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Common Questions


Use of Reimbursement

How may sponsors use the reimbursement?

ANSWER: Pursuant to 45 CFR §149.200, a sponsor must use the proceeds under this program (1) To reduce the sponsor’s health benefit premiums or health benefit costs, (2) To reduce plan participants' health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs, or (3) To reduce any combination of the costs specified in (1) and (2). Proceeds received pursuant to this program may not be used as general revenue of the sponsors. Thus, to the extent a sponsor decides to use the reimbursement for its own purposes, it may use the reimbursement only to offset increases in the sponsor's health benefit premiums or health benefit costs. The sponsor must explain in the program application how it will maintain its contribution to the plan, as required by 45 CFR 149.40(a)(5)(iii).

 

Answer ID: 800-1
Date Posted: 08/09/2010      Last Updated: 09/24/2010



To the extent a sponsor wishes to use some or all of the proceeds it receives under this program to reduce plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, must it do so for all plan participants, and not just for early retirees?

ANSWER: Yes. If a sponsor chooses to use some or all of the proceeds it receives under this program to reduce plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, it must do so for all plan participants, and not just for early retirees. As we discussed in the regulation, the statute uses the term "plan participant" (as opposed to "early retiree") when setting out the requirements for how a sponsor is to use the reimbursement.  §1102(c)(4). The term "plan participant" is defined in the regulations as "anyone enrolled in an applicable plan including an early retiree, as defined in this regulation, a retiree, a retiree's spouse and dependent, an active employee and an active employee's spouse and dependent." 45 CFR §149.2. Also, we note that nothing in the program waives the non-discrimination rules promulgated under the health insurance portability provisions of the Health Insurance Portability and Accountability Act at 45 CFR 146.121(b)(2) and (c). Those rules continue to apply regardless of participation in the program.


Answer ID: 800-2
Date Posted: 08/09/2010


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May sponsors use the reimbursement to pay increased administrative costs generally related to the administration of the plan?

ANSWER: Generally, no. We interpret the statutory and regulatory prohibition on using program funds as general revenue to mean that a sponsor, to the extent it is using program funds for its own purposes, must use them only to offset increases in health benefit costs or increases in health benefit premiums. The term "health benefits" is defined in Section 149.2. Based on this interpretation, a sponsor should not use program funds to offset increases in its administrative costs relating to maintenance of its plan(s) generally, as such costs are not health benefit costs nor are they health benefit premiums. One exception, however, arises when all three of the following circumstances apply: (1) A sponsor maintains an insured plan, (2) The premium it pays the insurer for health benefits includes administrative costs, and (3) The insurer does not quantify for the sponsor the portion of the premium that is allocated to such costs. When all three of these circumstances exist, the sponsor may use program funds to offset increases in its health benefit premium costs or to reduce, or offset increases in, plan participants’ health benefit premiums, even though the premium includes administrative costs.


Answer ID: 800-3
Date Posted: 08/09/2010


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May sponsors use reimbursement funds from the Early Retiree Reinsurance Program to pay for expenses that are created by participation in the program?

ANSWER: No. The regulations state that the reimbursement may be used only to reduce the sponsor’s health benefit premiums or health benefit costs, to reduce the health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs of plan participants, or for any combination of these costs. Administrative costs created in order to participate in the Early Retiree Reinsurance Program are not health benefit premiums nor are they health benefit costs, nor do they reduce costs for plan participants. The term "health benefits" is defined in Section 149.2.

 

Answer ID: 800-4
Date Posted: 08/09/2010      Last Updated: 09/24/2010


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Some self-funded plans establish an ongoing reserve to fund the health benefits of their plan participants. May reimbursement under this program be placed into the ongoing reserve to be used to fund health benefits for plan participants?

ANSWER: Upon audit, the sponsor will need to be able to show that it used the reimbursement funds as is required under the program (and as it said it would use the reimbursement in its application to participate in the program). A sponsor could put program reimbursement into an ongoing pool of funds if it could make such a showing. Or, sponsors could make such a showing by placing the funds into a separate account so that, when audited, they could show how and when the reimbursement was used, this arrangement could be consistent with program requirements.

 

Answer ID: 800-5
Date Posted: 08/09/2010      Last Updated: 09/24/2010


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If a sponsor places reimbursement received from the ERRP into an account that accrues interest, must the sponsor use the interest only for the purposes for which program reimbursement must be used under the statute, regulations and guidance?

ANSWER: Yes. Because the source of the interest is the ERRP reimbursement, we expect that the interest will be spent only for the permissible purposes for which ERRP reimbursement may be spent, as specified in the statute, regulations, and guidance. Using ERRP reimbursement amounts to generate income to be used as general revenue is inconsistent with these requirements.


