August 26, 2011
How to Comply with the ERRP’s Maintenance-of-Contribution Requirement
The temporary Early Retiree Reinsurance Program (ERRP) was created by the Affordable Care Act1 to reimburse employment-based plans for a portion of claims incurred by early retirees age 55 or older who are not eligible for Medicare.2 The ERRP regulations prohibit plan sponsors from using those reimbursements as general revenue. Regulations also state that plan sponsors are expected to maintain the same level of contribution for their health plan as they did before applying for the ERRP, net of any ERRP reimbursement received that the sponsor uses toward that contribution. Plan sponsors must comply with the maintenance-of-contribution requirement for each plan year during which they participate in the program, regardless of whether money is actually received.
On July 20, 2011, the Centers for Medicare & Medicaid Services (CMS) issued detailed guidance on this maintenance-of-contribution requirement.3 CMS made slight revisions to the guidance on August 19, 2011.4 This Capital Checkup summarizes that guidance, which offers plan sponsors flexibility in meeting the maintenance-of-contribution requirement. It also includes a text box on other ERRP news.
Implications for Plan Sponsors
A plan sponsor must be able to demonstrate through the maintenance-of-contribution requirement that ERRP proceeds are not being used as general revenue.5 To protect ERRP reimbursements, plan sponsors will need to gather the data and make the determinations and calculations that will establish compliance with this requirement. Plan sponsors also will need to maintain records to support their determinations in the event of an audit. Inability to satisfy the maintenance-of-contribution requirement could jeopardize any ERRP reimbursements received by the plan sponsor.
The ERRP secure website is constantly being updated, so it is important to check the website for updated guidance about the program.
The next two sections of this Capital Checkup, which discuss options for setting a baseline period for determining its contribution level before a plan can confirm it satisfies the maintenance-of-contribution requirement and methodologies for measuring maintenance of contributions, will be of interest to plan administrators and attorneys.
Options for Setting a Baseline Period
In order to assess the maintenance-of-contribution requirement, a plan sponsor must determine the amount it allocates or spends for health benefits6 (and/or premiums for health benefits) for each plan year in which the maintenance-of-contribution requirement applies. Before a plan sponsor can measure whether it satisfies the maintenance-of-contribution requirement for applicable plan years, it must establish a baseline period for determining its contribution level.
The guidance offers three options for establishing this period:
- Use the most recent 12-month plan year that ended before the date the plan sponsor submitted the ERRP application.
- Average the amounts for a period consisting of up to five of a plan sponsor’s most recent consecutive 12-month plan years, including the most recent 12-month plan year that ended before the date the plan sponsor submitted the ERRP application.
- Use a 12-month plan year that ends after June 1, 2010 for plan sponsors with one- or multi-year budget cycles that have been finalized or ratified under collective bargaining agreements before June 1, 2010.
Methodologies for Measuring Maintenance of Contributions
A plan sponsor can measure whether it meets the maintenance-of-contribution requirement by comparing the amount it actually spent on all health benefits and health premiums in the baseline period to that spent during each plan year for which it is participating in the ERRP program. The plan sponsor may use either aggregate or per capita spending trends. Calculations can use either the total dollar amount spent (e.g., the plan sponsor spent $1 million on health benefits) or the percentage of total costs paid (e.g., the plan sponsor paid on average 70 percent of plan participants’ costs). Regardless of which type of calculation is used (dollar amounts or percentages), the costs must be calculated net of any ERRP reimbursements received that the plan sponsor uses toward that contribution. “Net of ERRP reimbursements” means, for example, that a plan sponsor that spent or allocated $5 million during its baseline period must show (through its maintenance-of-contribution calculations) that an ERRP reimbursement of $500,000 will not reduce the amount it spends or allocates for health benefits below $5 million for the plan years after the baseline period.
A sponsor of an exclusively self-funded health plan may use the average of the amounts it spent during its baseline period and compare that to amounts actually spent during the plan year it receives ERRP funds. The sponsor could compare the baseline amounts to the amount “allocated” for health benefits if it wishes to do so, as long as the amounts are set aside in a fund or trust for health benefits. CMS states that it will permit the amount “allocated” for health benefits to be used in order to not penalize plan sponsors who reduce utilization through, for example, effective care management programs. In addition, comparing allocations instead of spending can only be done if the sponsor uses dollar methodology, not percentage methodology.
