Revised November 27, 2001

Do Proposals to Increase Funding for National Emergency Grants Provide an Effective Way to
Meet the Health Insurance and Other Needs of Laid-off Workers?

by Sandra Clark

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Ensuring health insurance and other support for laid-off workers is an essential piece of any economic stimulus package. The Administration has proposed that $3 billion be provided in National Emergency Grants for health insurance, income support, and job search assistance and training for unemployed workers. The stimulus package developed by the Centrist Coalition in the Senate includes $5 billion for similar purposes.

These proposals stand in sharp contrast to other approaches to addressing these needs and fall short in two important ways. First, the funding levels under the both President's and the Centrist Coalition's plans are too low and will result in these funds being able to assist only a small fraction of unemployed workers (see box on next page). Second, even if the funding level were substantially increased, the National Emergency Grants program does not appear to provide an appropriate structure to accomplish these purposes. Both the Administration and Centrist Coalition proposals are short on details and leave unanswered a number of important questions concerning how these funds would be administered. It appears unlikely, however, that channeling these funds into the National Emergency Grants program would be an effective or expeditious way to meet the needs of unemployed workers.


Background on the National Emergency Grant Program

Under the Workforce Investment Act, 20 percent of the annual appropriation for the Labor Department's dislocated worker program currently is set aside to fund National Emergency Grants (NEG), pilot and demonstration projects, and technical assistance. The largest share of these reserve funds is earmarked for National Emergency Grants. For Program Year 2000, which covered the period from July 1, 2000 through June 30, 2001, National Emergency Grants received roughly $220 million.

National Emergency Grant funds are available to help states respond to major, unexpected dislocation events, such as mass layoffs, plant closures, natural disasters, and dislocations resulting from federal actions such as defense downsizing. To receive a grant, a state must apply to the Secretary of Labor and demonstrate that the state's existing federal dislocated worker funds, which are allocated to all states by formula, are insufficient to meet the unexpected need for assistance. Grants are administered by local Workforce Investment Boards and currently may be used for job training, reemployment services, income support, and supportive services.

The Administration has proposed increasing funding for National Emergency Grants by $3 billion and allowing these fund to be used for three purposes: (1) to pay up to 75 percent of health care premiums under COBRA for up to ten months for laid-off workers; (2) to provide additional weeks of income assistance for individuals enrolled in job training who exhaust their unemployment benefits or are ineligible for unemployment benefits but have a sufficient attachment to employment; and (3) to provide job search assistance and training.

Funding Levels in the Administration and Centrist Coalition Plans
are Insufficient to Meet the Stated Purposes

The economic stimulus packages proposed by the Administration and the Centrist Coalition include increased funding for National Emergency Grants to address health insurance, income support, and job training needs of laid-off workers. The Administration's plan provides $3 billion for these purposes, while the Centrist Coalition provides $5 billion. These amounts are not adequate to address the full range of purposes for which they are provided.

For health insurance alone, the increase falls well short of what is needed to cover affected workers. Yet the funds would be intended to address a range of other non-health insurance needs in addition to providing health care coverage. The estimated cost of paying 75 percent of the health insurance premiums of workers covered under COBRA is roughly $7 billion, and that figure does not reflect the cost of assisting several million laid-off workers who do not qualify for COBRA coverage, including many low-income unemployed workers. In addition, there is a need for employment and training services to help laid-off workers quickly reenter the workforce. Under the Administration and Centrist Coalition plans, which provide limited unemployment benefit improvements, there also would be a need to supplement the incomes of unemployed workers who do not receive or who exhaust unemployment benefits.

The package developed by the Senate Centrist Coalition includes $5 billion for income supplements, job training, and health coverage. The Centrist Coalition plan includes a separate provision to provide a refundable tax credit of up to 50 percent of health insurance premiums for COBRA-eligible workers. It appears that the funding increase for health insurance under the National Emergency Grants may be intended for use to offset all or a portion of the remaining health insurance costs for some COBRA-eligible workers with low incomes and to provide assistance to some workers who are not eligible for coverage under COBRA.

While details of both plans are lacking, it appears unlikely that the approach of channeling additional funds through the National Emergency Grants would adequately meet the health insurance and other needs of affected workers on a timely basis.

Since National Emergency Grant funds are not distributed on a formula basis, a number of states might not receive any grant funds, while other states could receive disproportionately small amounts. The distribution of funds apparently would be determined in large part by the timing of states' applications. Presumably, funds would be distributed on a first-come, first-serve basis. As a result, states experiencing economic hardship later in the downturn could receive less than states applying earlier. Funds could be exhausted before some states apply. As a result, the funds may be inequitably and arbitrarily distributed across states in a way that fails to reflect need.