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Plan to seek retiree care subsidy? Don't delay

Posted On: May. 9, 2010 12:00 AM CST

Plan to seek retiree care subsidy? Don't delay

WASHINGTON—A $5 billion federal program to partially reimburse private and public employers for retirees' health care costs is about to begin, but employers who don't act on the offer quickly may come away empty-handed.

The Early Retiree Reinsurance Program, which is part of the federal health care reform law, will reimburse employers for a portion of health care claims incurred by retirees who are at least age 55 but not eligible for Medicare as well as retirees' covered dependents, regardless of age.

The reimbursement, following a plan sponsor's application and filing of claims information, will kick in after a participant in an early retiree plan incurs $15,000 in health care claims in a plan year. After that, the government will reimburse plan sponsors for 80% of a participant's claims up to $90,000 during a plan year.

Reimbursement will apply for claims incurred starting on June 1. The $5 billion fund is intended to reimburse employers for claims through the end of 2013, when the program expires. But experts say the money is likely to run out long before the Dec. 31, 2013, expiration date.

“How long will the funds last? That's a great question. No one has a firm answer,” said Michael Morfe, a senior vp with Aon Consulting in Somerset, N.J.

While no one can predict how long the federal funds will last, some benefit experts say they could be exhausted in as little as 18 months.

And under rules published last week by the Department of Health and Human Services, the agency that will administer the program, the program could close even before some employers get their applications in.

Under the HHS rules, employers will be required to project reimbursement amounts during a two-year period. HHS will use those projections to determine “if and when we should stop accepting funding applications,” the agency said in the rules.

“It is very much first come, first serve,” said Dave Osterndorf, chief health actuary at Towers Watson & Co. in Milwaukee.

“There is a great incentive to file quickly,” said John Grosso, a consultant in the Norwalk, Conn., office of Hewitt Associates Inc.

But just filing quickly is no guarantee an employer will receive reimbursement of retiree health care claims. The applications, which have not yet been published, also have to be filled out correctly. If not, the new application would be pushed behind already accepted applications.

“You have to be fast and correct,” said Rich Stover, a principal with Buck Consultants L.L.C. in Secaucus, N.J.

“Get in early and be correct, or you will get bounced to the back of the line,” said Andy Anderson, a partner with Morgan, Lewis & Bockius L.L.P. in Chicago.

Ultimately, the bulk of the reimbursements may go to a small number of sponsors with very large plans, Mr. Stover said.

The design of some early retiree health care plans—and the rules attached to the federal program—may result in some employers not even trying to get reimbursed.

Under the HHS rules, employers must maintain “the level of effort in contributing to support” the plans. The rules don't specify how long this maintenance of effort must be applied. In addition, employers must apply the reimbursement to reduce their own costs, the costs of plan participants or a combination of the two. An employer could not simply pocket the reimbursement, said Fran Bruno, a consultant with Mercer L.L.C. in Washington.

Many employers have plan designs in which they cap how much they will spend annually on coverage for early retiree health care plan participants, with cost increases absorbed by participants. In that type of design, any reimbursement would have to go exclusively to reduce plan participants' costs.

That could result in some employers deciding against seeking reimbursement, as they won't derive any economic benefit, some experts say.

Still, the economic benefits for some employers and their early retirees could be considerable. Buck Consultants, for example, estimates that between 10% and 20% of early retiree health care plan participants would pierce the $15,000 claims threshold, setting the stage for 80% reimbursement of claims above that amount.