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Early Retiree Reinsurance Program Starts June 1—First-Come, First-Served

By Brian M. Pinheiro and Jonathan M. Calpas, Ballard Spahr LLP  5/7/2010

On May 4, 2010, the U.S. Department of Health and Human Services (HHS) released its first set of regulations under the health care reform law. The interim final rule, published the following day in the Federal Register, provides guidance on the Early Retiree Reinsurance Program, which will reimburse employers and other plan sponsors for part of the costs incurred in providing group health benefits to early retirees.

The program will be effective on June 1, 2010. Reimbursements will be made on a first-come, first-served basis. Given the expectation that claims for reimbursements will exceed the $5 billion in funding allocated to the program, speed is essential.

The new HHS regulations provide important guidance regarding the program, including:

The program will be based in large part on the federal Retiree Drug Subsidy (RDS) program, under which eligible employers have been receiving Medicare Part D subsidy payments for their retiree prescription drug plans.

Employer-based plans must have programs and procedures that generate (or have the potential to generate) cost savings with respect to participants with "chronic and high-cost conditions," such as diabetes and cancer.

Claims eligible for reimbursement include a plan sponsor's net cost of providing health benefits for early retirees but do not include a plan sponsor's or employee's premium costs in providing insured health plan benefits.

Early retirees are defined as former employees who are at least age 55 and not yet Medicare-eligible. However, early retiree claims may include costs attributable to a spouse, surviving spouse and/or dependent even if this person is under age 55 or Medicare-eligible.

Plan sponsors must have written agreements with their health insurance issuer or employment-based plan to require that it provide information to HHS upon request. Also, plan sponsors must have policies and procedures to detect and reduce fraud, waste and abuse.

Applicants must explain to HHS how they expect to use any reimbursements received under the program and must project reimbursements for two years. Reimbursements must be used to reduce plan costs, including the plan sponsor’s costs in providing the benefits. However, the plan sponsor must be able to show that the reimbursements will not reduce its level of support for the plan.

Transition rules will apply in determining reimbursements for the plan year that includes June 1, 2010.

Additional information on the subsidy program is available on the HHS web site.

Brian M. Pinheiro is a partner in the business and finance department at law firm Ballard Spahr LLP. Jonathan M. Calpas is an associate in the firm's employee benefits and executive compensation group.

© 2010 by Ballard Spahr LLP. All Rights Reserved.

Editor’s Note: This article should not be construed as legal advice

Related Article:

Early Retiree Reinsurance Program: Frequently Asked Questions, SHRM Online Benefits Discipline, May 2010

Temporary Retiree Health Subsidy Available in June, HR News, May 2010

Quick Links:

SHRM Online Benefits Discipline

SHRM Online Health Care Reform web page

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