eligibility for: State

Upper income eligibility (as percentage of federal poverty level) a
Medicaid SCHIP

Colorado 185 Yes No New Jersey 350 No No North Carolina 200 No No Ohio 200
No No Oregon 170 b No Yes Utah 200 Yes c No

a Medicaid eligibility can vary by the child*s age. For example, Colorado
covers infants and children up to age 5 in families with incomes up to 133
percent of the federal poverty level and children age 6 to 19 in families
with incomes up to 100 percent of the federal poverty level. SCHIP
eligibility would begin above these levels and end for children in
families earning up to 185 percent of the federal poverty level. b Oregon
received federal approval to expand Medicaid and SCHIP coverage for
children up to 185

percent of the federal poverty level, which it plans to implement on
February 1, 2003. c State counts family assets for eligible children age 6
and older.

Source: State information.

Among unemployed adults, childless adults often had more difficulty
qualifying for Medicaid than parents. The Medicaid programs in Colorado,
North Carolina, and Ohio did not cover any nondisabled childless adults.

In New Jersey, childless adults faced a lower Medicaid income eligibility
level than parents did. Oregon and Utah covered a small number of
childless adults, all of whom earned less than 150 percent of the federal
poverty level (see table 12).

Page 27 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 12: Eligibility Levels for Childless Adults and Parents Applying for
Medicaid, 2002

Income level below which coverage is granted (expressed as percentage of
federal poverty level) a State Childless adults Parents

Colorado No coverage 34 New Jersey 19 35 b North Carolina No coverage 43
Ohio No coverage 100 Oregon 100 c 100 c Utah b 47 b a Income eligibility
levels for childless adults are based on the individual, while the levels
for parents are based on a family of three.

b Income eligibility does not reflect state*s coverage expansions under
federally- approved waivers because eligibility was either no longer
available to new applicants (New Jersey) or provided a more limited
benefit with additional cost sharing (Utah). c Oregon received federal
approval to expand Medicaid and SCHIP coverage for adults up to 185

percent of the federal poverty level. The state plans to implement this
expansion in increments beginning November 1, 2002.

Source: State information.

Some states have received approval from the federal government to expand
Medicaid and SCHIP coverage for parents and childless adults, including
recently unemployed individuals. Of the states we reviewed, Utah recently
received a section 1115 waiver to expand Medicaid coverage to certain
parents and childless adults for a benefit package limited to primary care
and preventive services. Utah*s waiver is estimated to cover an additional
16,000 parents with family incomes under 150 percent of the federal
poverty level and 9,000 childless adults with incomes under 150 percent of
the federal poverty level. The expansion, implemented on July 1, 2002, is
funded by enrollment fees and cost sharing by participants and savings
from increased cost sharing and new limits on some optional services, such
as mental health services, vision screening and physical therapy, for
certain groups of currently eligible adults. On September 27, 2002,
Colorado received approval to cover pregnant women with family income
between 134 and 185 percent of the federal poverty level using SCHIP
funds. Oregon also received approval on October 15, 2002, for a

section 1115 waiver to expand insurance coverage for adults and children
up to 185 percent of the federal poverty level using Medicaid and SCHIP
funds. Oregon expects to cover an additional 60,000 individuals, but plans
to phase in implementation of this expansion. On November 1, 2002, the
States* Expansions Can

Offer Coverage for Unemployed Individuals, but Some Raise Fiscal and Legal
Issues

Page 28 GAO- 03- 191 Health Insurance for Unemployed Individuals

state plans to expand its premium assistance program by paying between 50
and 95 percent of premiums for eligible individuals with incomes up to 185
percent of the federal poverty level, using both Medicaid and SCHIP funds.
32 On February 1, 2003, Oregon plans to expand Medicaid and SCHIP
eligibility to pregnant women and children with incomes up to 185 percent
of the federal poverty level, and to other eligible individuals, including

parents and childless adults, with incomes up to 110 percent of the
federal poverty level. Further eligibility expansions may occur each
quarter depending upon the availability of state funding. A state that has
used a waiver to expand Medicaid and SCHIP coverage

may be prompted by shortfalls in its budget to limit these expansions. Of
the states we reviewed, in January 2001, New Jersey expanded Medicaid and
SCHIP coverage for parents earning up to 200 percent of the federal
poverty level. In June 2002, however, New Jersey suspended new enrollment
of adults in this program, increased the premiums and reduced the benefits
for those already covered under the expansion. 33 New Jersey*s

program had exceeded the state*s 3- year enrollment projection in 9
months.

