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New health care reform rules create options for retiree insurance coverage

Firms may send pre-Medicare eligible to exchanges

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New health care reform rules create options for retiree insurance coverage

New health care reform law guidance opens the door for employers to jettison health plans offered to pre-Medicare-eligible retirees, while assuring many retirees they can tap federal subsidies to buy coverage in public exchanges.

The guidance, released earlier this month by the U.S. Treasury and Labor departments, says retirees covered by stand-alone health reimbursement arrangements will not be eligible for the premium subsidies that start in 2014.

“Some employers are considering making amounts available under stand-alone retiree-only HRAs to retired employees so that the employer would be able to reimburse medical expenses, including the purchase of an individual health insurance policy,” according to the guidance. But such a stand-alone HRA would be considered minimum essential coverage, thus making a retiree ineligible for the subsidy, the guidance said.

“That approach would have been appealing for employers to help retirees get coverage in a financially advantageous way,” said Amy Bergner, managing director of human resources in Washington for PricewaterhouseCoopers L.L.P.

The word “covered,” though, is the key to the way the guidance opens new retiree health care funding arrangements that could slash employers' health care costs and, in some cases, reduce costs for retirees as well, benefit experts say.

“Employers who want to drop retiree medical coverage but help retirees purchase exchange coverage can do so without causing lower-income retirees to lose subsidy eligibility by giving retirees the option to enroll in the HRA,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

Under such an approach, an employer would terminate its health plan for pre-Medicare-eligible retirees. That would make lower- and middle-income retirees eligible for the Patient Protection and Affordable Care Act-authorized premium subsidies to buy coverage next year in public insurance exchanges.

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Under the law, premium subsidies will be available to the uninsured with incomes between 100% and 400% of the federal poverty level. This year, for example, the maximum income would be $45,960 for a one-person household and $62,040 for a two-person household to qualify for a subsidy.

In situations when employers require retirees to pay a high percentage of the premium, many lower-income retirees would pay less by obtaining exchange coverage with the federal premium subsidies.

To aid retirees whose incomes are too high to qualify for a subsidy or receive only a small subsidy, employers could establish and credit HRAs with an amount they determine. Those retirees then could use HRA funds to buy nonsubsidized coverage in exchanges or to cover other health care expenses.

“This guidance allows employers to take such an approach,” Mr. Stover said.

Implementing such a retiree health care plan design would be complex. Employers would have to establish and communicate the approach so retirees could determine whether they would qualify for a federal premium subsidy based on their income.

“This would require a significant employer effort,” said Derek Guyton, a partner with Mercer L.L.C. in Chicago.

Also, some employers might be reluctant to set up and contribute to higher-income retirees' HRAs, said Gretchen Young, senior vice president of health care policy for the ERISA Industry Committee in Washington.

Other employers might wait to make any changes until they know the premiums insurers will charge for coverage offered in the exchanges, Mr. Guyton said.

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The regulatory guidance also makes clear that employee assistance plans will not be considered minimum essential coverage. This benefits certain employees, such as part-time workers who are automatically covered in EAPs, but are not eligible for their employers' health plans.

Had EAPs been considered to provide minimum essential coverage, participants would have lost eligibility for premium subsidies to purchase exchange coverage.