Nearly 3,600 employers have claimed a share of the $5 billion the federal government is giving to employers and unions who maintain health care coverage for early retirees. The Early Retiree Reinsurance Program, created by the health reform bill, subsidizes employers that provide health insurance to retirees age 55 and older who are not yet eligible for Medicare. The program will continue until health insurance exchanges become operational in 2014 or until the $5 billion is exhausted, whichever happens first.
Large and small businesses (32 percent), state and local governments (26 percent), unions (22 percent), educational institutions (14 percent), and non-profit organizations (5 percent) have all been accepted into the program. The Department of Health and Human Services says they have received applications from more than 50 percent of Fortune 500 companies, all major unions, and government entities in all 50 States and the District of Columbia. The full list of companies accepted into the program is here.
These employers and unions will receive reimbursement payments equal to 80 percent of medical claim costs between $15,000 and $90,000 for retirees age 55 and older and their eligible spouses, surviving spouses, and dependents. Only health benefit claims incurred after June 1, 2010 are eligible for reimbursement under this program. However, medical claims filed between the start of the plan year and June 1 count toward the $15,000 threshold for reimbursement. The subsidy may be used to reduce employer health care costs, provide lower premiums and out-of-pocket costs to workers and retirees, or both.
“By helping employers and unions continue to offer coverage for early retirees, we’re helping them compete, while providing a measure of certainty and security for their former workers at a time when it could not be more important,” says Health and Human Services Secretary Kathleen Sebelius. “The Early Retiree Reinsurance Program seeks to shore up the financial foothold for employers and unions who want to provide coverage to their retirees.”
This temporary reinsurance program is meant to encourage employers to continue to provide retiree health insurance coverage until health insurance exchanges begin selling insurance in 2014. However, some experts think the subsidy could run out before then. The Employee Benefit Research Institute estimates that the $5 billion government subsidy will last only 2 years if the subsidy is drawn down by all eligible early retirees and their dependents and may not be available in 2012 or 2013. However, only a fraction of eligible employers have signed up so far. “I think it’s safe to conclude that if only 3,600 employers have been accepted into the program the money will not run out,” says Paul Fronstin, a senior research associate at the Employee Benefit Research Institute. “However, it is also important to note that while the money won’t run out, it isn’t benefiting all of the retirees that could benefit from it.”