Obamacare's Leading Edge of Bankruptcy: Early-Retiree Insurance

Per our story on the new federal Early-Retiree Reinsurance Program, a U.S. Senate staffer did some math and quickly calculated a doomsday scenario for the ERRP (sounds a little like AARP, doesn't it?). Here it is:

"Section 1102 of the health-care law appropriates $5 billion between now and January 2014 for the reinsurance program. Assuming 2,000 employers apply for the program, that amounts to a total subsidy of $2,500,000 per employer for the next four years -- or $625,000 per employer per calendar year.

"Under the laws provisions, employers can receive a maximum of $60,000 in funding for each retiree -- 80 percent of a workers medical claims above $15,000 and below $90,000. But ... $625,000 per year is only enough to cover full claims on 10 retired workers. In other words, if the participating employers average more than 10 catastrophically sick employees per year, the reinsurance program will run out of money.

"To be fair, not all retirees will be eligible for the full $60,000 in federal subsidies, because they wont have $90,000 in medical claims per year; if retired workers dont accumulate $15,000 in claims per year -- and some wont -- their employer wont receive a subsidy for that worker at all.

"But how many people think that companies like AT&T, General Motors, General Electric, and the hundreds of cities whose applications were accepted really will have fewer than a dozen retirees per year making the full catastrophic claim on the federal program?

"If that happens -- and it seems virtually inevitable -- union special interests will advocate for a taxpayer bailout of the underfunded program, just as they advocated for creation of the $5 billion reinsurance fund in the first place."

Chris Jacobs
Health Policy Analyst
Republican Policy Committee