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Report: Early Retiree Program Will Run Out of Funds by 2012, Not 2014

By Rebecca Adams, CQ HealthBeat Associate Editor

March 24, 2011 -- The $5 billion early retiree subsidy program created by the health overhaul law has been swamped with so many requests that the program may be out of money by 2012, far earlier than its expected 2014 end date, according to a new analysis by the House Energy and Commerce Republican staff.

The health care law (PL 111-48, PL 111-52) provided the money to subsidize employers' health insurance costs for retirees who are not old enough to qualify for Medicare. The fund pays employers 80 percent of claims that are more than $15,000 per retiree but less than $90,000. The program was created as a way to help maintain coverage for people until insurance is available through the exchange markets that will open in 2014.

The report quoted Richard Popper, the director of the Office of Insurance Programs for the Center for Consumer Information and Insurance Oversight, as telling aides at the Subcommittee on Oversight and Investigations this month that the program would exhaust its funds in 2012. Department of Health and Human Services (HHS) officials do not dispute that estimate.

At least 5,452 applications had been approved by Dec. 31, 2010, to participate in the program, according to a separate March 2 report by HHS.

By the end of 2010, the program had paid $535 million in reimbursements to 253 approved employers. The largest share of the reimbursements went to state government plans. The payments made to individual plans ranged from $285.13 to $108.6 million.

By the Republican committee staff's count, if the remaining 5,199 approved applicants get as much money as the 253 groups who received subsidies in 2010, then the money will be gone as early as this year.

More than half of the money spent in 2010 went to five groups—the California Public Employees' Retirement System, which got the biggest chunk nearly $58 million; the state of New Jersey Treasury Department, Pension Accounting Services; the Georgia Department of Community Health, State Health Benefit Plan; the commonwealth of Kentucky; and the Employees Retirement System of Texas.

An HHS spokeswoman said that program officials will stop taking applications when they see that they will not have any more money to distribute. She noted that President Obama's budget projects that there will be about $24 million of the $5 billion left for the 2013 fiscal year, which begins on Oct. 1, 2012 and ends on Sept. 30, 2013.

She said that the program is serving an important need.

"Before the Affordable Care Act became law, employers were dropping coverage for early retirees," said HHS spokeswoman Jessica Santillo. "The Early Retiree Reinsurance Program gives critical assistance to businesses so they may continue to provide coverage to retirees who aren't eligible for Medicare. Cities and states facing tight budgets and businesses that have seen their health care costs skyrocket welcome this relief."

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