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Guest Article

Deloitte logo

(From the April 12, 2010 issue of Deloitte's Washington Bulletin, a periodic update of legal and regulatory developments relating to Employee Benefits.)

Retiree Medical: Federal Reinsurance Program to Become Effective June 23


The Department of Health and Human Services announced that the $5 billion reinsurance program for early retirees mandated by the new health care reform law will become effective on June 23, 2010. In June, under a process similar to that used by the Retiree Drug Subsidy program, employer-sponsored plans will be able to submit an application to participate in the reinsurance program. Established as a temporary arrangement, the reinsurance program is slated to end on January 1, 2014, when early retirees will be able to obtain health coverage through the exchanges.

Statutory Dates and Deadlines

The Patient Protection and Affordable Care Act (PPACA), P.L. 111-148, requires the Department of Health and Human Services (DHHS) to establish a $5 billion reinsurance program by which participating employment-based plans will be reimbursed for a portion of the cost of providing health insurance coverage to early retirees and their eligible spouses, surviving spouses, and dependents. The PPACA requires the program to be established no later than 90 days after the date of enactment, and for the program to end on January 1, 2014 or, if earlier, upon the depletion of the funds. By July 1st, the Secretary of DHHS is required to establish a mechanism, including an internet website, through which small businesses can receive information on the reinsurance program.

Program Eligibility

Under the program, participating employment-based plans will be reimbursed a portion of the health benefit claims of early retirees, their spouses, surviving spouses and dependents. An "early retiree" is an individual who is at least age 55 but not eligible for Medicare, and who is not an active employee of the employer who maintains or contributes to the employment-based plan. An "employment-based plan" is a group benefits plan that provides health benefits to early retirees and which is maintained by one or more current or former employers (including a State or local government or political subdivision thereof), a voluntary employees' beneficiary association, or a committee or board appointed to administer the plan, or is a multiemployer plan.

To participate, an employment-based plan must:

  • Submit an application to the Secretary of DHHS in the time and manner prescribed by the Secretary.
  • Implement programs and procedures to generate cost-savings with respect to participants with chronic and high-cost conditions, provide documentation on the actual cost of medical claims involved, and be certified by the Secretary.

Reimbursement of Claims

A participating plan will submit a claim for reimbursement based on the actual amount expended by the plan within the plan year for health benefits provided to the early retiree, spouse, surviving spouse or dependent. A recent Fact Sheet released by the White House and DHHS indicates that reimbursements are retroactive for a plan year and will apply to costs incurred from the date the program is established. The amount of the claim must take into account negotiated price concessions (e.g., discounts, direct or indirect subsidies, rebates, and direct or indirect remuneration) received by the plan with respect to the health benefit. The amount of the claim would also include costs paid by the early retiree, spouse, surviving spouse or dependent in the form of deductibles, co-payments, or co-insurance.

If the claim is approved, the program will reimburse the plan for 80 percent of that portion of the costs attributable to the claim that exceed $15,000. To be eligible for reimbursement, a claim cannot be greater than $90,000 (as adjusted annually based on the Medical Care Component of the Consumer Price index for all urban consumers).

The reimbursement is not treated as income to the sponsoring employer. However, it must be used to lower costs for the plan (e.g., to reduce employer premium costs, or participant premium contributions, co-payments or deductibles). It may not be used as general revenues for the plan sponsor. The Secretary of DHHS is required to monitor the appropriate use of the reimbursements. The Fact Sheet can be found on the White House web site at www.whitehouse.gov.

Observations

Based on the availability of the funding, the Secretary has the authority under the PPACA to stop taking applications for participation in the program. As indicated by the definition of "employment-based plan" above, virtually all employer group plans that provide health coverage to early retirees are potentially eligible to participate (i.e., self-funded and insured plans including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, etc.). Although the program is slated to continue until January 1, 2014, the PPACA makes the funds available for reimbursement without fiscal year limitation so there is some potential for the program to end before that date.


Deloitte logoThe information in this Washington Bulletin is general in nature only and not intended to provide advice or guidance for specific situations.

If you have any questions or need additional information about articles appearing in this or previous versions of Washington Bulletin, please contact:

Robert Davis 202.879.3094, Elizabeth Drigotas 202.879.4985, Mary Jones 202.378.5067, Stephen LaGarde 202.879-5608, Bart Massey 202.220.2104, Tom Pevarnik 202.879.5314, Sandra Rolitsky 202.220.2025, Deborah Walker 202.879.4955.

Copyright 2010, Deloitte.


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