Early Retiree Reinsurance Program, 24450-24470 [2010-10658]

Agencies

• Office of the Secretary
• DEPARTMENT OF HEALTH AND HUMAN SERVICES

[Federal Register Volume 75, Number 86 (Wednesday, May 5, 2010)]
[Rules and Regulations]
[Pages 24450-24470]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-10658]



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DEPARTMENT OF HEALTH AND HUMAN SERVICES

Office of the Secretary

45 CFR Part 149

RIN 0991-AB64


Early Retiree Reinsurance Program

AGENCY: Office of the Secretary, HHS.

ACTION: Interim final rule with comment period.

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SUMMARY: This interim final rule with comment period (IFC) implements 
the Early Retiree Reinsurance Program, which was established by section 
1102 of the Patient Protection and Affordable Care Act (the Affordable 
Care Act). The Congress appropriated funding of $5 billion for the 
temporary program. Section 1102(a)(1) requires the Secretary to 
establish this temporary program not later than 90 days after enactment 
of the statute, which is June 21, 2010. The program ends no later than 
January 1, 2014. The program provides reimbursement to participating 
employment-based plans for a portion of the cost of health benefits for 
early retirees and their spouses, surviving spouses and dependents. The 
Secretary will reimburse plans for certain claims between $15,000 and 
$90,000 (with those amounts being indexed for plan years starting on or 
after October 1, 2011). The purpose of the reimbursement is to make 
health benefits more affordable for plan participants and sponsors so 
that health benefits are accessible to more Americans than they would 
otherwise be without this program.

DATES: Effective Date: These regulations are effective on June 1, 2010.
    Comment date: To be assured consideration, comments must be 
received at one of the addresses provided below, no later than 5 p.m. 
EST on June 4, 2010.

ADDRESSES: In commenting, please refer to file code DHHS-9996-IFC. 
Because of staff and resource limitations, we cannot accept comments by 
facsimile (FAX) transmission.
    You may submit comments in one of four ways (please choose only one 
of the ways listed).
     Electronically. You may submit electronic comments on this 
regulation to https://www.regulations.gov. Follow the instructions on 
the home page.
     By regular mail. You may mail written comments to the 
following address only: Centers for Medicare & Medicaid Services, 
Department of Health and Human Services, Attention: DHHS-9996-IFC, P.O. 
Box 8014, Baltimore, MD 21244-8014.
    Please allow sufficient time for mailed comments to be received 
before the close of the comment period.
     By express or overnight mail. You may send written 
comments to the following address only: Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Attention: DHHS-
9996-IFC, Mail Stop C4-26-05, 7500 Security Boulevard, Baltimore, MD 
21244-1850.
     By hand or courier. If you prefer, you may deliver (by 
hand or courier) your written comments before the close of the comment 
period to either of the following addresses:
    a. For delivery in Washington, DC--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, Room 445-G, Hubert 
H. Humphrey Building, 200 Independence Avenue, SW., Washington, DC 
20201.
    (Because access to the interior of the Hubert H. Humphrey Building 
is not readily available to persons without Federal government 
identification, commenters are encouraged to leave their comments in 
the CMS drop slots located in the main lobby of the building. A stamp-
in clock is available for persons wishing to retain a proof of filing 
by stamping in and retaining an extra copy of the comments being 
filed.)
    b. For delivery in Baltimore, MD--Centers for Medicare & Medicaid 
Services, Department of Health and Human Services, 7500 Security 
Boulevard, Baltimore, MD 21244-1850.
    If you intend to deliver your comments to the Baltimore address, 
please call telephone number (410) 786-9994 in advance to schedule your 
arrival with one of our staff members.
    Comments mailed to the addresses indicated as appropriate for hand 
or courier delivery may be delayed and received after the comment 
period.
    Submission of comments on paperwork requirements. You may submit 
comments on this document's paperwork requirements by following the 
instructions at the end of the ``Collection of Information 
Requirements'' section in this document.
    For information on viewing public comments, see the beginning of 
the SUPPLEMENTARY INFORMATION section.

FOR FURTHER INFORMATION CONTACT: James Slade, (410) 786-1073, for 
information regarding the Purpose and Basis, Requirements for Eligible 
Employment-Based Plans, Use of Reimbursement Amounts, Appeals, and 
Disclosure of Data Inaccuracies.
    David Mlawsky, (410) 786-6851, for information regarding the 
Definitions, Reinsurance Amounts, Reimbursement Methods, Including 
Provision of Necessary Information, and Change of Ownership 
Requirements.

