McGuireWoods Healthcare Reform Guide: Installment No. 4 – Q&A on the Early Retiree Health Reinsurance Program

McGuireWoods Healthcare Reform Guide: Installment No. 4

May 11, 2010

The Department of Health and Human Services (HHS) recently issued regulations that implement the Early Retiree Reinsurance Program (ERRP). The ERRP was created under the Patient Protection and Affordable Care Act (PPACA) to provide employment-based health plans (insured and selfinsured) with reimbursement of 80% of health benefit claims between $15,000 and $90,000 incurred by certain retired employees and their covered spouses and dependents. The ERRP takes effect June 1, 2010, and terminates Jan. 1, 2014, or sooner, if the $5 billion of funding earmarked for the program is exhausted before that date.

The following summarizes key aspects of the ERRP, as clarified under the new HHS regulations.

Eligibility Requirements

Participation in the ERRP is open to “sponsors” that maintain “employment-based plans.” A sponsor generally is the employer or employee organization maintaining the plan, as designated in ERISA. An employment-based plan is a group health plan maintained by an employer (excluding federal governmental plans) that provides benefits to retired employees age 55 or older not yet eligible for Medicare, and their spouses and dependents of any age.

 As a result, group health plans sponsored by private employers, state and local governments, and employee organizations, as well as multi-employer plans, may be eligible for the program. The plan need not limit coverage to retirees. Plans covering retirees and active employees may participate.

The following requirements must be met for a sponsor to participate in the ERRP:

  • Application. The sponsor must apply to HHS to participate in the ERRP. A sponsor of more than one eligible plan must submit a separate application for each eligible plan it wishes to be certified under the program. HHS will review applications based on when they are received, and reserves the right to close the program to new applicants once it determines that projected claims will exceed the $5 billion appropriated for the program. As a result, sponsors wishing to participate in the ERRP should consider filing their applications as soon as possible once HHS begins accepting applications, as discussed below.
  • HHS Certification. HHS must certify the plan for participation in the program. Certification will occur through review and acceptance of sponsors’ applications.
  • Cost-Savings Initiatives. The plan must have programs and procedures that generate (or have the potential to generate) cost-savings with respect to health conditions for which $15,000 or more in benefit claims are likely to be incurred annually by a participant (chronic and high-cost conditions). The plan need not implement new procedures or improve the quality of care for all such chronic and high-cost conditions to satisfy the cost-savings requirement. Rather, sponsors are expected to take a reasonable approach in identifying which conditions to address, and need not use the same cost-savings procedures for all chronic conditions. The application for participation in the program will require sponsors to make certain representations concerning how their plans meet this requirement.
  • Record Retention and Delivery. The sponsor must maintain records of certain information (i.e., all documentation, data, records and other information related to the application or reimbursement process) for six years, and provide such information to HHS upon request. Sponsors also must require their health insurer (or plan) to comply, if applicable.
  • HIPAA Privacy Agreement. The information that participating sponsors provide to HHS to receive reimbursement generally will be protected health information (PHI) under HIPAA privacy rules. The plan, not the sponsor, has responsibility under the privacy rules for safeguarding PHI. The program requires sponsors to have in place a written agreement with the plan directing the plan to disclose PHI to HHS, to the extent necessary under the program. In the case of an insured plan, this agreement must be with the health insurer.
  • Fraud and Abuse Protections. The plan must have policies and procedures to protect against fraud, waste, and abuse under the program. The sponsor must produce information necessary to substantiate the implementation and effectiveness of the policies and procedures, if requested.

Application Procedure

Applications for participation in the ERRP will be processed in the order in which they are received. HHS indicates that incomplete and inaccurate applications will be denied and cannot be amended. Instead, the sponsor must submit a new application that will be reviewed based on the date the new application is received.

Additionally, HHS may deny an application based on the projected or actual availability of funding for the program, even if the application otherwise meets all requirements. Consequently, HHS may stop accepting applications at any point that it determines projected claims exceed the $5 billion of funding available under the program.

The application form is expected to be released in mid- to late June. Information that must be provided in the application includes a description of: (1) how reimbursement funds received by the sponsor will be used to meet program requirements, (2) procedures the plan has in place to generate cost-savings for plan participants with chronic and high-cost conditions, (3) the amount of reimbursement the plan projects to receive under the program for the first two plan year cycles, and (4) all benefit options available under the plan.

Because of the limit on the amount of funds available under the ERRP and the “first-come, firstserved” nature of the program, sponsors should be prepared to submit applications as soon as HHS opens the application process. HHS provides the following blunt warning about the need for applications to be complete and accurate:

“Applications will be processed in the order in which they are received. Because funding for this program is limited, we expect more requests for reimbursement than there are funds to pay the requests. Therefore we expect an applicant to perform its due diligence when applying, which should result in the submission of a complete application upon the first submission. . . . It is therefore of paramount importance to applicants that they submit complete applications upon their first submission, otherwise there may not be an opportunity to submit a new and complete application.”[1]

Use of Reimbursements

The regulations clarify the manner in which reimbursements received by a sponsor may be used. As a general matter, reimbursements may be used to reduce any of the following costs:

  • Sponsor’s health premiums or benefit costs.
  • Plan participants’ premium contributions, copayments, deductibles, coinsurance, and other out-of-pockets costs.
  • Any combination of the preceding costs.

