May 13, 2010

Health Care Reform Legislation: Focus on the Early Retiree Reinsurance Program

As mentioned in previous Client Alerts, the recently- enacted Patient Protection and Affordable Care Act and Health Care and Education Reconciliation Act of 2010 (together, the “Health Care Reform Legislation”), will significantly impact individuals and employers for many years. This is the second in a series of Client Alerts that will focus on specific areas of the Health Care Reform Legislation – specifically, this Client Alert focuses on the newly-created Early Retiree Reinsurance Program (the “Program”).

Overview of the Program

The Program provides reimbursements to participating “employment-based plans” for a portion of the costs of providing health insurance coverage to “early retirees” and their eligible spouses, surviving spouses, and dependents. Generally, an “employment-based plan” is a group benefit plan (insured or self-insured) that provides health benefits (i.e., medical, surgical, hospital, prescription drug, or other benefits as determined by the Department of Health and Human Services (“HHS”)) and that is maintained by a private employer, state or local government, employee organization, or a voluntary employees’ beneficiary association. “Early retirees” are individuals who are (1) participants in an employer-sponsored health plan, (2) age 55 or older, (3) not active employees, and (4) not eligible for Medicare.

Through the Program, HHS will reimburse an amount equal to 80% of the portion of health costs attributable to claims for early retirees that exceed $15,000 but are below $90,000. The reimbursement amounts are determined based on the cumulative health care benefits incurred in a given plan year and paid for a given early retiree (rather than reimbursement being made only for discrete health care benefit items or services). The reimbursements received through the Program must be used to:

  1. Reduce the sponsor’s health care benefit premiums or health care benefit costs;
  2. Reduce health care benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs or any combination of these costs, for all plan participants; or
  3. Reduce any combination of costs in (1) and (2).

The Health Care Reform Legislation appropriated $5 billion to provide reimbursement to employment-based plans participating in the Program. The Program will end when all funds have been exhausted, but in no case later than January 1, 2014.

HHS Regulations Implementing the Program

Last week, HHS released interim final regulations implementing the Program. The regulations include detailed requirements for the Program’s application process. The application must include information such as:

  1. An acknowledgment that the information is being provided to obtain federal funds;
  2. An attestation that policies and procedures are in place to detect and reduce fraud, waste, and abuse; and
  3. A summary of how the plan sponsor will use reimbursements to maintain the sponsor’s level of effort in contributing to support the applicable plan.

In addition, HHS is requiring applicants to project their reimbursement amounts for their first two plan-year cycles in their application so that HHS can project total reimbursement amounts. To aid HHS with its funding projections, HHS has requested applicants to identify specific projected reimbursement amounts for each of the two plan-year cycles. HHS intends to use this information to help determine if and when it should stop accepting applications due to funding limitations.

The regulations state that the Program will be effective on June 1, 2010, and reimbursements under the Program will be made on a first-come, first-served basis.

Next Steps for Employers – Apply Early

HHS expects more requests for reimbursement than there are funds to pay the requests. Therefore, it is important that employers with eligible plans that intend to apply for the Program begin gathering the information that they will need now so that they can complete the application and have it ready for filing by June 1. Also, it is important that the application is completed correctly the first time- if an application is incomplete, HHS will deny it and a new one will have to be submitted, which will be processed based on when the new application is received. Based on demand for the Program, there may not be any funds remaining when the application is re-submitted.

For more information on the Health Care Reform Legislation, including the Early Retiree Reinsurance Program, contact your SGR Executive Compensation and Employee Benefits counsel. In addition, if you have a suggestion about an area of the Health Care Reform Legislation that you would like to be covered in a future Client Alert, please contact your SGR Executive Compensation and Employee Benefits counsel.

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