Options for Improving Formulas in the Health Care for Unemployed Workers Program

In response to a congressional request, GAO evaluated the formulas used in S. 951, a program of health care coverage for unemployed persons, and alternative formulas to provide equal program benefits for eligible recipients living in different States and to require States to undertake equal tax burdens in financing the State share of program costs.

GAO found that, on the basis of providing equal benefits for potentially eligible recipients living in different States and equalizing State tax burdens, the formulas proposed by Senator Durenberger provide the greatest equity. They provide equal spending on program benefits per unemployed person by all States and produce the smallest disparities in State tax burdens. The S. 951 formulas provide higher spending per unemployed person by States with the lowest unemployment rate and produce extreme differences in the tax burdens that States will have to undertake to finance the State share of program costs. A linear matching option continues to produce the highest spending per unemployed person by States with the lowest unemployment and produces extreme differences in State tax burdens. In contrast, a GAO compromise option provides equal spending per unemployed person in all States and reduces the tax burden disparities almost as much as the Durenberger option. The Durenberger option achieves a greater degree of tax burden equity because it uses personal income as an indicator of States' revenue raising abilities. The GAO compromise does not utilize such an indicator and therefore only reduces tax burden disparities to the extent that unemployment is correlated with a State's revenue raising ability. The S. 951 matching formula will automatically increase State matching requirements and total program spending as unemployment declines.