Answer ID: 800-6
Date Posted: 09/24/2010


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A plan sponsor's contract with a stop-loss carrier requires the sponsor to refund, to the stop-loss carrier, the amount of any claims the stop-loss carrier reimbursed to the sponsor that the sponsor then recovers from a third party, including ERRP reimbursement received from CMS. If the sponsor had received ERRP reimbursement for any amount of such claim, would the sponsor be impermissibly using ERRP funds by refunding that amount of claim costs to the stop-loss carrier?

ANSWER: No. CMS believes that these types of contractual indemnification provisions between plan sponsors and stop-loss carriers are longstanding and common, and does not wish to interfere with them. Furthermore, we believe any such reimbursements from the plan sponsor to a stop-loss carrier, essentially constitute additional premium paid by the sponsor to the stop loss carrier. As stated in Answer ID 800-1, the ERRP statute and regulation establish that sponsors of employment-based plans may use ERRP funds to reduce the sponsor's health benefit premiums. For purposes of this requirement, we consider health benefit premiums to include premiums for health benefits paid to a stop-loss insurer.


Answer ID: 800-7
Date Posted: 07/20/2011


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A plan sponsor's contract with a stop-loss carrier requires the sponsor to refund, to the stop-loss carrier, the amount of any claims the stop-loss carrier reimbursed to the sponsor that the sponsor then recovers from a third party through subrogation. If the sponsor had received ERRP reimbursement for any amount of such claim, would the sponsor be impermissibly using ERRP funds by refunding the amount of claim costs to the stop-loss carrier?

ANSWER: No. In situations in which a sponsor received ERRP reimbursement for such claims, and the sponsor refunds to the stop-loss carrier funds recovered from a third-party for such claims through subrogation, we consider the funds the sponsor refunds to the stop loss carrier to be funds the sponsor received from the third party, and not funds received from ERRP reimbursement Therefore, the refund to the stop loss carrier would not include any ERRP funds, so paying the refund would not constitute an impermissible use of ERRP funds. However, we note that any amounts a sponsor recovers through subrogation or otherwise that are directly related to claims costs for health benefits, must be treated as discussed in Answer ID 200-61. We note that, although a sponsor is not prohibited from refunding the amount of ERRP-reimbursed claims to a stop-loss carrier, a sponsor is prohibited from including subrogation-reimbursed claims, as costs reported to ERRP.


Answer ID: 800-8
Date Posted: 07/20/2011


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Can ERRP funds be used to purchase stop-loss insurance coverage, which may be required due to lifetime maximums being increased and even eliminated in the future?

Answer: Yes. The ERRP statute and regulation establish that sponsors of employment-based plans may use ERRP funds to reduce the sponsor's health benefit premiums. For purposes of this requirement, we consider health benefit premiums to include premiums for health benefits paid to a stop-loss insurer. To the extent a sponsor uses ERRP funds to purchase stop-loss insurance coverage, the maintenance of contribution requirements apply, just as they would if a sponsor uses ERRP funds to pay claims or to pay for health benefit insurance premiums that are not for stop-loss coverage.


Answer ID: 800-9
Date Posted: 07/20/2011


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Can ERRP funds be allocated to or deposited in an early retiree's Health Reimbursement Arrangement (HRA) account to help pay an early retiree's spouse's, surviving spouse's, or dependent's health benefit premiums or health benefit costs?

ANSWER: Yes, if the HRA is certified as an approved ERRP plan, or is offered to early retirees in association with a certified plan. However, it is important to note that a plan sponsor has not used ERRP funds for the permissible purposes specified in the ERRP statute and regulation merely by allocating or depositing ERRP funds into an HRA account. Rather, such allocated or deposited funds are used for permissible ERRP purposes only to the extent they are used to actually reduce plan participants' health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs. Therefore, a sponsor that so allocates or deposits ERRP funds into an HRA account has not used the funds in a permissible manner under the ERRP statute and regulations, until it uses the funds to reimburse an early retiree (or an early retiree’s spouse, surviving spouse, or dependent) for the costs of their health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs. Furthermore, to the extent a plan sponsor is using ERRP funds in an HRA to reimburse a plan participant for costs associated with anything other than the costs of his/her health benefit premiums contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or a combination of these costs, the sponsor has impermissibly used the ERRP funds. Upon audit, a sponsor may be required to demonstrate that ERRP funds deposited into an HRA account were used for permissible purposes.


