Health and Human Services Secretary Kathleen Sebelius has announced that nearly 2,000 companies and unions have been accepted into the Early Retiree Reinsurance Program, which was rolled out on Aug. 31.
The $5 billion financial assistance program is designed to help companies and unions bridge the coverage gap for early retirees – those older than 55 who are not yet eligible for Medicare – until Jan. 1, 2014, when the new health insurance exchanges are up and running.
"In these tough economic times, it is difficult for employers to keep up with skyrocketing healthcare costs for employees and retirees. Many Americans who retire before they are eligible for Medicare see their life savings disappear because of medical bills and exorbitant rates in the individual health insurance market," said Sebelius. "The Affordable Care Act's Early Retiree Reinsurance Program will make it a little easier for employers to provide high-quality health benefits to their retirees as we work to put in place market reforms to lower costs for all."
The program comes at a time when providing health insurance coverage for retirees is increasingly expensive, with individual policies often four times more expensive than they are for younger adults. Deductibles under these plans are also, on average, fourt times higher than those found in a typical employer-sponsored plan.
While the difficult economy and pressure on bottom lines have caused many organizations to rethink funding retiree insurance, the coverage gap for early retirees is not an acute symptom of the economy. Since 1988, the percentage of large firms providing retiree health coverage has steadily declined from 66 percent to just 29 percent in 2009.
"In conversations with business leaders throughout the country, I hear over and over again about the escalating healthcare costs for employees and retirees," said Commerce Secretary Gary Locke. "The new reinsurance program in the Affordable Care Act will directly reduce companies' health premiums for many retirees, offering critical cost relief for American businesses in a difficult economy and an important bridge for early retirees who are not yet eligible for Medicare."
According to the HHS, the nearly 2,000 plans accepted in the first phase of acceptances represent a broad cross section of employers from all 50 states and the District of Columbia. Applications are still being accepted, and more organizations are expected to be added to the rolls in the coming months.
Yet while the program is set to run until the health insurance exchanges are operational beginning in 2014, there are indications the program is under-funded and will run out of money well before then.
According to a June research report from the non-partisan Employee Benefits Research Institute, the $5 billion set aside for the program will likely be exhausted within two years. The EBRI bases that assumption on the number of early retirees in the country and assumes that all eligible companies apply for and are accepted into the program.
"If the subsidy were drawn down for all early retirees and their dependents, $2.5 billion of the $5 billion available would be exhausted in the first year of the program. The $5 billion would last no more than two years and would not be available in 2012 or 2013," the report noted.
Nevertheless, accepted plans can now begin to file claims dating back to June 1, with first reinsurance payments expected in October.