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GAO-11-875R: 

United States Government Accountability Office: 
Washington, DC 20548: 

September 30, 2011: 

The Honorable Michael B. Enzi: 
Ranking Member: 
Committee on Health, Education, Labor, and Pensions: 
United States Senate: 

Subject: Private Health Insurance: Implementation of the Early Retiree 
Reinsurance Program: 

Dear Senator Enzi: 

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.[Footnote 1] 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.[Footnote 2] 

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.[Footnote 
3] 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. 
[Footnote 4] 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.[Footnote 5] 

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.[Footnote 6] 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. 

You 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. 

To describe CCIIO's process for implementing ERRP, we reviewed HHS' 
interim final rule for the implementation of the program,[Footnote 7] 
program guidelines available on the ERRP Web site, and ERRP policies 
and procedures. To obtain additional information about the 
implementation of ERRP, we interviewed CCIIO officials with 
responsibility for the program. Additionally, to obtain information 
about plan sponsors' experiences with the implementation of the 
program, we interviewed a sample of plan sponsors from among the 25 
sponsors for which CCIIO approved the greatest amount of ERRP 
reimbursements as of March 17, 2011. Thirteen of these 25 plan 
sponsors agreed to be interviewed and we confirmed that these 13 
sponsors represented a variety of different types of plan sponsors. 

To describe program expenditures and the types of plan sponsors for 
which CCIIO approved ERRP reimbursements as of June 30, 2011, we 
reviewed program updates and other data from CCIIO on the number of 
plan sponsors determined eligible to participate in the program and 
the amount of program funds expended as of June 30, 2011, the most 
recent quarterly data available at the time of our analysis. We also 
examined data we received from CCIIO on the amount of reimbursements 
approved by type of plan sponsor (e.g., commercial, government, 
nonprofit, religious, or union) as of June 30, 2011. Additionally, we 
reviewed published data related to the provision of employee health 
benefits from sources such as the Kaiser Family Foundation, Mercer, 
and the Employee Benefit Research Institute (EBRI) and interviewed a 
representative from EBRI. 

To describe how plan sponsors intend to use ERRP reimbursements, we 
reviewed applications to participate in ERRP submitted by the 25 plan 
sponsors for which CCIIO approved the greatest amount of 
reimbursements as of March 17, 2011.[Footnote 8] Some of these 25 plan 
sponsors manage the provision of health benefits for multiple 
employers (e.g., all of the school districts in a given state). In 
these cases, use of ERRP reimbursements by the plan sponsor may have 
different effects on the various employers and retirees participating 
in the plan based on such factors as differences in cost sharing 
established by collective bargaining agreements in place for each 
employer. We also interviewed 13 of these 25 plan sponsors, as 
described above, to obtain additional details on their plans for using 
ERRP reimbursements.[Footnote 9] 

Our findings on plan sponsors' experiences with the program and their 
use of ERRP reimbursements pertain only to the sponsors we interviewed 
and whose applications we reviewed. We determined that the agency data 
we used were sufficiently reliable for our purposes by interviewing 
agency officials who were knowledgeable about the data and reviewing 
the data for outliers and internal inconsistencies. We conducted this 
performance audit from March 2011 through September 2011 in accordance 
with generally accepted government auditing standards. Those standards 
require that we plan and perform the audit to obtain sufficient, 
appropriate evidence to provide a reasonable basis for our findings 
and conclusions based on our audit objectives. We believe that the 
evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objectives. 

Results in Brief: 

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. 

Background: 

Established in June 2010, ERRP provides reimbursements to plan 
sponsors for a portion of the cost of providing benefits to early 
retirees covered by the sponsor's participating health plans. In order 
to be eligible to participate in the program, health plans must have 
cost-saving programs and procedures for chronic and high-cost 
conditions in place at the time they apply for the program. Eligible 
health plans must also provide documentation of the actual cost of 
medical claims for which they are requesting reimbursement. 

