Early Retiree Reinsurance Program


Section 1102 of the Patient Protection and Affordable Care Act of 2010 (“Act”) mandated establishment by the Department of Health and Human Services (“HHS”) of the Early Retiree Reinsurance Program (“Program”), a temporary program designed to address recent erosion in the number of employers providing health coverage to early retirees. On May 5, 2010, HHS published interim final regulations (“Regulations”) containing guidance implementing the Program. The following is a summary of the Program and, for those who intend to apply to participate in it, five questions you must be prepared to answer.

Early Retiree

Under the Program, an “Early Retiree” generally is defined as a participant in an Employment-based plan who:

  • is age 55 or older;
  • is not eligible for Medicare; and
  • is not actively employed by any employer maintaining the Employment-based plan.

Enrolled spouses, surviving spouses and dependents of a former employee who is an Early Retiree are included in the definition of Early Retiree.

Employment-Based Plans

Employment-based plans include group health plans that provide health benefits for Early Retirees and that are maintained/sponsored by entities such as the following:

  • Private employers
  • Multiemployer Plans
  • VEBAs
  • Employee Organizations
  • Churches
  • State or local governments

Federal government plans are not eligible to participate in the Program.

Duration and Scope of the Program

The Act allocates $5 billion to fund the Program. HHS expects the Program to be established by June 1, 2010. The Program will end on the earlier of January 1, 2014, or the date the $5 billion of funding is exhausted. The Program will reimburse the entity maintaining the Employmentbased plan for 80% of certain health benefit claims between $15,000 and $90,000 (indexed) per Early Retiree per Reimbursement Cycle (as defined below). The Act provides that reimbursements are not included in gross income.

Because funding for this Program is limited, and HHS expects more requests for reimbursement than there are funds to pay the requests, entities interested in the Program should submit complete Program participation applications as soon as possible.

Five Questions Applicants Must be Prepared to Answer

Here are five questions you must answer if you intend to apply for the Program. More detailed information about the Program and each of these questions is available in the Regulations. A recurrent theme of these Regulations is that HHS reserves the right to audit your response to each of the questions below.

  • What is Your Reimbursement Cycle?The statute specifies that claims submitted under the Program are to be based on the actual amount expended by the Employment-based plan within the “plan year.” HHS generally will accept as the plan’s reimbursement cycle the plan year the sponsor has established for other purposes. The plan year must, however, be a consistent 12-month period. When applying for participation in the Program, you will need to specify the starting month and day and the ending month and day of your plan year as your reimbursement cycle.
  • Have You Done Your HIPAA Housekeeping?The statute requires that claims submitted under the Program contain documentation of actual costs of items and services to be reimbursed. Much of this information constitutes protected health information within the meaning of the HIPAA Privacy Rule. Consequently, in order to participate in the Program, plan sponsors must have in place a written agreement with their health insurance issuer or Employment-based plan requiring the health insurance issuer or the plan to disclose information to HHS on behalf of the plan. If you are a sponsor of a self-funded plan and you have legal access to this data, you may provide the data to HHS or have the group health plan or insurer provide the data to HHS on your behalf.
  • What Programs and Procedures for Cost-Savings Have You Implemented?Regulations require that plans participating in the Program have in place programs and procedures that have generated or have the potential to generate costsavings. The Preamble to the Regulations provides, for example, that a plan sponsor might determine that diabetes, if not managed properly, is likely to lead to claims in excess of $15,000 for a plan year for one participant. Under these circumstances, the sponsor might implement a diabetes management program that includes aggressive monitoring and behavioral counseling to prevent complications and unnecessary hospitalization.
  • How Will You Use Your Reimbursement?Program reimbursements may not be used as general revenue for the plan sponsor. Consequently, the Regulations do not permit reimbursements to be used to reduce the sponsor’s current level of contribution to the Employment-based plan. Sponsors generally may use reimbursements to pay for increases in the sponsor’s premiums or increases in other health benefit costs and/or to reduce health benefit premium contributions, co-payments, deductibles, coinsurance, or other outof- pocket costs for plan participants. Although the reimbursement amount is determined as a percentage (80%) of certain costs between $15,000 and $90,000 incurred by Early Retirees, the reimbursement may be used to reduce premiums or otherwise benefit all plan participants, including participants who are active employees.
  • What are Your Projected Reimbursements?HHS will require applicants to project their reimbursement amounts for the first two reimbursement cycles. This projection will help HHS determine if and when it should stop accepting Program applications. In the case of an insured plan, when determining amounts eligible for reimbursement, amounts paid both by the insurer and by the Early Retiree are taken into account. Consequently, insurers and plan participants may need to produce documentation they are unaccustomed to producing. For instance, where medical care is provided through a health maintenance organization (“HMO”) that has its own providers on-staff and that doesn’t ordinarily produce information regarding treatment costs, the HMO will need to create and submit the documentation required to substantiate these costs. Similarly, the Early Retiree may have to submit proof of amounts that he or she has paid.

For purposes of projecting reimbursement amounts, the plan sponsor’s premiums are not taken into account.