Health Coverage Tax Credit
Participation and Administrative Costs Gao ID: GAO-10-521R April 30, 2010This report is in response to section 1899L of the American Recovery and Reinvestment Act of 2009. The statute required the Comptroller General to examine issues related to participation in and administrative costs associated with the Health Coverage Tax Credit program administered by the Internal Revenue Service (IRS) in the Department of the Treasury, and to provide the results to Congress by March 1, 2010.
GAO-10-521R, Health Coverage Tax Credit: Participation and Administrative Costs
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GAO-521R:
United States Government Accountability Office:
Washington, DC 20548:
April 30, 2010:
The Honorable Max Baucus:
Chairman:
The Honorable Charles E. Grassley:
Ranking Member:
Committee on Finance:
United States Senate:
The Honorable Sander M. Levin:
Acting Chairman:
The Honorable Dave Camp:
Ranking Member:
Committee on Ways and Means:
House of Representatives:
Subject: Health Coverage Tax Credit: Participation and Administrative
Costs:
This report formally transmits the attached slides (see enclosure I)
in response to section 1899L of the American Recovery and Reinvestment
Act of 2009.[Footnote 1] The statute required the Comptroller General
to examine issues related to participation in and administrative costs
associated with the Health Coverage Tax Credit program administered by
the Internal Revenue Service (IRS) in the Department of the Treasury,
and to provide the results to Congress by March 1, 2010. We provided
briefings to staff of your committees on March 1 and 2, 2010. We
incorporated additional information and revised as appropriate the
slides we used to brief your staffs.
We provided a draft of this report to the IRS for review and comment.
In its comments, IRS said that the per-participant administrative
costs for the HCTC program were higher than for other programs it
administers, and provided observations to explain the higher costs.
(See enclosure II.) Evaluating the administrative costs of the HCTC
program relative to other programs was beyond the scope of this report.
We are sending copies of this report to the Secretary of the Treasury
and the Commissioner of IRS. In addition, the report will be available
at no charge on the GAO Web site at [hyperlink, http://www.gao.gov].
If you or your staffs have any questions regarding this report, please
contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for
our Offices of Congressional Relations and Public Affairs may be found
on the last page of this report. Key contributions to this report were
made by Randy DiRosa, Assistant Director; Gerardine Brennan; Julianne
Flowers; Jawaria Gilani; Krister Friday; Emily Loriso; and Jeffrey
Miller.
Signed by:
John E. Dicken:
Director, Health Care:
Enclosures:
[End of section]
Enclosure I:
Health Coverage Tax Credit: Participation and Administrative Costs:
Briefing for the staffs of the:
Committee on Finance United States Senate:
Committee on Ways and Means House of Representatives:
Updated:
Overview:
* Introduction;
* Objectives;
* Scope and Methodology;
* Summary of Results;
* Background;
* Results;
* Agency Comments;
* Contributors.
Introduction:
The Health Coverage Tax Credit (HCTC) is a tax credit created by the
Trade Adjustment Assistance Reform Act of 2002 that pays a share of
health plan premiums for eligible individuals:
* certain workers who lost their jobs due to foreign competition and
are eligible for Trade Adjustment Assistance (TAA) benefits, and;
* certain retirees age 55 and over whose pensions were taken over by
the Pension Benefit Guaranty Corporation (PBGC).
From calendar years 2003 through 2008, [Footnote 2] the federal
government incurred expenses of nearly $680 million in tax credits and
administrative costs for the program.
Congressional interest in the HCTC:
* Participation:
- fewer than 30,000 of the hundreds of thousands of potentially
eligible individuals each year have participated;
- some individuals identified as potentially eligible for the credit
may not actually be eligible;[Footnote 3]
- some eligible individuals may be going without insurance; and;
- the health status of those who choose to participate may be poorer
than those who choose not to, which could adversely affect premium
rates for HCTC participants and insurers' willingness to provide them
coverage.
* Administrative costs:
- what the Internal Revenue Service's (IRS) costs are to administer
the program; and;
- whether health plans incur additional costs for HCTC participants
compared to nonparticipants.
* The American Recovery and Reinvestment Act of 2009 (Recovery Act)
[Footnote 4]:
- made several temporary and permanent changes to the HCTC and the
Trade Adjustment Assistance Program intended to increase
participation-”such as increasing the amount of the credit and
expanding eligibility;[Footnote 5] and;
- authorized additional funding to implement these changes.