Under PPACA, health costs that are eligible for reimbursement under 
ERRP include medical, surgical, hospital, and prescription drug 
costs.[Footnote 10] For eligible claims paid by a plan on behalf of 
each early retiree, ERRP will reimburse 80 percent of the amount that 
exceeded $15,000 (the cost threshold) but was not greater than $90,000 
(the cost limit) in a given year.[Footnote 11] In determining the 
amount of eligible claims, plan sponsors may choose to add the costs 
paid by the early retiree in the form of deductibles, copayments, or 
coinsurance as long as the plan sponsor submits adequate documentation. 

Under PPACA, plan sponsors must use their ERRP reimbursements to lower 
costs for the participating health plan, though they can do so in a 
variety of ways.[Footnote 12] Plan sponsors can use the reimbursements 
to reduce their own health benefit costs or health benefit premium 
costs; to reduce plan participants' premium contributions, copayments, 
deductibles, coinsurance, or other out-of-pocket costs; or to reduce 
any combination of these costs.[Footnote 13] Plan sponsors are not 
permitted to use the funds received from the program as general 
revenue and may be subject to program audits to verify their 
compliance with this and other program requirements. 

CCIIO's Implementation of ERRP Included Educating Plan Sponsors, 
Approving Program Applications, and Approving Reimbursements: 

CCIIO took several steps to implement ERRP. These steps included 
publishing regulations and other program guidance, 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. 

According to CCIIO officials, various means were used to educate 
sponsors of employment-based health plans about ERRP. Officials noted 
that in the early stages of the program, outreach methods included a 
series of webinars and blog entries introducing the program and 
conference calls explaining ERRP regulations. In addition, officials 
told us that they conducted a significant amount of education through 
answering questions from individual plan sponsors and other industry 
stakeholders. The CCIIO officials stated that many plan sponsors who 
were likely to be eligible to participate in ERRP were already 
participating in the Retiree Drug Subsidy (RDS) program--which is a 
separate government program that reimburses sponsors for prescription 
drug costs incurred on behalf of Medicare-eligible retirees--and were 
therefore aware of ERRP in advance of specific outreach by CCIIO. The 
CCIIO officials also told us that in August and September 2010, CCIIO 
issued press releases publicizing the program in order to reach those 
who were not yet aware of the program. 

As part of its implementation of ERRP, CCIIO began accepting 
applications to participate in the program on June 29, 2010. Plan 
sponsors were required to submit various types of information in their 
applications, including: (1) a description of programs and procedures 
in the plan that are intended to generate cost savings with respect to 
at least two chronic and high-cost conditions; (2) how the plan 
sponsor intended to use ERRP reimbursements; and (3) the type of plan 
sponsor--commercial organization, government entity, nonprofit 
organization, religious organization, or union--submitting the 
application.[Footnote 14] CCIIO officials told us that plan sponsors 
were not provided guidelines regarding the categorization of their 
type of plan sponsor other than the instruction to choose only one 
category that best described their organization. It is therefore 
possible that similar types of organizations may have categorized 
themselves differently.[Footnote 15] CCIIO officials told us that the 
applications they received were not given preference based on any 
particular category of submitted information or for any other reason 
and were processed in the order in which they were received. 

CCIIO stopped accepting applications on May 5, 2011, because they 
concluded that they had accepted sufficient applications to exhaust 
program funding.[Footnote 16] In total, CCIIO approved applications 
from 6,078 plan sponsors--nearly all of those who submitted 
applications--to participate in the reimbursement program. Of these 
plan sponsors, 4,935 (or 81 percent) had their applications approved 
within the first 6 months of the application period, or by December 
31, 2010. According to CCIIO officials, fewer than 100 applications 
were denied during the 10-month application period. Reasons given for 
denials included failure of the plan sponsor to meet the criteria for 
participating in the program and failing to respond to CCIIO's 
requests for additional/missing information. In addition, CCIIO 
officials told us that applications received after the application 
deadline were deemed invalid, as opposed to denied, and fewer than 100 
applications were deemed invalid. 

