On May 5, 2010, the Department of Health and Human Services (HHS) released an "interim final rule with comment period" to implement an Early Retiree Reinsurance Program (the "Program") as required by the Patient Protection and Affordable Care Act (PPACA) of 2010. HHS has provided a fact sheet that can be found at http://www.whitehouse.gov/the-press-office/fact-sheet-early-retiree-reinsurance-program.

What the Federal Government will pay the Plan?

The Program will reimburse the Plan 80% of claims between $15,000 (referred to as the cost threshold) and $90,000 (the cost limit) for the non-Medicare enrolled retirees.

How and when does a Plan apply for the subsidy?

Health and Human Service (HHS) will post the application and instruction on their website www.hhs.gov prior to June 1, 2010. Applications can not be submitted prior to June 1, 2010.

What retirees are included?

1) An enrolled retiree age 55 and older

2) Not eligible for Medicare

3) Not eligible for the plan as an active employee

Or

Enrolled non-Medicare eligible spouses, surviving spouses, and dependents of retirees meeting all three conditions are included regardless of their age or if they have other coverage.

How are claims defined?

The claims are based on the individual accumulation of actual paid claims during the reimbursable Plan Year subject to the following requirements:

1) The reimbursable Plan Years must end after June 1, 2010.

2) Service dates of the claims can be prior to June 1, 2010 for the first $15,000 as long as they are during the reimbursable Plan Year.

3) Service dates of the reimbursable part (over $15,000) must occur after June 1, 2010 and be paid prior to the end of the reimbursable Plan Year.

What defines a reimbursable Plan Year?

The reimbursable Plan Year is determined by the following hierarchy:

1) The deductible or limit year, if the plan document does not specify a 12-month year;

2) The policy year, if the Plan does not have annual deductibles or limits;

3) The sponsor's taxable year, if the plan does not have annual deductibles or limits; and either the Plan is not insured or the insurance policy does not renew annually; and

4) The calendar year in any other case.

When does the Program end?

The earlier of a) $5 billion being reimbursed or b) January 1, 2014.

What other condition must the Plan satisfy to be eligible for the subsidy:

The application will need to include the following:

1) Medical Management programs and procedures for plan participants with chronic and high-cost conditions (defined as a condition for which $15,000 or more in health benefit claims are likely to incurred during a plan year by one plan participant),

2) Compliance with the privacy of individual private health information (PHI),

3) Policies and procedures are in place to protect against fraud, waste, and abuse, and

4) Projected amount of reimbursement to be received under the program for each of the first two reimbursable Plan Years.

Cheiron is an actuarial consulting firm that provides actuarial and general health and welfare consulting advice. However, we are neither attorneys nor accountants. Therefore, we do not provide legal or tax advice or services.