SUPPLEMENTARY INFORMATION: Inspection of Public Comments. All comments 
received before the close of the comment period are available for 
viewing by the public, including any personally identifiable or 
confidential business information that is included in a comment. We 
post all electronic comments received before the close of the comment 
period on the following public Web site as soon as possible after they 
have been received: https://www.regulations.gov. Follow the search 
instructions on that Web site to view public comments.
    Comments received timely will be available for public inspection as 
they are received, generally beginning approximately 3 weeks after 
publication of a document, at Room 445-G, Department of Health and 
Human Services, Hubert H. Humphrey Building, 200 Independence Avenue, 
SW., Washington, DC 20201, Monday through Friday of each week from 8:30 
a.m. to 4 p.m. To schedule an appointment to view public comments, call 
1-800-743-3951.

I. Background

A. Overview of the Early Retiree Reinsurance Program Enacted as Part of 
the Patient Protection and Affordable Care Act

    On March 21, 2010, the Congress passed the Patient Protection and 
Affordable Care Act (the Affordable Care Act) (Pub. L. 111-148), which 
was signed into law on March 23, 2010. Included in this health 
insurance reform law is a provision that establishes the temporary 
Early Retiree Reinsurance Program. This provision addresses the recent 
erosion in the number of employers providing health coverage to early 
retirees. People in the early retiree age group often face difficulties 
obtaining insurance in the individual market because of advanced age or 
chronic conditions that make coverage unaffordable and inaccessible. 
The Early Retiree Reinsurance Program provides needed financial help 
for employer-based plans to continue to provide valuable coverage to 
plan participants, and provides financial relief to plan participants.
    The Early Retiree Reinsurance Program provides reimbursement to 
participating sponsors for a portion of the costs of providing health 
coverage to early retirees (and eligible spouses, surviving spouses, 
and dependents of such retirees). Section 1102(a)(2)(B) of

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the Affordable Care Act defines ``employment-based plan'' to include a 
group benefits plan providing health benefits that is maintained by 
private employers, State or local governments, employee organizations, 
voluntary employees' beneficiary association, a committee or board of 
individuals appointed to administer such plan, or a multiemployer plan 
(as defined by Employee Retirement Income Security Act or ERISA). 
Section 1102 does not differentiate between health benefits provided by 
self-funded plans or through the purchase of insurance.
    Section 1102(a)(1) requires the Secretary of HHS (the Secretary) to 
establish the program within 90 days of enactment of the law, which is 
June 21, 2010. We expect this program to be established by June 1, 
2010. By law, the program will expire on January 1, 2014. Funding for 
the program is limited to $5 billion.

II. Provisions of the Interim Final Rule

    This regulation establishes 45 CFR part 149, ``Requirements for the 
Early Retiree Reinsurance Program.'' This part implements section 1102 
of the Affordable Care Act, which requires the Secretary to provide 
reimbursement to sponsors with certified plans for a portion of the 
cost of health benefits for early retirees and their spouses, surviving 
spouses and dependents, provided funds remain available. In part 149, 
we established new subparts A through H. These new subparts set forth 
the framework for implementing the Early Retiree Reinsurance Program 
effective June 1, 2010 through January 1, 2014. We are implementing the 
statutory requirements of the program as follows:

A. General Provisions (Subpart A)

1. Purpose and Basis (Sec.  149.1)
    In this section, we provide the statutory authority for 
promulgating the regulation.
2. Definitions (Sec.  149.2)
    Section 1102(a) of the Affordable Care Act (also referred to as the 
``statute'') provides definitions for three specific terms. One of 
these terms is the term ``employment-based plan'', which the statute 
defines as a ``group benefits plan providing health benefits'' that 
satisfies certain conditions. The statute at section 1102(a)(1) also 
specifies that under the program, the Secretary shall provide 
reimbursement to participating employment-based plans. However, a plan 
typically constitutes merely an arrangement to provide benefits, as 
opposed to a discrete entity to which payments can be directly made or 
sent. Thus, the regulation interprets this provision to require 
reimbursement under the program to a ``sponsor,'' and defines sponsor 
as that term is defined in regulations promulgated for the Retiree Drug 
Subsidy (RDS) Program at 42 CFR 423.882. That definition defines 
sponsor as a plan sponsor as defined in section 3(16)(B) of ERISA, 29 
U.S.C. 1002(16)(B), except that, in the case of a plan maintained 
jointly by one employer and an employee organization and for which the 
employer is the primary source of financing, the term means the 
employer. By defining the term sponsor in the regulation, and by 
specifying that sponsors are the entities that apply for and get 
reimbursed under the program, we believe we are achieving two important 
objectives: (1) We are ensuring that program reimbursements can be made 
to actual existing entities, and (2) We are promoting consistency with 
the RDS Program. This second objective is critical, as we believe that 
many of the entities that will apply for the Early Retiree Reinsurance 
Program are entities that participate in the RDS Program, as these two 
programs have many similarities. Thus, the common use of terms across 
the two programs will minimize confusion, and we believe will help to 
maximize program participation.
    Although we drafted the regulation to specify that a sponsor is the 
entity that would be directly paid under the program, there is still a 
need to use the term ``employment-based plan'' in the regulation. This 
is because the statute envisions that the entity receiving 
reimbursement have a benefits arrangement (that is, a plan) in place 
that satisfies certain criteria (for example, implements programs and 
procedures to generate cost-savings with respect to participants with 
chronic and high-cost conditions.) The statute provides a definition of 
``employment-based plan'' as constituting a ``group benefits plan'' 
that has certain characteristics. Those characteristics (for example, 
must be maintained by one or more employers, can include a 
multiemployer plan as defined in section 3(37) of ERISA) borrow 
components of the ERISA definition of a ``group health plan''. For that 
reason, we define ``employment-based plan'' as meaning a ``group health 
plan'' as defined in the RDS regulations at 42 CFR 423.882 that 
provides health benefits to early retirees, but excludes Federal 
governmental plans. (Unlike the RDS statutory provisions, the Early 
Retiree Reinsurance Program's statutory provisions do not expressly 
include Federal plans). The RDS regulatory definition of ``group health 
plan'' largely tracks the ERISA definition. For reasons previously 
stated, we believe it is beneficial to use the same or similar 
terminology, and have the same or similar requirements for the RDS 
Program and the Early Retiree Reinsurance Program, when appropriate. 
Because the RDS program requires a sponsor to have a benefits 
arrangement that constitutes a group health plan, we believe the 
benefits arrangement must be in place for purposes of the Early Retiree 
Reinsurance Program (that is, an employment-based plan), should also be 
a group health plan (that is, an employment-based plan, defined 
generally as group health plan). Generally, the regulation uses the 
term ``sponsor'' when referring to the entity that applies for and 
receives reimbursement under the program, and uses the term 
``employment-based plan'' when discussing the health benefits 
arrangement the sponsor must offer.
    In addition to introducing the definition of ``sponsor'', the 
regulation also defines other terms that are not defined in the 
statute, including the term ``authorized representative.'' We define 
this term to mean an individual with legal authority to sign and bind a 
sponsor to the terms of a contract or agreement. This term is important 
in the regulatory provision relating to the program application and the 
plan sponsor agreement. The regulation requires an authorized 
representative to sign a plan sponsor agreement as part of the program 
application.
    We use the term ``benefit option'' in the regulation when 
discussing the fact that there is only one cost threshold and cost 
limit per early retiree per plan, regardless of how many benefit 
options within that plan the early retiree is enrolled in, in a given 
plan year. We define ``benefit option'' as a particular benefit design, 
category of benefits, or cost-sharing arrangement offered within an 
employment-based plan.
    The statute at section 1102(b) requires that an employment-based 
plan be certified by the Secretary, and submit an application for the 
program, before the plan can participate in the program. As stated 
above, under this regulation, the entity that participates in (that is, 
applies for) the program, is the plan sponsor. We will not approve an 
application unless the sponsor, and the employment-based plan, meet 
their respective requirements under the statute and the regulation. 
Therefore, we define the term ``certified'' as meaning that the sponsor 
and its employment-