In addition to determining which plan sponsors were eligible to 
participate in ERRP, CCIIO began accepting requests from plan sponsors 
for program reimbursements in October 2010.[Footnote 17] CCIIO 
processed reimbursement requests in the order in which they were 
received from plan sponsors.[Footnote 18] CCIIO officials told us that 
they considered other methods of distributing reimbursements--such as 
limiting total reimbursement amounts by year or setting aside a 
certain proportion of funds for small, medium, and large plan 
sponsors--during the development of the program, but ultimately 
decided that first-come, first-served met the goals of the program 
most effectively, had the fewest inherent inequities, and was 
consistent with the program's statutory requirements. In order to more 
equitably distribute funds, they decided to allow only one 
reimbursement request per plan, per plan year, during each calendar 
quarter. 

In order to request reimbursement from ERRP, plan sponsors are 
required to submit, in a detailed claim list, documentation of the 
actual costs of the health care items and services for each early 
retiree for whom the sponsor is requesting reimbursement.[Footnote 19] 
CCIIO implemented this requirement in April 2011. Before this 
requirement was implemented, plan sponsors could request reimbursement 
by submitting aggregate cost data for all eligible health care costs, 
as well as lists of eligible retirees who incurred such costs. By 
March 30, 2012, plan sponsors that received reimbursement based on 
aggregate cost data must also submit detailed claim lists to 
substantiate the costs that were reimbursed. 

CCIIO began approving reimbursements to plan sponsors in October 2010. 
According to CCIIO officials, no reimbursement requests had been 
denied for reasons of inaccuracy or inappropriateness as of June 30, 
2011. However, only requests submitted prior to April 2011--without 
detailed claim lists--had been processed and paid as of that date. 
CCIIO officials told us that requests for reimbursement submitted in 
the early months of the program were generally processed within 1 
month of receipt. However, the April 2011 implementation of a 
procedure to conduct quality assurance reviews of the detailed claim 
lists extended the processing time. CCIIO officials told us that they 
began these quality assurance reviews during the summer of 2011. New 
reimbursement system features that will automate review of the claim 
lists and reduce processing time should be in place by late September 
2011. CCIIO officials told us that they intend to continue to process 
reimbursement requests in the order in which they are received until 
they have expended all of the reimbursement funding. At the time that 
our report was finalized, CCIIO had not released procedures detailing 
how funds would be spent near the end of the program. 

CCIIO officials also told us that in order to ensure that plan 
sponsors are in compliance with the requirements of the program, 
including the submission of accurate and appropriate claims data, 
CCIIO plans to hire an audit contractor and begin conducting audits of 
reimbursement recipients by the end of 2011. CCIIO intends to conduct 
10 audits in the first year of the contract, with two option years 
that, if awarded, would provide for 10 additional audits per year. 
Officials stated that audits will be conducted on a range of plan 
sponsors representing the diversity of program participants with 
regard to the size and type of the organization, the total amount of 
reimbursements received, and the vendor the sponsor relied on for 
reporting data to ERRP. However, a greater proportion of audits will 
be focused on those plan sponsors who received the greatest amount of 
program funds. CCIIO officials also noted that they were developing 
procedures detailing how funds recovered as a result of audits will be 
used; these procedures had not been released by the time our report 
was finalized. 

CCIIO Approved More than $2.7 Billion in Reimbursements to Government 
Entities and Other Types of Plan Sponsors as of June 30, 2011: 

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 early retiree health costs.[Footnote 20] 
This represents 54 percent of the $5 billion appropriated for the 
program. As of June 30, 2011, CCIIO had approved reimbursements for 
1,930 (or 32 percent) of the 6,078 plan sponsors participating in the 
program. The amount of reimbursement approved per request ranged from 
less than $100 to nearly $92 million, with a median reimbursement 
amount of about $119,000. The majority of the reimbursements approved 
as of June 30, 2011, were approved during the first calendar quarter 
of 2011. (See figure 1.) 

Figure 1: Amount of Reimbursements Approved for Participating Plan 
Sponsors through June 30, 2011, by Calendar Quarter and Cumulatively: 

[Refer to PDF for image: combination vertical bar and line graph] 

Calendar quarter: Q4 2010; 
Reimbursements approved per quarter: $0.5 billion; 
Cumulative reimbursements approved: $0.5 billion. 

