Early Retiree Health Claims Reinsurance Program Funds Limited

Employers that sponsor health care benefits for early retirees and who plan to benefit from health reform’s new early retiree reinsurance program (ERRP) better hurry to file their claims: the funds allocated for the program likely will be exhausted within the next two years, well before the 2014 termination date for the program, according to a study released on June 7 by the Employee Benefit Research Institute (EBRI).

The Patient Protection and Affordable Care Act establishes a temporary reinsurance program to reimburse part of the claims costs for participating employment based plans that provide health insurance coverage for early retirees ages 55 through 64, and their eligible spouses, surviving spouses, and dependents. The ERRP will reimburse for 80% of a plan’s individual claims that are between $15,000 and $90,000, indexed for inflation. The program is effective June 1, 2010, and ends on the earlier of Jan. 1, 2014, or when the $5 billion appropriated for the program is exhausted.

Using data to calculate how many early retirees there are and how much they tend to spend on health care services, Paul Fronstin, director of the EBRI Health Research and Education Program and author of the study, concluded that available funds will be exhausted well before the program is set to expire. If the subsidy were drawn down for all eligible early retirees and their dependents, $2.5 billion of the available $5 billion would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013, Mr. Fronstin reported. This assumes that all employers eligible to apply do so and is contingent on other assumptions outlined in the study.

Before the Department of Health and Human Services issued interim final regulations (on May 5 of this year) implementing the EERP, a Hewitt survey found that three-fourths of large employers that offered early retiree medical benefits planned to apply for the ERRP reimbursement. According to Hewitt estimates, the average federal reimbursement will amount to between $2,000 and $3,000 per pre-65 retiree per year, or approximately 25% to 35% of total health care costs.

The EBRI survey report is at http://www.ebri.org.