Reinsurance for Early Retirees

(Note : For the next few weeks, Health Reform Talk will focus on detailed explanations for specific provisions in the new health reform law. Click here for previous post.)

So what’s included in Sec. 1102 of the Affordable Care Act, concerning the reinsurance for early retirees?

The Patient Protection and Affordable Care Act establishes a temporary reinsurance program that begins 90 days after enactment and ends on January 1, 2014. The temporary reinsurance program reimburses part of the claims cost for participating employment-based plans that provide health insurance coverage for early retirees, eligible spouses, surviving spouses, and dependents of such retirees.

Under this provision, an employment-based plan is defined as a group benefits plan providing health benefits that is maintained by one or more current or former employers (including state and local government plans), employee organizations, voluntary employees’ beneficiary associations (VEBAs), a committee or board of individuals appointed to administer the plan, or a multiemployer plan. Health benefits are defined as medical, surgical, hospital, prescription drug, and such other benefits as shall be determined by the HHS. The plan can be self-funded or insured.

An “early retiree” is an individual who is age 55 or older, but who is not yet eligible for Medicare. This individual must not be an active employee of the employer maintaining the plan, or any employer that makes a substantial contribution to the fund for such plan.

Certification. To participate in this reinsurance program, the employment-based plan must submit an application for certification to the HHS. To be certified, the plan must implement programs and procedures to generate cost-savings with respect to participants with chronic and high-cost conditions and provide documentation of the actual cost of medical claims involved.

Payments from program. Upon submission of a valid claim, the HHS will reimburse a plan for 80% of that portion of the costs attributable to such claims that are $15,000 or more but are less than $90,000. These amounts are to be adjusted each fiscal year based on the percentage increase in the Medical Care Component of the Consumer Price Index for all urban consumers (rounded to the nearest multiple of $1,000) for the year involved.

Payments to the plan will be used to lower costs for the plan. They cannot be used as general revenues for the sponsoring entities involved. The payments may be used to reduce the premium costs for sponsoring entities, or can be used to reduce premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs for plan participants. The payments are not included in the gross income of the sponsoring entities (Act Secs. 1102(c)(4) and (5) of the Affordable Care Act).

Submission of claims. Claims for reimbursement will be submitted to the HHS. The claim must contain documentation of the actual costs of the items and services involved with the claim that were paid by the participating employment-based plan. In determining the amount of the claim, the plan must take into account any negotiated price concessions (such as discounts, direct or indirect subsidies, rebates, and direct or indirect remunerations) obtained by such plan with respect to such health benefit. The amount of the claim includes any deductibles, copayments, or coinsurance paid by the early retiree, retiree’s spouse, surviving spouse, or dependent.

The HHS must establish an appeals process so that participating employment-based plans may appeal a determination by the HHS with respect to the claims submitted. The HHS also must establish procedures to protect against fraud, waste, and abuse under the program. The law specifies that the HHS shall conduct annual audits of claims submitted by participating employment-based plans to ensure that such plans are in compliance with the requirements of this section.

The law appropriates $5 billion to carry out the provisions of this section, without fiscal year limitation. The HHS has the authority to stop taking applications for participation in the program based on the availability of the $5 billion in funding.

Effective date. This provision is effective on the date of enactment (March 23, 2010).

Note: on May 5, the Department of Health and Human Services (HHS) issued an interim final rule regarding the Early Retiree Reinsurance Program. Review that interim rule here.

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