Early Retiree Reinsurance Program

 

The Affordable Care Act (ACA), as modified by the Health Care and Education Reconciliation Act of 2010 (“HCERA”) (collectively the “Act”), required the Secretary of Health and Human Services (“HHS”) to establish a temporary early retiree reinsurance program (the “Program”) which reimburses sponsors of employment-based plans for a portion of the cost of providing health coverage to early retirees (as well as their spouses, surviving spouses, and dependents who are eligible under the plan). Eligible health benefit costs incurred beginning on the date the Program is established are eligible for reimbursement. The Program is effective June 1, 2010.  It has a federal spending cap of $5 billion and will end when the allocated funds are exhausted, or no later than January 1, 2014, whichever occurs first.

Notice Announcing Deadline for Using ERRP Funds

Notice Announcing Deadline for Applications

In a notice published in the April 5, 2011 issue of the Federal Register, the Department of Health and Human Services (“HHS”) announced that the Early Retiree Reinsurance Program (“ERRP”) will soon stop accepting new applications for participation in the program. According to the HHS notice, applications for ERRP certification from group health plan sponsors will no longer be accepted after 5:00 p.m. ET on May 5, 2011. Additional information is available at the ERRP web site.

Eligible Plan Sponsors

Plan sponsors are the entities that apply for and get reimbursed under the Program.  A sponsor is eligible to participate in the Program if it meets the requirements set forth in the Act and interim final rules (as discussed further in this education presentation).

The term “plan sponsor” means:

• The employer in the case of an employee benefit plan established or maintained by a single employer;
• The employee organization in the case of a plan established or maintained by an employee organization;
• The employer in the case of a plan established or maintained jointly by one employer and an employee organization and for which the employer is the primary source of financing; or
• The association, committee, joint board of trustees, or other similar group of representatives of the parties who establish or maintain the plan in the case of a plan established or maintained by two or more employers or jointly by one or more employers and one or more employee organizations.

This means that private employers, state or local governments, Voluntary Employee Benefit Associations (“VEBAs”), committees or boards of individuals appointed to administer the plan, employee organizations, and multiemployer plans are all eligible for reimbursements under the Program – assuming the plan is certified and meets all requirements.

Eligible Plans

Eligible plans are employment-based group health plans, including self-insured and fully-insured group health plans that provide benefits to early retirees (but can cover active employees as well).   This includes both grandfathered plans and new health plans, but does not include federal government plans.

Chronic Conditions

Plans are required to have programs and procedures in place to generate cost savings for participants with chronic and high-cost conditions.

A chronic or high cost condition is defined as any condition likely to generate $15,000 in claims per year per affected participant. Cost-savings programs can target any class of participants (or beneficiaries); they are not required to target early retirees and their beneficiaries.

Cost savings means measures for reducing costs for the participant, rather than the overall costs of any particular treatment. Examples of the types of programs and procedures a sponsor might use to generate cost-savings with respect to chronic and high-cost conditions include a diabetes management program with “aggressive monitoring and behavioral counseling to prevent complications and unnecessary hospitalization.” Another example would be eliminating or reducing coinsurance or copayments, and/or eliminating or reducing the plan’s deductible for treatment and visits related to the chronic and high-cost condition.

Eligible Health Benefits

Eligible health benefits are benefits for the diagnosis, cure, mitigation, or prevention of physical or mental disease.  These includes:

• medical
• surgical
• prescription drug
• mental health benefits
• other benefits determined by HHS

HIPAA-excepted benefits are excluded.  These include long-term care and stand-alone dental and vision plans.

Early Retirees

For purposes of the Act, early retirees are defined as individuals covered under the sponsor’s group health plan that are age 55 or older, are not eligible for Medicare, and are not active employees of an employer who sponsors the plan or contributes to the plan. Spouses, surviving spouses and dependents (as defined by the plan, not by the IRS for tax purposes) also qualify as early retirees.  Spouses and dependents can be any age and eligible for Medicare.

Whether an individual is “retired” will be determined using standards under the Medicare Secondary Payer (“MSP”) rules pertaining to coverage by reason of current employment status.  In other words, if Medicare pays secondary for the retiree under the MSP rules (i.e., because the individual is covered under the plan as an active employee), the person is not considered to be an early retiree for whom the sponsor could receive reimbursements under the Program.

Reimbursement

The Program will reimburse the plan sponsor for 80% of the costs incurred and paid (even if paid in a later year) for health benefits between $15,000 (threshold limit) and $90,000 (cost limit – indexed for plan years on or after October 1, 2011) for each early retiree, each plan year. Costs above and below the thresholds are subtracted from the reimbursement amount calculation.  For purposes of determining if the threshold or limit has been reached, all amounts paid with respect to an eligible individual during the plan year are considered (i.e., they are not measured on a per-service or per-episode basis).

