Early Retiree Reinsurance Program

1. When does the Early Retiree Reinsurance Program go into effect?
This new program went into effect June 1, 2010. Recent guidance provided by the Department of Health & Human Services (HHS) specifies the qualifications for eligibility, the steps plan sponsors must take in the application process and the requirements for reimbursement.

The Affordable Care Act (ACA) includes a reinsurance program (the Program) available to group health plan sponsors who provide medical coverage to early retirees and their spouses, surviving spouses and dependents. The Program is intended to encourage employers to provide health coverage to early retirees until state health exchanges and federal subsidies for health coverage are implemented in 2014.

The Secretary of Health and Human Services (the Secretary) has issued an interim final rule implementing the Program that was published in the Federal Register on May 5, 2010.
2. To whom does the Program apply?
The Program is available to plan sponsors that cover early retirees with chronic or high cost medical conditions. An early retiree refers to a plan participant (and his or her enrolled spouse, surviving spouse or dependent[s]) who is age 55 to 64, enrolled in health benefits under the employer-sponsored plan, not eligible for coverage under Medicare and not an active employee of the plan sponsor.
3. What is the process necessary to participate?
Eligibility to participate in the Program is not automatic. A plan sponsor must submit a timely application for certification to the Secretary, or the Secretary's designee, containing the necessary information. For plans certified to participate in this Program, the claims submission process is expected to be similar to the reimbursement process under the Medicare Part D retiree drug subsidy program.

Once an application is received, the Secretary must approve it and certify the plan and plan sponsor as eligible before the plan sponsor can request a reimbursement under the Program. Applications will be processed in the order received. Incomplete applications will be returned and any revised applications will be processed based on the date the revised submission is received, not based on the date of the original, returned submission. Due to the limited duration and budget for this Program, it is important for plan sponsors interested in the Program to apply and become certified as quickly as possible. A separate application is not required for each plan year, but the application must identify the plan year start and end date cycle (starting month and day and ending month and day) for which the plan sponsor is applying.

A plan sponsor's application for certification must be signed by an authorized representative and the following information must be submitted with the application:

  • The plan sponsor's Tax Identification Number.
  • The plan sponsor's name and address.
  • Contact name, telephone number and e-mail address.
  • An agreement between the plan sponsor and HHS that is signed by authorized representatives and includes:
    • An assurance that the plan sponsor has a written agreement with a health insurance issuer or group health plan regarding information disclosure as required for participation in the Program.
    • An acknowledgement that the information in the application is being provided to obtain federal funds and all subcontractors acknowledge that information provided in connection with any subcontract is used for purposes of obtaining federal funds.
    • An attestation that policies and procedures are in place to protect against fraud, waste and abuse under the Program and to comply in timely fashion with requests from the Secretary to produce information about such polices and procedures and their effectiveness.
    • Any other terms as required by the Secretary.
  • A summary describing how the plan sponsor will use reimbursements received under the Program in accordance with the Program's requirements, including:
    • How the reimbursement will be used to reduce premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs for plan participants (including those participants who are not early retirees); to reduce health benefit premium costs for the sponsor; or to reduce any combination of such costs.
    • Procedures or programs that the plan sponsor has in place that have generated or have the potential to generate cost savings with respect to plan participants (including those participants who are not early retirees) with chronic and high cost conditions (generally those conditions for which $15,000 or more in health benefit claims are likely to be incurred in a plan year by a participant).
    • How the reimbursement will be used to maintain the plan sponsor's level of contribution to the plan.
      The projected amount of reimbursement to be received from the Program for the first two plan-year cycles, with specific amounts for each of the two cycles.
    • A list of all benefit options under the plan that early retirees for whom the plan sponsor receives Program reimbursements may be claimed.
    • Any other information required by the Secretary. 

4. What is the reimbursement and how is it obtained?
Participating plan sponsors are eligible for reimbursement of 80 percent of the claims expenses incurred on and after June 1, 2010, under the health plan for health benefits — such as medical, surgical, hospital and prescription drug benefits — of an early retiree (and his or her spouse, surviving spouse or dependent[s]) between $15,000 and $90,000 [as indexed]).

Claims submitted under the Program must be for claims incurred during the applicable plan year for which reimbursement is requested and paid. Claims for an early retiree cannot be submitted for reimbursement until the total incurred and paid health care claims for that early retiree (incurred during that plan year) exceed the cost threshold ($15,000 for plan years beginning prior to October 11, 2011).

In addition to the claims submitted for reimbursement that are in excess of the cost threshold, the submission must also include claims incurred by that early retiree which are below the cost threshold. This is to demonstrate that the cost threshold is met for that early retiree.

Once the reimbursement is received by the plan sponsor, it must be used to reduce premiums, contributions, deductibles or similar items of the plan. It cannot be used as general revenue for the employer.
5. How are reimbursement requests submitted?
At this point, the Secretary has not provided much detail on how reimbursement requests will be submitted. The interim final rule does tell us that no claims may be submitted until the $15,000 cost threshold is met for an early retiree. However, when claims are first submitted, the submission will have to include claims below the $15,000 cost threshold for the plan year in order for the plan sponsor to demonstrate that the cost threshold has been met. Of course, the first $15,000 in claims are not reimbursable. Costs may not be submitted until the claim(s) has actually been paid. This appears to suggest as long as claims are incurred during a plan year, they may be paid after the end of the plan year and they will still be reimbursable. In addition, the interim final rule notes repeatedly that reimbursements under the Program will stop once the $5 billion in Program funds is exhausted.

A submission of claims will consist of a list of the early retirees for whom claims are being submitted, as well as documentation of the actual costs of the items and services. Out-of-pocket costs actually paid by the early retiree may also be submitted and are reimbursable to the plan sponsor. The interim final rule requires that the sponsor provide "prima facie evidence" that the early retiree actually paid the cost, such as an actual payment receipt. Obtaining such evidence from the early retirees may be very difficult. As a result, many plan sponsors may only be able to substantiate and submit costs paid by the plan sponsor itself or its insurer. The actual manner and form of this reporting has not yet been specified. However, the interim final rule states that many of the definitions and procedures set forth in the rule are modeled after and intended to be consistent with the application and reimbursement procedure for the retiree drug subsidy provided by the federal government under the Medicare Part D program. It is expected that the application and reporting process for this Program will be quite similar to the retiree drug subsidy program. Finally, the interim final rule contains a general description of other administrative requirements such as document retention and availability requirements, auditing requirements and appeals procedures for adverse claim determinations.
6. Where can I find more information?
The Federal Register and The White House fact sheet on Reinsurance Program for Early Retirees can provide you with information. As more information becomes available about the concrete terms of the Program's application process and other Program details, we will share them with you.