As part of the Patient Protection and Affordable Care Act (PPACA), Congress has appropriated $5 billion to provide reimbursement to employer-based health plans for the cost of certain health care benefits for early retirees and their spouses, surviving spouses and dependents. This program is available with respect to all employer-based health plans (both insured and self-insured group health plans) that provide health care benefits to early retirees (defined as former employees who are at least age 55 and who are not covered under Medicare). Regulations issued May 5 provide guidance as to how this reinsurance program will work and announce that the program will become available June 1, 2010. Employers who want to participate in this reinsurance program should begin investigating whether they are eligible and compiling information they will need to apply for participation.
If an employer is approved for participation in the reinsurance program, the Department of Health and Human Services will reimburse an amount equal to 80 percent of the portion of health benefit costs (net of negotiated price discounts with providers) attributable to claims that exceed $15,000, but are below $90,000, per year. A special transition rule applies for plan years beginning before (and ending after) June 1, 2010. Under this transition rule, claims incurred before June 1, 2010 can be applied toward the $15,000 threshold (although such claims are not eligible for reimbursement).
Reimbursement is made to the plan sponsor. Any reimbursement to the plan sponsor must be used to (a) reduce the sponsor's health insurance premiums or health plan costs (in the case of a self-insured plan); (b) reduce premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs incurred for participants; or (c) any combination of (a) and (b).
To be eligible for this reinsurance program, the employer health plan must have programs and procedures in place that generate or have the potential to generate cost savings with respect to participants with chronic and high-cost conditions for which $15,000 or more in applicable claims are likely to be incurred during a plan year by one participant. These programs and procedures can already be in place or they can be newly developed in anticipation of the availability of the reinsurance program. Examples of these types of programs and procedures include diabetes management programs and waiver of deductibles, coinsurance and copayment requirements for treatments and visits related to a high cost condition, such as cancer.
The plan sponsor must also have in place with the health insurer or the self-insured plan an agreement that requires the health insurer or plan to disclose information on behalf of the plan sponsor to Health and Human Services as necessary to support the plan sponsor's participation in the reinsurance program.
To participate in the reinsurance program, a plan sponsor will need to file one application for each group health plan that is eligible for the program. While the application form has not yet been developed by the Department of Health and Human Services, the regulations indicate that the application will require: (1) an acknowledgment that the information is being used to obtain federal funds; (2) an attestation that policies and procedures are in place to detect and reduce fraud, waste and abuse; (3) a summary of how reimbursements will be used; (4) an outline of procedures or programs the plan sponsor has in place that have generated or have the potential to generate cost savings with respect to chronic and high-cost conditions; and (5) the amount of reimbursement that the plan sponsor expects to receive in the first two plan years in which it participates in the reinsurance program.
It is expected that the reinsurance program will be established effective June 1, 2010. Because the program is on a first-come, first-served basis, it will be important to submit an application as soon as possible. Even though the application form has not yet been developed, employers should begin developing the information necessary for the application, so that the application can be completed and submitted as expeditiously as possible. The regulations make it clear that incomplete applications will be rejected (with no opportunity to cure any defects). If an application is rejected, the employer would need to resubmit the application, which would place the employer at the end of the line for program eligibility.