Within an employment-based plan, there is one threshold limit and one cost limit per early retiree. 

When calculating the reimbursement, sponsors should consider the following rules:

• The amount of reimbursement is the amount actually paid for benefits, taking into account any negotiated price discounts (both pre and post-claim), including prescription drug rebates.
• Deductibles, copayments, or coinsurance paid by early retirees (or their spouses, surviving spouses, or dependents) may be included, but the plan must have “prima facie evidence” that the individual paid these amounts (such as a paid receipt) in order to include amounts paid by the retiree in the sponsor’s claim for reimbursement.
• If an early retiree or dependent changes benefit options (e.g., HMO to PPO) in a year, all costs in those options must be aggregated for determining the threshold.
• For fully-insured plans, the cost means the amount paid by the insurer and early retirees, excluding the premiums paid by the sponsor and early retirees.

Application

To participate in the Program, the plan sponsor must apply to HHS for certification of each plan.  Once certified, the plan may submit data regarding claims, once those claims are paid by the plan.

The application process is similar to the application process for the Medicare Part D retiree drug subsidy (“RDS”). However, unlike the RDS program, once a plan is certified and the application is approved (and the sponsor otherwise continues to meet the requirements of the Program), the sponsor need not file an application annually.

Timing

This application is not yet available, but HHS has indicated it will be available by June 30, 2010.  In addition, the interim final rules indicate that HHS will provide assistance to applicants to ensure the applications are completed properly.

Applications for the Program will be processed in the order received, on a first-come, first-served basis.   An incomplete application will be rejected and a new application will need to be submitted. The new application will be processed based on the date the new application is received, and depending upon remaining funding in the Program, may effectively preclude reimbursement.

Applications may also be rejected based on the availability of funds.  Plan sponsors will need to project their reimbursement amounts for the first two plan year cycles in their applications so that HHS can project the total reimbursement amounts and determine when it will stop accepting applications due to the Program’s funding limitations.

 Content

According to the interim final rules, a completed application will include:

• The applicant’s name, address, tax identification number, and contact information (including name, telephone number, and e-mail address);
• The plan year¹ start and end date;
• A plan sponsor agreement signed by an authorized representative which includes:
  • An acknowledgment that the information in the application is being provided to obtain Federal funds, and that all subcontractors acknowledge that information provided in connection with a subcontract is used for purposes of Federal funds;
  • An assurance that the plan sponsor has a written agreement with the plan or the insurer (as applicable) regarding disclosure of information, data, documents and records as required by HHS related to the plan sponsor’s compliance with the Program’s requirements;
  • An attestation that policies and procedures are in place to detect and reduce fraud, waste and abuse, and the sponsor will produce these policies and procedures upon request; ²
  • Any other conditions required by the Secretary of HHS;
  • The procedures or programs the sponsor has in place that have generated or have the potential to generate cost savings with respect to plan participants with chronic and high-cost conditions; ²
  • A summary indicating how the applicant will use any reimbursement received under the Program (including a description of how the sponsor will use the reimbursements under the Program to maintain its level of contribution to the plan); ²
  • The amount of reimbursement projected to be received under the Program for the first two plan year cycles;
  • A list of all benefit options under the plan for which an early retiree is eligible and reimbursement may be claimed; and
  • Any other information required by HHS.

¹ Plan year means the 12-month plan year specified in the plan document. If the plan document does not specify a plan year, or specifies a plan year that is not a 12-month plan year, or if there is no plan document, the plan year is: (1) the deductible or limit year used under the plan; (2) the policy year, if the plan does not impose deductibles or limits on a 12-month basis; (3) the sponsor’s taxable year, if the plan does not impose deductibles or limits on a 12-month basis, and either the plan is not insured or the insurance policy is not renewed on a 12-month basis; or (4) the calendar year, in any other case.

² The interim final rules indicate that a sponsor will not need to explain every detail of their programs and procedures and use of funds, but should give HHS an idea of how it will meet these requirements.

Claims

Claims cannot be submitted until the plan sponsor’s application has been approved and the plan and sponsor have been “certified” by HHS. The claims that may be reimbursed are calculated per early retiree (including claims of his or her spouse, surviving spouse and dependent) and are aggregated over the plan year.

Timing

With respect to a given early retiree, claims cannot be submitted until the early retiree’s total paid costs for health benefits incurred for the plan year exceed the $15,000 cost threshold. Once that threshold has been reached, claims can be submitted, but they must include all claims below the applicable cost threshold in order to verify that the cost threshold has been met.

Once the cumulative claims of an early retiree exceed $90,000 for a plan year, a sponsor should not submit claims above this claims limit.  It appears that claims falling in between the lower and upper thresholds may be submitted as they are incurred.