Section 1115 waivers to expand insurance coverage under Medicaid and SCHIP
can extend coverage to adults who would not otherwise qualify and who
would have difficulty obtaining coverage elsewhere. However, we

reported earlier that some waivers are inconsistent with the goals of the
Medicaid and SCHIP programs and may compromise their fiscal integrity. 34
For example, in approving Utah*s expansion, we concluded that HHS did

32 Prior to the approved waiver, the Oregon premium assistance program
used state- only funding that paid from 70 to 95 percent of the health
insurance premiums for approximately 3,700 individuals with incomes below
170 percent of the federal poverty level. Due to budget constraints,
however, new enrollment in the state- only premium assistance program was
limited for 3 years, and had a waiting list of more than 29, 000

people. Under the waiver, the state is limiting enrollment due to the
availability of state funding and estimates that an additional 25, 000
people will be covered.

33 A recent study indicates that many states plan to decrease Medicaid
spending in various ways, including limits on enrollment and retrenchment
from program expansions. See Victoria Wachino, Kaiser Commission on
Medicaid and the Uninsured, State Budgets

Under Stress: How are States Planning to Reduce The Growth in Medicaid
Costs? Preliminary Results based on the Kaiser Commission on Medicaid and
the Uninsured 50- State Survey (Washington, D. C.: July 30, 2002).

34 See U. S. General Accounting Office, Medicaid and SCHIP: Recent HHS
Approvals of Demonstration Waiver Projects Raise Concerns, GAO- 02- 817
(Washington, D. C.: July 12, 2002).

Page 29 GAO- 03- 191 Health Insurance for Unemployed Individuals

not adequately ensure that the waiver would be budget neutral as required
for approval. We estimated that Utah*s waiver, if fully implemented, could
cost the state and federal governments $59 million more than without the

waiver. We found that the state*s projection of what it would have spent
without the waiver inappropriately included the estimated cost of services
for a new group of people who were not being covered under the state*s
existing Medicaid program. Although we did not review Colorado and
Oregon*s waiver applications in our earlier report, we raised a broader
legal issue about states* use of SCHIP funds to cover adults without
children, which Oregon*s recently approved expansion will do. In our
earlier report, we found that HHS had approved an Arizona waiver proposal
that would, among other things, use unspent SCHIP funding to cover adults
without children, despite SCHIP*s statutory objective to expand health
care coverage to low- income children. In our view, HHS*s approval of the
waiver to cover childless adults is not consistent with this objective,
and is not authorized. Consequently, we recommended that the Secretary of
Health and Human Services not approve any more waivers that would use
SCHIP funds for childless adults. 35 In addition, we suggested that the
Congress amend the Social Security Act to specify that SCHIP funds are not
available to provide health insurance for childless

adults. Health insurance for the majority of Americans who rely on
employerbased coverage could be threatened upon job loss. Federal and
state laws provide some protections that are aimed at helping individuals
maintain or obtain health insurance coverage in such circumstances. The
protections offered, however, are not without limitations as individuals
may find that bearing the full cost of the premiums* with no employer or
state subsidies* may be beyond their financial means. While those who
cannot afford health insurance may look to Medicaid or SCHIP for
assistance,

coverage for adults is hampered by limited income eligibility and other
requirements, such as asset tests, that are likely to reduce the number of
adults that can qualify for coverage. Some states have made recent efforts
to use the flexibility available to them under Medicaid and SCHIP to
expand their programs to help cover increased numbers of uninsured adults.
Tighter budgets, however, are beginning to constrain some states*

35 HHS does not concur with our position that the spending of SCHIP funds
is not authorized for childless adults. Subsequent to our recommendation,
the Secretary approved New Mexico*s and Oregon*s waiver requests, on
August 23, 2002, and October 15, 2002, respectively. Both states intend to
use SCHIP funds to cover childless adults. Concluding

Observations

Page 30 GAO- 03- 191 Health Insurance for Unemployed Individuals

ability to sustain insurance coverage expansions initiated during stronger
economic times. Thus, despite program expansions, coverage under Medicaid
and SCHIP may not be available to unemployed adults, while other state
coverage options may be too costly for these individuals.

We provided a draft of this report for technical review to representatives
of insurance departments, high- risk pools, and Medicaid programs in the
six states we reviewed. Each of the states provided technical comments,
which we incorporated as appropriate.

In addition, in its comments, Utah disagreed with our statement* based on
findings in an earlier report* that HHS did not adequately ensure that the
state*s section 1115 waiver met the budget neutrality test. The state
contends that its waiver is budget neutral and is consistent with
longstanding HHS budget neutrality practices. Since 1995, we have
expressed concern that HHS*s methods for assessing budget neutrality allow
the inclusion of certain costs that inappropriately inflate cost estimates
and result in the federal government being at risk to spend more than it
would have had the waivers not been approved. 36 We believe that continued
use of these methods is inconsistent with the long- standing requirement
for section 1115 waivers to be budget neutral and inappropriately places
the federal government at risk of increased cost for the Medicaid and
SCHIP programs.