Calendar quarter: Q1 2011; 
Reimbursements approved per quarter: $1.9 billion; 
Cumulative reimbursements approved: $2.5 billion. 

Calendar quarter: Q2 2011; 
Reimbursements approved per quarter: $0.3 billion; 
Cumulative reimbursements approved: $2.7 billion. 

Source: GAO analysis of CCIIO data. 

Note: CCIIO officials told us that they had placed reimbursement 
requests submitted on or after April 1, 2011, on hold while they 
developed procedures for reviewing the detailed claim lists that 
sponsors were required to include with those requests. It is likely 
that this contributed to the low amount of reimbursements approved 
during the second quarter of 2011. 

[End of figure] 

HHS projects that the $5 billion appropriated for ERRP will be 
expended before January 1, 2014--the program's end date.[Footnote 21] 
Specifically, in its budget justification for fiscal year (FY) 2012, 
HHS projected that approximately $3.6 billion in program funds would 
be disbursed in FY 2011 and the remaining $1.4 billion would be 
disbursed in FY 2012.[Footnote 22] CCIIO officials told us that any 
additional reimbursements that might be made from the last quarter of 
2012 through 2013 would likely be paid through recovery of any 
overpayments or audit activities that resulted in a recovery of funds. 

As of June 30, 2011, CCIIO had approved reimbursements for all five 
types of plan sponsors--commercial organizations, government entities, 
nonprofit organizations, religious organizations, and unions--although 
the largest share (about 46 percent) of reimbursements approved as of 
this date went to entities that categorized themselves as government 
entities. (See figure 2.) A plan sponsor's categorization may not 
reflect the type of retirees covered by the plan sponsor's health 
plans. For example, unionized retirees may participate in a health 
plan that is sponsored by a government entity or nonprofit 
organization. 

Figure 2: Percentage of Reimbursements Approved for Five Types of 
Health Plan Sponsors, as of June 30, 2011: 

[Refer to PDF for image: pie-chart] 

Religious: 0.1%; 
Union: 2.6%; 
Nonprofit 15.2%; 
Commercial: 36.6%; 
Government: 45.5%. 

Source: GAO analysis of CCIIO data. 

Note: Plan sponsors self-categorized their type of organization in 
their ERRP application. According to CCIIO officials, plan sponsors 
were not provided guidelines regarding their categorization other than 
the instruction to choose only one category that best described their 
organization. It is therefore possible that similar types of 
organizations may have categorized themselves differently. A plan 
sponsor's categorization may not reflect the type of retirees covered 
by the plan sponsor's health plans. For example, unionized retirees 
may participate in a health plan that is sponsored by a government 
entity or nonprofit organization. 

[End of figure] 

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. For example, 
in its 2010 survey of employer health benefits, the Kaiser Family 
Foundation found that among large employers offering health benefits 
to active workers in 2010, 87 percent of state and local governments 
also offered health benefits to their retirees.[Footnote 23] This 
represents a much higher percentage than was found for other types of 
employers.[Footnote 24] Similarly, as of June 30, 2011, government 
entities represented the largest share--nearly 51 percent--of the plan 
sponsors approved to participate in ERRP. 

Most Plan Sponsors in Our Review Expect to Use ERRP Reimbursements to 
Reduce Both Sponsor and Participant Costs: 

Based on our review of program applications and our interviews with 
plan sponsors, the majority of plan sponsors intend to use the 
reimbursements received through ERRP to reduce a combination of the 
plan sponsor's health benefit or health benefit premium costs and plan 
participants' premium contributions, copayments, deductibles, 
coinsurance, or other out-of-pocket 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.[Footnote 25] Although the program 
applications we reviewed did not indicate the proportion of funds that 
the plan sponsors intended to use for each purpose, 3 of these 17 plan 
sponsors indicated that they would use the reimbursements to reduce 
their own costs first, with any remaining funds used to reduce 
participant costs. In addition, 4 of the 25 plan sponsors whose 
program applications we reviewed indicated that they intended to use 
ERRP reimbursements to reduce only plan participants' costs and 4 of 
the 25 plan sponsors indicated that they intended to use the 
reimbursements to reduce only their own costs. 

