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Fund to Pay for Early Retirees' Health Insurance Running Out

Source: WSJ - Louise Radnofsky

Posted on 01 Nov 2011

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A $5 billion fund created as part of the health-care overhaul to pay for health insurance for early retirees will run out of money by September 2012, according to a federal report released Monday.

Around 6,000 employers are currently getting subsidies through the program to help pay for benefits for retired workers between the ages of 55 and 64. The fund reimburses 80% of the eligible claims for between $15,000 and $90,000 paid on behalf of a retiree who isn't yet eligible for Medicare, the federal insurance program for people age 65 and older.

The money was supposed to be available through the end of 2013. The following year, new rules take effect that are intended to make it easier for older people to buy insurance plans without the help of an employer.

But payouts had already reached $2.7 billion by the end of June 2011, according to the Government Accountability Office, a watchdog agency that issued an evaluation of the program. The rest of the money will be gone by the end of September 2012, the report found.

Employers rushed to the program when it was first set up in 2010, and the program stopped accepting new applications in May this year after it became clear the fund was set to exhaust itself. The biggest single payout is to the United Auto Workers' retiree medical benefits trust. Private companies that have received large amounts from the fund to date include AT&T Inc., Verizon Communications Inc., General Electric Co. and Boeing Co.

Almost half of the reimbursements have gone to state and local governments, the GAO analysis found.

A Department of Health and Human Services official said that the program's rapid payout was a sign the program has been a success.

"The reimbursements that have been made from the program go directly to reduce premiums or benefit costs for current workers, early retirees and their families," the official said.

It is unlikely that lawmakers will appropriate additional funds for the program, with congressional Republicans maintaining strong opposition both to the health-care overhaul passed last year and to additional federal spending.

Sen. Mike Enzi of Wyoming, the top Republican on the Senate health committee, said in a statement that he was concerned about the proportion of money that went to health plans for public employees and union workers. Organized labor heavily funds Democratic causes, and Mr. Enzi said the retiree fund had been "rewarding politically-connected constituencies."

Officials at HHS told the GAO that they enrolled participants on a first-come, first-served basis and have also reimbursed them for their claims in the order those claims have come in.