- Certain Recovery Act changes to the HCTC expire on December 31, 2010.
* The Patient Protection and Affordable Care Act includes a tax credit
similar to the HCTC.[Footnote 6]
[End of section]
Objectives:
The Recovery Act required that GAO examine issues related to HCTC
participation and administrative costs.
1. Did HCTC participation change after key Recovery Act changes took
effect and what factors have influenced participation?
2. What is known about the health insurance coverage and health status
of HCTC participants and eligible nonparticipants?
3. What are the administrative costs of the HCTC to IRS and what
additional administrative costs for HCTC participants are incurred by
health plans?
[End of section]
Scope and Methodology:
1. To examine how HCTC participation changed after key Recovery Act
changes took effect, we:
Analyzed IRS program data on HCTC participation and eligibility.
* We analyzed the average number of advance HCTC participants and
potentially eligible individuals per month during the 6 months before
and the 6 months after key Recovery Act changes took effect. We
defined the pre- and post-Recovery Act periods as follows:
- Pre-Recovery Act: October 1, 2008, through March 31, 2009.
- Post-Recovery Act: July 1, 2009, through December 31, 2009.
- We did not include 2003 through September 2008 data because we
wanted to isolate changes in participation that may be related to the
Recovery Act.
- Participation in April, May, and June of 2009 was not included in
this analysis because participation during these months may have been
split among some individuals who applied for the credit before key
Recovery Act changes took effect and others who applied after.
* We interviewed officials from IRS and its HCTC program contractors
and reviewed supporting documentation to clarify our understanding of
the HCTC participation and eligibility data, and determined that the
data were sufficiently reliable for the purposes of our reporting.
1. To identify what factors have influenced participation in the HCTC,
we:
* Analyzed IRS survey data from two surveys of individuals potentially-
eligible for the HCTC conducted in 2009.
- The first survey included responses from 1,205 individuals who
became potentially eligible for the program before key Recovery Act
changes took effect (before April 1, 2009), and had a response rate of
9 percent.
- The second survey included responses from 942 individuals who became
potentially eligible after key Recovery Act changes took effect (after
June 30, 2009), and had a response rate of 12 percent.
- For both surveys, IRS included questions we provided to support our
analysis.
- Because of low response rates, we cannot generalize the survey
results to all individuals potentially eligible for the HCTC and we
cannot meaningfully compare pre- and post-Recovery Act survey results
for the questions relevant to our study. However, we determined that
the data were sufficiently reliable to report combined results for
these questions from the two surveys and to provide information about
the views of those who responded to the surveys.[Footnote 7]
* Reviewed Recovery Act changes and examined data on TAA-related
layoffs and PBGC pension takeovers which may have contributed to
changes in HCTC participation after key Recovery Act changes took
effect.
2. To examine what is known about the health insurance coverage and
health status of HCTC participants and nonparticipants, we:
* Analyzed combined results from two IRS surveys of individuals
potentially eligible for the HCTC conducted in 2009. Because of low
response rates, we used the survey results only to provide information
about the views of those who responded to the survey and were eligible
to participate.
* For comparative purposes, we also compared the health status data
from IRS's surveys to data on self-reported health status of the U.S.
population from the 2007 Community Tracking Study (CTS).
- The CTS is conducted by the Center for Studying Health System
Change, a nonpartisan policy research organization. It is a nationally
representative survey of U.S. households that has been conducted five
times since 1996”the most recent CTS data available are from 2007.
- The response rate for the 2007 household survey was 43 percent.
Based on our review of the survey documentation, we determined that
these data were reliable for the purposes of our reporting.
3. To examine the administrative costs of the HCTC to IRS, we analyzed
HCTC administrative costs as a share of total HCTC-related costs,
[Footnote 8] using administrative cost and tax credit data obtained
from IRS:
* Administrative cost data:
- IRS administrative costs for 2003 through 2009;
- IRS's administrative spending plans for 2010 and 2011.
* Tax credit data:
- Total advance tax credits for 2003 through 2009;
- Total end-of-year tax credits for 2003 through 2008.
