• Health Care Reform - The Employer's Perspective: Installment Three
  • April 23, 2010 | Authors: Sarah Lockwood Church; Paul A. Kasicky; Kristen Belz Ornato; Kevin A. Wiggins
  • Law Firm: Thorp Reed & Armstrong, LLP - Pittsburgh Office
  • This third article in our series about Health Care Reform[1] discusses a potential opportunity if you provide an “employment-based group health benefits plan”[2] (“plan”) to retirees over age 55 that are not eligible for coverage under Medicare[3] (an “early retiree”).

    In order to support employer-provided coverage for certain retirees, the Health Care Act allocated five billion dollars to finance a temporary program to reimburse employers (who self-insure) or insurance companies (for fully-insured arrangements) a percentage of claims paid by the plan on behalf of an early retiree, the early retiree’s spouse (or surviving spouse) or an eligible dependent of the early retiree. This “reinsurance program” is intended to be effective 90 days after enactment of the Health Care Act, sometime around June 23, 2010, and will end on the earlier of when funds are depleted or January 1, 2014. At that time it is anticipated that early retirees will be able to choose from additional health care options from health insurance exchanges.

    This “reinsurance” program is aimed at reducing or limiting an employer’s or insurance company’s exposure to high claims, with the reimbursement or subsidy used to lower the cost of coverage to the plan participants. Cost savings to the plan from participating in this reinsurance program must be used to reduce premium costs, co-payments, deductibles, co-insurance or other participant out-of-pocket costs.

    The reimbursement amount for participating plans under this program is 80 percent of claims paid that exceed $15,000 up to $90,000. This amount may be readjusted to conform with changes to the consumer price index. Plans may obtain reimbursement for medical, surgical, hospital and prescription drug costs. The amount of the claim that has been paid by the plan includes amounts paid by the covered individual. Reimbursements are not treated as taxable income to the entity receiving payments under the program.

    The program requires plans to submit an application for participation to the Secretary of Health and Human Services (Secretary) under yet-to-be developed procedures. However, a plan cannot participate unless it “(A) implements programs and procedures to general cost-savings with respect to participants with chronic and high-cost conditions; (B) provides documentation of the actual cost of medical claims involved, and (C) is certified by the Secretary.”[4] Plans participating in this program will be subject to periodic audits.

    As more information is forthcoming from the Secretary, we will provide you with an update that clarifies how to participate in the program.

    TRA Comment: While five billion dollars may seem like a large allocation, it is possible that the funds will be depleted very quickly.

    [1] The Patient Protection and Affordable Care Act (P.L. 111-148), as amended by the Health Care and Education Reconciliation Act of 2010 (P.L. P.L. 111-152), are collectively referred to as the “Health Care Act” or “Reform Act.”

    [2] This term includes plans that are both self-insured and maintained through the purchase of insurance, extends to plans sponsored by state or local governments or any political subdivision thereof, voluntary employees’ beneficiary associations, and multiemployer plans.

    [3] Section 1102 of the Patient Protection and Affordable Care Act, P.L. 111-148.

    [4] Section 1102(b) of the Patient Protection and Affordable Care Act, P.L. 111-148.