Under the new federal health reform law, states and municipalities find themselves vying with corporations to tap $5 billion in federal subsidies to cover health care costs of employees taking early retirement ”“ a perk some are considering abandoning due to high costs, putting pressure on state insurance programs.
The federal Early Retiree Reinsurance Program would offer subsidies covering people who take early retirement at age 55 or older ”“ and significant subsidies at that, covering 80 percent of medical claims between $15,000 and $90,000.
The U.S. Department of Health and Human Services made applications available in June for the program. To be accepted, employers must show they are implementing programs that have the potential to generate cost savings for participants with chronic or expensive ailments, and must agree to ongoing audits.
The program is set to expire in 2014 when federal health reform fully kicks in and additional coverage options become available via regional health insurance exchanges being set up in Connecticut and elsewhere.
In an analysis of the program published last month, the Washington, D.C.-based Employee Benefit Research Institute estimated that the $5 billion in available money under the program would run dry in two years, well before the 2014 sunset.
“Given the temporary nature of the reinsurance program, it is intended to provide employers an incentive to maintain benefits until the health insurance exchange is fully operational,” stated EBRI analyst Paul Fronstin, in a brief on the program. “Once the health insurance exchange is fully operational, employers will have less incentive to provide health benefits to early retirees, and retirees would have less need for former employers to maintain a program.”
Tom Woodruff, director of health care policy and benefit services in the Connecticut comptroller”™s office, estimates the state could reap $30 million annually through 2014 in offloading health care coverage of 11,000 state workers taking early retirement.
Both self-funded and traditionally insured plans can apply, including plans sponsored by private entities, state and local governments, nonprofits, religious entities, unions and other employers. Fairfield-based General Electric Co. is one of the corporations that is also considering applying for the program, according to Cristine Vogel, who is leading Connecticut”™s efforts to implement federal health reform.
“The purpose behind this was not to have large employers ”¦ cancel early retirees,” Vogel said. “It”™s a large expense for many companies, and the number of corporations who have started canceling that as a benefit has increased in the last few years. So this is the federal government”™s way of saying, ”˜If you still offer this benefit, please keep it ”“ we will try to help you out.”™”
According to the Obama administration, the percentage of large firms providing workers with retiree coverage dropped from 66 percent in 1988 to 31 percent as of 2008. The Patient Protection and Affordable Care Act provides $5 billion in financial assistance to both public and private employers to help them maintain coverage for early retirees age 55 and older who are not yet eligible for Medicare.
Employers that are accepted into the program will receive reimbursement for medical claims by retirees age 55 and older who are not eligible for Medicare, as well as for spouses and children on their plans. In addition to regular medical and prescription drug benefits, the program covers mental health services as well.
