Retiree reinsurance program under the PPACA

 

If you take a look at this Fact Sheet from HHS you will see how the government reinsurance plan for early retirees is designed to work. Basically an employer is expected to spend the time and money to collect extensive claims data, complete an application and submit both to HHS.

Then when the money is received, it is to be used by the employer to reduce costs for retirees, that is, lower deductibles, premiums, co-pays and the like. So, the employer incurs more costs and the retiree benefits -temporarily- because none of the benefits of lower costs can be sustained once the reinsurance money is spent. In addition, if premiums are artificially lowered as a result of this program, there will a lot of catching up to do by 2014.

Here is what the Fact Sheet says:  

Eligible firms:  Payments will be made to employer-sponsored health plans on behalf of early retirees. To receive assistance, plans must apply, document claims, and implement programs and procedures to generate cost savings for participants with chronic and high-cost conditions. Plans will be subject to audits to assure fiscal integrity.  

Amount of assistance:   For each such early retiree (and his or her spouse, surviving spouse, and dependents), the employer plan will receive up to 80% of costs, minus negotiated price concessions, for health benefits between $15,000 and $90,000. This reinsurance corridor shall be adjusted in subsequent fiscal years by the medical component of the consumer price index.

Savings for enrollees:   Plans must use these proceeds to lower health costs for enrollees (e.g., premium contributions, copayments, deductibles, etc.) .

 

Why should any employer do this given that most of the retirees affected have a substantial portion of plan costs paid for by the employer?  Many experts feel that when regulations are issued (sooner rather than later let’s hope) there will be flexibility for savings by the employer.  For example, if premiums are lowered perhaps the savings will be proportional between employer and retiree based on the cost sharing allocation. On the other hand, it is hard to see how an employer can “implement programs and procedures to generate cost savings for participants with chronic and high-cost conditions.”

For now we have only this memo to go by, so let’s hope logic prevails.  Claims for reimbursement under this plan are to be submitted beginning in June 23.  Payments are tax free.

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