TRANSMITTAL LETTER FOR BOARD MEETING OF MAY 3, 2012
COMMITTEE ON PENSION, HUMAN RESOURCES AND CIVIL SERVICE
Mr. David St. Pierre, Executive Director
Title
Authorization to distribute funds received through District participation in the Early Retiree Reinsurance Program (ERRP)
Body
Dear Sir:
As part of the Patient Protection and Affordable Care Act (Health Care Reform), an Early Retiree Reinsurance Program was established to encourage employers to maintain health care coverage for early retirees. Under this program, employers could receive a reimbursement for up to 80% of the costs of health claims between $15,000.00 and $90,000.00 per year for each early retiree that remained insured. There was a total of $5 billion set aside by the Federal government for this program.
On March 3, 2011, the Board of Commissioners authorized the Human Resources Department to utilize its benefits consultant, Buck Consultants, LLC, to submit a reimbursement request. Reimbursement requests were made by Buck Consultants on behalf of the District in late 2011 for claims paid in 2010 and 2011. In December 2011, the District was notified that its reimbursement request for 2011 claims (January through August) had been accepted. In January 2012, the District received a reimbursement in the amount of $742,727.02. Unfortunately, the program funds were exhausted before the second request could be fulfilled. This request will remain in the queue should additional program funds become available.
The Early Retiree Reinsurance Program has specific guidelines for how the reimbursed funds must be utilized. According to the program regulations, these funds may only be used to lower the costs for the health plan. This can be accomplished by: 1) reducing the employer's health benefit premiums or health benefit costs; 2) reducing plan participants' health benefit premium contributions, copayments, deductibles, coinsurance or other out-of-pocket costs; or 3) reducing any combination of the costs specified in 1) and 2). The regulations also require that if the reimbursed funds are utilized to reduce plan participants' costs as described in 2) above, they must be applied to all plan participants, not just early retirees.
The Human Resources Department has evaluated the options available for the reimbursed funds and recommends that they be used to reduce plan participants' costs (option 2). There are approximately 3,764 plan participants (active employees and annuitants) as of April 1, 2012. If the reimbursed funds were refunded directly to each plan participant through a rebate, a savings of approximately $197 would be realized by each participant.
The mechanism that will be used to distribute these funds is a one-time "medical insurance rebate." As discussed above, the rebate would be distributed to all plan participants. This would include all active employees and annuitants covered under the medical insurance plan. For audit purposes and to ensure proper tax treatment of the funds, it will be important that this rebate be distributed through payroll for the active employee population. Annuitants would receive the rebate as a reduction in the monthly medical contribution amount deducted from their annuity check. The amount of the rebate will be calculated utilizing the active employee and annuitant membership data as of May 1, 2012. The rebate will be the same for all participants regardless of coverage level. The rebate will be communicated to employees during the open enrollment period in May 2012 and included on paychecks received June 8, 2012. The Retirement Fund will also communicate information regarding the rebate to the annuitant population and will apply the rebate to annuity checks issued in June 2012. The communication to plan participants will include information regarding the reason for the rebate, the amount of the rebate and the pay period or month in which the rebate will be received.
In view of the foregoing, it is recommended that the Board of Commissioners authorize the distribution of the Early Retiree Reinsurance Program funds directly to all plan participants in the form of a medical insurance rebate as described above.
Recommended, Denice E. Korcal, Director of Human Resources
Respectfully Submitted, Cynthia M. Santos, Chairman Committee on Pension, Human Resources and Civil Service
Disposition of this agenda item will be documented in the official Regular Board Meeting Minutes of the Board of Commissioners for May 3, 2012