The Patient Protection and Affordable Care Act (“PPACA”) contained a provision that established the Early Retiree Reinsurance Program (“ERRP”), the goal of which was to encourage plan sponsors to retain health care coverage for retirees through at least 2013. The ERRP was designed to provide reimbursement to eligible sponsors of employment-based plans for a portion of the costs of providing health coverage to early retirees (and eligible spouses, surviving spouses and dependents of such retirees) during the period beginning on the date on which the program is established and ending on January 1, 2014. Under PPACA, $5 billion was appropriated for the ERRP.

On March 13, 2012, the Centers for Medicare & Medicaid Services (“CMS”) issued a notice that establishes a timeframe under which plan sponsors participating in the ERRP are expected to use ERRP reimbursement proceeds. The notice provides that sponsors are expected to use these funds as soon as possible, but not later than December 31, 2014. This notice closely follows the release of informal guidance CMS in February, in which the CMS specified the December 31, 2014 deadline. The CMS noted in February that $4.73 billion in reimbursement payments had been made through January 19, 2012 and that this amount, when added to pending reimbursement requests, exceeds the $5 billion that had been appropriated. CMS also noted in February that reimbursement requests that exceed that $5 billion limit will be held in the order of receipt pending the availability of funds. Plan sponsors with reimbursement requests on hold already should have received email messages notifying them that their reimbursement requests have been placed on hold pending the availability of funds. CMS will pay reimbursement requests in the order received until available funds are exhausted.

These actions in early 2012 follow an announcement by CMS in December, 2011 in which the CMS disclosed that, based on the projected availability of funding under the ERRP, it would deny ERRP reimbursement requests, in their entirety, that include claims incurred after December 31, 2011. Under the ERRP, a claim may be submitted only after it has been incurred, and paid. Therefore, a claim that is incurred on or before December 31, 2011 but paid after December 31, 2011 may be submitted (but not until it has been paid). If additional funding somehow becomes available (hey, this is the government!), then CMS may issue a new notice announcing the acceptance of ERRP reimbursement requests that include claims incurred after December 31, 2011.

Under the ERRP, a plan must use the proceeds under this program to (1) reduce the sponsor’s health benefit premiums or health benefit costs, (2) reduce health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs, or any combination of these costs, for plan participants, or (3) reduce any combination of the above costs. Reimbursement proceeds under the program must not be used as general revenue for the plan sponsor.

In this new notice, the CMS cites to language in PPACA that directs the CMS to develop a mechanism to monitor the appropriate use of such payments by entities receiving reimbursement payments. The agency goes on to state that a necessary component of such a mechanism is a deadline by when plan sponsors must use the reimbursement proceeds.

The notice formalizes the expectation of CMS that a sponsor will use ERRP reimbursement proceeds as soon as possible, but not later than December 31, 2014. CMS notes that they believe this deadline is consistent with the statutory end date of January 1, 2014 and that it affords plan sponsors the flexibility and time they may need in order to appropriately use ERRP reimbursement proceeds. The notice affirms informal guidance that a sponsor is not required to use ERRP reimbursement proceeds by the end of the plan year in which they are received.