The plan sponsors we interviewed provided additional detail about how 
they had used or intended to use the reimbursements received from 
ERRP. Nine of the 13 plan sponsors we interviewed had started using 
the reimbursements, while 4 of the plan sponsors had not yet used the 
reimbursements. Additionally, 6 of the 9 plan sponsors that had 
started using the reimbursements and 3 of the 4 remaining plan 
sponsors told us that they had used or intended to use the 
reimbursements to reduce a combination of their own and participants' 
costs.[Footnote 26] However, the amounts the plan sponsors had used or 
intended to use for each purpose varied. For example, one plan sponsor 
had used 75 percent of the reimbursements to reduce the plan sponsor's 
costs and 25 percent to reduce plan participants' costs while another 
plan sponsor had split the reimbursements evenly among the two 
purposes. An additional plan sponsor (a multiemployer organization) 
told us that it had split the reimbursements proportionally to the 
share of the plan premium paid by the underlying employers and 
retirees participating in the plan, which varied among different 
employers. For example, if a particular employer paid 90 percent of 
the plan premium and plan participants associated with that employer 
paid 10 percent of the plan premium, the employer received 90 percent 
of the reimbursements and the plan participants received 10 percent of 
the reimbursements. 

Agency Comments: 

HHS provided us with written comments on a draft version of this 
report. These comments are reprinted in enclosure I. HHS also provided 
technical comments, which we incorporated as appropriate. 

In its written comments, HHS reiterated that the percentage of 
employers that offer health coverage to early retirees has declined 
significantly over the last decade and noted that individuals who are 
age 55 and older are likely to face significant challenges obtaining 
individual health coverage because of age or preexisting conditions. 
According to HHS, ERRP was designed to stabilize the availability of 
employer-sponsored health coverage for early retirees by providing 
assistance to plan sponsors. HHS emphasized 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. As an example, 
they stated that the California Public Employees' Retirement System 
(CalPERS) worked with its benefit carriers to mitigate 2011 premium 
increases by 3 percent in anticipation of ERRP reimbursements. HHS 
also noted that ERRP initially permitted plan sponsors to request 
reimbursement on an aggregate basis in order to ensure that the 
program was available to plan sponsors by the statutory deadline--90 
days after the enactment of PPACA. However, as our report notes, 
beginning in April 2011, HHS implemented requirements for plan 
sponsors to submit detailed claim lists with their reimbursement 
requests. HHS also affirmed that they plan to conduct field audits of 
selected plan sponsors to ensure that ERRP funds were used 
appropriately. 

As agreed with your office, unless you publicly announce the contents 
of this report earlier, we plan no further distribution until 30 days 
from the report date. At that time, we will send copies of this report 
to the Secretary of Health and Human Services and other interested 
parties. The report also will be available at no charge on the GAO Web 
site at [hyperlink, http://www.gao.gov]. 

If you or your staff have any questions regarding this report, please 
contact me at (202) 512-7114 or dickenj@gao.gov. Contact points for 
our Offices of Congressional Relations and Public Affairs may be found 
on the last page of this report. GAO staff members who made key 
contributions to this report were Kristi Peterson, Assistant Director; 
Krister Friday; Karen Howard; and Aubrey Naffis. 

Sincerely yours, 

Signed by: 

John E. Dicken: 
Director, Health Care: 

Enclosure: 

[End of section] 

Enclosure: Comments from the Department of Health and Human Services: 

Department Of Health & Human Services: 
Office of The Secretary: 
Assistant Secretary for Legislation: 
Washington, DC 20201: 

September 9, 2011: 

John Dicken, Director: 
Health Care: 
U.S. Government Accountability Office: 
441 G Street NW: 
Washington, DC 20548: 

Dear Mr. Dicken: 

Attached are comments on the U.S. Government Accountability Office's 
(GAO) draft correspondence entitled, "Private Health Insurance: 
Implementation of the Early Retiree Reinsurance Program" (GAO-11-875R). 

