Federal Health Reform Benefits for Early Retirees Begins on June 1st

One of the immediate benefits of the Affordable Care Act is the Early Retiree Reinsurance Program.  Beginning June 1, 2010, this new reinsurance reimbursement program is available to group health plan sponsors who provide medical coverage to early retirees and their spouses, surviving spouses and dependents.

Program Goal:  Many Americans who retire without employer-sponsored insurance and before they become Medicare eligible are faced with the possibility of seeing their retirement savings disappear because of unaffordable, exorbitant rates in the individual insurance market.  The goal of this temporary program is to provide financial assistance to employers to help them maintain the coverage they offer for their early retirees.  Early retirees are individuals age 55 and older who are not yet eligible for Medicare and who are enrolled in health benefits under the employer-sponsored plan.

Employers will be reimbursed for the cost of providing certain health benefits, including medical, surgical, hospital, and prescription drug benefits.  This will encourage employers to continue to provide health coverage to early retirees until the state health exchanges and federal subsidies for health coverage are implemented in January 1, 2014.

State Governments Are Eligible:  Entities who are eligible to participate in the reinsurance program can be private employers, state or local governments, employee organizations, voluntary beneficiary associations or a multi-employer plan that already offers health benefits to their retirees.  Both self-funded and insured plans are permitted to apply.

To receive assistance, plans must have their applications approved and certified by HHS.  A number of requirements must be met in order to participate in the reinsurance program.  One such requirement is that the plan sponsor must have in place programs and procedures that have or have the potential to generate cost savings for participants with chronic and high-cost conditions. Chronic and high cost conditions are defined as a condition for which $15,000 or more in applicable claims are likely to be incurred during a plan year by one participant.

Reimbursement:  Plan sponsors must first submit an application to the Department of Health and Human Services (HHS) in order to become certified to participate in the reimbursement program.  Once a sponsor is certified to participate in the program, the claims submitted for reimbursement must be between $15,000 and $90,000 per year (determined on a per-participant basis).  The partial reimbursements are limited to 80 percent of the costs attributable to claims that exceed $15,000.

Maintenance of Effort:  While employers can use the savings to either reduce their own health care costs, provide premium relief to their workers and families or a combination of both, one important caveat of the program is a maintenance of effort requirement.  This means participating sponsors must agree to maintain funding levels to support their applicable plan or plans.  The federal statute requires that funds dispersed under the reinsurance program cannot be used as general revenue.  The sponsors will need to indicate how the funds they receive will be applied to maintain their level of effort in supporting the plan.

With a total allocation of $5 billion, the program will end January 1, 2014, when early retirees become eligible to choose their insurance coverage through state health insurance exchanges.

The White House - Fact Sheet: Early Benefits from the Affordable Care Act of 2010: Reinsurance Program for Early Retirees - Fact Sheet: The Affordable Care Act’s Early Retiree Reinsurance Program
Federal Register, Vol. 75, No. 86: 45 - Interim Final Rule for Early Retiree Reinsurance Program (May 5, 2010)
NCSL Fact Sheets on Health Reform - Early Retiree Reinsurance Program
HealthCare POV blog - Health Care Reform - Early Retiree Reinsurance Program
McDermott, Will and Emery Newsletter - Health Care Reform - Early Retiree Reinsurance Program