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based plan or plans meet the requirements of this part and the 
sponsor's application to participate in the program has been approved 
by the Secretary. All elements of this requirement must be satisfied 
before a sponsor can participate in the program.
    The statute at section 1102(b)(2) requires employment-based plans 
to have programs and procedures in place to generate cost savings for 
participants with chronic and high-cost conditions. We define the term 
``chronic and high-cost condition'' to mean a condition for which 
$15,000 or more in health benefit claims are likely to be incurred 
during a plan year by any one participant. Sponsors participating in 
this program are likely to be sponsors that have offered the applicable 
plan in previous years. Sponsors, therefore, will recognize which 
conditions are likely to result in $15,000 in claims in a plan year for 
one participant. While we expect that the employment-based plans will 
have programs and procedures in place that have generated or have the 
potential to generate savings for participants with these conditions, 
which may vary across plans, geographic regions and due to other 
factors, we do not expect plans to have programs and procedures in 
place for all conditions for which claims are likely to exceed $15,000 
in a plan year for a plan participant. To require that plans have 
programs and procedures in place to address all chronic and high-cost 
conditions could exclude many sponsors from participating in the 
program and could be overly restrictive. We expect sponsors to take a 
reasonable approach when identifying such conditions and selecting 
programs and procedures to lower the cost of care, as well as improve 
the quality of care, for such conditions.
    We define ``claim'' or ``medical claim'' in order to lay out in 
more detail what is required on the claim to be reimbursed under this 
program, and to note that the terms ``claim'' or ``medical claim'' 
include medical, surgical, hospital, prescription drug and other types 
of claims as determined by the Secretary. The statute at section 
1102(a)(2)(A) defines ``health benefits'' as medical, surgical, 
hospital, prescription drug, and such other benefits as shall be 
determined by the Secretary whether self-funded, or delivered through 
the purchase of insurance or otherwise. The regulatory definition of 
``health benefit'' clarifies that such benefits include benefits for 
the diagnosis, cure, mitigation, or prevention of physical or mental 
disease or condition with respect to any structure or function of the 
body. (As discussed below, health benefits do not include benefits 
specified at 45 CFR 146.145(c)(2) through (4)). Therefore, per the 
Secretary's authority to determine benefits for which claims may be 
submitted, the terms ``claim'' or ``medical claim'' include claims for 
the benefits set out in the definition of ``health benefit.'' This list 
of benefits, for which the Secretary has the authority to determine are 
appropriate under the program, is not exhaustive.
    The statute at section 1102(a)(2)(C) defines ``early retirees'' as 
individuals who are age 55 and older but are not eligible for coverage 
under Medicare, and who are not active employees of an employer 
maintaining, or currently contributing to, the employment-based plan or 
of any employer that has made substantial contributions to fund such 
plan. We have incorporated this definition into the regulation, and we 
clarified that spouses, surviving spouses, and dependents are also 
included in the definition of early retiree. This definition 
accommodates the language in section 1102(a)(1) of the statute, which 
states that reimbursement under the program is made to cover a portion 
of the costs of providing health coverage to early retirees and to the 
eligible spouses, surviving spouses, and dependents of such retirees. 
This definition accommodates the language in section 1102(a)(1) in such 
a way that reimbursement can be made under the program for the health 
benefit costs of eligible spouses, surviving spouses, and dependents of 
such retirees, even if they are under the age of 55, and/or are 
eligible for Medicare. We believe the statute can reasonably be 
interpreted to provide reimbursement for the health benefit costs of 
such individuals. This interpretation will provide additional 
assistance to sponsors, which will encourage them to continue to offer 
coverage to the spouses, surviving spouses, and dependents of early 
retirees.
    The regulatory definition of early retiree also clarifies that the 
determination of whether an individual is not an active employee is 
made by the sponsor in accordance with the rules of its plan. However, 
an individual is presumed to be an active employee if, under the 
Medicare Secondary Payer (MSP) rules in 42 CFR 411.104 and related 
Centers for Medicare & Medicaid Services' (CMS) guidance, the person is 
considered to be receiving coverage by reason of current employment 
status. The presumption would apply whether or not the MSP rules 
actually apply to the sponsor. We also clarify that a sponsor may treat 
a person receiving coverage under its employment-based plan as a 
dependent in accordance with the rules of its plan, regardless of 
whether that person constitutes a dependent for Federal or state tax 
purposes. These two clarifications are also found in the RDS regulation 
in the definition of ``qualifying covered retiree,'' under which, as 
that term implies, an individual must be a retiree. As previously 
stated, we believe that regulatory terminology and concepts should be 
the same or similar between the RDS Program and the Early Retiree 
Reinsurance Program when appropriate, and we believe it is appropriate 
when determining whether an individual is a retiree under each program. 
Finally, in the regulatory definition of ``early retiree,'' we also 
clarify that for purposes of this definition, the phrase ``an employer 
maintaining or currently contributing to the employment-based plan or 
any employer that has made substantial contributions to fund such 
plan,'' which is also found in the statutory definition of ``early 
retiree,'' means a plan sponsor. Under ERISA (and the RDS Program 
regulation), a plan sponsor is an entity (such as an employer) that 
establishes or maintains a group health plan. Thus, because this part 
of the statutory definition of early retiree in the Affordable Care Act 
speaks to the relationship between the sponsor (for example, the 
employer) and the employment-based plan, we believe this clarification 
is appropriate.
    Section 149.610 of this regulation permits the Secretary to reopen 
and revise a reimbursement determination upon the Secretary's own 
motion or upon the request of a sponsor within 1 year of the 
reimbursement determination for any reason, within 4 years of the 
reimbursement determination for good cause, or at any time in instances 
of fraud or similar fault. These three standards are the same 
regulatory standards that apply with respect to CMS' ability to reopen 
or revise an initial or reconsidered determination under the RDS 
Program, at 42 CFR 423.890(d). The RDS regulatory provision provides 
examples of what constitutes ``good cause,'' and again, because of the 
similarity between that program and the Early Retiree Reinsurance 
Program, we believe those examples would be appropriate for the latter. 
Therefore, similar to the RDS regulation, this regulation provides the 
following examples of good cause: (1) New and material evidence exists 
that was not readily available at the time the reimbursement 
determination was made, (2) A clerical error in the computation of the 
reimbursement determination was made, or (3) The

