Early Retiree Reimbursement Slated for June Kickoff

April 2, 2010 (PLANSPONSOR.com) – A client advisory from Mercer’s Washington Resource Group (WRG) recommends employers keep their eyes peeled for announcements about a program to reimburse employers for some health care costs for early retirees.

WRG authors Barbara McGeoch and Fran Bruno say in the advisory that the temporary initiative will be one of the first launched as part of the recent health care reform legislation. Funded by a $5-billion appropriation, the program will help offset high-cost claims of Medicare-ineligible retirees and their dependents.

The money must be directed to lowering plan costs and not to simply funnel into the employer’s general revenue, according to McGeoch and Bruno. Slated for onset by June 21, the program will end by 2014 or earlier if its funds are gone.

“Because the program will begin in mid-June and end as soon as its single funding allocation is exhausted, interested employers should be alert for announcements about the program and consider steps to prepare for participation,” McGeoch and Bruno recommended.

The WRG publication said the program will provide up to 80% of an early retiree’s plan-year costs between $15,000 and $90,000 and will be administered by the U.S. Department of Health and Human Services (HHS).

Reimbursement Program Details

According to Mercer, important aspects of the program include that:

  • Employer group health plans are eligible if they both provide health benefits to early retirees and use procedures to generate cost-savings for participants with chronic and high-cost conditions. These eligibility terms extend to state and local governmental employer plans, multiemployer and multiple-employer plans, and voluntary employees’ beneficiary associations (VEBAs).
  • Individuals ages 55 and older who are not eligible for Medicare coverage are treated as early retirees, unless they are active employees of any employer maintaining or currently contributing to the plan or that has made substantial contributions to fund the plan. The program extends to covered spouses, children and other family members of early retirees.
  • Eligible health care costs include medical, surgical, hospital and prescription drug costs, less applicable discounts, rebates or subsidies the plan receives. Though health benefits provided by either insured or self-funded plans can qualify for reimbursement, the law limits eligible claims to costs actually paid by the plan.
  • Employers can apply reimbursements to reduce required plan contributions, coinsurance or deductibles. But payments can’t be used to purchase new inventory-control software or cover other general business expenses.

Among the steps employers can take to prepare to participate, according to Mercer: collect data on early retirees with chronic high-cost histories and be prepared to break down costs by month and possibly to file monthly cost submissions with HHS.

More general information is available at www.mercer.com.