Thursday, November 26, 2009

How will retiree health care benefits be treated under the ‘‘Affordable Health Care for America Act’’?

The Act bars group health care plans from “substantially” reducing benefits paid to retirees and/or their beneficiaries, however, plans are allowed to place a “cap” on the total benefits paid to retirees. (Is this not a contradiction to the ban on annual and lifetime max’s?) Furthermore, plans may reduce benefits to retirees if and only if they also reduce benefits to active plan participants, correspondingly. Retirees are typically more expensive, claims wise, than active employees, which has resulted in many plan sponsors eliminating retiree health care plans. (Does this provide an incentive to plan sponsors to reduce benefits to both groups?) The Act defines “substantially” to mean a 5% increase in participant premiums and/or a 5% decease in the actuarial value of benefits. A decease in the actuarial value of benefits could be the result of changes in premiums, co-pays, co-insurance amount or percentages, covered procedures, and even possibly provider networks.

The Act allows the Secretary waive adherence to these restrictions if the plan sponsor, i.e., employer can demonstrate their application would result in undue hardship (i.e., pending bankruptcy) on the plan sponsor.

A retiree “reinsurance” trust fund (funded with $10b) is established by the Act to pay for certain excess health care claims. Within health care, “reinsurance” is commonly referred to as “stop-loss” insurance and is used to mitigate health care claims above a specific and fixed dollar amount when a plan is “self-insured”. Example: Plan A buys a stop-loss policy to cover any individual participant health care claims in excess of $125,000 within any single plan year and any plan aggregated health care claims in excess of $1,000,000 within any single plan year. This allows the plan to protect itself against any unexpected and excessive claims by shifting the excess portion of the claims to a third party.

To be reimbursed for excess retiree health acre claims, plans must request reimbursement from the trust fund. Once approved by the Secretary, the fund will reimburse plans 80% of the cost of the actual retiree claims paid in excess of $15,000 but less than $90,000. These amounts are annually indexed to the medical portion of the CPI in multiples of $1,000. Reimbursement must be applied to the overall cost of the retiree’s health care plan and cannot be used as general revenue by the plan’s sponsor. (Does this lessen the fiscal dependency on the plan sponsor’s revenue stream by maintaining overall plan costs? Does this encourage the retention of retiree health care plans in the face of FAS 106?)