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evidence that was considered in making the reimbursement determination 
clearly shows on its face that an error was made. For example, if a 
sponsor receives a post-point-of-sale price concession that was not 
known at the time a reimbursement determination was made, good cause 
may be found and the reimbursement determination may be reopened and 
revised.
    The statute at section 1102(a)(2)(A) defines ``health benefits'' as 
medical, surgical, hospital, prescription drug, and such other benefits 
as shall be determined by the Secretary, whether self-funded, or 
delivered through the purchase of insurance or otherwise. We clarify in 
the regulatory definition that such benefits include benefits for the 
diagnosis, cure, mitigation, or prevention of physical or mental 
disease or condition with respect to any structure or function of the 
body. This is not an exhaustive list. We also specify that health 
benefits do not include certain benefits designated as excepted 
benefits under the regulations implementing the health insurance 
portability provisions of the Health Insurance Portability and 
Accountability Act (HIPAA). Those provisions impose certain 
requirements on group health plans and group health insurance issuers, 
but do not apply those requirements to certain arrangements that 
typically are not part of a major medical plan (that is, excepted 
benefits). For example, long-term care benefits are excepted benefits. 
In the context of the Early Retiree Reinsurance Program, we do not 
believe it would be appropriate to consider health benefits as 
including benefits provided under such arrangements, as we believe the 
best read of the statutory phrase ``medical, surgical, hospital, [and] 
prescription drug'' means such major medical benefits.
    In order to aid stakeholders in understanding when the Secretary 
will make reimbursement to a sponsor, we define the term ``incurred'' 
to mean the point in time when the sponsor, health insurance issuer, 
group health plan or plan participant, or a combination of these or 
similar stakeholders, become responsible for payment of the claim. In 
short, the Secretary will not pay a sponsor until a claim has been 
incurred and paid, as the statute at section 1102(c)(1)(B) specifies 
that claims ``shall be based on the actual amount expended.''
    We define a ``negotiated price concession'' as any direct or 
indirect remuneration that would serve to decrease the costs incurred 
under the employment-based plan. We set out examples of what negotiated 
price concessions are, which include discounts, rebates, coupons, and 
goods in kind. The list at Sec.  149.2, ``Definitions,'' describing 
what may constitute a negotiated price concession is not an exhaustive 
list.
    Because the statute does not use the terms ``early retiree'' and 
``plan participant'' interchangeably, we define the term ``plan 
participant'' to include all enrollees in a plan, including an early 
and other retiree, an early and other retiree's spouse, surviving 
spouse, and dependent, and an active employee and an active employee's 
spouse and dependent.
    The statute at section 1102(c)(1)(B) specifies that claims 
submitted under the program ``shall be based on the actual amount 
expended by the participating employment-based plan involved within the 
plan year'' for the health benefits provided to early retirees and 
eligible spouses, surviving spouses, and dependents. This regulation 
includes a definition of plan year, and defines plan year as the year 
that is designated as the plan year in the plan document of an 
employment-based plan, except that if the plan document does not 
designate a plan year, if the plan year is not a 12-month plan year, or 
if there is no plan document, the plan year is: (1) The deductible or 
limit year used under the plan, (2) the policy year, if the plan does 
not impose deductibles or limits on a 12-month basis: (3) the sponsor's 
taxable year, if the plan does not impose deductibles or limits on a 
12-month basis, and either the plan is not insured or the insurance 
policy is not renewed on a 12-month basis, or (4) the calendar year, in 
any other case. We define this term in such a way to give deference to 
the plan year the sponsor has already established for other purposes. 
However, we balance that deference with our belief that the intent of 
the statute is to calculate reimbursement amounts, and to apply the 
cost threshold and cost limit, to periods of time that are 12 months in 
duration. We believe most sponsors' plan years are in fact 12 months in 
duration.
    The term ``post point-of-sale negotiated price concession'' is 
defined because not all negotiated price concessions occur at or before 
the point of sale. The statute requires negotiated price concessions to 
be excluded from the calculation of reimbursement, which causes 
reimbursement to be based on the actual amounts paid, not an inflated 
amount that may not reflect a price concession. When post point-of-sale 
negotiated price concessions occur they may cause data submitted for 
reimbursement to become inaccurate, resulting in ultimately, an 
inaccurate reimbursement. Once these price concessions are accounted 
for, a sponsor's reimbursement determination may be reopened and 
revised.
    For purposes of brevity, we defined the term ``program'' to mean 
the Early Retiree Reinsurance Program.
    We define the term ``Secretary'' to mean the Secretary of the 
Department of Health & Human Services or the Secretary's designee. We 
include the Secretary's designee in the definition because the 
Secretary will not actually be performing the tasks set out in this 
regulation, but will designate an individual or entity to act on the 
Secretary's behalf.
    The term ``sponsor agreement'' is based on the definition of the 
term in the RDS regulation. The sponsor agreement is basically used to 
ensure that the sponsor and Department are bound to comply with the 
details of the program that appear in the regulation and in other 
guidance, and to address any other points that must be addressed in 
order to implement this program.