Answer ID: 800-10
Date Posted: 07/20/2011


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May a sponsor use ERRP reimbursement funds to pay for the cost of developing and implementing programs and procedures that have generated or have the potential to generate cost savings with respect to plan participants with chronic and high-cost conditions, or to pay for the cost of developing and implementing other wellness programs?

ANSWER: No. The regulations permit a sponsor to use ERRP funds to reduce (1) the sponsor's health benefit premiums or health benefit costs, (2) health benefit premium contributions, copayments, deductibles, coinsurance, or other out-of-pocket costs, or any combination of these costs, for plan participants, or (3) to reduce any combination of the costs in (1) and (2). We interpret "reduce" to mean directly subsidize.


Answer ID: 800-11
Date Posted: 07/20/2011


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May a plan sponsor that receives ERRP reimbursement for a given employment-based plan, use the reimbursement for the permissible purposes specified in the ERRP regulation, but with respect to a different employment-based plan, or participants in a different employment-based plan?

ANSWER: Yes, under certain conditions. The sponsor may use the reimbursement in a manner consistent with 45 C.F.R. § 149.200 with respect to (1) the original plan and/or plan participants in the original plan, (2) a different plan and/or its plan participants, assuming it is a participating plan under the ERRP, or (3) a combination of (1) and (2). The plan sponsor must comply with the statutory prohibition against using ERRP reimbursement as general revenue, by complying with the maintenance of contribution requirement. That requirement would apply to the plan(s) for which the plan sponsor is using the funds to reduce its own health benefit costs. We believe this approach provides appropriate flexibility to sponsors and is consistent with the ERRP provisions addressing the use of program reimbursements by sponsors.


Answer ID: 800-12
Date Posted: 07/20/2011


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Does the requirement that the sponsor not use reimbursement proceeds as general revenue apply to plan sponsors that use ERRP funds exclusively to reduce or offset increases in plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance, or a combination of these costs?

ANSWER: No. The sponsor must be able to demonstrate that it used program funds exclusively to reduce or offset increases in plan participants' health benefit premium contributions, copayments, deductibles, coinsurance, or a combination of these costs.

 

Answer ID: 700-1
Date Posted: 08/09/2010      Last Updated: 09/24/2010


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How may a sponsor comply with the statutory prohibition on using program funds as general revenue?

ANSWER: To the extent a sponsor uses Early Retiree Reinsurance Program (ERRP) reimbursements to offset increases in its own health benefits or health premium costs, the ERRP regulation requires a sponsor to maintain its level of contribution toward the plan solely as a way of ensuring that the sponsor does not violate the statutory prohibition on using program reimbursement funds as general revenue. We interpret this requirement as applying with respect to the plan, and not necessarily with respect to each plan participant. A sponsor may demonstrate that it meets this requirement in a number of ways: using aggregate spending trends, per-capita spending trends, or other methods subject to Secretarial approval.

 

Answer ID: 700-2
Date Posted: 09/24/2010


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May a Plan Sponsor use ERRP funds it receives during a given plan year (i.e., the plan year in which the ERRP Center deposited the ERRP funds into the sponsor's account), to retroactively offset health benefit or health benefit premium cost increases the Sponsor already experienced during that same plan year?

Yes, a Sponsor may use ERRP funds it receives during a given plan year, to retroactively offset health benefit or health benefit premium cost increases it already experienced during that same plan year. A Sponsor may do this either by actually applying the ERRP funds during that same year, or by retroactively applying the ERRP funds during the subsequent plan year. As an example of the former approach, a Sponsor may, in its 2012 plan year, offset cost increases it already experienced in its 2012 plan year, with ERRP reimbursement it received in its 2012 plan year. As an example of the latter approach, a Sponsor may, in its 2013 plan year, offset cost increases it experienced in its 2012 plan year, with ERRP reimbursement it received in its 2012 plan year. The latter approach may be particularly suitable for Sponsors of self-funded plans because, by waiting until 2013 to apply the funds, the Sponsor might know with more certainty what its actual costs were for 2012, which could reduce or eliminate the burden of reconciling its estimate with actual costs (See Common Question 800-15). Sponsors applying ERRP funds to their own costs are only permitted to use ERRP funds to offset increases to their health benefit or health benefit premium costs, and Sponsors may not use ERRP funds as general revenue. (See Guidance on Complying with the Prohibition on Using Early Retiree Reinsurance Program Reimbursements as General Revenue). A Sponsor applying ERRP funds to plan participants’ costs, which is another option for the use of funds under Federal regulations at 45 CFR 145.200, may retroactively reduce, or offset increases to, such costs for any prior plan year in which the Sponsor participated in ERRP.


