We get regs. on the Early Retiree Reinsurance Program

One of the purposes of the Affordable Care Act is to subsidize the payment of claims under the medical coverage of early retirees so that employers will continue to sponsor plans providing for such coverage. The Department of Health and Human Services (DHHS) has now published interim regulations on the Early Retiree Reinsurance Program (Program), which is effective June 1, 2010.

FUNDING FOR THE EARLY RETIREE REINSURANCE PROGRAM IS LIMITED, AND THE SECRETARY OF DHHS IS AUTHORIZED TO STOP ACCEPTING APPLICATIONS ONCE THE FUNDING LIMIT HAS BEEN REACHED. THEREFORE, IT IS IMPORTANT TO APPLY AS SOON AS POSSIBLE.

Some highlights of the Program are as follows:

Under the Program, the DHHS will provide a subsidy
(a) to the employer sponsoring a postretirement medical plan
(b) with respect to health benefit claims actually incurred under the plan
(i) of retirees aged 55 and over who are not eligible for coverage under Medicare (i.e., retirees aged 55-65 who do not have a condition that would qualify them for Medicare coverage regardless of age) or
(ii) for coverage as active employees of a different employer, and
(iii) including the surviving spouses, eligible spouses and dependents of such early retirees (to the extent eligible under and as defined by the plan), whether or not such family members are eligible for Medicare and regardless of whether the dependents are also tax dependents,
(d) provided that the plan generates cost savings for participants by having “programs and procedures in place to generate cost savings” with respect to at least some chronic and high-cost conditions (which are defined as conditions for which $15,000 or more in health benefit claims are likely to be incurred during a plan year by a participant)—for example, by maintaining a diabetes management program (exemplifying a cost saving program for a chronic condition) or by covering all or a large portion of participants’ copays or coinsurance for treatment and visits related to cancer (exemplifying a cost saving procedure for a high-cost condition).

The amount of the reimbursement with respect to valid claims for health benefits is “80 percent of the portion of the health benefit costs (net of negotiated price concessions) attributable to the claims that exceed $15,000, but are below $90,000.” In other words, the DHHS will reimburse 80% of the amount by which a participant’s aggregate annual claims for a year exceed $15,000 (called, the “cost threshold”) but do not exceed $90,000 (the “cost ceiling”). The maximum reimbursement per participant is therefore $60,000. Copays, coinsurance, and deductibles are included in the amount subject to reimbursement. The cost threshold and cost ceiling are subject to adjustment by DHHS.

For purposes of the subsidy, “health benefits” do not include benefits excepted under HIPAA, such as long term care benefits.

The plan sponsor must make records available to the Secretary of DHHS for audit purposes. Owing to the Privacy Rule, the plan sponsor must therefore have a written agreement with its health insurance issuer or group health plan (it would seem that both are required), requiring the health insurance issuer and/or group health plan to disclose information on behalf of the sponsor to the Secretary. The agreement must encompass business associates of the health insurance issuer or group health plan.

To receive reimbursement under the Program, a plan sponsor must apply to the DHHS in accordance with the DHHS’s forms and procedures. The application must specify the plan year cycle for which reimbursement is sought (e.g., starting and ending day and month), and an application is not required every year. If an application is approved, the plan and plan sponsor will continue to be certified so long as the plan and plan sponsor continue to meet the requirements of the Program.

Among other things, an application must include the applicant’s TIN, name and address, contact information, a summary of how reimbursements will be used, a summary of the sponsor’s procedures or program for generating cost savings, and a projection of reimbursement amounts for the first two plan-year cycles. Reimbursements must be used in connection with the plan sponsor’s early retiree health insurance program and may not be used as general revenue. Examples of permitted uses include, “to pay for increases in … the sponsor’s premium, or increases in other health benefit costs (or to reduce plan participants’ costs).”
Application may be made for plan years that start before June 1, 2010, so long as they end after that date. For example, a plan sponsor may apply for reimbursement with respect to a calendar year plan that began January 1, 2010. However, claims incurred prior to June 1, 2010 may be included in the determination of reimbursements to the plan sponsor only up to the cost threshold ($15,000). A participant’s claims occurring before June 1, 2010 that exceed $15,000 are disregarded.

Negotiated price concessions must be reflected in claims submitted for reimbursement. In other words, reimbursements are operative only with respect to claims actually paid, even if rebates and other reductions in price are provided only after claims are initially paid.

Claims with respect to an early retiree may not be submitted until the retiree has exceeded the cost threshold ($15,000). Claims for reimbursement, however, must include all of the early retiree’s claims, including the claims below the cost threshold, in order to establish that the cost threshold has been met.

Claims submissions must include a list of the early retirees for whom claims are being submitted.

Claims are processed on a first-in, first-out basis until program funding is expended.

In the case of insured plans, claims may be submitted directly by the insurer.