Alert: On June 29, 2010, the U.S. Department of Health & Human Services announced (at www.HealthReform.gov) that employers can begin submitting applications for the Early Retiree Reinsurance Program. Created by the Affordable Care Act, this program provides $5 billion in financial assistance to employers, unions and state and local governments to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare
Applications for the program, as well as fact sheets and application assistance can be found here.
HHS Issues Regulations on Early Retiree Reinsurance Program
On May 4, 2010, the U.S. Department of Health and Human Services (HHS) issued an interim final rule to implement the federal government's Early Retiree Reinsurance Program, created by the Patient Protection and Affordable Care Act (see article below). The regulations are effective on June 1, 2010.
Eligible employers can apply for the program through HHS, which says applications will be available by the end of June 2010 (more information is available on the HHS web site, here). Both self-funded and insured plans can apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions and other employers.
To learn more about the regulations, see Early Retiree Reinsurance Program Starts June 1—First-Come, First-Served.
The article below is updated from the original, posted on April 2, 2010.
The Patient Protection and Affordable Care Act, signed into law on March 23, 2010, includes a temporary retiree reinsurance subsidy for employers, to take effect within 90 days of the law's enactment. The program will reimburse employer-provided insurance plans for 80 percent of claims between $15,000 and $90,000 for pre-Medicare retirees ages 55 to 64, for a given year. It will be administered by the U.S. Department of Health and Human Services (HHS), and is funded with $5 billion. The aim is to provide a bridge until state-run health care exchanges become available for individual coverage in 2014.
According to a May 2010 White House fact sheet:
• HHS will begin the Early Retiree Program on June 1, 2010.
• Eligible employers can apply for the program through HHS. Applications will be available by the end of June.
Payments are retroactive for a plan year, so employers and early retirees will be able to take advantage of them for costs incurred from the date the program is established. The program ends on January 1, 2014, when early retirees will be able to choose from the additional coverage options that will be available in the health insurance exchanges.
"Employer and union-based plans will submit an application to HHS to participate in the program. Many of them will already be familiar with the process for submitting applications for the Retiree Drug Subsidy program; we expect the process will be similar," the fact sheet states. The application will be available in June 2010.
Although $5 billion might seem like a lot, it would cover only a fraction of overall pre-Medicare retiree claims, says Thom Mangan, CEO of Corporate Synergies, a health care consultancy servicing middle-market companies. "There is going to be a rush on the government by employers signing up to get it as fast as they can. The first in are going to get the subsidy; those who don't rush out and get it, won't."
“Because the program will begin in mid-June and end as soon as its single funding allocation is exhausted, interested employers should be alert for announcements about the program and consider steps to prepare for participation,” stated a client advisory from consultancy Mercer.
Congress could increase funding for the program, but it was unclear whether that would be likely.
According to a client alert from Mercer:
• The program extends to covered spouses, children and other family members of pre-Medicare retirees.
• Although health benefits provided by either insured or self-funded plans can qualify for reimbursement, the law limits eligible claims to costs actually paid by the plan.
• Employers can apply reimbursements to reduce required plan contributions, co-insurance or deductibles. But payments may not be used to purchase new inventory-control software or cover other general business expenses.
Among the steps employers can take to prepare to participate:
• Collect data on early retirees with chronic high-cost histories.
• Be prepared to break down costs by month and possibly to file monthly cost submissions with HHS.
Overshadowed by Other Retiree Changes
The temporary subsidy might have remained under the radar of many retiree health plan sponsors because much more attention has been focused on the new law's impact on retiree prescription drug benefits. Beginning in 2013, employers will no longer be permitted to take an income tax deduction for the Medicare Part D retiree drug subsidies they receive from the federal government.
The reform law reverses an element of the Medicare Modernization Act of 2003, which established the Medicare Part D prescription drug benefit for seniors and provided a 28 percent subsidy from the federal government to employers that offer prescription drug coverage to retirees. Employers had received the subsidy tax free; plus, they were able to deduct the subsidy from their corporate income taxes as an incentive to continue providing retirees with a drug benefit. While that subsidy will remain nontaxable, it will not be deductible as of 2013.
According to an Issue Brief by the not-for-profit Employee Benefit Research Institute, private-sector retiree health benefits have been eroding since the mid-1990s, a downward trend driven by accounting rule changes that hurt the financial statements of employers offering the benefit and increased health care costs. Assessing the impact of health care reform legislation on retiree coverage, the study draws distinctions between the short term and long term.
- Short term. The reinsurance provisions in the law will help shore up early retiree coverage. But once the health care exchanges become operational in 2014, employers will have less incentive to provide health benefits to early retirees, and retirees will have less need for former employers to maintain a program.
- Long term. New subsidies for individuals enrolling for coverage through insurance exchanges, increases in the cost of providing drug benefits to retirees, and enhanced Medicare Part D coverage for individuals are likely to create significant incentives for employers to drop coverage for early retirees and drug coverage for Medicare-eligible retirees.
Medicare Advantage Plans
Another change to retiree coverage under the new law that employers should note is a decrease in federal payments to Medicare Advantage plans, which combine Medicare benefits with supplemental insurance in a single policy from a private insurer. "Unfortunately, Medicare Advantage group plans, which were very cost-effective, are extinct dinosaurs," Mangan says. "There really wasn't that much of a profit for insurance companies to begin with. Lower federal reimbursement for the Medicare portion of the benefits they provided will make these plans all but nonexistent and force people into the classic Medicare-type plan. So I don't see employers offering Medicare Advantage plans much longer."
Stephen Milleris an online editor/manager for SHRM.
Early Retiree Reinsurance Program Starts June 1—First-Come, First-Served, SHRM Online Benefits Discipline, May 2010
Early Retiree Reinsurance Program: Frequently Asked Questions, SHRM Online Benefits Discipline, May 2010
Health Reform Forces Taxing Decision on Retiree Drug Plan Sponsors, HR News, March 2010
SHRM Online Benefits Discipline
SHRM Online Health Care Reform web page