B. Requirements for Eligible Employment-Based Plans (Subpart B)

1. General Requirement (Sec.  149.30)
    In this section, we provide the requirements that allow a sponsor 
to be eligible to participate in the Early Retiree Reinsurance Program.
2. Requirements to Participate (Sec.  149.35)
    Section 1102(b)(2)(A) of the Affordable Care Act requires that an 
employment-based plan implement programs and procedures to generate 
cost-savings with respect to participants with chronic and high-cost 
conditions. We interpret this to mean that a plan must have in place 
programs and procedures that have generated or have the potential to 
generate cost-savings for these participants in order to participate in 
the Early Retiree Reinsurance Program, not necessarily that the sponsor 
has to ensure that new programs and procedures are put in place just to 
participate in this program.
    Proper management and treatment of chronic and high-cost conditions 
may be promoted by generating cost-savings for plan participants with 
these conditions because plan participants may be more apt to seek out 
proper and timely treatment and management before a condition becomes 
critical if treatment and management are financially manageable. As an 
example of a program and procedure to generate cost savings for a 
participant with a chronic condition, a sponsor may determine that 
diabetes, if not managed

[[Page 24454]]

properly, is likely to lead to claims in excess of $15,000 for a plan 
year for one plan participant. The sponsor may ensure implementation of 
a diabetes management program that includes aggressive monitoring and 
behavioral counseling to prevent complications and unnecessary 
hospitalization. With respect to generating cost savings for a high-
cost condition, a sponsor may determine that cancer is a high-cost 
condition for which it should generate cost savings. The sponsor may 
ensure that its plan covers all or a large portion of the participant's 
coinsurances or copayments, and/or it could eliminate or reduce the 
plan's deductible for treatment and visits related to the condition. 
Sponsors may choose other chronic and high-cost conditions to address, 
but upon audit the sponsor must be able to demonstrate that its 
programs and procedures have generated or had the potential to generate 
cost savings, consistent with the representations the sponsor made in 
its program application.
    We considered various options of how best to implement this 
provision and developed several options. The first option was to 
further identify which specific conditions meet the chronic condition 
definition and which specific conditions meet the high-cost condition 
definition and identify these specific conditions in sub-regulatory 
guidance to be issued at the time of, or immediately after, the 
issuance of this regulation. Issues that arose with this option 
consisted of:
    (1) How best to define the terms ``chronic and high-cost 
conditions'', which would likely involve a significant amount of data 
analysis. Chronic and high-cost conditions can vary significantly 
across geographic regions, age ranges, and due to other factors. We do 
not think that specifying the chronic and high-cost conditions to be 
addressed could effectively occur within the 90 days allowed for 
establishment of this program; and
    (2) Our belief that the Congress intends this to be an inclusive 
program, not a program that excludes potential sponsors merely because 
they did not develop programs to address the specific conditions we 
might identify in our guidance. Had the Congress narrowly defined the 
types of plans for which sponsors might be reimbursed, we might have 
thought that this program is not an inclusive program. Instead Congress 
defined the term ``employment-based plan'' broadly in the statute at 
section 1102 (a)(2)(B). It defines the term as a ``group benefits plan 
providing health benefits'' as a plan that ``is * * * maintained by one 
or more current or former employers (including without limitation any 
State or local government or political subdivision thereof), employee 
organization, a voluntary employees' beneficiary association, or a 
committee or board of individuals appointed to administer such plan; or 
* * * a multiemployer plan * * * '' Therefore the scope of sponsors 
eligible to receive this reimbursement is extremely broad, which shows 
intent on behalf of Congress to be inclusive.
    The inclusive nature of the program is particularly important 
because this program will involve plans with plan years that began 
before the effective date of the program, as will be discussed below. 
