How the Early Retiree Reinsurance Program provides health plan sponsors with a financial incentive to insure early retirees Featured

8:00pm EDT July 26, 2010

The Department of Health and Human Services has begun accepting applications under the Early Retiree Reinsurance Program (ERRP), designed to give relief to early retirees and their former employers.

The $5 billion program reimburses employers for a limited amount of the medical claims of retirees ages 55 and older who are not eligible for Medicare, including claims of the retirees’ spouses, surviving spouses and dependents. The temporary program, which ends when the money runs out but no later than Jan. 1, 2014, reimburses health plan sponsors for certain claims between $15,000 and $90,000, says Janet Josway, vice president of the Employee Benefits Consulting Group at Aon Risk Services.

“The purpose of the reimbursement is to make health benefits more affordable for plan participants and sponsors so that health benefits are accessible to more Americans than they would otherwise be, providing a financial incentive for employer-based plans to continue to provide coverage to early retirees,” says Josway.

Smart Business talked with Josway about how the ERRP may benefit both your business and your early retirees.

Are applications for the program accepted on a first-come, first-served basis?

For the ERRP, it’s important to make the distinction between the application process and the claims process, which operate separately. All qualified applications will be approved. Applications will be processed in the order in which they are received.

Payments are made based on when claims are submitted, not when applications for the program were submitted. All employers who are accepted into the ERRP are eligible to receive reimbursement for costs incurred on or after June 1, regardless of when the employer was accepted into the program. Once an employer is accepted, it can submit claims for its retirees. The U.S. Department of Health & Human Services is currently developing the infrastructure needed to accept claims data and reimbursement requests and will announce details of the process in the near future.

And while all qualified applications will be approved, the Department of Health & Human Services does have the authority to stop accepting applications if it appears that the $5 billion in federal funding is insufficient as program reimbursements are being paid out.

The application must be signed by an authorized representative. What are some examples of those who have that legal authority?

Examples of those who have authority to serve as an authorized representative for a sponsor include the sponsor’s CEO, CFO, president, human resources director and general partner. For plan sponsors that are union, a member of the union fund’s board of trustees would typically have the required authority.

Others may also qualify, but keep in mind that the authorized representative and the account manager mentioned in the application must be different individuals.

Do a plan’s programs and procedures for chronic and high-cost conditions have to be in place at the time the sponsor submits the application?

Yes. As part of the application, the applicant must include a summary of the programs and procedures it has in place that have generated, or that have a potential to generate, cost savings with respect to participants with chronic and high-cost conditions. Chronic and high-cost conditions are defined as those for which $15,000 or more in health benefit claims are likely to be incurred during a plan year by any one plan participant.

It is also helpful to the applicant to explain how it determined which conditions to address, how the program and procedures will generate cost savings with respect to plan participants with these conditions, a description of the programs and procedures, and who benefits from the cost savings.

In addition, the application must include the policies and procedures a sponsor has in place to detect and reduce fraud, waste and abuse.

How can a sponsor use the reimbursement?

The proceeds must be used to reduce the sponsor’s health benefit premium costs or to reduce plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket expenses. But if it does so, it must do so for all plan participants and not just for early retirees.

Proceeds cannot be used as general revenue for the sponsor. To ensure they are not used that way, sponsors must maintain their level of financial effort in supporting the applicable plan. They can only use the reimbursement to offset increases in the sponsors’ health benefit premiums or health benefit costs, and must explain in the application how they will maintain their level of effort for the plan.

In addition, the reimbursements generally cannot be used to pay increased administrative costs, as such costs that are not health benefit costs or health premium benefits.

What should a sponsor do if it believes its reimbursement will exceed the cost increase that results from covering retirees?

In the application, the sponsor should account for the possibility that it might receive reimbursement that exceeds its cost increases.

For example, in its explanation of how the sponsor will use program reimbursements, it could state that any overages will be applied to offset its health benefit cost increases for the following plan year, or that it will use the overage to reduce plan participants’ health benefit costs for the current or following plan year.

Janet Josway is vice president of the Employee Benefits Consulting Group at Aon Risk Services. Reach her at (317) 237-2422 or