Employers must move quickly after the release yesterday of the U.S. Department of Health and Human Services’ first set of regulations under the health care reform law. The regulations provide guidance on the Early Retiree Reinsurance Program, which will reimburse employers and other plan sponsors for part of the costs incurred in providing group health benefits to early retirees.

The Program will be effective on June 1, 2010, and reimbursements will be made on a first-come, first-served basis. Given the expectation that claims for reimbursements will substantially exceed the $5 billion in funding allocated to the Program, speed is essential.

The new HHS regulations provide important guidance regarding the Program, including the following:

  • The Program will be based in large part on the Retiree Drug Subsidy (RDS) program, under which eligible employers have been receiving Medicare Part D subsidy payments for their retiree prescription drug plans.
  • Employer-based plans must have in place programs and procedures that generate (or have the potential to generate) cost savings with respect to participants with "chronic and high-cost conditions," such as diabetes and cancer.
  • Claims eligible for reimbursement include the plan sponsor's net cost of providing health benefits for early retirees, but do not include a plan sponsor's or employee's premium costs in providing insured health plan benefits.
  • Early retirees are defined as former employees who are at least age 55 and not yet Medicare-eligible. However, early retiree claims may include costs attributable to a spouse, surviving spouse, and/or dependent, even if such person is under age 55 or Medicare-eligible.
  • Plan sponsors must have written agreements with their health insurance issuer or employment-based plan to require such entity to provide information to HHS upon request. Also, plan sponsors must have in place policies and procedures to detect and reduce fraud, waste, and abuse.
  • Applicants must explain to HHS how they expect to use any reimbursements received under the Program and must project reimbursements for the next two years. Reimbursements must be used to reduce plan costs, including the plan sponsor’s costs in providing the benefits. However, the plan sponsor must be able to show that the reimbursements will not reduce its level of support for the plan.
  • Transition rules will apply in determining reimbursements for the plan year that includes June 1, 2010.

Members of our Health Care Reform Initiative can assist employers and other plan sponsors who wish to apply for the Early Retiree Reinsurance Program. Please contact Brian M. Pinheiro, 215.864.8511 or pinheiro@ballardspahr.com; or any member of our Initiative as soon as possible if you are interested in learning more about the Program.

As the federal health care reform effort gained steam, Ballard Spahr attorneys formed an initiative to monitor and analyze legislative developments. With federal health care reform now a reality, our attorneys are assisting employers in understanding the relevant changes and planning for the future. For more information on the firm’s Health Care Reform Initiative, please click here.


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