Private Health Insurance

During the last decade the number of large employers offering health benefits to retirees--including early retirees not eligible for Medicare--has declined. Among all large firms that offered health benefits to active employees from 2001 to 2010, the percentage that offered health benefits to retirees decreased from 39 percent in 2001 to 28 percent in 2010. According to the Agency for Healthcare Research and Quality, individuals age 55 to 64 who lack health insurance are vulnerable to high health care costs associated with serious and chronic illnesses. The Early Retiree Reinsurance Program (ERRP) was established pursuant to the Patient Protection and Affordable Care Act (PPACA) to provide reimbursement to participating employment-based health plans The reimbursements provided by the program are intended to cover a portion of the cost of providing health benefits to early retirees-- individuals age 55 and older who are not eligible for Medicare. Sponsors of participating health plans can include commercial organizations, government entities, nonprofit organizations, religious organizations, and unions. Under the program, these plan sponsors can use ERRP reimbursements to reduce their own health benefit costs, plan participants' health benefit costs, or any combination of these costs. PPACA appropriated $5 billion in funding for ERRP and directed the Secretary of Health and Human Services (HHS) to establish the program no later than 90 days after the enactment of PPACA, or by June 21, 2010. HHS's Center for Consumer Information & Insurance Oversight (CCIIO) established the program on June 1, 2010, and is responsible for its implementation--including determining which plan sponsors are eligible to participate in the program and providing reimbursements to the participating plan sponsors. Under PPACA, ERRP is scheduled to end on January 1, 2014. Congress asked us to review the implementation of ERRP. In this report we address: (1) CCIIO's process for implementing ERRP; (2) program expenditures and the types of plan sponsors that had ERRP reimbursements approved as of June 30, 2011; and (3) how plan sponsors intend to use ERRP reimbursements.

CCIIO took several steps to implement ERRP, including educating plan sponsors about the program, approving applications from plan sponsors to participate, and approving reimbursements to participating plan sponsors for a portion of their early retiree health benefit costs. In total, CCIIO approved applications from 6,078 plan sponsors to participate in the reimbursement program--nearly all of those who submitted applications during a 10-month application period. Of these plan sponsors, 4,935 (or 81 percent) were approved by December 31, 2010. CCIIO officials told us that the applications to participate and subsequent requests for reimbursement they received were processed in the order in which they were received and were not given preference for any reason. From the beginning of the program through June 30, 2011, the most recent period for which quarterly data were available at the time of our analysis, CCIIO approved more than $2.7 billion in reimbursements to plan sponsors for eligible health costs for early retirees. This represents nearly 54 percent of the $5 billion appropriated for the program. The largest share--about 46 percent--of the $2.7 billion in ERRP reimbursements approved as of June 30, 2011, went to government entities. In general, this distribution of reimbursements is consistent with the provision of retiree health benefits in the marketplace. In particular, government entities are more likely than other types of employers to provide health benefits to their retirees. HHS projects that the $5 billion appropriated for ERRP will be expended by the end of fiscal year 2012--before the January 1, 2014, end date for the program. The majority of plan sponsors in our review intend to use ERRP reimbursements to reduce a combination of the plan sponsor's costs and plan participants' costs. Specifically, 17 of the 25 plan sponsors whose program applications we reviewed indicated that they intended to use ERRP reimbursements to reduce a combination of their own and participants' costs. Of the remaining 8 plan sponsors, 4 indicated that they intended to use ERRP reimbursements to reduce only participants' costs, and 4 indicated that they intended to use ERRP reimbursements to reduce only their own costs. HHS provided us with written comments on a draft version of this report. In its written comments, HHS noted that ERRP was designed to stabilize the availability of employer sponsored health coverage for early retirees by providing assistance to plan sponsors. HHS also noted that the majority of plan sponsors indicated that they will use program funding to offset both their own health costs and those of plan participants. HHS also provided technical comments, which we incorporated as appropriate.