* We interviewed IRS officials and reviewed supporting documentation
to clarify our understanding of the administrative cost and tax credit
data and determined that they were reliable for the purposes of our
reporting.
3. To examine the additional administrative costs incurred by health
plans for HCTC participants we obtained information from health plans
and third-party administrators (TPA) that provide or administer
coverage for HCTC participants.[Footnote 9]
* We requested information from the 10 health plans and 10 TPAs with
the highest number of HCTC participants. We obtained information from
7 and 6, respectively.
* The information obtained focused on whether the plans and TPAs
incurred costs in addition to the administrative costs they typically
incur for non-HCTC participants.
We conducted our work from May 2009 through March 2010 in accordance
with all sections of GAO's Quality Assurance Framework that are
relevant to our objectives. The framework requires that we plan and
perform the engagement to obtain sufficient and appropriate evidence
to meet our stated objectives and to discuss any limitations in our
work. We believe that the information and the data obtained, and the
analysis conducted, provide a reasonable basis for any findings and
conclusions in this product.
Summary of Results:
1. HCTC participation increased after key Recovery Act changes took
effect, and respondents to IRS's surveys of potentially eligible
individuals most frequently reported affordability as a reason for
participation, and ineligibility as a reason for nonparticipation.
2. Over 20 percent of HCTC-eligible IRS survey respondents who did not
intend to participate in the HCTC reported that they were uninsured,
and most participants and nonparticipants reported good to excellent
health status.
3. The HCTC administrative costs to IRS averaged 17 percent of total
HCTC-related costs, and most health plans reported that any additional
administrative costs were minimal.
[End of section]
Background:
Prior to the Recovery Act temporary increase, the HCTC covered 65
percent of health plan premiums for:
* manufacturing workers who lost their jobs due to foreign competition
and were eligible for Trade Adjustment Assistance (TAA) benefits, and;
* retirees between the ages of 55 and 64 whose pensions were taken
over by the Pension Benefit Guaranty Corporation (PBGC).
Participants can receive the HCTC in two ways:
* end of year: as a tax credit when they file their federal income tax
returns, or;
* advance: as an advance payment directly to their health plans when
their premiums are due each month.
Individuals who participate are responsible for paying their share of
the health plan premium to IRS. Advance credit participants provide
payments to IRS, and IRS processes the payment of the full premium to
health plans”including the participants' and government's shares.
HCTC participants may obtain coverage from the following types of
health plans:
* COBRA group plans,[Footnote 10],
* group plans obtained through a spouse's employer,
* individual health insurance plans,[Footnote 11] and,
* state qualified plans, which may be group or individual.[Footnote 12]
From 2003 through 2008, total annual HCTC participation averaged about
26,000 individuals, with declining participation since 2005.
During this period, the share of individuals participating in the
advance credit increased.
Figure: Total annual participation in the HCTC, 2003 through 2008:
[Refer to PDF for image: stacked vertical bar graph]
2003:
Advance participants: 6,816 (32%);
End-of-year participants: 14,691 (68%).
Total: 21,507.
2004:
Advance participants: 18,935 (70%);
End-of-year participants: 8,180 (30%).
Total: 27,115.
2005:
Advance participants: 22,040 (79%);
End-of-year participants: 5,776 (21%).
Total: 27,816.
2006:
Advance participants: 22,379 (82%);
End-of-year participants: 5,090 (18%).
Total: 27,469.
2007:
Advance participants: 21,877 (82%);
End-of-year participants: 4,958 (18%).
Total: 26,835.
2008:
Advance participants: 20,489 (83%);
End-of-year participants: 4,335 (17%).
Total: 24,824.
Source: GAO analysis of IRS program data.
Note: Advance participants include individuals who claimed both the
advance and end-of-year credit in the same year, and end-of-year
participants include those who only claimed end-of-year credits.
[End of figure]
From 2003 through 2008, the average number of advance participants per
month peaked at 16,000 in 2006, and then declined to about 14,000.
[Footnote 13]
Figure: Average monthly participation in the advance HCTC 2003 through
2008:
[Refer to PDF for image: vertical bar graph]
Year: 2003;
Advance participation: 7,110.
Year: 2004;
Advance participation: 12,443.
Year: 2005;
Advance participation: 15,001.
Year: 2006;
Advance participation: 15,958.
Year: 2007;
Advance participation: 15,264.
