Employers submitting an application to the early-retiree reinsurance program will have their first real interaction with the Department of Health and Human Services under the health care reform law.
Under ERRP, HHS will reimburse health plan sponsors 80% of approved annual claims for expenses associated with an early retiree's medical expenses between $15,000 and $90,000.
Plan sponsors are required to use ERRP payments to reduce health benefit premiums or health benefit costs, and to reduce plan participants' health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs.
HHS hopes ERRP funds will help eligible employers reduce their retiree health care costs so that the companies will continue to offer the benefits in the future.
However, the application process could be a stumbling block for many employers, as the government is seeking precise, yet perplexing, information. Yet, plan sponsors can ill-afford to spend too much time on the application, as time is of the essence to get their share of the $5 billion fund.
Maintaining order
In June, government regulators assured plan sponsors that reimbursements from the ERRP will be based on the sequence in which eligible participants file medical claims, not the order in which ERRP applications are submitted.
The agency issued the clarification, in part, so that the application process would be orderly. Originally, applications to ERRP functioned on a first-come, first-served basis, but HHS officials soon realized there was scant guidance on the application process.
The agency also issued FAQs about the program, fine-tuning some regulatory interpretations to it, which may affect how plan sponsors prepare their applications.
For example, employers that are considering filing an ERRP application may have to determine if multiple health benefits arrangements can be viewed as an "employment-based plan."
Under the FAQs, the definition of a plan was much broader than what employers had expected. "Many had thought regulators would rely on the definition of a plan used in the ERISA 5500 form or other legal definitions," says Dave Osterndorf, chief health actuary for the Towers Watson consulting firm. As a result, some employers made decisions about applying for the funds based on the definition of a plan in a draft ERRP application.
One question, multiple answers
Although the government hasn't finalized the claim submission process, plan sponsors that provide health benefits to retirees age 55 or older who are not eligible for Medicare can now file applications for reimbursements to HHS.
Still, "it's an application in which HHS is asking for information that employers could answer in a number of different ways. The application contains open-ended questions that are typical of government forms," explains Osterndorf.
Open-ended questions are difficult to answer, which means employers are making the best guesses at trying to understand the purpose of the question so that they can answer it appropriately.
On the application, HHS regulators want to know how plan sponsors intend to use the funds and how will they continue to maintain the same level of benefits prior to ERRP.
This "maintenance of effort" language on the application calls for employers to have at least the same level of financial subsidy in 2010 and 2010 as it did in 2009 for calendar-year plan sponsors. ERRP filers have to explain how they intend to keep that financial level.
The questions on the subject can be challenging to answer because it is not clear whether regulators are looking for a total dollar amount or dollar amount per person, explains Osterndorf.
"For example, last year, an employer with a group health plan for 1,000 retirees aged 55 through 64, which is not adding any new retirees, suddenly sees 100 of those individuals reach age 65, thus making them ineligible for retiree benefit subsidy," Osterndorf says.
An employer filling out the application might wonder, "'Since I have gone from 1,000 to 900, will I have to continue to spend the exact same dollar amount in total that was allotted for the 1,000 retirees?' Obviously, this would be a significant increase to the cost per retiree," says Osterndorf.
An employer might wonder whether the cost per retiree last year means that "I have to keep the same cost per retiree for my 900 retirees that I did for my 1,000 retirees the previous year," he explains.
Some employers have balked at the labor-intensive process of identifying each vendor associated with the plan, arguing that the vendors are all part of the same health plan.
On the application, employers are asked to identify all of their vendors - such mental health, wellness, disease management, and pharmacy benefit management - associated with the plan.
Regulators want to ensure that the claims are valid, which means they want to be able to know all the vendors from whom costs have accrued, says Steve Wojcik, vice president of public policy for the National Business Group on Health.
"Employers are submitting applications as speedily as they can, but as completely as they can. For those who are eligible, it's going to be beneficial to them, and they want to get in right away," Wojcik adds.
In the private sector, larger employers are most likely to go through the application process, given that many continue to offer retiree health benefits. State and local municipalities will also represent a large segment of the applicant pool.
The $5 billion earmarked for the ERRP will only be available until 2014 or when the funds are exhausted. Plan sponsors that qualify for ERRP funds will be able to submit medical claims dating back to June 1.
