Common Questions

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

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

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

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

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

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

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

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

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

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

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

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