Year: 2008;
Advance participation: 13,960.
Source: GAO analysis of IRS program data.
Notes: This analysis includes individuals who claimed both advance and
end of year credits in the same year, but does not include HCTC
participants who only filed for the end-of-year. In 2003 the advance
credit was not available until August, and a larger share of HCTC
participants that year took the end-of-year credit compared to the
other years.
[End of figure]
Key Recovery Act changes to the HCTC in 2009:
* Made it easier for TAA participants to receive the HCTC by
suspending certain HCTC eligibility requirements (March 1)[Footnote
14];
* Increased the credit from 65 percent to 80 percent of premiums
(April 1);
* Expanded TAA eligibility to additional workers (May 18);
* Required retroactive credits for payments made to health plans while
a participant's eligibility was being determined (August 17)[Footnote
15].
Most HCTC-related Recovery Act changes will expire on December 31,
2010. Certain changes, such as the expansion of TAA eligibility to
additional workers, are permanent changes.
IRS and its contractors administer the HCTC administrative activities
include:
* Management of computer systems and customer calling centers;
* Communication with potentially eligible individuals;
* Processing of applications for enrollment in the advance credit;
* Collection of participants' share of premiums;
* Processing government's share of premium payments to health plans.
Figure: HCTC Operational Divisions:
[Refer to PDF for image: illustration]
Customer Service Operations:
* All operations managed by contractors.
* Answers calls from participants and responds to written
correspondence regarding participant questions.
* Processes registrations and resolves simple account issues.
Systems Operations:
* Runs and manages all systems network applications for HCTC including
management of two main systems.
- The Payment Processing system”managed internally by IRS, maintains
financial records of all HCTC eligible participants.[A]
- Case Management system”maintained by contractors, provides health
plan information and participant information for all HCTC participants.
Payment Processing Office:
* Processes and approves all payments to HCTC participants and health
plans.[A]
* Balances the general HCTC ledger and work escalated payment issues.
Stakeholder Engagement Operations:
* Educates internal stakeholders on program operations and
requirements.
* Answers eligibility questions and responds to high-level marketing
and outreach inquires.
Campus Management Operations:
* Ensures eligibility indicators are put on a taxpayer‘s account.
* Assists in identifying tax returns for review.
Source: GAO analysis of IRS information.
[A] All payments that are made to HCTC participants and health plans
are made by the Financial Management Service, a separate agency within
the Department of the Treasury.
[End of figure]
* Health plans provide coverage for HCTC participants.
* Total HCTC-related costs include IRS administrative costs and HCTC
health plans' premium costs.
Figure: Total HCTC-related cost components:
[Refer to PDF for image: illustration]
Total HCTC minus related costs[A], equals:
IRS administrative costs, plus:
HCTC health plans' premiums[B]:
(Government share of health plan premium plus participant share of
health plan premium).
Source: GAO analysis.
[A] For the purposes of our analysis, total HCTC-related costs do not
include participants' compliance costs, such as their costs to
complete application forms, or out-of-pocket costs for health care not
covered by the health plan.
[B] Health plan premiums cover medical care costs and the plans'
administrative costs. Health plans' administrative costs may include
billing, enrollment, claims payment, taxes, risk charges,
underwriting, broker commissions, overhead, and profit.
The Patient Protection and Affordable Care Act as amended by the
Health Care and Education Reconciliation Act of 2010 includes a tax
credit to help individuals pay for health coverage. Like the HCTC, it
will be:
* administered by the IRS and;
* available in advance as a payment directly to health plans or as a
credit on participants' end-of-year taxes.
A key difference between the administration of the new credit and the
HCTC is that, under the new credit, participants will pay their share
of the health plans' premiums directly to the health plans and IRS
will only process the governments' share of the payment.
[End of section]
Results:
1: Change in Participation and Factors Influencing Participation:
* HCTC participation increased after key Recovery Act changes took
effect.
* Respondents to IRS's surveys of potentially eligible individuals
most commonly reported improved affordability of health insurance
coverage as a reason for participation in the HCTC and most commonly
reported ineligibility for the credit as a reason for nonparticipation
in the HCTC.
* Recovery Act changes and other factors may have contributed to
increased participation.