The Department appreciates the opportunity to review this 
correspondence prior to publication. 

Sincerely, 

Signed by: 

Jim R. Esquea: 
Assistant Secretary for Legislation: 

Attachment: 

[End of letter] 

General Comments Of The Department Of Health And Human Services On The 
Government Accountability Office'S (GAO) Draft Report Entitled, 
"Private Health Insurance: Implementation Of The Early Retiree 
Reinsurance Program" (GAO-11-875R): 

The Department appreciates the opportunity to review and comment on 
this draft report. 

The Affordable Care Act created the Early Retiree Reinsurance Program 
(ERRP) to support sponsors of employment-based health plans that 
provide health coverage to early retirees and their spouses, surviving 
spouses, and dependents. As the draft report notes, the percentage of 
employers that offer such coverage has declined significantly. Access 
to employer-sponsored coverage is critical for individuals in the 
early retiree age group. Individuals who are 55 or older are likely to 
face significant challenges obtaining individual health coverage 
because of age or pre-existing conditions. 

The ERRP was designed to stabilize the availability of employer-
sponsored coverage for early retirees and their spouses, surviving 
spouses, and dependents by providing assistance to plan sponsors, 
including for-profit companies, schools and educational institutions, 
unions, State and local governments, religious organizations and other 
nonprofits. Consistent with the survey results included in the draft 
report, the majority of participating plan sponsors indicated that 
they will use program funding to offset both increases in their own 
costs to provide coverage and increases in plan participants' costs. 
Some sponsors have already applied ERRP funds to reduce costs for plan 
participants. For example, Ca1PERS, the California Public Employees' 
Retirement System, requested reimbursement on behalf of 5,302 early 
retirees, spouses, surviving spouses, and dependents in 2010. In 
anticipation of ERRP reimbursement, Ca1PERS worked with its benefits 
carriers to mitigate 2011 premium increases by three percent — a 
savings of up to $200 million. According to Ca1PERS officials, the 
ERRP funding will directly benefit 1.1 million public employees, 
retirees, and their dependents. 

The Affordable Care Act required that the ERRP be established within 
90 days of enactment. To ensure that the ERRP was available to 
eligible plan sponsors by the statutory deadline, the Department 
initially permitted plan sponsors to request reimbursement on an 
aggregated basis. In April 2011, the Centers for Medicare and Medicaid 
Services (CMS) implemented detailed claims data requirements for 
reimbursement requests. In addition to these detailed data 
submissions, CMS plans to conduct field audits of selected plan 
sponsors to ensure that all ERRP funds were used appropriately and 
consistently with the program statute and regulation. CMS will 
continue to work with plan sponsors and other ERRP stakeholders to 
improve the program and provide assistance to employers and other 
sponsors who offer valuable health coverage to early retirees. 

[End of section] 

Footnotes: 

[1] The Kaiser Family Foundation and Health Research & Educational 
Trust, Employer Health Benefits 2010 Annual Survey (Menlo Park, Calif. 
and Chicago, Ill.: September 2010). Large firms were defined as firms 
with 200 or more employees. 

[2] Agency for Healthcare Research and Quality, Near-Elderly Adults, 
Ages 55-64: Health Insurance Coverage, Cost, and Access (Rockville, 
Md.: May 2009). 

[3] Pub. L. No. 111-148, § 1102,124 Stat. 119, 143 (2010). Typically 
such a health plan is not a discrete entity to which payments can be 
directly made. Therefore, in implementing the program, the Department 
of Health and Human Services has interpreted this provision to require 
reimbursement to a sponsor, which it has defined to mean: a "plan 
sponsor" as defined in § 3(16)(B) of the Employee Retirement Income 
Security Act of 1974, except that in the case of a plan maintained 
jointly by one employer and an employee organization and for which the 
employer is the primary source of financing, the term means the 
employer. Early Retiree Reinsurance Program, 75 Fed. Reg. 24450, 
24451, 24467 (May 5, 2010) (definition of "sponsor" to be codified at 
45 C.F.R. § 149.2). 

