Progress Report on the Early Retiree Reinsurance Program
March 31, 2011
The Early Retiree Reinsurance Program (ERRP) was established by section 1102 of the Affordable Care Act enacted on March 23, 2010. Congress appropriated $5 billion for this temporary program and directed the Secretary of Health and Human Services (HHS) to set up the program within 90 days of enactment. By law, the ERRP is scheduled to end no later than January 1, 2014.
People in the early retiree age group (i.e., ages 55 to 64) often face difficulties obtaining insurance in the individual market because of age or chronic conditions that make coverage unaffordable or inaccessible. The availability of group health insurance coverage for America’s retirees age 55 to 64 has declined significantly over the past 20 years, as the percentage of large firms providing workers with retirement health coverage has dropped from 66 percent to 28 percent.1 The ERRP was designed to stabilize this market by providing financial assistance to health plan sponsors that make coverage available to millions of early retirees and their families – including for-profit companies, schools and educational institutions, unions, State and local governments, religious organizations and other non-profit plan sponsors. The ERRP assists both early retirees, and any active workers covered under the same plan, by reimbursing participating plan sponsors that offer such benefits for a portion of the costs of providing health coverage to retirees age 55 to 64 and their families. ERRP subsidizes 80 percent of the actual cost of certain health expenses paid by the plan or by an early retiree or his/her enrolled spouse, surviving spouse, or dependent between a cost threshold ($15,000) and cost limit ($90,000). Costs reimbursed by ERRP include medical, surgical, hospital, behavioral health, prescription drug, and other benefits similar to those covered by Medicare.
ERRP payments cannot be used as general revenue by the group health plan that provides early retiree benefits, or the employer or union that sponsors it. ERRP payments must be used to reduce or offset increases in plan participants’ costs, to offset increases in employers’ costs to provide coverage, or both. Program payments are thus targeted to encourage plans to continue providing coverage to early retirees and their families, and all ERRP payments to date are being used to make coverage more affordable. Data recently collected by the Centers for Medicare & Medicaid Services (CMS) indicate that 80 percent of plans that received funding in 2010 used or will use some or all of the ERRP funding received to reduce or offset increases to the amounts that enrollees pay for health care or coverage.
To participate in the ERRP, employers must have an approved application, be able to document claims, have programs and procedures that have the potential to generate cost savings for plan participants with chronic and high-cost health conditions, and have policies and procedures in place to detect and reduce fraud, waste, and abuse, among other requirements.
The ERRP launched a secure website for plan sponsors in August 2010 and began disbursing payments to approved plan sponsors in October 2010, for claims incurred on or after June 1, 2010.
1 Kaiser Family Foundation and Health Research and Educational Trust. (2010). Employer Health Benefits, 2010 Annual Survey. Washington, DC.
Program Participation and Results
As of March 17, 2011 approximately 5,850 applications, submitted by nearly 5,400 plan sponsors, have been approved for the program. These applications represent a variety of for-profit companies, schools and other educational institutions, unions, State and local governments, religious organizations, and other non-profits.
As of March 17, 2011, program reimbursements provided to over 1,300 participating state and local governments, commercial and nonprofit entities, union plans and religious organizations total nearly $1.8 billion. ERRP funds disbursed so far have been used to reimburse expenses of covering over 100,000 individuals who have each incurred health plan costs that exceed the program’s $15,000 threshold. These reimbursements also benefit millions of retirees, their families, and even active workers covered under the same plan as retirees, by helping to preserve the availability of health benefits, and by reducing the out of pocket costs that most participating plans indicate would otherwise be charged to enrollees for coverage. Today’s report demonstrates both the popularity and success of the program and also builds on previously collected data, which revealed that 97% of the funds disbursed in 2010 were used in whole or part to help reduce health insurance costs for retirees and their families – putting dollars back into consumers’ hands. The sponsors that received some of the largest reimbursement amounts in 2010 report that program payments will benefit, either directly or indirectly, more than 4.5 million retirees, spouses and surviving spouses, dependents, and other plan participants.
Some sponsors have already applied ERRP funds to reduce costs for plan participants. For example, CalPERS, the California Public Employees’ Retirement System, requested reimbursement for claims incurred by 5,302 early retirees, spouses, surviving spouses, and dependents in 2010. In anticipation of ERRP reimbursement CalPERS worked with its benefits carriers to mitigate 2011 premium increases by three percent – a savings of up to $200 million. According to CalPERS officials, the ERRP funding will directly benefit 1.1 million public employees, retirees, and their dependents including 115,000 ERRP eligible early retirees, many of whom have been subject to declining wages due to state furloughs imposed to address budget shortfalls.
The ERRP continues to support a variety employer retirement health plans, of diverse sizes and from all sectors of the economy. While some large plans received significant amounts from the program, most of the individual ERRP reimbursement payments made in 2010 were for less than a $1 million, and 43 percent of individual payments made to employment based early retirement health plans were for less than $100,000. As more data on implementation become available, CMS looks forward to working with Congress to address emerging issues.