1: Change in Participation and Factors Influencing Participation:
Participation:
* HCTC participation increased after key Recovery Act changes took
effect:
- The average number of advance participants per month increased by 36
percent.[Footnote 16]
- This was higher than the increase in the average number of
potentially eligible individuals per month-23 percent.
* Increased participation was primarily among TAA-eligible individuals
rather than PBGC-eligible individuals.
Figure: Average number of advance HCTC participants per month and
potentially eligible individuals, before and after key Recovery Act
changes took effect:
[Refer to PDF for image: 2 vertical bar graphs]
Participants:
Total:
Pre-Recovery Act: 13,939;
Post-Recovery Act: 18,931 (36% increase).
TAA-eligible:
Pre-Recovery Act: 6,043;
Post-Recovery Act: 10,076 (67% increase).
PBGC-eligible:
Pre-Recovery Act: 7,896;
Post-Recovery Act: 8,855 (12% increase).
Potentially-eligible individuals:
Total:
Pre-Recovery Act: 277,153;
Post-Recovery Act: 339,784 (23% increase).
TAA-eligible:
Pre-Recovery Act: 109,028;
Post-Recovery Act: 152,244 (40% increase).
PBGC-eligible:
Pre-Recovery Act: 168,125;
Post-Recovery Act: 187,540 (12% increase).
Source: GAO analysis of IRS program data.
Notes: This analysis compares data from the 6 months preceding the
first major Recovery Act change (October 2008 through March 2009) and
the 6 months following the implementation of most Recovery Act changes
(July 2009 through December 2009). Data from the months of April, May,
and June of 2009 were not included in this analysis because
participation during these months may have been split among some
individuals who applied for the credit before the Recovery Act changes
took effect and others who applied after. The analysis of participants
does not include participants who filed for the end-of-year credit,
because these data were not available at the time of our analysis.
These figures do not include participants' qualified family members,
who are also eligible to participate in the HCTC. IRS's estimate of
the total number of covered individuals, including qualified family
members, equals the number of participants multiplied by a factor of
[End of figure]
1: Change in Participation and Factors Influencing Participation:
Influencing Factors:
Most commonly reported factors influencing participation among IRS
survey respondents:
* Participants most commonly reported affordability of health
insurance coverage as a reason for participation in the HCTC, followed
by the need for health insurance.
* Among individuals who said they were interested in participating in
the HCTC but did not intend to participate, the most commonly reported
reasons for nonparticipation were:
- ineligibility-”for example due to being covered by Medicare or
Medicaid or not meeting an age requirement,
- followed by affordability-”such as being unable to afford to pay for
premiums even with the credit or to pay for premiums while waiting for
their enrollment to be approved.
Recovery Act changes provided incentives for increased participation.
* The increase in the amount of the credit and the retroactive credit
made health plan premiums more affordable.
* Expanded HCTC eligibility rules for TAA individuals and the
expansion of TAA eligibility to additional industries increased the
number of people eligible.
Economic factors increased the number of individuals potentially
eligible to participate.
* Increased trade-related layoffs.
* PBGC took over more pensions.
2: Health Insurance Coverage and Health Status of Survey Respondents:
Insurance coverage status:
* Over 20 percent of IRS survey respondents who were eligible for the
HCTC, but did not intend to participate, reported that they were
uninsured.[Footnote 17]
Health status:
* IRS survey respondents who were eligible for the HCTC and insured”
including HCTC participants and nonparticipants with other coverage”
reported health status that was similar to or better than the health
status of the U.S. population. Over 80 percent of each group reported
good to excellent health status.
* Uninsured survey respondents who were eligible for the HCTC but did
not plan to participate reported somewhat lower health status”with
fewer than 70 percent reporting good to excellent health status.
3: HCTC Administrative Costs:
From 2003 through 2008, HCTC administrative costs to IRS averaged 17
percent of total HCTC-related costs, with variation related to start
up costs in early years.
Most HCTC health plan and TPA officials that provided information
reported that any additional administrative costs for HCTC
participants compared to the typical costs incurred for non-HCTC
participants were minimal.
3: HCTC Administrative Costs: IRS Costs:
Administrative costs of the HCTC to IRS from 2003 through 2008 totaled
$161 million, accounting for 17 percent of total HCTC-related costs
during that time.
