Federal Early Retiree Reinsurance Program Starting Earlier

The Department of Health and Human Services (HHS) announced Tuesday it is moving up by three weeks the start of the Early Retiree Reinsurance Program—to June 1, 2010—from the date initially required by the new healthcare reform law.

The temporary program is designed to make it easier for employers to provide coverage for early retirees age 55 and older who are not currently eligible for Medicare. This program will end in 2014, when early retirees will be able to choose from additional coverage options through the health insurance exchanges.

In announcing the change, the White House and HHS said that the percentage of large firms providing workers with retiree coverage has declined from 66% in 1988 to 31% in 2008. The new reform legislation will provide $5 billion in financial assistance to employers to help them maintain coverage for early retirees. Employers can use the savings to either reduce their own healthcare costs, provide premium relief to their workers and families, or a combination of both.

"Rising costs have made it hard for employers to provide quality, affordable health insurance for workers and retirees, said HHS Secretary Kathleen Sebelius in a statement. "As a result, many Americans who retire before they are eligible for Medicare are worried about losing health insurance coverage through their former employers, putting them at risk of losing their life savings due to medical costs."

Sebelius predicted that an estimated 4,500 employers—3,000 private businesses and 1,500 state and local governments—would be seeking federal aid under the reinsurance program.

Employers who are accepted into the program will receive reinsurance reimbursement for medical claims for younger retirees not eligible for Medicare, along with their spouses, surviving spouses, and dependents. Health benefits that qualify for relief include medical, surgical, hospital, prescription drug, and other benefits that may be specified by the HHS, as well as coverage for mental health services.

The amount of the reimbursement to the employer plan is up to 80% of claims costs for health benefits between $15,000 and $90,000. Those claims incurred between the start of the plan year—usually Jan. 1—and June 1 are credited towards toward the $15,000 threshold for reimbursement. However, only medical expenses incurred after June 1, 2010, will be eligible for reimbursement under the program.

Eligible employers can apply for the program through HHS. Both self funded and insured plans can apply—including those plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions, and other employers. Applications will be available by the end of June.

The Business Roundtable expressed its support for the program. "The Early Retiree Reinsurance Program reduces costs and allows many of our member companies to continue providing this critical coverage," said Roundtable President John J. Castellani.