Transition Rule

Reimbursements are available for the first plan year that starts prior to June 1, 2010, provided that the plan year ends after that date. For claims incurred before June 1, 2010, the amount of such claims up to $15,000 counts toward the cost threshold and the cost limit. Claims incurred before June 1, 2010 that exceed $15,000 are not eligible for reimbursement and do not count toward the cost limit.

The reimbursement amount to be paid is based solely on claims incurred on and after June 1, 2010, which fall between the cost threshold and cost limit for the plan year for each early retiree.

Content

An employment based plan shall submit claims for reimbursement to HHS that contain documentation of the actual costs of the items and services for each claim that is submitted.  Claims must be submitted based on the amounts actually paid, which may include the amounts paid by the early retiree.  If amounts paid by the early retiree are included, the applicant must include “prima facie evidence” that the claim was paid by the early retiree, such as receipts for payment.

Although additional guidance regarding the time and manner for submitting claims is expected, a claim will have to include the following details:

• the benefit provided
• the provider
• the date of service
• the name of the early retiree
• the date and amount of payment (net of concessions).  Note: pending claims cannot be reimbursed until paid.
• the plan
• the plan option under which the benefit was provided

For insured plans, the claims can be submitted directly to HHS by the insurer.

It will be permissible to file claims on a best-information basis. Claims can be reopened later (by the sponsor or HHS) if and when other facts become known (e.g., if a claim is reversed or a year-end rebate is received).

 Privacy Considerations

The interim final rules recognize that much of the requested claims information will be protected health information (“PHI”) not readily accessible by the plan sponsor, and indicate that the data will be subject to disclosure by HIPAA Covered Entities (and Business Associates, if applicable) under HIPAA’s “Required by Law” disclosure requirement.

The Act and the interim final rules do not authorize the disclosure of PHI to plan sponsors, although HIPAA’s general rules with regard to disclosures to plan sponsors will apply.  Disclosure to HHS under the Program will not require specific authorization of individuals due to the “Required by Law” exception.

Use of Reimbursements

Any reimbursements received are not taxable income to the plan sponsor. There are, however, limits on how reimbursements can be used.

Sponsors must use reimbursements under the Program to lower costs for the plan, which includes costs for the plan sponsor and plan participants, or a combination of sponsor and participant costs.  HHS is encouraging plan sponsors to use the reimbursement amounts for either or both of the following:

• to reduce the sponsor’s health benefit premiums or health benefit costs, and
• to reduce health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs, for plan participants.

It is not required that the Program reimbursements for the first year of participation reduce costs for that year.

The sponsor may not use reimbursements as general revenue. To prevent sponsors from circumventing this rule, the interim final rules require sponsors to maintain their level of effort in contributing to support their plan or plans. In other words, a sponsor may not use reimbursements to reduce its premium contribution below the level it provided before the Program started. However, a sponsor may reduce its costs by using reimbursements to pay its share of any premium increases imposed by the insurer.

Even though reimbursements can be made only with respect to early retirees, the interim final rules clarify that reimbursements can be used to lower health benefit costs for all plan participants, including early retirees as well as active employees and their spouses and dependents.

Appeals

If HHS denies a claim for reimbursement from the Program, there is a one-step appeal process. The appeal must be filed within 15 days after denial (although the sponsor can file and indicate that additional data will be forthcoming).

Once the $5 billion funding for the Program is exhausted, all appeals will cease, so it will be important for claims and appeals to be submitted accurately and completely the first time.

Recordkeeping

Plan sponsors will be required, and must require the plan or the insurer, to maintain reimbursement records for six years after the expiration of the plan year for which the reimbursement is submitted, or longer if otherwise required by law.

Disclosure

If a plan sponsor determines that certain claims data used to request a reimbursement is inaccurate, the plan sponsor must disclose the inaccuracies to HHS in a manner and at a time to be determined under future guidance.

HHS has the authority to reopen and revise a reimbursement determination for any reason within one year of the reimbursement determination, for “good cause” (not to include a change in law or guidance) within four years of the determination, or at any time in instances of fraud or similar fault.

Change in Ownership

In the event of any corporate transaction involving the plan sponsor (other than a pure stock sale or a merger in which the plan sponsor is the surviving entity), a participating plan sponsor must notify HHS at least 60 days before the anticipated effective date of the transaction. In addition, if there is a change in ownership of the plan sponsor in which liability for providing health benefits to employees transfers to a new owner, the existing sponsor agreement is also automatically assigned to the new owner, and the new owner becomes subject to all applicable statutes and regulations and to the terms applicable to the plan sponsor at certification.  The interim final rule gives HHS the authority to recover any funds paid to the plan sponsor under the Program if the plan sponsor fails to notify HHS of the transaction.

Additional Resources

HHS regulations on the Early Retiree Reinsurance Program