Most U.S. Companies Planning to Apply for Temporary Federal Reinsurance Program, According to New Hewitt Survey
May 25 2010 - 9:00AM
Business Wire
As U.S. employers continue to digest the provisions within the
health care reform law, a new survey by Hewitt Associates, a global
human resources consulting and outsourcing company, found most
companies that offer pre-65 retiree medical benefits intend to
apply for the Early Retiree Reinsurance Program (ERRP) to offset a
portion of health care claims costs for retirees ages 55 to 64 and
their families.
Conducted in May 2010, Hewitt’s survey of 245 large employers
that offer medical benefits to more than 1.3 million retirees found
that more than three-quarters (76 percent) of companies plan to
pursue reimbursement under the ERRP, a provision in the newly
enacted health care reform law that goes into effect June 1, 2010.
Under the new program, companies can receive an 80 percent
reimbursement on claims incurred by early retirees and dependents
between $15,000 and $90,000 over the course of a year. Eligible
claims include medical, prescription drug and behavioral health.
The ERRP will last until January 1, 2014, or until the $5 billion
set aside for the program is exhausted.
Hewitt estimates that the average federal reimbursement will
represent between $2,000 and $3,000 per pre-65 retiree per year, or
approximately 25 percent to 35 percent of total health care costs.
As an example, for a company that covers 1,000 pre-65 retirees,
participation in the ERRP could result in $2 million to $3 million
in reinsurance proceeds per year.
“The number of employers eliminating pre-65 retiree medical
benefits has grown over the past decade as health care costs
continue to rapidly increase,” said Milind Desai, FSA, senior
consulting actuary and co-leader of Hewitt's Retiree Health Care
Task Force. “The early retiree reinsurance program encourages
employers to continue offering coverage to pre-65 retirees and
their families by providing some temporary relief from expensive
pre-65 retiree medical claims. But because so many companies plan
to apply for the ERRP, employers will need to act quickly to secure
a share of the proceeds, since the federal funds earmarked for this
program are limited.”
While the law requires that employers use the ERRP
reimbursements to reduce the cost of the plan, Hewitt’s survey
showed that most have not yet decided on a specific approach.
Hewitt’s survey was conducted just as interim final rules with
additional guidance around the ERRP were issued by the Department
of Health and Human Services (HHS). At that time, two-thirds (66
percent) of companies that intend to apply for the reimbursement
said they were unsure about how they plan to use the proceeds and
were waiting for this guidance before making a decision. Sixteen
percent said they are considering using the reimbursement to reduce
premiums—including both employer and retiree share, and another 5
percent said they are considering reducing the retiree share of
premiums only.
“While the interim final rule on the ERRP was released in early
May, most employers are still looking for more details about how
these funds can and cannot be used,” said John Grosso, FSA, senior
consulting actuary and co-leader of Hewitt's Retiree Health Care
Task Force. “We expect additional guidance by the end of June, and
we believe companies will then make final decisions on how to best
allocate these reimbursements to offset the cost of the plan.
Employers will be required to describe how the proceeds will be
used to support the plan in their ERRP application.”
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations
around the world with expert human resources consulting and
outsourcing solutions to help them anticipate and solve their most
complex benefits, talent, and related financial challenges. Hewitt
works with companies to design, implement, communicate, and
administer a wide range of human resources, retirement, investment
management, health care, compensation, and talent management
strategies. With a history of exceptional client service since
1940, Hewitt has offices in more than 30 countries and employs
approximately 23,000 associates who are helping make the world a
better place to work. For more information, please visit
www.hewitt.com.
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