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PPACA's Early Retiree Reinsurance Program - Are You Ready to Apply?

Publisher: Day Pitney Alert
May 19, 2010
Day Pitney Author(s) Kathy A. Lawler

The Patient Protection and Affordable Care Act (the "Act") provides for the establishment of a temporary reinsurance program that is meant to partially reimburse employers who provide health insurance coverage to retirees over age 55 who are not yet eligible for Medicare, as well as their eligible spouses and dependents. As provided in recently issued regulatory guidance, the reinsurance program is scheduled to begin June 1, 2010, and will end no later than January 1, 2014.

In brief, the program is intended to reimburse employers for the cost of providing certain health benefits, including medical, surgical, hospital, and prescription drug benefits, to early retirees under an employment-based group health benefits plan that provides for early retiree coverage. Plan sponsors must first submit an application to the Department of Health and Human Services ("HHS") for purposes of becoming certified to participate in the reimbursement program. Applications are expected to be made available by this agency by the end of June. Both self-funded and insured plans are permitted to apply. Once a sponsor is certified to participate in the program, claims for reimbursement may be submitted but must be between $15,000 and $90,000 (determined on a per-participant basis). Reimbursement itself is limited to 80 percent of the costs attributable to a claim that exceeds $15,000. Claims must be accompanied by documentation of the actual costs of items and services, and any payments received pursuant to this program are not includible in an employer's gross income. Note that because there is a finite funding pool of approximately $5 billion, the program is first come, first served.

Reimbursement amounts may not be used as general revenue by the employer sponsoring the plan.  Rather, such amounts must be used to lower costs for the plan, which could include reducing premium costs or contributions, co-payments, deductibles, co-insurance, or other out-of-pocket costs attributable to the plan under which coverage is provided. In addition, it should be noted that HHS has provided that it will conduct audits of program participants in an effort to ensure that claims made for reimbursement are not fraudulent, wasteful, or abusive.

A number of requirements must be met in order to participate in the reinsurance program and seek reimbursement for eligible claims, and we urge you to contact us to discuss them. For instance, a plan sponsor must have in place programs and procedures that generate or have the potential to generate cost savings for participants with conditions that are likely to result in claims of $15,000 or more during a plan year. In addition, the application process is strict, and the interim final regulations make clear that incomplete or incorrect applications will be denied and a new application will be required. HHS has stated that it will be providing assistance in connection with this process and, again, will be issuing applications toward the end of June.

If you are considering seeking certification to participate in this reimbursement program, HHS has indicated that applications will require the following information specific to each applicant:

  • The taxpayer identification number
  • Name, address, and contact information
  • A summary of how reimbursement proceeds will be used to meet the program requirements (including how such proceeds will be used to reduce plan participant or sponsor costs related to the provision of early retiree coverage, and how they will be applied to maintain the sponsor's level of effort in contributing to the plan)
  • Information detailing how programs and procedures will be implemented to generate savings for plan participants with chronic and high-cost conditions
  • A projection of reimbursement amounts that will be sought for the first two plan-year cycles
  • Identification of all benefit options under the plan that any early retiree, for whom an applicant may receive reimbursement under the program, may be claimed
  • An attestation clause to the effect that there are fraud, waste, and abuse policies and procedures in place

In addition, applicants will be required to sign a plan sponsor agreement, which will include certain assurances made by the sponsor in connection with the submission of information and data.

Please note that the above list is not exhaustive, and HHS has indicated that it may require additional information to be submitted in the application. To date, we have not received further guidance. However, in an effort to get applications completed and submitted as soon as possible after they are issued by HHS, we recommend that you begin assembling the above information immediately.

Please feel free to contact any of the members of the Employee Benefits group if you would like to discuss the application process (or the reimbursement program generally) in greater detail.