Health Care Reform

Frequently Asked Questions

Early retiree reinsurance program

The information provided in this document comes from the interim final regulations issued by the U.S. Department of Health and Human Services (“HHS”) in early May and pertains to Section 1102 (Reinsurance Program for Early Retirees) of the Patient Protection and Affordable Care Act.

This reinsurance program provides $5 billion in temporary financial aid so that employers and other plan sponsors (“plans”) can continue to provide valuable health coverage to certain early retirees. The program will reimburse employers and other plan sponsors for part of the costs incurred in providing group health benefits to early retirees and is one of the ways in which early retirees will benefit from health insurance reform and employers will be encouraged to maintain early retiree medical programs.

1. What is the effective date of this program?

2. Who is eligible under the program?

3. What types of employer-sponsored plans are eligible?

4. How do plans apply to receive payment under the program?

5. 5. Who must provide the health insurance company/claims administrator with a list of eligible early retirees?

6. What is the amount of payment by HHS?

7. How will payments be made?

8. What types of services qualify for payment under the program?

9. Can the health insurance company/claims administrator for certified plans with approved applications from HHS submit the paid claims data for early retirees directly to HHS on behalf of the plan?

10. For what purposes can the plan/plan sponsor use the reimbursement from HHS?

11. How should employers treat reinsurance payments when it comes to taxes?

1. What is the effective date of this program?
The reinsurance program became effective June 1, 2010 and reimburses certain expenses incurred on and after June 1, 2010. The program ends on January 1, 2014. However, reimbursement under the program will end earlier then 2014 if the program runs out of federal funds (and many expect the funds to run out considerably before 2014).

2. Who is eligible under the program?
Employers and other plan sponsors with eligible early retirees (and his or her spouse, surviving spouse, and dependents). An “early retiree” is defined as an individual age 55 and older who is neither an active employee nor eligible for Medicare (generally has not attained age 65). Employer-based plans must have programs and procedures designated by HHS in place such as disease management, case management, etc., to generate cost savings for participants with chronic high cost conditions.

3. What types of employer-sponsored plans are eligible?
Both self-insured and insured plans can participate, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, etc.

4. How do plans apply to receive payment under the program?
To be eligible to receive payment/funds under the program, plans must complete and submit the required HHS application to HHS. A draft application was made available on June 1. The final application will be available sometime in June from HHS. The application must be approved by HHS and the plan/plan sponsor certified by HHS to be eligible to receive reimbursements/funds from HHS.

The HHS application will operate on a first-come, first served basis, and includes requirements such as:
  • a summary of how the plan/plan sponsor will use reimbursement under the program to meet the requirements of the program (e.g. reduce premium contributions, co-payments, deductibles, coinsurance or other out-of-pocket costs for participants, to reduce health benefit or health benefit premium costs for the plan sponsor, or to reduce any combination of these costs, all while fulfilling a maintenance of effort requirement that does not allow an employer to reduce the amounts expended on the plan benefits);
  • what procedures or programs the plan has in place to generate cost savings with respect to participants with chronic and high cost conditions; (AmeriHealth’s Connections, Healthy Lifestyles and case management are examples)
  • what fraud, waste and abuse procedures the plan has in place;
  • an acknowledgement that the application is being provided to obtain Federal funds (and, thus, subject to the False Claims Act);
  • a list of all benefit plan options; and
  • a projection of reimbursement amounts under the program for each of the first two years.

The application also requires the plan to attest that the plan sponsor has an agreement in place with its health insurance company/claims administrator regarding disclosure of early retiree claims data directly to HHS. Plans will be subject to audits by HHS to assure fiscal integrity.

Applications will be cut off once the two year projections show that the $5 billion will be exhausted. Finally, any errors in an application will result in the application being rejected and require a new correct application which will move to the back of the application line and not be able to take advantage of the initial application date.

5. Who must provide the health insurance company/claims administrator with a list of eligible early retirees?
The plan/plan sponsor must provide the health insurance company/claims administrator with a list of early retirees which meet HHS’ definition of early retiree and in a format required by the insurance company/claims administrator. Without the list of early retirees, the insurance company/claims administrator is unable to file the early retiree claims data with HHS and the plan/plan sponsor will not be eligible to receive payment from HHS.

6. What is the amount of payment by HHS?
For each such early retiree (and his or her spouse, surviving spouse, and dependents), the certified plan may receive up to 80% of costs, minus negotiated price concessions, for health benefits between $15,000 and $90,000. Payments will be made by HHS to certified plans/plan sponsors with approved applications on a first-come, first-served basis so even employers who are approved to submit expenses may not receive payments if their claims are not submitted early. This reinsurance corridor shall be adjusted in subsequent fiscal years by the medical component of the consumer price index.

7. How will payments be made?
HHS will make payments to certified plans with approved applications from HHS upon HHS’ review/approval of the eligible early retiree claims submitted to HHS from the health insurance company/claims administrator or by the self-insured plan itself.

8. What types of services qualify for payment under the program?
Certified plans with approved applications by HHS can receive program payments by HHS for medical, surgical, hospital, and prescription drug costs for early retirees and other services for the diagnosis, cure, mitigation or prevention of physical and mental diseases and conditions.

9. Can the health insurance company/claims administrator for certified plans with approved applications from HHS submit the paid claims data for early retirees directly to HHS on behalf of the plan?
Yes, for insured and self-insured plans if the plan/plan sponsor has an agreement in place with the health insurance company/claims administrator which authorizes such submission of early retiree claims data (which contains PHI) to HHS. For self-insured plans, the health insurance company/claims administrator has the option to provide the early retiree claims data directly to the self-insured plan which plan will then be required to submit the claims to HHS.

10. For what purposes can the plan/plan sponsor use the reimbursement from HHS?
The reimbursement can only be used to reduce future increases in premiums or the cost of a self-insured plan. The plan sponsor is required to maintain the same level of benefits under their plan and must be able to show that the reimbursements will not reduce their level of support for the plan. The reimbursement can also be paid directly to retirees or active employees to reimburse them for contributions, copayments, deductibles, coinsurance or other out-of-pocket payments.

11. How should employers treat reinsurance payments when it comes to taxes?
Proceeds are excluded from gross income.