The Patient Protection and Affordable Care Act (PPACA) charged the Department of Health and Human Services (HHS) with establishing a temporary Early Retiree Reinsurance Program (the Program) for employment-based health plans that provide health coverage to early retirees. On May 5, 2010, HHS issued regulations establishing the Program effective June 1, 2010. However, applications are not anticipated to be available until mid-June.

Plan sponsors that wish to take advantage of the Program should be ready to act quickly. Although earlier indications from HHS and the White House indicated that the Program would operate similar to the retiree drug subsidy program, it appears that the Program will deviate from the retiree drug subsidy program in one very important respect – applications will only be considered in the order in which they are received and incomplete or inaccurate applications will be rejected without any opportunity for cure.   

Eligible Plan Sponsors

Any employer that sponsors a health plan covering early retirees (former employees at least age 55, but not covered under Medicare) may be eligible under the Program. Both insured and self-funded health plans are eligible for reimbursements. Employers who sponsor more than one eligible health plan will have to submit separate applications for each plan.   

Applications

In general, after an application is submitted and approved by HHS, a plan sponsor will then be able to submit actual claims data for reimbursement. Applications will only be considered in the order received and incomplete or incorrect applications will be rejected with no opportunity to cure. Although the extent of the application is unclear at this time, plan sponsors will need to project their level of reimbursements for the first two plan years as part of their applications. HHS has indicated that once the projections exceed the $5 billion funding threshold, HHS may stop taking or approving applications. Because plan sponsors will need to project for two plan years, some have speculated that this will allow plans with extremely large early retiree populations to drain the available funds before any actual reimbursements have been made. This will make it even more imperative that plans submit complete and accurate applications once the window opens.   

Plan sponsors (rather than the plan or plan administrator) will apply under the Program and reimbursements will be made directly to plan sponsors. Plan sponsors may not have access to information necessary to submit claims under the Program because of restrictions on the disclosure of protected health information under the HIPAA Privacy Rule. HHS has addressed this concern by requiring plan sponsors to enter into written agreements with the group health plan or health insurance issuer permitting the plan or health insurance issuer to provide claims information to HHS. Additionally, health insurance issuers may file claims directly on behalf of the plan sponsor.

Eligible Claims   

The Program will reimburse 80 percent of claims of an early retiree in a plan year between $15,000 and $90,000, which will be indexed for inflation for plan years beginning after October 1, 2011. HHS has interpreted claims to be cumulative health benefits in a given year that fall between those amounts ($15,000 to $90,000) rather than discrete costs for medical care that fall between these levels. All medical claims are included in making this determination (including prescription drugs), except for HIPAA “excepted benefits,” such as long term care.  

The Program also covers claims of eligible spouses, surviving spouses or dependents of an early retiree. The plan sponsor can treat an individual as a dependent based on the terms of a plan regardless of whether the individual is a dependent for Federal tax purposes and regardless of the age of the spouse or dependent.   

The Program reimburses plan sponsors only after the health plan has actually paid a claim and reimbursements must take into account any negotiated price concessions (such as discounts or rebates) a health plan has received from providers. Price concessions negotiated after claims are paid must be disclosed to HHS and HHS may reopen claims to take them into account. HHS can reopen any reimbursement determination on its own or by request of the plan sponsor within one year. Reimbursement determinations can be reopened within 4 years for “good cause” (e.g., when new material information becomes available or clerical errors are discovered), or at any time in cases of fraud. An appeals process will be available for plan sponsors to contest denials of claims except when the denial is based on the availability of funds under the Program.

Eligible claims are determined on a plan year basis. The Program will not reimburse claims incurred before the Program’s effective date of June 1, 2010. However, claims incurred within the current plan year but before June 1 may be taken into account for purposes of meeting the $15,000 minimum threshold for reimbursements. For example, if an early retiree under a calendar year plan has incurred claims of $20,000 through June 1, the early retiree will be treated as having met the minimum threshold. The Program will not reimburse any of these claims, but will reimburse all claims incurred by the early retiree after June 1 up to the $90,000 cost limit.   

Use of Reimbursements

Plan sponsors are permitted to use reimbursements only to lower the costs of participants under a plan, such as premiums, deductibles, co-payments, co-insurance or other out-of-pocket expenses. Where a plan covers both early retirees and other participants, reimbursements may be used to reduce the costs of all participants, including active employees. Sponsors must describe how they will reduce costs of participants in their Program applications.   

In order to ensure that reimbursements are not used for the benefit of the plan sponsor instead of for lowering participant costs, HHS will require participating plan sponsors to maintain their level of contribution to the applicable plans. HHS has not specified the consequence of a plan sponsor’s not maintaining their level of contribution, but generally HHS can recoup or withhold funds, terminate or deny an application, or take a combination of these actions in case of non-compliance with the Program.

Cost Savings Programs

The PPACA requires participating employers to implement programs and procedures to generate cost-savings with respect to participants with chronic and high-cost conditions. Employers may designate any conditions as chronic or high-cost if they are likely, if not managed properly, to lead to claims in excess of $15,000 for a single participant. Therefore, a plan sponsor must have programs and procedures in place for cost savings for plan participants with conditions that are likely to generate $15,000 in claims for a plan year. However, sponsors are not required to have programs and procedures in place to address all conditions that may result in claims in excess of $15,000. Examples of cost-savings programs and procedures include diabetes management programs or cancer programs under which a plan’s deductibles for cancer treatment and related visits are reduced or eliminated.   

Next Steps

HHS has placed a premium on speed and accuracy in regards to Program applications. Sponsors should review the particular application requirements and run claim projections in anticipation of the release of the application. Once the application is released, sponsors should be ready to submit a completed application once the application window opens.

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