Keep in mind that the main purpose of the early retiree reinsurance program is to provide an incentive for employers to keep their early retiree coverage in effect at least until 2014 when early retirees will become eligible for the new health insurance exchanges.
It is clear that the employer cannot simply take the money and use it for general purposes with no impact on the health benefits plans. Beyond that though there appears a great deal of flexibility for the employer to allocate the money to reduce its plan related costs and or the health benefit costs contributed by plan participants.
A word of caution, some experts have indicated that an employer can use the funds to limit or eliminate a future increase in costs or premiums. For example, let’s say that in 2011 a plan sees its costs increase by 10%, but instead of applying that increase to the plan (and likely accompanying retiree contributions) the employer uses reinsurance money and only applies a 6% increase. This may help in 2011, but may not be so good in 2012.
If actual plan costs (including a 10% increase) indicate that the premium should be $100 in 2011, but the employer uses the reinsurance payment and only charges $94 . Now assume costs go up another 10% in 2012, to break even the employer will have to apply a 17% increase to reach the required $110. ($94.00 times 17% equals the needed $110)
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