Still, some have pointed out that ERRP resembles the Troubled Asset Relief Program in that participants who accept the funds are open to government audits of their health plans.
On some level, filling out the application can become a balancing act of "giving apt descriptive information without locking yourself into something that may be difficult to validate in an audit," notes Osterndorf.
When filling out the application, plan sponsors have to consider how much information to disclose so that the question is properly answered, considering that there is explicit language in the health reform statue and the application that explains that HHS can come back and audit the employer to make sure they accurately lived up to the language that they put in application.
Key highlights, clarifications on ERRP
According to Towers Watson, the must-know provisions of the ERRP frequently asked questions address:
* Early retiree. HHS generally will defer to a plan's existing written rules to determine whether someone is an active employee or an early retiree (e.g., a disabled individual). In the absence of such plan rules, HHS will default to the Medicare Secondary Payer standards for determining those who are in "current employment status."
* Early retiree under nonemployer-sponsored plan. When the plan sponsor is not an employer (e.g., is a union or association), the individual must not be an active employee of an employer contributing to the plan.
* Number of plans. A sponsor may consider multiple health benefit arrangements as one "employment-based plan" unless it is clear from the instruments governing an arrangement or arrangements to provide health benefits that the benefits are being provided under separate plans, and the arrangement or arrangements are operated pursuant to such instruments as separate plans. However, a multiemployer plan and a nonmultiemployer plan are always separate plans.
In borrowing these principles for identifying plans from the IRS's COBRA rules (which were also used under the Medicare Part D RDS program), HHS goes beyond the May 5 ERRP regulations to provide employers with a greater degree of flexibility in identifying "plans."
Under these standards, an employer could have more of fewer plans than the number of Form 5500s that it files, depending on the employer's documents and their operational facts and circumstances.
Since the "plan" is the context for applying ERRP funds to lower the future costs of participants or the sponsor, this may be a significant clarification for some employers.
* Number of benefit options. In the application, sponsors must identify each benefit option within a plan for which it might request program reimbursement by name and by creating a Unique Benefit Option Identifier.
According to HHS, the sponsor should identify a UBOI for each different health insurance issuer, TPA or vendor through which health benefits are provided or administered.
HHS' position on UBOIs is illustrated by the following example:
"...[W]ithin a single employment-based plan ... a sponsor offers a self-funded major medical arrangement administered by Third Party Administrator A, as well as separate insured major medical coverage arrangements through Insurer B and Insurer C. Insurer C offers both a 'low' and a 'high' option of major medical coverage.
"The self-funded arrangement and Insurer B offer prescription drug benefits through Prescription Benefit Manager D, while Insurer C offers prescription drug benefits through Prescription Benefit Manager E. The sponsor should assign names, and identifiers, to the arrangements provided by Third Party Administrator A, Insurer B, Insurer C, Prescription Benefit Manager D, and Prescription Benefit Manager E.
(The sponsor should assign only one name, and only one identifier, to the arrangement provided by Insurer C, notwithstanding the fact that Insurer C offers both a low- and a high-coverage option)."
The sponsor should list those names, and the identifiers, as the benefit option names and benefit option identifiers, respectively, in the application. Thus the number of UBOIs appears to be equal to the number of vendors. This vendor-based approach may puzzle some sponsors; however, it is the approach that HHS has requested in its FAQ.
Dos and don'ts for submitting an ERRP application
* Do read the early retiree reinsurance program plan sponsor application instructions.
* Do read the ERRP frequently asked questions.
* Do complete the official ERRP application, published on June 29. Other versions will not be accepted.
* Do fill in every required field on the ERRP application. Incomplete applications will not be accepted.
* Do complete and print a copy of the "Additional Benefit Options" attachment for each benefit option for which you will seek reimbursement.
* Do maintain a print copy for your records.* Do have your Authorized Representative sign the original application. For more information about who can serve as the Authorized Representative please go to: ERRP Frequently Asked Questions at hhs.gov.
