EBRI Sees Retiree Health Coverage Subsidy Cash Depletion

June 8, 2010 (PLANSPONSOR.com) – The $5 billion set aside to fund an employer subsidy of early retiree health care benefits will only last for two years if companies draw on it for all eligible early retirees and their dependents.

A new analysis by the Employee Benefit Research Institute (EBRI) said if that happens, $2.5 billion would be needed for the first year of the program, which was effective June 1, 2010.

EBRI said that would mean the money would only last two years and not be available in 2012 or 2013. The recent health care reform bill created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program.

The program provides an 80% subsidy for retiree claims of between $15,000 and $90,000. The $5 billion was to fund the program that will be available through the earlier of January 1, 2014, or the date when the funds are exhausted.

The EBRI analysis examined:

  • The number of eligible individuals with retiree health benefits. These were expected to be nonworking retirees, but there may be some retirees in the group who went back to work and continue to receive health benefits through their former employer.
  • The number of eligible spouses and dependents.
  • The distribution of health spending for all eligible individuals.

“Given the temporary nature of the reinsurance program, it is intended to provide employers an incentive to maintain benefits until the health insurance exchange is fully operational,” the EBRI analysis stated. “Once the health insurance exchange is fully operational, employers will have less incentive to provide health benefits to early retirees, and retirees would have less need for former employers to maintain a program. In the short term, the reinsurance provisions would help shore up early retiree coverage, but in the longer term, the underwriting reform combined with new subsidies for individuals enrolling for coverage through the exchange would create significant incentives for employers to drop coverage for early retirees.”

The EBRI study is available here.