HHS has recently issued new official and unofficial guidance on various aspects of the ERRP, including use of ERRP proceeds; documenting and reporting price adjustments; and notice requirements. In addition, HHS noted that as of June 10, 2011, ERRP has disbursed $2.7 billion from the appropriated $5 billion.  

Use of ERRP Proceeds

The PPACA and the corresponding ERRP guidance states that ERRP proceeds can be used only to reduce health benefit costs or health benefit premiums (collectively, "Health Benefit Costs") for the plan; to reduce premium contributions, co-payments, deductibles, coinsurance or other out-of-pocket costs for plan participants; or a combination of the two.

However, PPACA states that ERRP proceeds cannot be used as general revenues for the plan. The ERRP regulations also state that, to show that they were not using ERRP proceeds as general revenue, plans must maintain the same level of contribution to the plan as they did before participating in ERRP (the "Maintenance of Contribution" requirement).

Accordingly, provided that plans do not use the ERRP proceeds as general revenue, it appears that they can use ERRP proceeds in any way they see fit to reduce Health Benefit Costs for the plan or reduce premiums, co-pays, deductibles or other out-of-pocket costs for plan participants.

HHS has not described how plans are to document their use of ERRP proceeds. However, on July 20, 2011, HHS issued official guidance describing how plans will comply with the prohibition on using ERRP proceeds as general revenue.

Generally, plans must determine the amount they spent on Health Benefit Costs during a "Baseline Period" that occurred just before the plan began participating in ERRP. Plans must then compare the amount they spend on (or allocate for) Health Benefit Costs in each year in which the Maintenance of Contribution requirement applies with the amount spent in that Baseline Period. Plans must spend (or allocate) at least as much in each year the Maintenance of Contribution requirement applies as they did during the Baseline Period. The Maintenance of Contribution requirement applies to each year for which a plan received ERRP proceeds, each plan year in which a plan receives ERRP proceeds, and any plan year in which a plan still possesses ERRP proceeds.  

Allocating Post-Point-of-Sale Negotiated Price Concessions

The PPACA requires all ERRP plans to take into account any post-point-of-sale negotiated price concessions obtained by the plan with respect to any health benefit. HHS recently issued guidance describing how plans are to allocate such post-point-of-sale negotiated price concessions among their early retirees.

Generally, plans must disclose the post-point-of-sale negotiated price concessions they have already received, those they expect to receive, and those they actually receive. When a plan knows the specific early retiree to which a price concession applies, the plan must apply the price concession to that early retiree. However, if the plan does not know which early retiree to apply the price concession to, the guidance allows plans to estimate the amount of price concessions the plan expects to receive, formulate a "Master Percentage," and then allocate the Master Percentage among all early retirees.

HHS also clarified that if a plan has early retirees who also qualify for reimbursement under Medicare's Retiree Drug Subsidy (RDS) program, the plan must treat any RDS received as a price concession. While the individual who qualifies as an "early retiree" will not qualify for RDS, the early retiree's spouse, surviving spouse or dependent may qualify. Also, HHS notes that plans are not obligated to adjust RDS data because of ERRP proceeds or to report ERRP proceeds to CMS for purposes of adjusting RDS reimbursement.

Unofficial Guidance

HHS also issued a number of new "Common Questions" on the ERRP Website. Among other things, the unofficial guidance address the following:

  • Notices. Plans must deliver the ERRP notice within a reasonable amount of time after the plan receives its first reimbursement, but are not required to deliver the notice to the same participants after subsequent reimbursements. Plans must, however, deliver the ERRP notice to new participants within a reasonable amount of time after they enroll in the plan. ERRP notices must be addressed to each individual family member who is a plan participant (i.e., to the participant by name; to each nonminor family member who is or may be eligible to enroll by name; "and family").
  • Use of ERRP Proceeds.
    • "Reduce" means to directly subsidize; plans cannot use ERRP proceeds to implement cost savings or wellness programs, as these uses are not "reducing" Health Benefit Costs.
    • Plans can use ERRP proceeds received for one plan on permissible purposes for a second plan, provided both plans are ERRP-approved.
    • Plans can use ERRP proceeds to purchase stop-loss coverage.
    • Plans can deposit or allocate ERRP proceeds to an early retiree's HRA, provided the plans ensure the ERRP proceeds are used only to reduce the early retiree's Health Benefit Costs.
  • Early Retirees. An individual does not have to be retired to be included as an early retiree, provided the individual meets the definition of "early retiree" (i.e., over age 55, not eligible for Medicare, and not an active employee).
  • Claims Lists. Plans must report only post-point-of-sale negotiated price concessions. Plans are not required to report any price concessions received at the point of sale.