The U.S. Department of Health and Human Services also issued an interim final rule that implements the Early Retiree Reinsurance Program which was established by the Patient Protection and Affordable Care Act (“PPACA”) on Monday, May 10, 2010. The regulations implementing this temporary program (which is designed to end no later than January 1, 2014) are effective beginning June 1, 2010. This Early Retiree Reinsurance Program applies to group insured and self-insured plans that cover early retirees between the ages of 55 and 64 and their eligible dependents.

In an effort to address the decline in the number of employers providing health insurance to early retirees, who often have difficulty obtaining replacement insurance due to its high cost or the presence of chronic health conditions, Congress has appropriated $5 billion dollars to this new program. The appropriated funds are to be used to reimburse participating plans for 80% of the claims costs incurred between $15,000 and $90,000 by early retirees, their spouses, surviving spouses and dependents on a plan-year basis. For example, if the employer sponsored a calendar-year plan and if an early retiree incurred $70,000 in medical expenses from June 1, 2010 – December 31, 2010, the plan could receive a $56,000 reimbursement ($70,000 x 80%). Generally, plan reimbursements must be used to lower costs for participants (copayments, deductibles, and coinsurance) and not to reduce employer current or future premium contributions.

The program applications are expected to be available by the end of June 2010. In order to participate in this program, employers must submit an application to the Secretary. All applications are processed in the order in which they are received. In addition to general plan identification information, the application must include: (1) a summary of how the plan sponsor expects to use the reimbursement funds; (2) a summary of how the plan’s procedures will create cost savings with regards to high cost or chronic conditions such as cancer and diabetes; and (3) a statement that the plan has procedures in place to detect fraud, waste and abuse. Any application that fails to meet the requirements of the regulation will be denied and returned for re-submission. Any subsequent application will be treated as a new application.

If you sponsor a group insured and/or self-insured plan that cover early retirees, please review the guidance provided.