Answer ID: 800-14
Date Posted: 11/30/2012


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May a self-funded Plan Sponsor use estimates of its expected increase in health benefit costs for a given plan year in order to apply ERRP funds received during that same plan year (i.e., the plan year in which the ERRP Center deposited the ERRP funds into the sponsor's account) to offset cost increases for that plan year?

Yes, a self-funded Plan Sponsor may estimate its expected amount of health benefit costs for a given plan year, and apply ERRP funds received during that same plan year to offset expected cost increases. However, if the Sponsor determines that its estimate of the expected increase was higher than its actual amount of health benefit cost increase, the Sponsor must conduct a "reconciliation" of the estimate and actual health benefit costs, and return to its "ERRP account" any amount of ERRP funds it spent that exceeded its actual cost increases. This reconciliation ensures that Sponsors are using funds as permitted, to offset cost increases to their plan, and not using ERRP funds as general revenue. (See Guidance on Complying with the Prohibition on Using Early Retiree Reinsurance Program Reimbursements as General Revenue). The Sponsor would be able to apply the remaining amount in future years in a manner specified in 45 C.F.R. §149.200. To the extent a Sponsor applies ERRP funds to reduce (or offset increases to) plan participants' costs as set forth in Federal regulations at 45 CFR 145.200, the "reconciliation" process discussed in this Common Question would not apply to such use of ERRP funds.


Answer ID: 800-15
Date Posted: 11/30/2012


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May a Sponsor use ERRP reimbursements to offset per capita increases to its health benefit and/or health benefit premium costs, even if the Sponsor's aggregate plan-wide health benefit and/or health benefit premium costs decreased when compared with the Sponsor's baseline costs?

Yes, a Plan Sponsor may offset per capita increases to its health benefit and/or health benefit premium costs under this scenario, if the Plan Sponsor satisfies the maintenance of contribution requirement solely through the Per Capita Spending Trend, Total Dollars Methodology specified in the "Guidance on Complying with the Prohibition on Using Early Retiree Reinsurance Program Reimbursements as General Revenue." For example, in its baseline period, a Sponsor had 100 plan participants and spent $150,000 ($1,500 per capita) on health benefits. In a given ERRP plan year, the Sponsor had 80 plan participants and spent $136,000 of its own funds ($2,000 per capita) on health benefits. The Sponsor could use ERRP funds to offset the $500 per capita cost increase for the number of plan participants it has in its ERRP plan year (i.e., the difference between $1,500 and $2,000, which is $500 per participant, multiplied by 80 plan participants in the given ERRP plan year, which is $40,000), even though the Sponsors' aggregate plan-wide spending on health benefits declined.


Answer ID: 800-16
Date Posted: 11/30/2012


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May a Sponsor use ERRP reimbursements to offset percentage increases to its health benefit and/or health premium costs, even if the Sponsor's aggregate plan-wide health benefit and/or health premium costs decreased when compared with the Sponsor's baseline costs?

Yes, a Plan Sponsor may use ERRP reimbursements to offset percentage increases to its health benefit and/or health premium costs under this scenario, if the Sponsor satisfies the maintenance of contribution requirement solely through the Aggregate Spending Trend, Percentage Methodology specified in the "Guidance on Complying with the Prohibition on Using Early Retiree Reinsurance Program Reimbursements as General Revenue." For example, in its baseline period, a Sponsor spent $700,000 of its own funds in health benefit premium costs and total health benefit premium costs (including plan participant contribution) were $1 million (70%). In a given ERRP year, the Sponsor spent $600,000 of its own funds in health benefit premium costs, and total health benefit premium costs were $800,000 (75%). Maintenance of contribution rules allow the plan to spend only 70% of total costs, or $560,000 (70% of $800,000 is $560,000), so the Sponsor could use ERRP funds to offset the 5 percentage point cost increase ( i.e., the difference between 70% and 75% of $800,000, which is $40,000) even though the Sponsors' aggregate plan-wide health benefit premium spending declined.


Answer ID: 800-17
Date Posted: 11/30/2012


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By when does an ERRP plan sponsor have to use ERRP reimbursement funds?

ANSWER: Our expectation is that a sponsor will use ERRP reimbursement funds as soon as possible, but in no case later than December 31, 2014. A sponsor is not required to use ERRP reimbursement funds by the end of the plan year in which they are received. Sponsors may use ERRP reimbursement funds in a manner permitted under the statute, regulation, and other ERRP program guidance.


Answer ID: 800-13
Date Posted: 02/17/2012


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Page last updated December 3, 2012 at 3:00PM EST