[4] For purposes of ERRP, health benefits provided to spouses, 
surviving spouses, and dependents of early retirees are also eligible 
for reimbursement, even if these individuals are under the age of 55 
and/or are eligible for Medicare. Throughout this report, we use the 
term early retirees to refer to early retirees and their spouses, 
surviving spouses, and dependents. In addition to early retirees, 
eligible plans can also cover active employees and their spouses and 
dependents as well as retirees who are eligible for Medicare. 

[5] Because program funds cannot be used as general revenue, plan 
sponsors must maintain their previous level of contribution (in the 
aggregate or per capita, net of any ERRP reimbursements received) 
toward the plan. 

[6] Officials from HHS's Center for Consumer Information & Insurance 
Oversight (CCIIO) told us that a portion of the $5 billion 
appropriated for the program is used for program administration. 

[7] 75 Fed. Reg. 24450 (to be codified at 45 C.F.R. pt. 149). 

[8] The 25 plan sponsors whose applications we reviewed included 14 
government entities, 9 commercial organizations, and 2 nonprofit 
organizations. As of March 17, 2011, CCIIO approved over $1.1 billion 
in reimbursements for these plan sponsors, or 62 percent of the total 
approved ERRP reimbursements as of that date. 

[9] The 13 plan sponsors we interviewed included 6 government 
entities, 6 commercial organizations, and 1 nonprofit organization. As 
of March 17, 2011, CCIIO approved nearly $652 million in 
reimbursements for these plan sponsors, or 36 percent of the total 
approved ERRP reimbursements as of that date. 

[10] Pub. L. No. 111-148, § 1102(a)(2)(A), 124 Stat. 143. PPACA 
permits CCIIO to include other health benefits as determined by the 
Secretary of HHS. In general, CCIIO applies the Medicare benefit 
standard to determine whether a given item or service is a health 
benefit and thus eligible for ERRP reimbursement. 

[11] Pub. L. No. 111-148, § 1102(c), 124 Stat. 144. Eligible claims 
must be calculated excluding any negotiated price concessions. The 
$15,000 cost threshold and $90,000 cost limit are to be adjusted each 
fiscal year based on the percentage increase in the Medical Care 
Component of the Consumer Price Index for all urban consumers. For 
plan years starting on or after October 1, 2011, the annual cost 
threshold will be $16,000 and the annual cost limit will be $93,000. 

[12] In certain instances plan sponsors may be able to use the 
reimbursements to reduce costs for a different plan that is 
participating in ERRP. 

[13] Although plan sponsors can only receive reimbursement for health 
benefit costs paid on behalf of early retirees, plan sponsors who use 
the reimbursements to reduce plan participants' costs must reduce 
costs for all participants, including retirees who are eligible for 
Medicare, active employees, and their spouses and dependents. CCIIO 
officials told us that funds received in a current plan year need not 
be used to offset costs for that same plan year but can be used, in 
whole or part, to offset costs in the upcoming plan year. 

[14] Most plan sponsors used an early version of the application that 
also asked for other information, including whether the health plan 
was self-funded or delivered through the purchase of insurance, the 
benefit options offered under the plan, and the amount of 
reimbursement the plan sponsor expected to request during each of the 
first two plan years of the program. 

[15] A plan sponsor's categorization may not reflect the type of 
retirees covered by the plan sponsor's health plans. For example, some 
participating health plans are managed by a voluntary employees' 
beneficiary association (VEBA), which is a form of trust fund whose 
sole purpose is to provide employee benefits. Although these plans 
might provide benefits to unionized retirees or retirees who were 
previously employed by commercial organizations, a VEBA may categorize 
itself as a nonprofit. 

[16] CCIIO posted an announcement on the ERRP Web site on April 1, 
2011, stating that all applications had to be received by May 5, 2011. 
See also 76 Fed. Reg. 18766 (Apr. 5, 2011). 