Figure: Total HCTC-Related Costs, 2003 through 2008[A]:
[Refer to PDF for image: pie-chart]
Total HCTC-related costs: $953 Million.
Health plan premiums[B]: $793 million (83%):
- Participant share of health plan premiums: $277 million (29%);
- Government share of health plan premiums: $515 million (54%).
IRS administrative costs: $161 million (17%).
Note: Numbers do not always sum to totals due to rounding.
[a] HCTC-related costs include IRS's administrative costs and HCTC
health plan premiums.
[B] Premiums paid to health plans cover participants' medical care and
the plans' administrative costs, which are distinct from IRS's
administrative costs.
Source: GAO analysis of IRS data.
[End of figure]
From 2003 through 2008, IRS's administrative costs varied each year
due primarily to the amount of funds required for start up costs early
in the program.
* In 2003 and 2004, IRS incurred large program start up costs, such as
for the development of computer systems. These costs accounted for 25
percent and 34 percent of total HCTC-related costs in these 2 years,
respectively.
* From 2005 through 2008, IRS's administrative costs did not include
similar costs, and as a result, administrative costs ranged from 8 to
14 percent of total HCTC-related costs.
* IRS officials told us that they expect similar variation in annual
spending based on cyclical requirements, such as systems upgrades.
[Footnote 18]
Figure: Components of HCTC-Related Costs as a Share of Total Costs,
2003 through 2008:
[Refer to PDF for image: vertical bar graph]
2003:
IRS administrative costs: $23,010,389 (25%);
Government share of health plans' premiums: $45,343,530 (49%);
Participant share of health plans' premiums: $24,577,285 (26%).
2004:
IRS administrative costs: $65,183,114 (34%);
Government share of health plans' premiums: $80,658,675 (43%);
Participant share of health plans' premiums: $43,431,594 (23%).
2005:
IRS administrative costs: $22,810,677 (14%);
Government share of health plans' premiums: $91,462,587 (55%);
Participant share of health plans' premiums: $49,249,085 (30%);
2006:
IRS administrative costs: $19,097,198 (11%);
Government share of health plans' premiums: $99,424,760 (58%);
Participant share of health plans' premiums: $53,536,409 (31%);
2007:
IRS administrative costs: $13,615,746 (8%);
Government share of health plans' premiums: $102,073,047 (60%);
Participant share of health plans' premiums: $54,962,410 (32%);
2008:
IRS administrative costs: $16,886,804 (10%);
Government share of health plans' premiums: $95,863,878 (58%);
Participant share of health plans' premiums: $51,619,011 (31%);
Source: GAO analysis of IRS data.
[A] From 2003 through 2008, 92 percent of IRS's administrative costs
were for contractors' services and supplies, and 8 percent were for
expenses internal to IRS, such as staff salaries and printing.
[End of figure]
IRS's future administrative costs for the HCTC could vary based on
cyclical requirements and the number of participants.
* From 2009 through 2011 IRS plans to spend about $40 million for the
HCTC program to implement legislative changes and upgrade computer
systems, thus administrative costs as a share of total HCTC-related
costs are likely to rise during these years.
* IRS officials told us that absent major program changes, they would
not expect similar levels of spending on these types of systems
operations until the need for another systems upgrade, thus
administrative costs as a share of total HCTC-related costs would
likely decrease after 2011.
* According to IRS officials, computer systems upgrades are typically
required every 5 to 6 years.
* IRS analysis indicates that some economies of scale could be
realized for the program if participation increases. For example, the
analysis found that increased participation would not result in
increased costs for computer systems.
3: HCTC Administrative Costs: Health Plan Costs:
A share of the $793 million in health plan premiums paid from 2003
through 2008 covers the health plans' administrative costs.
Industry estimates of health plans' typical administrative costs for
all enrollees vary greatly, from 5 to 26 percent for group plans, such
as employer-sponsored plans, and 25 to 40 percent for individual,
nongroup plans.[Footnote 19]
In 2009, most advance HCTC participants were enrolled in group plans.
The monthly average percentages of advance participants by plan type
were:
* 63 percent in group plans under COBRA,
* 37 percent in state qualified plans, which include both group and
individual plans,[Footnote 20] and,
* 1 percent in other individual health insurance plans.[Footnote 21]
Officials from all seven health plans and four of the six TPA's that
provided information reported that any additional administrative costs
for HCTC participants compared to non-HCTC participants were minimal.
