The Early Retiree Reinsurance Program: $5 Billion Will Last About Two Years

Abstract

The Patient Protection and Affordable Care Act (PPACA) of 2010 created a temporary reinsurance program for sponsors of employment-based health plans that provide retiree health benefits to retirees who are over age 55 and not yet eligible for the Medicare program. The program provides an 80 percent subsidy for retiree claims of between $15,000 and $90,000. Congress appropriated $5 billion for the program, which is effective June 1, 2010, and the subsidy will be available through the earlier of Jan. 1, 2014, or the date when the funds are exhausted. One goal of the program is to provide an incentive for employers to maintain retiree health benefits and assist retirees with their costs for health coverage. Under the early retiree reinsurance program, plan sponsors must be able to show that the subsidies were not used to reduce their level of support for the plan. Subsidies can be used to reduce retiree costs, and sponsors must also show that the subsidies were used to generate savings or had the potential to generate savings. An important question is whether the $5 billion will be exhausted before 2014. This paper finds that 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 PDF for the above title, published in the July 2010 issue of EBRI Notes, also contains the fulltext of another July 2010 EBRI Notes article abstracted on SSRN: “Target-Date Fund Use Over Time.”

Keywords: Employment-based benefits, Health care costs, Health care reform, Health insurance coverage, Retiree health benefits

JEL Classification: I1, I18, J14, J3, J32