Under the Affordable Care Act, the Federal government will reimburse a group health plan sponsor for 80% of the group health care expenses in excess of $15,000 (but not in excess of $90,000) incurred by or on behalf of an early retiree. On May 4, HHS issued regulations implementing this reinsurance program. The regulations are written to be inclusive, so many employers will qualify for the reinsurance. The program opens June 1. HHS does not expect the $5 billion budget for the program to last until the end of the program, so it will be important to participate early.

To be eligible, a plan sponsor will need to apply to HHS (and be approved and certified), enter into a sponsor agreement with HHS, submit claims for reimbursement, and make available certain data and documents to HHS. Following is an outline of the basic provisions:

Early Retirees: Early retirees are individuals covered under the sponsor’s group health plan who are age 55 or older, are not eligible for Medicare and are not active employees of an employer who sponsors the plan or contributes to the plan. Spouses, surviving spouses and dependents (including dependents who are not tax dependents, such as domestic partners) also qualify as early retirees.

Covered Expenses: All health care expenses, including medical, surgical, hospital, prescription drug and other costs enumerated by HHS, are eligible for reimbursement. The expenses reimbursed are the actual costs incurred for the care, including the retiree’s deductible, copayment and co-insurance payments, but net of any negotiated concessions (including any Rx rebates and other post-point-of-sale price concessions). The reinsurance is available for both selffunded and insured plans. With respect to insured plans, however, premiums are irrelevant; HHS focuses solely on the cost of the claims. The sponsor is required to have an agreement with the plan (or insurer) to provide the claims data to HHS, at its request. It is the sponsor’s obligation to get HMOs and other capitated-payment arrangements to provide HHS with the claims data. If a sponsor wants to include the cost of participants’ deductibles, copayments or co-insurance as part of the expenses to be reimbursed, the sponsor needs proof (e.g., a receipt) that the participant actually made the payment. Expenses are not eligible for reimbursement until they are incurred and paid.

2010 Expenses: For 2010, expenses incurred on behalf of an early retiree during the current plan year prior to June 1 count solely toward the $15k threshold. Only expenses incurred on and after June 1, 2010 are eligible for reimbursement.

Cost Containment: The plan must have programs and procedures to generate cost savings for those with “chronic and high-cost conditions” -- defined as a condition for which an early retiree is likely to have annual claims in excess of $15,000. These conditions may vary from plan to plan. The sponsor is required to take a reasonable approach to identifying the conditions it will address. It does not have to develop programs and procedures to address all such conditions, and it does not have to implement new programs and procedures (i.e., in addition to those already in place). A program and procedure could include education and encouragement to seek proper and timely treatment before a condition becomes critical; for example, aggressive monitoring and behavioral consulting for diabetes. Note: A sponsor will need to be able to demonstrate that the programs and procedures either did, or had the potential to, generate cost savings. The plan also is required to have effective policies and procedures to detect fraud, waste and abuse, and the sponsor will have to maintain data to prove these policies and procedures were implemented and are effective.  

Use of Reinsurance: Sponsors will be required to maintain the same level of effort in contributing towards health care coverage. The reinsurance may be used to reduce or offset increases in the sponsor’s future costs for providing health care to all participants (not just early retirees) or reduce the participants’ costs (co-premiums, deductibles, co-pays or co-insurance). The reinsurance cannot be used as part of the sponsor’s general funds. As a result, HHS expects many employers to use the reinsurance to reduce costs in subsequent plan years. There is no requirement that the reinsurance be held in a separate account or trust (although it should be considered).

Application to Participate: The sponsor will need to apply to HHS to participate in the program. A separate application will have to be filed for each plan (but just once, not each year). Applications will be processed on a first-come first-served basis; incomplete applications will be rejected, and when resubmitted, will start the process anew. So it will be important to prepare the applications properly the first time. The applications will include:

A sponsor agreement – generally promising that the sponsor will comply with the terms of the reinsurance program as outlined (for example, that an agreement is in place to provide claims data from the plan directly to HHS, and anti-fraud policies are in place). This agreement is similar to the one used for HHS’s retiree drug subsidy program;  

A summary of how the sponsor will use the reimbursement to reduce sponsor and/or plan participant cost;  

A description of the policies and procedures in place to generate the cost savings for the chronic and high cost conditions;  

An attestation regarding the plan’s policies and procedures to detect fraud, waste and abuse;  

A list of the early retirees’ benefit options under the plan; and  

A projection of the reimbursement amounts the plan expects to receive during the first two years of the program.  

The application, and the agreement, must be signed by someone who can bind the sponsor to contracts (so an insurer or TPA generally will not be able to sign on behalf of the sponsor).  

Claims: Claims cannot be submitted until the sponsor’s application has been approved and the plan and sponsor “certified” by HHS. A claim will have to include details regarding: the benefit provided, the provider, the date of service, the early retiree, the date and amount of payment (net of concessions), the plan, and the plan option under which the benefit was provided. It will be permissible to file claims on a best-information basis. Claims can be reopened later (by the sponsor or HHS) if and when other facts become known (e.g., if a claim is reversed or a year-end rebate is received).

Appeals: If HHS denies a claim for reinsurance, there is a one-step appeal process. The appeal must be filed within 15 days after denial (although the sponsor can file and indicate that additional data will be forthcoming). Once the $5B funding for the program is exhausted, all appeals will cease – so it will be important for claims to be submitted accurately and completely the first time.