This means that a plan may not have a program in place to address 
certain chronic and high-cost conditions that we may have identified 
after the plan year has started, which would then exclude the sponsor 
from participation in the program. In such cases, sponsors would, in 
effect, be penalized if we identified specific conditions. As stated 
above, chronic and high-cost conditions can vary significantly across 
geographic regions, age ranges, and due to other factors, so we expect 
that sponsors might focus cost-saving programs and procedures on 
conditions that effect enrollees in their plan or plans. Our intent is 
that the regulation takes into account these differences.
    The approach we decided to take was to define the term ``chronic 
and high-cost condition'' as specified in Sec.  149.2--Definitions. 
``Chronic and high-cost condition'' means a condition for which $15,000 
or more in applicable claims are likely to be incurred during a plan 
year by one participant. Therefore, a sponsor must have programs and 
procedures in place that generate or have the potential to generate 
cost savings for plan participants with conditions that are likely to 
generate $15,000 in claims for a plan year, in order to participate in 
this program. We do not require that a sponsor have programs and 
procedures in place to address all conditions that may result in claims 
exceeding $15,000 for one participant in a plan year. The sponsor must 
take a reasonable approach to identifying which conditions it must 
address. We believe this is a reasonable interpretation of the statute 
because it will promote cost savings for participants with chronic and 
high-cost conditions, but due to the approaches' flexibility (that is, 
the fact that sponsors may choose programs and procedures that meet 
this requirement that are applicable to their enrollees) will serve to 
allow as many of the types of sponsors referenced in the definition of 
``employment-based plan'' as possible to become certified to 
participate in the program. Of course, this requirement does not 
supersede requirements in other Federal laws that may apply to programs 
and procedures for chronic and high-cost conditions, such as the 
Americans with Disabilities Act.
    In order to administer this program and to audit the program as 
required by section 1102(d), we are requiring the sponsor to make 
records available for these purposes. For example, when a sponsor is 
audited, the auditors may request a copy of the sponsor's (or the 
sponsor's health insurance issuer or group health plan's, as 
applicable) policies and procedures to detect fraud, waste and abuse, 
and data to substantiate the effectiveness of the policies and 
procedures. Under this provision, the sponsor is required to ensure 
that the applicable policies and procedures are produced.
    We also require that the sponsor have a written agreement with its 
health insurance issuer (as defined in 45 CFR 160.103) or employment-
based plan (as defined in 45 CFR 149.2), as applicable, requiring the 
health insurance issuer or employment-based plan to disclose 
information on behalf of the sponsor to the Secretary. This requirement 
in part exists to accommodate the HIPAA Privacy Rule at 45 CFR part 160 
and subparts A and E of part 164 (``Privacy Rule''). This rule applies 
to ``covered entities,'' which include group health plans (that is, 
employment-based plans) and health insurance issuers, as defined in 45 
CFR 160.103. Third party administrators would be business associates, 
as defined in 45 CFR 160.103, of group health plans. Sponsors would not 
become covered entities by sponsoring a plan. Sponsors typically do not 
perform administrative activities for their group health plans and 
therefore do not have access to the claims information or similar 
protected health information (PHI) we require in this regulation to 
support program reimbursement. Much of the data that we would need to 
support program reimbursements, as outlined above, would be PHI held by 
group health plans, health insurance issuers, or third party 
administrators on behalf of group health plans. The requirement for 
health insurance issuers and employment-based plans to disclose 
information to the Secretary encompasses information created or held by 
Business Associates on behalf of the health insurance issuer or group 
health plan.
    We believe that we have the authority to require the disclosure of 
the PHI in accordance with section 1102(c)(1)(A), which states that a 
participating plan ``shall submit claims for reimbursement

[[Page 24455]]