* Do attach additional pages, as necessary. Attachments must be typewritten, in 12-point font or larger, clear and dark enough for scanning, on 8.5 x 11 paper
* Do send the original signed application (not a photocopy), using the U.S. Postal Service, to:HHS ERRP Application Center4700 Corridor Place, Suite DBeltsville, MD 20705
* Don't send the application to any other address; ERRP applications will only be accepted at the address listed here.
* Don't send a handwritten application.
* Don't fill in the date of birth on the application in Part I, Section B, Item 3 and Part I, Section C, Item 3. After an application is approved, the Authorized Representative and Account Manager will each provide their date of birth securely to HHS when they are invited via e-mail to register using the ERRP secure website.
* Don't fill in the Social Security number on the application in Part I, Section B, Item 4 and Part I, Section C, Item 4. After an application is approved, the Authorized Representative and Account Manager will each provide their Social Security number securely to HHS when they are invited via e-mail to register using the ERRP secure website.
Source: Department of Health and Human Services
Key points to consider when preparing and submitting ERRP applications
Applications
* Employers planning to use ERRP proceeds only to reduce increased costs, but is concerned that increased costs in a year might be insufficient to consume the funds, should disclose in the application that any remaining funds will be applied to offset sponsors' increased costs for the following plan year (or alternatively to use the proceeds to reduce the participants' costs in the current or future plan year).
* A plan's programs and procedures for chronic and high-cost conditions must be in place at the time the sponsor submits the application. Moreover, HHS states that "it would be helpful" for applicants to explain how it determined which conditions to address, how the program and procedures will generate cost savings with respect to plan participants with these conditions, a description of the programs and procedures, and who benefits from the cost savings.
Use of reimbursements
* Sponsors must use ERRP proceeds to reduce the sponsor's health benefit premiums or health benefit costs, reduce plan participants' health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs, or any combination of these costs. Sponsors cannot use ERRP proceeds as general revenue.
* If a sponsor uses some or all of the ERRP proceeds to reduce plan participants' health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs, it must do so for all plan participants and not just for early retirees.
* Plan sponsors may not use ERRP funds to pay increased administrative costs generally related to the administration of the plan nor use the funds to pay for expenses that are created by participation in the ERRP program.
* Sponsors of a self-insured plan could place ERRP proceeds funds into a separate account provided that, when audited by HHS, it could show how and when the reimbursement was used as required under the program. HHS' view is that it could be difficult to make such a showing if the program reimbursement is placed into an ongoing pool of funds.
Reporting data inaccuracies
* Sponsors must disclose the amount of post-point-of-sale negotiated price concessions that were received, but not accounted for, in their claim data and report other data inaccuracies; however, HHS has not yet set the manner and timing of making those disclosures.
Fraud, waste and abuse
* Plan sponsors are required to attest that they have fraud, waste and abuse policies and procedures in place can be satisfied if the vendors contracted by sponsors to pay plan claims and/or to submit ERRP claims have their own fraud, waste and abuse procedures in place.
Maintenance of effort
* Plan sponsors need not maintain the same level of employer support as they did before applying for ERRP funds if they will use ERRP proceeds exclusively to reduce or offset increases in plan participants' health benefit premium contributions, copayments, deductibles and coinsurance.
* To show maintenance of effort, the baseline year for an employer is generally the plan-year cycle that ended immediately before the ERRP application was submitted. However, in cases where governmental or private-sector employers may be cutting health care budgets, HHS says it will look to a baseline that was the sponsor's finalized budget, provided it was finalized before June 1, 2010. The sponsor must be able to show upon audit that the budget was finalized prior to June 1, 2010.
* ERRP regulations require that sponsors show they are contributing the same specific dollar amount as they paid during the baseline year, not the same percentage of plan cost.* A sponsor must demonstrate that it meets the ERRP maintenance of effort requirement in the aggregate, for all plan participants, but not necessarily for each participant. For a multiemployer plan, HHS will look to the amount spent from the trust on health benefits or health premiums compared to the baseline year.
* If an employer-sponsor's payments into a fund or trust are irrevocable and can be used only for health benefits, it will look to those contributions in the baseline year compared to the applicable year to determine MOE compliance. Employers using a VEBA trust will need to review carefully whether the facts and circumstances of their situation will satisfy these HHS requirements.
Source: Towers Watson