[17] The majority (11 out of 13) of the plan sponsors we interviewed 
told us that the timing of their plan year (i.e., calendar year or an 
alternate plan year schedule) did not impact their participation in 
ERRP; 12 of the 13 plan sponsors had a calendar year plan. Sponsors 
were eligible to apply for participation in ERRP for plan years that 
began prior to June 1, 2010, provided they ended after that date. For 
claims incurred before June 1, 2010, the amount of such claims up to 
$15,000 was counted toward the cost threshold and the cost limit for 
that plan year. The amount of claims incurred before June 1, 2010, 
that exceeded $15,000 was not eligible for reimbursement and did not 
count toward the $90,000 annual cost limit. The reimbursement amount 
to be paid was based solely on claims incurred on and after June 1, 
2010. 

[18] CCIIO officials told us they were aware that there was widespread 
belief among plan sponsors at the start of ERRP that requests for 
reimbursement would be processed based on the date that the plan 
sponsor submitted their application to ERRP. These officials noted 
that CCIIO published information in August 2010 in the FAQ section of 
the ERRP Web site clarifying that requests for reimbursement would be 
processed based on the date that the plan sponsor submitted the 
request for reimbursement and not based on the date that the plan 
sponsor submitted their program application. 

[19] Eligible early retirees for purposes of ERRP are individuals age 
55 and older who are not eligible for Medicare and who are not active 
employees of an employer maintaining, or currently contributing to, 
the employment-based plan or of any employer that has made substantial 
financial contributions to the sponsor's employment-based plan. See 
Pub. L. No. 111-148, § 1102(a)(2)(C), 124 Stat. 144. For purposes of 
ERRP, health benefits provided to spouses, surviving spouses, and 
dependents of early retirees are also eligible for reimbursement, even 
if these individuals are under the age of 55 and/or are eligible for 
Medicare. 

[20] As of June 30, 2011, administrative obligations totaled $58 
million, which is 2 percent of the ERRP reimbursements approved as of 
this date. CCIIO estimates an additional $64 million in administrative 
expenses between June 30, 2011, and the end of the program, for total 
administrative costs of $122 million, or 2 percent of the $5 billion 
appropriated for the program. 

[21] Department of Health and Human Services, Fiscal Year 2012 
Justification of Estimates for Appropriations Committees: Centers for 
Medicare & Medicaid Services (Baltimore, Md.: Feb. 14, 2011). 

[22] CCIIO officials told us that administrative costs would likely 
continue until at least the statutory end date of the program on 
January 1, 2014, because plan sponsors may choose to apply their 
reimbursements to plan expenses in 2012 or 2013, requiring continued 
program oversight. 

[23] The Kaiser Family Foundation and Health Research & Educational 
Trust, Employer Health Benefits 2010 Annual Survey (Menlo Park, Calif. 
and Chicago, Ill.: September 2010). Large employers were defined as 
those with 200 or more workers. Although these statistics are for all 
retirees rather than only early retirees, according to Kaiser, among 
employers that offered health benefits to retirees in 2010, most large 
employers (93 percent) offered them to retirees under the age of 65. 

[24] Among the other large employers that participated in Kaiser's 
survey, the percentages that offered health benefits to retirees 
ranged from 16 percent of employers in the retail industry to 40 
percent of employers in the finance industry. 

[25] Some of these 25 plan sponsors manage the provision of health 
benefits for multiple employers (e.g., all of the school districts in 
a given state). In these cases, use of ERRP reimbursements by the plan 
sponsor may have different effects on the various employers and 
retirees participating in the plan based on such factors as 
differences in cost sharing established by collective bargaining 
agreements in place for each employer. 

[26] In addition, 4 of the 13 plan sponsors we interviewed stated that 
they had used or intended to use the reimbursements to reduce only 
plan participants' costs. For those plan sponsors that were 
multiemployer organizations such as a VEBA, we used the term 'plan 
sponsor' to mean the underlying employers participating in the plan. 
In these cases, a reduction in plan sponsor costs actually results in 
a reduction of costs for the underlying employers. 

[End of section] 

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