The new health reform law will be phased in in pieces over the next four years, but one benefit — for a specific group of consumers —starts June 1. Called the Early Retiree Reinsurance Program, it's a $5-billion federal subsidy to employers to help them pay for healthcare coverage for some retired workers ages 55 to 64 who don't yet qualify for Medicare.
"Rising costs have made it hard for employers to provide quality, affordable health insurance for workers and retirees," said Kathleen Sebelius, secretary of Health and Human Services, in announcing the new provision last week. "As a result, many Americans who retire before they are eligible for Medicare are worried about losing … their life savings due to medical costs."
According to numbers released by the White House last week, the percentage of large firms offering retiree coverage dropped from 66% in 1988 to 31% in 2008. The new subsidy could mean some employers will choose to continue retiree health coverage rather than cancel it for 2011. Some might reinstate retiree programs they previously dropped.
But the subsidy does come with some caveats. For example, it applies only to existing retiree health insurance plans. So if an employer is interested in accepting the subsidy and providing retiree coverage but doesn't currently cover eligible retirees, the firm — and those eligible to benefit from the subsidy — would have to wait until a new plan year begins. That's typically, though not necessarily, Jan. 1.
Also, preliminary estimates suggest that at the current level of funding — $5 billion — the subsidy pot could run dry in 18 months to two years, even though it is authorized through 2014, says John Grosso, of the benefits consulting firm Hewitt Associates in Lincolnshire, Ill. (The subsidy was chosen to end in 2014 because that is when retired workers who don't qualify for Medicare would be eligible to buy affordable health coverage through insurance exchanges on the open market.) If the money does run out, Grosso says, Congress could vote to extend the funding.
Employer-based health insurance plans are eligible for the subsidy whether employers contract with a health insurance firm to provide insurance or are self-insured and pay beneficiary health costs themselves. The subsidy does not apply to federal workers, at least not at the moment. (Stay tuned: Children of federal workers were not included in another health reform provision allowing college graduates to be covered by parents' health insurance up to age 26, but legislation to extend coverage to them has been introduced in the U.S. House.)
Though large employers are the ones most likely to apply for the subsidy and offer the retiree coverage, Grosso says small firms also qualify. Retired workers or those considering retirement who don't yet qualify for Medicare should bring the option to the attention of their former employers, he suggests.
For a business to qualify, its plan must have at least one retiree who generates health claims of at least $15,000 per plan year but not more than $90,000. The subsidy covers 80% of the claims of retirees whose medical expenses fall within that range.
Eligible plans must also have programs in place that create cost savings for treating chronic conditions such as asthma or diabetes — such as, for example, a disease management program that reminds participants to take prescribed drugs.
The Health and Human Services department offers a fact sheet on the subsidy program: Go to http://www.whitehouse.gov, click the search button and write "fact sheet on retiree health subsidy" into the search field.