Do a plan’s programs and procedures for chronic and high-cost conditions have to be in place at the time the sponsor submits the application?
Yes. As part of the application, the applicant must include a summary of the programs and procedures it has in place that have generated, or that have a potential to generate, cost savings with respect to participants with chronic and high-cost conditions. Chronic and high-cost conditions are defined as those for which $15,000 or more in health benefit claims are likely to be incurred during a plan year by any one plan participant.
It is also helpful to the applicant to explain how it determined which conditions to address, how the program and procedures will generate cost savings with respect to plan participants with these conditions, a description of the programs and procedures, and who benefits from the cost savings.
In addition, the application must include the policies and procedures a sponsor has in place to detect and reduce fraud, waste and abuse.
How can a sponsor use the reimbursement?
The proceeds must be used to reduce the sponsor’s health benefit premium costs or to reduce plan participants’ health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket expenses. But if it does so, it must do so for all plan participants and not just for early retirees.
Proceeds cannot be used as general revenue for the sponsor. To ensure they are not used that way, sponsors must maintain their level of financial effort in supporting the applicable plan. They can only use the reimbursement to offset increases in the sponsors’ health benefit premiums or health benefit costs, and must explain in the application how they will maintain their level of effort for the plan.
In addition, the reimbursements generally cannot be used to pay increased administrative costs, as such costs that are not health benefit costs or health premium benefits.
What should a sponsor do if it believes its reimbursement will exceed the cost increase that results from covering retirees?
In the application, the sponsor should account for the possibility that it might receive reimbursement that exceeds its cost increases.
For example, in its explanation of how the sponsor will use program reimbursements, it could state that any overages will be applied to offset its health benefit cost increases for the following plan year, or that it will use the overage to reduce plan participants’ health benefit costs for the current or following plan year.
Janet Josway is vice president of the Employee Benefits Consulting Group at Aon Risk Services. Reach her at (317) 237-2422 or [email protected].