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CCH® BENEFITS — 11/09/11

Governments Reap Benefits Of Early Retiree Reimbursement Program

from Spencer’s Benefits Reports: The largest share of reimbursements under the Early Retiree Reimbursement Program (ERRP) have gone to government entities, according to a recent report from the Government Accountability Office (GAO).

During the last decade, the number of large employers offering health benefits to retirees—including early retirees not eligible for Medicare—has declined. Among all large firms that offered health benefits to active employees from 2001 to 2010, the percentage that offered health benefits to retirees decreased from 39% in 2001 to 28% in 2010. According to the Agency for Healthcare Research and Quality, individuals age 55 to 64 who lack health insurance are vulnerable to high health care costs associated with serious and chronic illnesses. The ERRP was established under the Patient Protection and Affordable Care Act (ACA) to provide reimbursement to participating employment-based health plans and thus encourage plan sponsors to continue the coverage.

Under the program, these plan sponsors can use ERRP reimbursements to reduce their own health benefit costs, plan participants’ health benefit costs, or any combination of these costs. The ACA appropriated $5 billion in funding for ERRP.

In total, the Center for Consumer Information and Insurance Oversight (CCIIO) approved applications from 6,078 plan sponsors to participate in the reimbursement program—nearly all of those who submitted applications during a ten-month application period. Of these plan sponsors, 4,935 (81%) were approved by Dec. 31, 2010. CCIIO officials said that the applications to participate and subsequent requests for reimbursement were processed in the order in which they were received and were not given preference for any reason.

Largest Share To Governments

From the beginning of the program through June 30, 2011, the most recent period for which quarterly data were available, CCIIO approved more than $2.7 billion in reimbursements to plan sponsors for eligible health costs for early retirees. This represents nearly 54% of the $5 billion appropriated for the program. The largest share—approximately 46%—of the $2.7 billion in ERRP reimbursements approved as of June 30, 2011, went to government entities.

In general, this distribution of reimbursements is consistent with the provision of retiree health benefits in the marketplace. In particular, government entities are more likely than other types of employers to provide health benefits to their retirees.

Funds To Run Out

HHS projects that the $5 billion appropriated for ERRP will be expended by the end of fiscal year 2012—before the Jan. 1, 2014, end date for the program.

The majority of plan sponsors in the GAO review intend to use ERRP reimbursements to reduce a combination of the plan sponsor’s costs and plan participants’ costs. Specifically, 17 of the 25 plan sponsors whose program applications the GAO reviewed indicated that they intended to use ERRP reimbursements to reduce a combination of their own and participants’ costs.

Of the remaining eight plan sponsors, four indicated that they intended to use ERRP reimbursements to reduce only participants’ costs, and four indicated that they intended to use ERRP reimbursements to reduce only their own costs.

For more informationon the report, Private Health Insurance: Implementation of the Early Retiree Reinsurance Program (GAO-11-875R), visit http://www.gao.gov/new.items/d11875r.pdf.

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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