Health Care Reform Bill = Windfall For Retiree Insurers

SO HEALTH CARE REFORM HAS FINALLYdilute and reduce the category of "eligible" claims
PASSED! Yet, missed amongst the clamorin the final calculation. The RDS formula was initially
surrounding, "political partisanship", "the funding ofrelatively simple until there was a bureaucratic
abortion" or "the Cadillac tax" there is a significantdecision to create "excluded" drug classes from
subsidy that may provide relief to plan sponsorssubsidy eligibility. CMS' rationale behind this change
struggling to reign in retiree healthcare costs. Thiswas to NOT pay subsidy on drugs that were
provision, referenced as the "Reinsuranceexcluded under the government sponsored Part D
Program", creates a "reinsurance" subsidy for plandrug plan formulary. There could be a similar
sponsors of retiree health plans providingrationale used to create "excluded" medical
coverage for pre- Medicare retirees over the ageexpenses to align subsidy eligibility with only
of 55.medical procedures approved and part of the
The Medicare Modernization Act of 2003 createdgovernment's baseline plans as defined within the
an employer subsidy program ("Retiree Drugfinal bill.
Subsidy" or "RDS") for plan sponsors as anMoreover, the language within the two bills is
incentive to maintain their retiree drug plans in lieuunclear as to "who" gets the subsidy. The Senate
of dropping the coverage and forcing retirees tobill states "....the program will reimburse employers
a Medicare Part D plan. The Reinsurance Programor insurers" whereas the House bill only
appears to provide employers a similar incentive.references "employers." Moreover, the language in
The incentive under this program would be forboth bills state explicitly that "payments from the
employer groups to maintain the medical plans forReinsurance Program will be used to lower the
their pre- Medicare eligible retirees in return for acosts for enrollees in the employer plan". What
significant subsidy.can we interpret from this language? Will the
The Reinsurance Program clearly benefitsemployer not be eligible for subsidy? Will insurance
employers and industries that are union-dominatedcarriers be able to create insurance plans for
and saddled with rich and expensive retireeemployer groups and keep the subsidy and then
medical plans. Ironically, as the health care reformlower premium costs just as they do now under
bills have been touched by so many specialMedicare Advantage?
interests and tainted by the political reality ofHow Long Will This Program Last?
compromise, one of the remaining provisions, theThe subsidy is "temporary", as the Bill
"Cadillac tax", may be neutralized by the subsidyappropriates only $5 billion to fund this program
(although at print, labor presumably has workedthrough January 1, 2014.
out a deal with the White House to exemptQuick math shows that the monies earmarked
groups with collective bargaining agreements untilfor this program could run out quickly. The 2006
2018). The "Cadillac tax", which imposes a 40%PEW Center1 Study reported significant un-funded
excise tax on plans with premium costsretiree healthcare liabilities for state and local
exceeding pre-established "threshold amounts",governments alone. State systems are projected
would increase plan costs for many of the sameto payout $9.7 billion for "other post employment
plans eligible for the reinsurance subsidy. For planbenefits". The 30 year retiree healthcare liability
sponsors with a considerable retiree population thewas projected to be $381 billion; a conservative
effect is that every dollar of the retiree planestimate since these figures do not include
premium subject to the excise tax could beobligations for teachers or local government
significantly offset by a corresponding subsidy.workers. The State of California, combined with all
What are the Potential Savings?local governments within California, was projected
The proposed program would establish ato have a $6 billion retiree healthcare bill in 2009.
"temporary" Reinsurance Program for employersAdd to this all the large Taft Hartley plans,
who provide health insurance coverage to retireesindependent VEBA plans (i.e. the UAW VEBA) and
over the age of 55 and who are NOT yet eligiblethe remaining large private sector retiree plans,
for Medicare. The program would reimburseone can see this earmark evaporating in a short
employers or insurers for 80% of retiree claimsperiod of time.
between $15,000 and $90,000.This begs the question. How will priority be
For an employer group with 700 employees andestablished if the government agency in charge of
500 retirees that spends $10,000,000 a year onmanaging this program is inundated with
health insurance plans, the subsidy could be asapplications? Will it be first come, first serve? Will
much as $720,000, effectively reducing its retireethere be some level of "need" established to
plan costs by 14.4%.assign priority or create qualification? Or will this
How Will This Reinsurance Program Work?program, once Health Care Reform passes,
If we can learn any lessons from the Retireebecome another entitlement program that is
Drug Subsidy ("RDS") program, where initially thelegislated into permanency?
drug subsidy was to be calculated as aTo learn more about the potential impact of
percentage on ALL prescription drug claimsHealth Care Reform on Municipal Government
incurred by plan sponsors, there will likely be aMedical Insurance Plans, tune in to our free
segment within the government that will push towebinar Wednesday, April 28th. at 9AM.