Early Retiree Reinsurance Program (ERRP) Applications Now Being Accepted

Today the US Department of Health and Human Services' Office of Consumer Information and Insurance Oversight (OCIIO) announced that they will immediately begin accepting applications for participation in the early retiree reinsurance program (ERRP).  A draft application was released earlier this month, but employers hoping to be part of this new, temporary program now can complete and submit an official application. 

The ERRP was created as part of the recently enacted federal health reform package and became effective June 1, 2010. Participating employers will be reimbursed 80 percent of certain claims between $15,000 and $90,000.  One condition of participation in ERRP is that the employer must have in place procedures and programs that have or will generate cost savings for plan participants with chronic and high cost conditions.

The application can be accessed by visiting http://www.hhs.gov/ociio/regulations/index.html.
Also available on the OCIIO site is an ERRP Fact Sheet and Application Submission Do's and Don'ts.

Early Retiree Reinsurance Program Regulations

Today the US Department of Health & Human Services (HHS) released regulations on the new early retiree reinsurance program for employers.  Expected to be included in the federal register within the next few days, the regulations provide greater clarification regarding how employers will be reimbursed for early retiree claims costs between $15,000 and $90,000.  Of special note is that the program will go into effect June 1, 2010 in advance of the June 23, 2010 mandated effective date.  The Patient Protection and Affordable Care Act (PPACA) has allocated $5 billion dollars for this program that expires in 2014 when state-based health insurance exchanges are established.  Both self-insured and fully-insured employers are eligible to apply to participate in this program.  In the regulations, HHS states that they predict that many of the program participants will be those that receive the retiree drug subsidy (RDS) because of the similarities between the two programs.

The HHS press release can be accessed by clicking here.  A recently revised White House fact sheet on this program can be found by clicking here.

Health Savings Accounts and Retirement Report

A recent analysis by the Employee Benefit Research Institute (EBRI) reports on the savings potential of health savings accounts.  The authors conclude that the current statutory limits on yearly contributions relegate HSAs to playing merely a minor role in covering health costs in retirement.  

Their analysis examines the potential savings of individuals who begin contributing to their HSA at age 55 and contribute $3,000 and a $1,000 catch-up contribution each year until age 65.  With a 2 percent interest rate, one would save approximately $48,300 after 10 years and if the interest rate were 5 percent, just over $55,000 would be accumulated over 10 years. 

Click here to access the complete report.

Large Employers Immediately Feeling the Effects of Health Reform

A number of major employers, such as Caterpillar, AT&T, AK Steel, 3M, John Deere, and Valero Energy, have indicated that a provision in the new health law relating to retiree prescription drug benefits will cost them millions of dollars this year alone. Attempting to raise revenue to pay for the new bill, the legislation includes a provision that repeals a tax deduction that employers receive for offering prescription drug benefits to their retiree population. When Medicare Part D was passed in 2003, the federal government began offering a 28% tax deduction for employers that offered prescription drug coverage that is, at minimum, actuarially equivalent to coverage offered in Medicare Part D. As a result of the legislation, employers will still receive the subsidy for providing this service to their retirees, but they no longer will be able to benefit from a tax deduction.

While the provision does not go into effect until 2013, employers will have to immediately begin accounting for it in their books. Last week AT&T announced that it would take a $1 billion charge because of the provision. John Deere's parent company, Deere & Company announced a $150 million charge and their competitor Caterpillar is predicting a $100 million charge.

Click here to read more from the New York Times.

Health Reform's Impact on Retiree Health Benefits

The Employee Benefit Research Institute's January Issue Brief highlights the potential implications of health reform on retiree health benefits.

The report cites that the issues impacted most by reform are anticipated to be: the reinsurance program for early retirees, Medicare drug benefits, tax treatment of employer subsidies under the Medicare Modernization Act of 2003, and post-retirement benefit changes.

EBRI reports that

"The proposals’ provisions will have a mixed impact on retiree health benefits: In the short term, the reinsurance provisions would help shore up early retiree coverage and Medicare Part D coverage would become more valuable to retirees. In the longer term, insurance reform combined with new subsidies for individuals enrolling for coverage through insurance exchanges, the maintenance-of-effort provision affecting early retiree benefits, increases to the cost of providing drug benefits to retirees, and enhanced Medicare Part D coverage, would all create significant incentives for employers to drop coverage for early retirees and drug coverage for Medicare-eligible retirees."

Click here to access the complete report.