Mooney, Green, Baker & Saindon, P.C.

1920 L Street, N.W.
Suite 400
Washington, DC 20036

Telephone: 202-783-0010
Telecopier: 202-783-6088

Spring 2010

This is one of a continuing series of updates on recent developments in the law affecting labor rights and employee benefit plans.

Retiree Reinsurance

One of the most widely anticipated and least understood features of the new health care reform legislation is the retiree reinsurance program. Under this program, health claims incurred by an early retiree (or the spouse or other dependent of an early retiree) in an employment-based health plan may be subject to partial reimbursement out of a $5 billion fund. An early retiree means a retiree age 55 or older who is not eligible for Medicare. Consistent with its statutory mandate to implement the reinsurance program within 90 days of the passage of the legislation, the Department of Health and Human Services (HHS) has issued interim-final regulations, with a thirty day comment period running from the date of publication in the Federal Register, expected to take place on May 5, 2010. This is a summary and overview of those interim-final regulations, which, absent further amendment, will become effective June 1, 2010.

The regulations permit reimbursement to any employment-based health plan, including a multiemployer plan, other than a plan maintained by the federal government. The reimbursement is to be paid to the “sponsor” as defined under ERISA, except in the case of a Taft Hartley plan supported by only one employer where the reimbursement goes to the employer. In a typical Taft-Hartley multiemployer plan, the reimbursement will be paid to the Board of Trustees.

Reimbursement is provided for medical claims incurred by an early retiree or an early retiree’s spouse or other covered dependents. With regard to any individual, reimbursement will be provided to the extent total claims for the individual exceed $15,000 (the “cost threshold” amount) up to a maximum of $90,000 (the “cost limit” amount) during a covered plan year. Expenditures applied towards the cost threshold, and potentially subject to reimbursement, include payments by the plan as well as participant deductibles, copayments and coinsurance. Only amounts actually paid are taken into account, and discounts, rebates and other price concessions must be deducted. The claims must be for medical treatment, which is broadly defined, but excludes long term care benefits. All costs incurred for an individual are treated cumulatively over the plan year.

One of the requirements of the program is that a plan must have in place programs and procedures to generate cost savings for participants with chronic and high-cost conditions (i.e., conditions for which claims are likely to exceed $15,000 in a plan year). Not all high cost conditions need to be covered by such cost-saving programs, nor do the programs need to be newly-established. A specific example is programs to manage diabetes. Plans are subject to audit to show that the programs have actually produced cost savings or have the potential to do so.

Plans may use the reimbursement money for a variety of purposes, including the reduction of participant and overall program costs. The only use that is prohibited is for the reduction in the level of employer contributions. In other words, reimbursement money may be used to offset potential increases in employer contributions, but cannot be used to reduce employer contributions.

To participate in the program, a plan must file an application with HHS and be “certified” as meeting the requirements. Only one application need be filed for any plan, and a new application does not have to be filed with each reimbursement request. Among other things, the application must include the following:

Ø A summary of how the money will be used, including whether it will be used to reduce costs to participants, the sponsor or both;

Ø A description of the programs to generate savings for high cost conditions;

Ø Projections of the first two years’ reimbursements; and

Ø Attestation of the plan’s anti-fraud and abuse policies.

No reimbursement requests may be filed until the application is approved and the plan certified. Applications will be rejected if they are incomplete, and they will stop being accepted altogether once the $5 billion is fully committed. This means that plans should be prepared to file their applications as soon as possible on or after June 1, 2010. Following plan certification, the plan sponsor must execute a plan sponsor agreement with HHS.

The program will be effective for plan years ending after the program’s June 1 effective date, and will terminate on the earlier of January 1, 2014 and the date the $5 billion fund is exhausted. Claims incurred during a covered plan year prior to June 1 will be counted towards the $15,000 cost threshold amount, but will not be eligible for reimbursement. Only claims incurred on or after June 1, 2010 are eligible for reimbursement.

Plans must submit information showing claims paid up to and over the cost threshold. To show participant expenditures, the plan need only submit evidence making a “prima facie” case. Although a receipt is acceptable, it is not required. Failure to submit evidence sufficient make a prima facie case, however, means that only the portion of the claims paid by the plan will be subject to reimbursement.

The regulations do not require a plan to wait until the end of the year to file a reimbursement request. Once a plan is certified, the regulations do not limit how often the plan may file for reimbursement, and requests for payment will be processed by HHS on a first-in first-out basis. This means that plans would be well advised to file multiple claims over the course of the year to ensure payment will be made before the remaining pool of available funds is depleted.

Insured plans are eligible for reimbursement as well as self-insured plans. Evidence of payment for insured plans may be submitted directly by the insurer. For plans using HMOs, the HMOs will have to assign reasonable values to the services provided.

In the event that HHS makes an adverse determination, whether on an application for certification or on a request for payment, a plan sponsor has only 15 days to file an appeal to the Secretary of HHS, including submission of supporting documentation. Both the plan sponsor and HHS, however, are permitted to correct inaccuracies outside of the 15-day period. Furthermore, the Secretary may reopen a payment up to 4 years later for “good cause.”

As noted above, the interim-final regulations have a thirty-day comment period. Unless amended, however, they will become effective as written on June 1, 2010. Please contact us if you have any questions or need any assistance in complying with the program’s requirements.

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