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Health Care Reform Bulletin 3

What You Need To Know Now About: EARLY RETIREE REINSURANCE PROGRAM

One of the pieces in the Health Care Reform Act that will take effect in the very near future is the program being established for early retiree reinsurance.  The Department of Health and Human Services (HHS) recently issued an interim final rule that provides additional details. The Q&A segments below address different portions of the provision and how it impacts early retiree group health plan sponsors.

1. Why is this program being established?

This provision of the Health Care Reform law addresses the recent erosion in the number of sponsors providing health coverage to early retirees.  People in the early retiree age group often face difficulties obtaining insurance in the individual market because of advanced age or chronic conditions that make coverage unaffordable or inaccessible.  This program is designed to provide needed financial help to sponsor-based plans to continue to provide coverage to plan participants.

2. When does the program begin?

The anticipated effective date of the program is June 1. Reimbursements are retroactive for a plan year, so sponsors will be able to take advantage for costs incurred from the date the program is established. 

This will be a temporary program ending the earlier of: the exhaustion of the $5 billion dollar funding or January 1, 2014 (when additional coverage options will be available through the state Exchanges).

3. Which sponsors qualify for the program?

Sponsors who offer coverage to early retirees via Self-funded or Insured plans can apply for acceptance into the program.  This would also include plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, employee organizations, Voluntary Employees Beneficiary Associations (VEBA), and multi-sponsors.

In order to be eligible, your plan must have programs in place that reduce costs, or have the potential to reduce costs, through the management of chronic and high-cost conditions.  Chronic and high-cost conditions are those conditions for which $15,000 or more in health benefit claims are likely to be incurred during a plan year by any one participant.

An example of a type of program that was cited in the regulations would be a program where the sponsor ensures the implementation of a diabetes management program that includes aggressive monitoring and behavioral counseling to prevent complications and unnecessary hospitalization.

You will also be required to insure procedures are in place to detect and reduce fraud, waste and abuse of plan dollars.  At this time, HHS does not provide guidance on acceptable procedures.

Lastly, you will have to provide a statement on how you will use funds received from the reinsurance.  Acceptable uses include offsetting increases in plan premium, reducing plan participants’ costs, maintaining your level of premium contribution, etc. Funds cannot be used as general revenue.

4. Will my retirees qualify?

Eligible retirees are those that are age 55 and older, are not an active employee, and are not eligible for Medicare.  The retirees’ spouse, surviving spouse, and dependent children also qualify under the program, even if they are under the age of 55, and/or are eligible for Medicare.

5. What reimbursements are available to sponsors?

Expenses eligible for reimbursement must be incurred after the program start date (assumed to be 6/1/10).  The program provides for reimbursements up to 80% of claim costs (net of negotiated price concessions such as provider discounts, drug rebates etc.) for health benefits between $15,000 and $90,000 per eligible individual.  This means you could be reimbursed for up to $60,000 per eligible individual (80% of the $75,000 corridor).

The claims must be incurred after the program starts (June 1) to be eligible for reimbursement. However, claims that are incurred from the start of your plan year through May 2010 can be used to meet the minimum threshold of $15,000.

6. What types of claims are eligible for reimbursement?

Health benefits that qualify include medical, surgical, hospital, and prescription drug costs paid by the plan.  The costs are net of any reductions such as network discounts and drug rebates.  The claim costs also include amounts paid by the early retiree (or their spouse, surviving spouse, or dependent) including any deductibles, copayments, coinsurance, etc.  However, evidence may be required proving that the retiree paid their portion of the costs.  For example, if an early retiree had a net $25,000 in eligible claims paid by the plan and had $2,000 in deductible/coinsurance expenses, then sponsors would be filing a claim for $27,000 and receiving reimbursement on the amount above $15,000.

 
7. How do I apply for the reimbursements?

Detailed procedures have not yet been released.  It is expected that there will be a formal application, data verification, and possible audit process.  The application and additional details are expected to be released in June.  However, we do know that there will be a requirement for a separate application for each plan that a sponsor maintains.  As a result, if you offer multiple PPO plan options to your early retirees, then you will have to submit multiple applications to HHS for approval.

8. Can I spend the reimbursement money on anything I want for my company?

No, the program will require you to use the proceeds to 1) reduce your health benefits costs, and 2) reduce premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs, for plan participants.  However, regulations do not limit the use of funds to just lowering the health benefit costs for early retirees.  Funds can also be used to lower the health benefit costs for any active employees, spouses and dependents participating in the health plan.

9. Is there anything I can do now to prepare?

Please be advised that the Department of Health and Human Services is already expecting more applications than available funds.  As a result, applications will be evaluated on a ‘first come, first serve” basis.  If your application is not complete, it will be denied and will have to submit a new application, losing your place in line. 
In preparation for application, some of the requirements that sponsors are expected to provide with the application are:

• An outline of your plans to implement programs and procedures to generate savings for plan participants with chronic or high-cost conditions.  As such, you should contact your health claims administrator or insurance company to discuss the current programs you have in place and additional options available.
• Written documentation from your insurance carrier(s) of the fraud, abuse and waste detection procedures in place.
• A summary of how you will use the reimbursements to reduce plan participant or sponsor costs. 

In addition, you should begin gathering claims experience for the early retiree plans that you sponsor.  This includes:

• If you do not already have your early retirees separate from your active population, you will need to develop means to identify them.
• A claim report for the 2 plan years in order to identify your high-cost claimants.
• A written agreement with your insurance carrier authorizing them to disclose information on behalf of the sponsor to the Secretary of Health and Human Services.

We will continue to update you as additional guidance is released and the application becomes available.  In the interim, please contact a member of your Banyan consulting team if you need assistance.

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