Guidance Now Available on Reform Reinsurance Program for Early Retirees

Guidance for the Early Retirement Reinsurance Program created by the healthcare reform law is now available through the interim final rule issued by the Department of Health and Human Services (HHS) and the recent fact sheet issued by the White House.  This $5 billion temporary program is intended to help lower the cost of providing retiree coverage by reimbursing eligible employers that provide such coverage up to a threshold amount.  The program becomes effective June 23, 2010 (90 days after enactment of the reform law), and ends on January 1, 2014 (when the federal health insurance exchanges become operational).

Employer Application Process
In order to participate in the reinsurance program and receive assistance, employer-sponsored health plans must submit a one-time application directly to HHS (annual application is not required).  The employer-sponsored plan must provide benefits to early retirees, but the plan can cover active employees as well.

While the HHS interim rule contains detailed application requirements, the actual application is not expected to be available until the end of June 2010.  The following is a list of important details regarding the application process:

• Plans must include the projected reimbursement amounts for each of the first two plan year cycles.
• Applications will be processed in the order they are received.
• Incomplete applications will be rejected, and plans will be required to submit a new application, which will be processed when re-submitted.
• Both self-funded and fully insured plans of private, government, nonprofit, and religious entities are eligible to participate.
• To qualify, the plan must include programs aimed at cost savings mechanisms for participants with chronic and high-cost conditions. 
• Employers must be approved by HHS in order to participate in the reinsurance program. 

Specifics of the Reinsurance Program Assistance  
Under the reinsurance program, assistance will be provided to plans for claims of early retirees.  An “early retiree” is defined as an individual age 55 and older that is not an active employee and is not eligible for Medicare.  The term also includes the spouse and other dependents of the retiree, regardless of their age and Medicare eligibility. "Dependent" is defined by the terms of the plan, not by IRS tax code.

Participating employers will receive up to 80% of costs incurred and paid for health benefits between $15,000 and $90,000 for early retirees (and their spouse/dependents).  The HHS interim rule defines “health benefits” to include benefits for the "diagnosis, cure, mitigation, or prevention of physical or mental disease.”  Reimbursable claims include payments for medical, surgical, hospital, and prescription drug costs.  The term “costs” includes amounts paid by the early retiree through co-pays and deductibles.  For fully-insured plans, costs include actual claims paid – not premium amounts.

Plan sponsors will be allowed to submit claims incurred prior to June 1, 2010; however, these claims can be used only to satisfy the $15,000 cost threshold. Only those costs incurred from June 1 to December 31 may be reimbursed (once the $15,000 threshold is met and up to the $90,000 maximum).

As required by the program, employers will need to document retiree claims and submit them to HHS.  The interim rule requires that plan sponsors have a written agreement with its plan or insurer to make required disclosures (including disclosures of health information protected by HIPAA).  For fully-insured plans, the rule allows claim substantiation to be submitted directly from the carrier to HHS.  Plans must also maintain policies and procedures to detect and reduce fraud and abuse.

Payments from the reinsurance program will then be made to the plan and must be used to lower health costs for enrollees (e.g. through premium contributions, copayments, deductibles).  These payments are excluded from an employer’s gross income.

Further Information
As additional guidance and regulations become available for healthcare reform law provisions, HCW will continue to keep you updated through our Compliance Alerts.  In the meantime, if you have any questions about healthcare reform or the reinsurance program for early retirees, please contact our office at (919) 403-1986.