HRB 2 - Early Retiree Reinsurance Program
Released May 5, 2010I Download as a PDF May 5, 2010
-- The Department of Health and Human Services (HHS) has just issued interim final regulations
, and a Fact Sheet
, relating to the Early Retiree Reinsurance Program. This temporary program, established by way of the health care reform laws, provides reimbursement of certain expenses to plan sponsors of group health plans that provide retiree coverage to early retirees, and their eligible spouses and dependents.
To receive reinsurance reimbursements, the plan must be certified, in accordance with criteria set forth by the HHS (see below). Once certified, the program reimburses up to 80% of the cost of benefits in excess of $15,000 and below $90,000. The reimbursement must be used to lower plan costs, or to reduce participant premiums, copayments, deductibles, coinsurance, or other out-of-pocket expenses.
The program expires January 1, 2014.
- Eligible group health plans are those that provide retiree benefits, whether insured or self-funded, sponsored by a private employer, or by a State or local government. The term also includes group health plans sponsored by an employee organization, a VEBA, or a multi-employer plan.
- An early retiree means a plan participant of the group health plan, who is:
- Aged 55 and older;
- Not eligible for Medicare; and
- Not an active employee of the employer maintaining or contributing to the group health plan. The determination of whether an individual is not an active employee is made by the plan sponsor, in accordance with the terms of its plan.
The term also includes the enrolled spouse, surviving spouse, and dependents of the early retiree.
Requirements for Plans to Participate in the Program
The program commences on June 1, 2010. To be eligible for the program, a group health plan must be certified by the Secretary of HHS, by way of an application process. The actual application is expected to be available by the end of June.
Following is the type of information that will be requested on the application:
- Applicant’s name and address, tax ID number, and contact information.
- Plan sponsor agreement, signed by the plan’s authorized representative, affirming:That federal funds are being sought;
- That fraud, waste, and abuse prevention policies and procedures are in place; and,
- If applicable, a written agreement exists with the insurer relating to the disclosure of claims information.
- A summary of:
- How reinsurance funds will be used, such as to reduce premium contributions, co-payments, deductibles, coinsurance, or other out-of-pocket costs for plan participants, to reduce health benefit or health benefit premium costs for the plan sponsor, or to reduce any combination of these costs; and
- The cost containment mechanisms the plan currently has in place, specifically relating to chronic and high cost medical conditions.
- A 2-year projection of anticipated eligible reimbursements.
- A list of all benefit options available to early retirees.
Applications will be processed in the order they are received. An applicant need not submit a separate application for each plan year, but must identify the plan year start and end date cycle (starting month and day, and ending month and day) for which it is applying. An applicant must submit an application for each plan for which it will submit a reimbursement request.
Amount of Reimbursement
The reinsurance program reimburses up to 80% of a participant’s claim that exceeds $15,000 and is less than $90,000 (these threshold amounts will be indexed annually). The intent of the program is to provide some relief for large claims. Reimbursement will be on a per participant basis. The claims of more than one participant cannot be aggregated to reach the threshold numbers.
Timing of Claims
The regulations provide that the claims must be incurred on or after June 1, 2010, to be reimbursed; but claims incurred in a plan year beginning before June 1, 2010 and ending after June 1, 2010, can be used to reach the threshold limit of $15,000. For example, a plan with a plan year of July 1, 2009 to June 30, 2010, with an early retiree for which it has spent $120,000 in health benefit claims prior to June 1, 2010, and then spends another $30,000 in health benefit claims on the early retiree between June 1, 2010 and June 30, 2010, the sponsor would receive credit for $15,000 in claims incurred before June 1, and receive reimbursement of 80% of the $30,000 (for the claims incurred after June 1, 2010), or $24,000.
Use of Reimbursements
The reimbursement proceeds can be used to:
- Reduce the employer’s plan cost, including premium, for coverage;
- Reduce the employee’s plan cost, including premium, co-pays, deductibles, co-insurance, or other out of pocket costs, for plan participants; or
- A combination of 1 and 2.
Reimbursements cannot be used as general revenue for the plan sponsor.
Claim reimbursement will be based on actual claims. For insured plans, the insurer can submit claim information directly to HHS, since employers generally would not have this information.
What Should an Employer Do?
- Employers interested in making application for the early retiree reinsurance program should begin gathering the data requested in the application. The regulations make it clear that every attempt should be made to file the application correctly the first time. If the application is rejected, the application process starts over. Since the program appears to be a first come/first serve, it is very important to submit the correct, completed application.
- Identify the plan’s cost containment features.
- Identify projected permissible reimbursements.
- Contact insurer, if applicable, to determine how claims information can be shared with HHS.
Author: Karen R. McLeese, Esq.
About the Author: Karen R. McLeese is Vice President of Employee Benefit Regulatory Affairs for CBIZ Benefits & Insurance Services, Inc., a division of CBIZ, Inc. She serves as in-house counsel, with particular emphasis on monitoring and interpreting state and federal employee benefits law. Ms. McLeese is based in the CBIZ Leawood, Kansas office.
The information contained herein is not intended to be legal, accounting, or other professional advice, nor are these comments directed to specific situations. The information contained herein is provided as general guidance and may be affected by changes in law or regulation. This information is not intended to replace or substitute for accounting or other professional advice. You must consult your own attorney or tax advisor for assistance in specific situations.
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