New Guidance Clarifies Early Retiree Reinsurance Program

The Patient Protection and Affordable Care Act (“the Act”), which was part of the recent and extensive health care reform legislation, dedicated $5 billion to reimburse some of the costs associated with employer-sponsored health plans for early retirees.

The resulting program, known as the “Early Retiree Reinsurance Program” ("the Program"), aims to reimburse health care costs for retirees who (i) are age 55 or older, (ii) are not yet eligible for Medicare, and (iii) incur health care expenses in excess of $15,000 (but note the Program disregards expenses in excess of $90,000).

Interested plan sponsors must apply to participate in the Program, and the dedicated funds will be available on a first-come, first-served basis. This advisory provides an overview of some recently issued guidance that should help employers decide whether, and how, to take part in the Program.

Helpful guidance

A draft application form and corresponding instructions are now on the Office of Management and Budget’s (OMB) website, Reginfo.gov, as well as on the U.S. Department of Health and Human Services’ (HHS) website. The HHS website also includes recently issued FAQs regarding the application process. The draft documents and the FAQs clarify a number of issues and provide helpful guidance for plan sponsors interested in the Program. Helpful insights include the following:

• The final form of the application is expected to be released later this month (June), but no specific date was given. The HHS website comments that “[a]pplications will begin being accepted no later than June 30.”
• According to the OMB website, plan sponsors will need to submit a hard copy application to HHS until an online application process is finalized. Given the first-come, first-served nature of the Program, and the limited amount of funds for reimbursement, interested applicants should be prepared to quickly complete and file a hard copy application.
• Reimbursements under the Program may be used to reduce participants’ costs (their share of premium, deductibles or co-pays), or the plan’s costs, or a combination of the two. Note that the only permissible way to reduce the plan’s costs is to use reimbursements to offset increases in the plan’s premiums. In other words, employers cannot use reimbursements under the Program to reduce their health plan contributions below current levels; on the other hand, an employer could use reimbursements to offset future increases. In this fashion, even a retiree plan in which the employer currently pays for 100 percent of the current premium could benefit under the Program (i.e., seek reimbursement to cover future increases). The application requires an explanation of how reimbursements will be used.
• The draft application form anticipates that a plan sponsor will identify two distinct roles in the application process. The first is the “authorized representative,” who is the individual with the legal authority to bind the plan sponsor. Examples of an authorized representative would include plan sponsors, CFO, CEO, president, etc. The second role is the “account manager,” who is the individual tasked with coordinating the application process, and who will be the primary contact for HHS. The account manager could be an employee of the plan sponsor or a non-employee, such as a consultant assisting with the application process.
• The application anticipates a description of the plan’s programs and procedures that address chronic and “high-cost conditions”—i.e., conditions for which more than $15,000 worth of benefits are likely to be incurred by one participant in a single plan year. The application requires an explanation as to how the plan sponsor determined that the plan’s procedures satisfy the $15,000 threshold. In addition, the application requires an estimate of the plan’s expected reimbursement for a two-year plan cycle.
• The draft application form includes a Plan Sponsor Agreement, in which the authorized representative must make a variety of representations about legal compliance, such as compliance with the Health Insurance Portability and Accountability Act of 1996 (HIPAA), etc. An applying plan sponsor should carefully review the items that must be represented and ensure that the representations are accurate.

Action items

In addition to the items noted above, the draft application form contemplates the inclusion of a good deal of other information. As noted above, the Program’s reimbursement funds are available on a first-come, first-served basis, which means interested employers should begin reviewing the draft application now and assembling the needed information. HHS has also previously issued interim rules concerning the Program.

More information 

If you have questions or would like to discuss the Early Retiree Reinsurance Program, please contact Stuart Harris at (503) 778-5428 or your usual Davis Wright Tremaine benefits lawyer.