* Officials from all plans and TPAs providing information said that
one or more administrative processes for HCTC participants were
different than those used for non-HCTC participants. For example,
several said they received a single monthly payment for all HCTC
participants, rather than separate payments for each, and this payment
needed to be reconciled with their records.
* Officials also told us that the different processes did not
typically translate into notable additional costs, either because the
number of HCTC participants were small or because the processes were
not cumbersome.
* Officials from two of the TPAs reported additional administrative
costs for HCTC participants compared to non-HCTC participants on a per
participant basis, citing additional manual processes”such as the
manual handling of credits back to IRS when participants dropped
coverage.
* One health plan told us that it cost no more to administer plans for
HCTC participants compared to non-HCTC participants, and one TPA
reported that it likely costs less to administer plans for HCTC
participants. Both made systems changes to help improve their ability
to manage HCTC participants.
[End of section]
Agency Comments:
We provided a draft of this report to the IRS. In its comments, IRS
said that the per-participant administrative costs for the HCTC
program were higher than for other programs it administers, and
provided observations to explain the higher costs (see enclosure II).
Evaluating the administrative costs of the HCTC program relative to
other programs was beyond the scope of this report.
[End of section]
Contributors:
If you or your staffs have any questions regarding this briefing,
please contact John E. Dicken at (202) 512-7114 or dickenj@gao.gov.
Key contributions to this briefing were made by Randy DiRosa,
Assistant Director; Gerardine Brennan; Julianne Flowers; Jawaria
Gilani; Krister Friday; Emily Loriso; and Jeffrey Miller.
[End of Enclosure I]
Enclosure II: Comments from the Department of Treasury:
Department Of The Treasury:
Internal Revenue Service:
Deputy Commissioner:
Washington, D.C. 20224:
Mr. John E. Dicken:
Director, Health Care:
U.S. Government Accountability Office:
441 G Street, N.W.
Washington, DC 20548:
Dear Mr. Dicken:
Thank you for your helpful work on the draft report entitled, Health
Coverage Tax Credit: Participation and Administrative Costs. Your
report recognizes the considerable efforts of the Internal Revenue
Service (IRS) to effectively and efficiently deliver the Health
Coverage Tax Credit (HCTC) to eligible taxpayers each year. On behalf
of nearly 30,000 taxpayers, the IRS consistently pays over 1,000
health insurers and third party administrators to subsidize health
care costs for beneficiaries.
The Trade Adjustment Assistance Act of 2002, recently reauthorized by
the American Recovery and Reinvestment Act of 2009, created the unique
HCTC to serve two very specific populations: those receiving Trade
Adjustment Assistance benefits and those individuals whose pension was
taken over by the Pension Benefit Guaranty Corporation. Considerable
effort is expended by the IRS to ensure pre-qualified individuals are
notified about the availability of the tax credit, the eligibility
requirements, and the health plan options available to claim the
credit. These tasks are particular to the success of the HCTC.
I know that one of the areas that your report examines is
administrative costs of the HCTC. The IRS is committed to running
efficient programs that deliver the benefits and services available to
taxpayers at the lowest possible cost. I would observe that the unit
costs of operating the HCTC are substantially higher than other more
broad-based programs that the IRS administers, because of a few
important factors.
First, the HCTC is only available to very small population relative to
the approximately 140 million individual tax filers. As a result, the
fixed costs that are a part of any tax program are spread over fewer
filers. Second, HCTC is not available to the general public, and
significant administrative resources are expended in determining who
may be eligible by virtue of receiving Trade Adjustment Assistance or
receiving benefits from the Pension Benefit Guaranty Corporation.
Eligibility for the program in many cases varies depending on the
specific employer involved as well as the specific geographic location
where the individual worked. These determinations are communications-
and resource-intensive. In addition, once trade-affected workers are
enrolled, the IRS must work with state workforce agencies to confirm
eligibility of beneficiaries on a monthly basis.
In order to accommodate these requirements specific to trade-affected
workers and PBGC beneficiaries, the IRS had to create one-off program
features that do not benefit from the economies of scale that the tax
system generally provides. Notwithstanding these observations on
costs, the IRS remains focused on maximizing outreach and delivering
high quality services to the populations that the HCTC was designed to
assist.
