On May 5, 2010, the Department of Health and Human Services (“HHS”) Interim Final Rule implementing the Early Retiree Reinsurance Program (“Program”) was published in the Federal Register. The Program will become effective for reimbursing eligible claims incurred on or after June 1, 2010, which is nearly three weeks earlier than the June 21 deadline set forth under the Patient Protection and Affordable Care Act (the “Affordable Care Act”). The Program will end on the earlier of January 1, 2014, or when the $5 billion earmarked by Congress for the Program is exhausted.

The Early Retiree Reinsurance Program

The Program’s purpose is to make early retiree health benefits more affordable for plan sponsors and plan participants by providing reimbursements to participating plan sponsors for a portion of the cost of health benefits incurred by early retirees (and their respective plan-covered spouses or surviving spouses and plan-covered dependents). Specifically, the Program will reimburse a participating plan sponsor for 80% of the cost of eligible claims incurred by an individual between a cost threshold of $15,000 and a cost limit of $90,000 for a plan year (with the cost threshold and cost limit amounts indexed for inflation for plan years starting on or after October 1, 2011). The claims must be incurred by an early retiree, his/her respective plan-covered spouse or surviving spouse, or plan-covered dependent, and the claims must be shown to have been paid. Additionally, for purposes of the reimbursements, claims exceeding the cost limit for a plan year will be disregarded.

Plan sponsors who receive the reimbursements may use such amounts to reduce health benefit premiums or costs to the plan (such as cost increases from one plan year to the next), or reduce plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of the preceding. HHS expects that plan sponsors who receive the reimbursements will continue to maintain at least the same level of contributions to the plan as the plan sponsor did before the Program. Additionally, reimbursements may not be applied to the plan sponsor’s general revenue.

To participate in the Program, group health plan sponsors (i.e., employers, VEBAs, multiemployer plans, unions, employee organizations, and state or local governments) first must apply to the Program and have their application approved and become certified by HHS. Each plan must submit a separate application. Applications for the Program will be processed by HHS in the order received, and accepted on a first-come, first-served basis. However, note that HHS does not have a correction process for incomplete applications or applications which otherwise fail to meet HHS’ requirements. Incomplete or noncompliant applications will be denied, and plan sponsors must resubmit new applications to be considered for participation in the Program. Any resubmitted application will be treated like a new application and processed in the order received. Plan sponsors will want to ensure that their applications are complete in order to avoid resubmissions because HHS may stop accepting applications for the Program once it appears that applications received are likely to exhaust the funding earmarked for the Program.

The Application

A draft of HHS’s application for the Program, prepared by the Office of Management and Budget, was recently released. The draft application and draft instructions expand upon the Interim Final Rule’s guidance to plan sponsors regarding the information to be submitted in an application. Specifically, applicants will be required to provide the following, in addition to general information (such as the applicant’s tax identification number, name and address, and a contact’s name and address) and other items:

  • A description of procedures or programs the plan sponsor has in place for the purpose of generating cost savings with respect to participants with chronic and high-cost conditions;
  • A summary of how reimbursements received under the Program will be used, including how the reimbursements will be used to reduce expenses for plan participants and/or offset costs for plan sponsors, and how the sponsor will use the reimbursement to maintain its level of contribution to the plan;
  • The projected amount of reimbursements the plan sponsor expects to receive under the Program (if approved) for each of the first two plan-year cycles; and
  • A list of the benefit options under the plan which are available to the early retirees for whom the plan sponsor may receive reimbursement.

The draft application also contains a Plan Sponsor Agreement to be signed by an authorized representative of the plan, whereby the plan sponsor: (a) agrees to comply with the applicable sections of the Affordable Care Act and other HHS guidance, (b) certifies that the plan sponsor has in place a written agreement with the plan’s health insurance issuer or with the plan regarding disclosure of data, documents and records for the purposes of reimbursements under the Program, (c) acknowledges that information used in the application is provided for obtaining federal funds and that the plan sponsor will require subcontractors to acknowledge the same, (d) agrees to establish and implement appropriate safeguards against unauthorized use and data in compliance with HIPAA, with respect to data exchanged under the application, (e) attests that policies and procedures are in place to detect and reduce fraud, waste and abuse, and (f) makes other representations or provides authorizations as required by the Secretary of HHS.

Actions to Do Now

Plan sponsors who are interested in participating in the Program are encouraged to begin compiling information for their applications as soon as possible, if they have not yet begun to do so. HHS may stop accepting applications for participation in the Program once it determines that funding will be exhausted based upon the applications already received.