We did not obtain comments from HHS on this report because we did not
evaluate HHS* role or performance with respect to protections or programs
that may benefit unemployed individuals.

As agreed with your offices, unless you publicly announce its contents
earlier, we will plan no further distribution of this report until 30 days
after its date. At that time we will send copies to other interested
congressional committees and other parties. We also will make copies
available to others upon request. In addition, the report will be
available at no charge on the GAO Web site at http:// www. gao. gov.

36 For a more detailed discussion of this issue, see GAO- 02- 817, pages
19- 20, 34- 35. State Comments

Page 31 GAO- 03- 191 Health Insurance for Unemployed Individuals

If you or members of your staff have any questions regarding this report,
please contact me on (202) 512- 7114 or Carolyn Yocom on (202) 512- 4931.
Other major contributors to this report include JoAnn Martinez- Shriver,
Michael Rose, and Michelle Rosenberg.

Kathryn G. Allen Director, Health Care* Medicaid

and Private Health Insurance Issues

Appendix I: HIPAA Group- to- Individual Portability in Six States

Page 32 GAO- 03- 191 Health Insurance for Unemployed Individuals

HIPAA provides guaranteed access to coverage** portability* from group to
individual coverage* to eligible individuals who, among other criteria,
had at least 18 months of coverage without a break of more than 63 days.
Recognizing that many states had already passed reforms that could be
modified to meet or exceed these requirements, HIPAA gave states the

flexibility to implement this provision by using either the federal
fallback or an alternative mechanism. Under the federal fallback approach,
insurers must offer eligible

individuals guaranteed access to coverage in one of three ways. HIPAA
specified that a carrier must offer eligible individuals (1) all of its
individual market plans, (2) only its two most popular plans, or (3) two
representative plans* a lower- level and a higher- level coverage option*
that are subject to a risk spreading or financial subsidization mechanism.
1 According to a 2002 report, 11 states opted for the federal fallback

approach. 2 Under an alternative mechanism, states may design their own
approach to guarantee coverage to eligible individuals as long as certain
minimum requirements are met. Essentially, the approach chosen must ensure
that eligible individuals have guaranteed access to coverage with a choice
of at least two different coverage options. For example, one possible
alternative mechanism is a state high- risk pool. As shown in table 13
only one of the six states we reviewed relied on the federal fallback
approach to ensure group- to- individual portability. The remaining states
either relied on their high- risk pool, another alternative mechanism, or
both.

1 See U. S. General Accounting Office, Health Insurance Standards: New
Federal Law Creates Challenges for Consumers, Insurers, Regulators, GAO/
HEHS- 98- 67 (Washington, D. C.: Feb. 25, 1998).

2 See Communicating for Agriculture & the Self- Employed, Comprehensive
Health Insurance for High- Risk Individuals: A State- by- State Analysis.
(Fergus Falls, Minn.: 2002). Appendix I: HIPAA Group- to- Individual
Portability in Six States

Appendix I: HIPAA Group- to- Individual Portability in Six States

Page 33 GAO- 03- 191 Health Insurance for Unemployed Individuals

Table 13: Approaches to Group- to- Individual Portability in Six States
State alternative mechanism

approach State Federal fallback

approach High- risk pool Other

Colorado X New Jersey X a North Carolina X Ohio X b Oregon X X c Utah X X
d a New Jersey provided group- to- individual portability through its
individual market guaranteed issue law. b Ohio used a combination of its
guaranteed issue law and guaranteed conversion to provide group-
toindividual portability. c Oregon provided group- to- individual
portability by requiring insurers to offer eligible individuals, who

were previously covered by their group health plan, a choice between a
low- cost and a prevailing benefit plan. Although similar to the federal
fallback approach, the state characterized this as an alternative
mechanism. d Utah used its high- risk pool to provide group- to-
individual portability for individuals eligible for HIPAA

who were deemed uninsurable. HIPAA- eligible individuals who did not meet
the high- risk pool*s health underwriting criteria were guaranteed
coverage in the private individual market. Source: State information,
October 2002.

Related GAO Products Page 34 GAO- 03- 191 Health Insurance for Unemployed
Individuals

Medicaid and SCHIP: Recent HHS Approvals of Demonstration Waiver Projects
Raise Concerns, GAO- 02- 817. Washington, D. C.: July 12, 2002.

Health Insurance: Characteristics and Trends in the Uninsured Population,
GAO- 01- 507T. Washington, D. C.: March 13, 2001. Health Insurance
Standards: New Federal Law Creates Challenges for

Consumers, Insurers, Regulators, GAO/ HEHS- 98- 67. Washington, D. C.:
February 25, 1998.

Medicaid Section 1115 Waivers: Flexible Approach to Approving
Demonstrations Could Increase Federal Costs, GAO/ HEHS- 96- 44.
Washington, D. C.: November 8, 1995. Related GAO Products

(290205)

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