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Most Firms to Seek Early Retiree Care Subsidy

May 25, 2010
Related Topics: Financial Impact, Benefit Design and Communication, Retirement/Pensions, Latest News
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Just more than three-quarters of large employers with early retiree health care plans intend to seek partial reimbursement of claims’ costs under a program established by the federal health care reform law, according to a survey released Tuesday, May 25.

Under the Early Retiree Reinsurance Program, the government will reimburse employers for a portion of health care claims incurred by retirees who are at least age 55 but not eligible for Medicare, as well as claims incurred for retirees’ covered dependents regardless of age.

Following a plan sponsor’s application and filing of claim information, reimbursements would begin after a participant in an early retiree plan incurs $15,000 in health care claims in a plan year. After that, the government will reimburse plan sponsors for 80 percent of a participant’s claims up to $90,000 during a plan year.

In a survey of 245 large employers released Tuesday, Hewitt Associates found that 76 percent with early retiree health care plans intend to seek reimbursement under the program.

Hewitt estimates that the reimbursement could amount to between $2,000 and $3,000 per pre-65 adult enrolled in their plans, or about 25 to 35 percent of total plan costs. Whether employers will collect that much remains to be seen.

That’s because only $5 billion has been authorized for the program and the money could run out fast. Reimbursement will be provided on a first-come, first-serve basis.

“Because so many companies plan to apply for the ERRP, employers will need to act quickly to secure a share of the proceeds, since the federal funds earmarked for this program are limited,” Milind Desai, a senior consulting actuary in Hewitt’s Waltham, Massachusetts, office, said in a statement.

Sixty-six percent of employers said they have not decided how they would use the proceeds, as they await regulatory guidance.

“Most employers are still looking for more details about how these funds can and cannot be used,” John Grosso, a senior consulting actuary in Hewitt’s Norwalk, Connecticut, office, said in a statement.

In general, the reimbursement must be used to reduce employers’ and/or retirees’ health care costs.

Filed by Jerry Geisel of Business Insurance, a sister publication of Workforce Management. To comment, e-mail editors@workforce.com.

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