If a plan sponsor is unable to use any of the maintenance-of-contribution approaches set forth in the guidance, it may use other reasonable methodologies. However, the plan sponsor must be able to demonstrate, upon audit, why it did not use one of the specified methodologies and why its approach is consistent with the ERRP statutory and regulatory requirements.
|Other ERRP News
ERRP Announces a Quality Assurance Review Process for Claim Lists
On Friday, July 15, 2011, the CMS announced that Claim Lists associated with reimbursement requests that were submitted after April 2011 will be subject to a Quality Assurance Review Process to ensure that reimbursement requests comply with existing ERRP program requirements. The review process was prompted by significant data and formatting errors.
There are several consequences resulting from the submission of Claim Lists with errors.
The submission of a flawed Claim List does not preserve the original position for a plan sponsor in the sequence of reimbursement requests awaiting processing. Requests that do not pass the quality assurance review will not be approved for reimbursement.
Increase in the Cost Threshold and Cost Limit
CMS announced on August 12, 2011 that the Cost Threshold will be increased to $16,000 and the Cost Limit will be increased to $93,000 for ERRP plan years that begin on or after October 1, 2011.** The Cost Threshold of $15,000 and the Cost Limit of $90,000 will continue to be in effect for ERRP plan years that start before October 1, 2011. The Cost Threshold and Cost Limit apply separately to each individual early retiree, as well as to each individual spouse, surviving spouse and dependent.
The Retiree Drug Subsidy (RDS) Is an ERRP Negotiated Price Concession
A plan sponsor may participate under both the ERRP and the Retiree Drug Subsidy (RDS) programs.*** Under ERRP, a plan sponsor cannot submit health benefit costs for early retirees eligible for Medicare. However, it can submit health benefit costs and receive ERRP reimbursements for the Medicare-eligible spouses, surviving spouses and dependents of such early retirees. If a plan sponsor is participating in both the ERRP and the RDS program, it could have some spouses, surviving spouses, and dependents that qualify for reimbursement under both the RDS program and the ERRP.
When determining the basis of a claim under ERRP, a plan sponsor must take into consideration any negotiated price concessions (such as discounts, direct or indirect subsidies, rebates and direct or indirect remunerations) it obtains regarding the claim. According to guidance issued by ERRP on June 7, 2011,**** RDS is considered to be a direct subsidy. Therefore, any RDS amount must be treated as a negotiated price concession that is taken into consideration when determining the basis of a claim for ERRP. (Return to the beginning of this Capital Checkup)
*** Sponsors of group health plans can apply for an RDS under the Medicare Modernization Act. For background, see The Segal Company's June 2005 Bulletin, "Medicare Part D Guidance Addresses Employer-Paid Rx Coverage for Retirees." Segal has prepared many publications on the RDS process since then, all of which are available on the Segal website.
**** A June 7, 2011 publication from CMS, "Allocating Post-Point of Sale Negotiated Price Concessions to Individual Early Retirees Under the Early Retiree Reinsurance Program," is available on the ERRP website.
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As with all aspects of laws and regulations, plan sponsors should seek guidance from legal counsel about the Early Retiree Reinsurance Program. The Segal Company can be retained to work with plan sponsors that are receiving ERRP reimbursement and their attorneys to ensure that they satisfy the maintenance-of-contribution requirement and do not violate the prohibition on using ERRP reimbursements as general revenue.
- The Affordable Care Act is the shorthand name for the Patient Protection and Affordable Care Act (PPACA), Public Law No. 111-48, as modified by the subsequently enacted Health Care and Education Reconciliation Act (HCERA), Public Law No. 111-152. (Return to the Capital Checkup.)
- For information about the ERRP, which will reimburse plans for 80 percent of the claims for a covered individual between $15,000 and $90,000 incurred in a given policy year, see The Segal Company’s May 2010 Health Care Reform Insights, "Retiree Reinsurance Program: Implementation Details" and Segal’s February 17, 2011 Capital Checkup, “Taking Advantage of the Early Retiree Reinsurance Program: Apply Soon,” which was updated on March 29, 2011. (Return to the Capital Checkup.)
- The guidance is available on the CMS website. (Return to the Capital Checkup.)
- The announcement is on the ERRP website. (Return to the Capital Checkup.)
- See 45 C.F.R. 149.200(b) as published in the May 5, 2010 Federal Register. (Return to the Capital Checkup.)
- "Health benefits” are defined at 45 C.F.R. 149.2. (Return to the Capital Checkup.)
Capital Checkup is The Segal Company's periodic electronic newsletter summarizing activity in Washington with respect to health care and related subjects. Capital Checkup is for informational purposes only. It is not intended to provide guidance on current laws or pending legislation. On all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for legal advice.