PPACA prohibits the use of reimbursements for the “general revenues” of a sponsor. The regulations interpret this prohibition as requiring a sponsor to maintain a “level of effort in contributing” to the plan. As a result, a sponsor may not use program reimbursements to reduce its existing contribution levels under a plan. However, reimbursements may be used to pay for future increases in health benefit costs, or to reduce participant costs.

In addition, reimbursements may be used to reduce costs for all other plan participants and their eligible spouses and dependents, not just early retirees and their spouses and dependents. HHS has indicated that more information regarding monitoring the use of funds may be forthcoming. In addition, PPACA makes clear that reimbursements are not taxable income to the sponsor.

Claims for Reimbursement

Reimbursement requests will be submitted directly to HHS. Participating plans will be reimbursed for 80% of the costs of health benefits (net of negotiated price concessions) for claims between $15,000 and $90,000 (as indexed for plan years starting on or after Oct. 1, 2011) that are incurred with respect to the early retiree during the plan year, and which are paid by the plan, the insurer, or the early retiree. For this purpose, the term “early retiree” includes the eligible retiree and the early retiree’s enrolled spouse, surviving spouse, and dependents.

The cumulative health benefits for the early retiree must fall within the cost threshold ($15,000) and cost limit ($90,000) to qualify for reimbursement. Both the threshold and the limit are calculated separately for each early retiree enrolled under the plan. To determine whether claims for an early retiree are within this range, all claims related to any benefit option under the plan that is either paid by the insurer (or plan), or paid by (or on behalf of) the early retiree without reimbursement through insurance or other third-party payment arrangement, will be aggregated for the plan year. Claims eligible for reimbursement include medical, mental health, surgical, hospital, prescription drug, and other such claims as determined by HHS.

Sponsors may not submit claims until the cost threshold for the plan year is exceeded. Claims submissions must document claims for the early retiree that are below the cost threshold to demonstrate that the threshold has been met. Once the cost limit has been reached for an early retiree for the plan year, a sponsor may no longer submit claims for that early retiree.

Claims submissions must document: (1) the health benefit provided, (2) the provider or supplier, (3) the incurred date, (4) the individual for whom the health benefit was provided, (5) the date and amount of the payment net of any known negotiated price concessions, and (6) the plan and benefit option under which the health benefit claim was provided. In addition, if the sponsor submits claims that include costs paid by the early retiree, it must also include proof that the costs were so paid.

Transition Provisions

Only claims incurred on or after June 1, 2010, that fall within the cost threshold and cost limit will be reimbursed under the program. However, the amount of claims incurred before June 1, 2010, will count toward the $15,000 cost threshold for plans that have a plan year that began before June 1, 2010, and ends on any date thereafter. For example, if the spouse of an early retiree incurred and paid claims of $20,000 before June 1, 2010, the sponsor may only request reimbursement for the spouse’s claims that are incurred on or after June 1. The sponsor must include only $15,000 worth of the claims to demonstrate that the cost threshold is satisfied, and it will not be reimbursed for the additional $5,000 of claims, above the threshold, that were incurred before June 1.


Participating sponsors have a right to appeal adverse decisions to HHS. A participating sponsor may request an appeal of a partial or complete denial of a reimbursement request within 15 calendar days of the receipt of the determination. Yet, regardless of the decision on appeal, additional reimbursement is contingent upon the availability of funds. Further, HHS decisions to deny participation in the program or stop satisfying reimbursement requests are final and non-appealable, if the ERRP lacks actual or projected funding.

Disclosure Duties

Sponsors must disclose to HHS any data inaccuracies that were the basis of a reimbursement determination (including inaccurate claims data or negotiated price concessions). For example, sponsors are required to disclose the amount of post-point-of-sale price concessions received that were not previously disclosed in their reimbursement claims. Additionally, the sponsor must provide notice of a change in ownership at least 60 days before the anticipated effective date of the change (e.g., the sale of all or substantially all assets, merger, certain additions and removals of partners).

Audit and Records Maintenance

HHS reserves the right to reconsider certification of a plan at any time if fraud or similar fault is discovered, and may review a sponsor’s application within one year of certification for any reason, and within four years for any facial defect in the application. Similarly, HHS may review all granted reimbursement requests within one year of when the reimbursement was granted for any reason; within four years with good cause; and at any time if there is evidence of fraud.

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1. Early Retiree Reinsurance Program, 75 Fed. Reg. 24,450, 24,455 (May 5, 2010).