Thank you again for the valuable feedback included in the report. If
you have any questions, please contact David Williams, Director,
Electronic Tax Administration and Refundable Credits, Wage and
Investment Division, at (202) 622-7990.
Sincerely,
Signed by:
Steven T. Miller:
[End of section]
Footnotes:
[1] Pub. L. No. 111-5, div. B, title I, § 1899L, 123 Stat. 115, 435-36.
[2] At the time of this study, final data on tax credits were
available only through 2008.
[3] Not all individuals initially identified as potentially eligible
will meet all eligibility criteria for the HCTC. For example,
individuals entitled to benefits under Medicare are not eligible for
the HCTC.
[4] Pub. L No. 111-5, div. B, title I, 123 Stat. 115, 306-436.
[5] The changes took effect on various dates throughout 2009.
[6] Pub. L No. 111-148, §§ 1401-21, as amended by the Health Care and
Education Reconciliation Act of 2010, Pub. L No. 111-152, §§ 1001-05.
[7] The age, income, and geographical distribution of survey
respondents was similar to that of nonrespondents.
[8] HCTC-related costs include IRS's administrative costs and total
premiums paid to health plans. For the purposes of our analysis, total
HCTC-related costs do not include participants' compliance costs, such
as their costs to complete application forms, or out-of-pocket costs
for health care not covered by the health plan.
[9] A TPA is an organization that performs claims administration and
related business functions for a self-insured employer.
[10] The Consolidated Omnibus Budget Reconciliation Act of 1985
requires employers who provide health insurance to continue to provide
coverage to their employees and their families at the group rates in
certain circumstances.
[11] Coverage under individual health insurance may be obtained when
the individual was covered under individual health insurance for the
entire 30-day period that ends on the date the individual became
separated from the employment that qualified the individual for TAA or
PBGC benefits.
[12] Seven types of HCTC coverage alternatives may be designated by
states, including private group or individual plans, mini-COBRA group
plans, and high-risk pool plans. For more information on state-
qualified health plans see, GAO, Health Coverage Tax Credit:
Simplified and More Timely Enrollment Process Could Increase
Participation, [hyperlink, http://www.gao.gov/products/GAO-04-1029]
(Washington, D.C.: Sept. 30, 2004.)
[13] Individuals who participate in the advance credit are typically
enrolled in the program for more than 1 month, but many are not
enrolled for an entire year. Therefore, total participation in any
given month is never as high as total annual participation.
[14] Prior to the Recovery Act, in order for TAA participants to be
eligible for the HCTC they were generally required to be receiving
certain payments under TAA and enrolled in TAA training programs”the
Recovery Act suspended these requirements.
[15] IRS began notifying eligible individuals about this new provision
in April 2009.
[16] This analysis compares data from the 6 months preceding the first
major Recovery Act change (October 2008 through March 2009) and the 6
months following the implementation of most Recovery Act changes (July
2009 through December 2009). Data from the months of April, May, and
June of 2009 were not included in this analysis because participation
during these months may have been split among some individuals who
applied for the credit before the Recovery Act changes took effect and
others who applied after. The analysis of participants does not
include participants who filed for the end-of-year credit, because
these data were not available at the time of our analysis. Advance
participants made up over 80 percent of total participation from 2006
through 2008.
[17] This analysis excluded certain individuals who were not eligible
for the HCTC because they were covered by Medicare, Medicaid, or
military health care, or because they did not meet an age requirement.
[18] The HCTC systems upgrades are typically handled by contractors,
and IRS does not depreciate such costs over time.
[19] These ranges are based on GAO's review of industry data from 4
studies published between 2000 and 2007, and two government reports,
see CBO, Key Issues in Analyzing Major Health Insurance Proposals
(Washington, D.C.: December 2008), and GAO, Private Health Insurance:
Small Employers Continue to Face Challenges in Providing Coverage,
[hyperlink, http://www.gao.gov/products/GAO-02-8] (Washington, D.C.:
Oct. 31, 2001).
[20] As of December 2009, 62 percent of the HCTC state-qualified
health plans were private group or individual plans, 21 percent were
high-risk pool plans, 13 percent were mini-COBRA group plans, and 4
percent were other types of plans.
[21] Numbers do not add to 100 due to rounding.
[End of section]
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