to the Secretary which shall contain documentation of the actual costs 
of the items and services for which each claim is being submitted.'' 
Additionally, section 1102(d) requires the Secretary to conduct audits 
of claims data submitted by, or on behalf of, sponsors participating in 
the program, to ensure that such plans are in compliance with the 
statute, and this simply cannot be done without mandating disclosure of 
PHI. Thus, covered entities can comply with the mandate (without first 
obtaining specific authorization from individuals) pursuant to ``the 
required by law'' provisions of the Privacy Rule (45 CFR 164.512(a)).
    As noted above, typically group health plans and health insurance 
issuers or third party administrators acting on behalf of group health 
plans, have PHI that the Secretary requires for the submission of 
claims data for reimbursement under the program pursuant to the 
regulations. In these situations, it may be unlawful, under the Privacy 
Rule, for PHI to be shared with the sponsors. This regulation does not 
authorize disclosure of PHI to sponsors. Therefore, for purposes of 
this subpart, the sponsor must have a written agreement with the group 
health plan (that is, the employment-based plan) or health insurance 
issuer, as applicable, regarding disclosure of records, and the plan or 
issuer must disclose to us, on the sponsor's behalf, the information, 
data, documents, and records necessary for the sponsor to comply with 
this program, part, and guidance, at a time and in a manner specified 
by the Secretary. Sponsors of self-funded plans with legal access to 
such data will be able to either provide this data to us themselves or 
have a group health plan or insurer provide the data to us on their 
behalf.
    Section 1102 (c)(6) of the Affordable Care Act requires the 
Secretary to establish procedures to protect against fraud, waste and 
abuse. In order to implement this provision, the Secretary will, for 
example, check the exclusions lists developed by the HHS' Office of the 
Inspector General and the U.S. General Services Administration before 
allowing an entity to participate, or play a role, in the program, and 
will take other steps such as verifying the identities of the early 
retirees for whom claims are being submitted. The Secretary may also 
verify the identities of the individuals associated with the sponsor 
and health insurance issuer, or group health plan, as applicable, and 
will examine claims before reimbursement is made, to ensure, among 
other things, that instances of fraud, waste and abuse are minimized. 
Furthermore, the Secretary will perform audits per section 1102(d) of 
the Affordable Care Act. To aid the Secretary in detecting and reducing 
fraud, waste and abuse, we are requiring that sponsors ensure that 
there are policies and procedures in place to detect and reduce fraud, 
waste and abuse. While the policies and procedures may be maintained by 
the sponsor's health insurance issuer or group health plan, the sponsor 
will have to attest that these policies and procedures are in place in 
the application. The sponsor must comply with requests from the 
Secretary to produce the policies and procedures and any documents or 
data to substantiate the implementation, and the effectiveness, of the 
procedures. We believe we meet the requirements of the statute by 
taking actions to detect and reduce fraud, waste, and abuse, by 
requiring sponsors to have such policies and procedures in place, and 
by requiring a sponsor to produce the policies and procedures upon 
request (such as for the purposes of an audit). If it is found that a 
sponsor committed fraud, waste or abuse, or allowed fraud, waste, and 
abuse to occur under its plan or plans, the Secretary may recoup from 
the sponsor some or all of the reimbursements paid under the program, 
and/or may revoke a sponsor's certification to participate in the 
program. Of course, there are other laws relating to fraud, waste, and 
abuse, with which sponsors and their health insurance issuers or group 
health plans must comply.
3. Application (Sec.  149.40)
    Section 1102(b)(1)(B) requires the sponsor to submit ``an 
application for participation in the program, at such time, in such 
manner, and containing such information as the Secretary shall 
require.'' In order to implement this provision, a sponsor must submit 
one application per plan, and identify the plan year cycle for which 
the sponsor is applying (that is, starting month and day, and ending 
month and day; no year is required). One application must be filed for 
each plan. Filing a different application for each plan will aid in 
tracking the plan as this program progresses to ensure proper 
reimbursement and compliance with program requirements.
    In order to verify the accuracy of the information contained in the 
application, the application will have to be signed by an authorized 
representative of the applicant and the authorized representative will 
have to certify that the information contained in the application is 
true and accurate to the best of the authorized representative's 
knowledge and belief, among other certifications. We use the term 
applicant in this section to refer to any sponsor that has filed an 
application that has not yet been certified under the program. The term 
applicant is used to clarify that the applicant is not entitled to the 
privileges of a certified sponsor, such as the ability to submit a 
reimbursement request or appeal a reimbursement determination. Before a 
sponsor may submit claims and make a reimbursement request, the 
sponsor's application must be approved by the Secretary. Applications 
will be processed in the order in which they are received. Because 
funding for this program is limited, we expect more requests for 
reimbursement than there are funds to pay the requests. Therefore we 
expect an applicant to perform its due diligence when applying, which 
should result in the submission of a complete application upon the 
first submission. Because it is important that applicants submit 
complete applications the first time, we will be providing assistance. 
If an application is incomplete, it will be denied and the applicant 
will have to submit a new application, which will be processed based on 
when the new application is received. If we were to allow an applicant 
to cure defects in the application, it would likely result in an 
extended application process, which would hinder the efficient 
implementation of this program. We must be prepared to exercise our 
authority under section 1102(f) to stop accepting applications based on 
the availability of the $5 billion appropriated for the program. It is 
therefore of paramount importance to applicants that they submit 
complete applications upon their first submission, otherwise there may 
not be an opportunity to submit a new and complete application.
    An application for a given plan does not have to be submitted each 
year. To require a separate application for a plan each year would only 
complicate the process and would place unneeded burden on applicants 
and the Secretary. The application will request the plan year cycles 
(that is, the start month and day and the end month and day; no year 
required), which for our purposes will provide the information we need 
to calculate reimbursement based on reimbursement requests. We do not 
think that an annual application approval is required. Once a plan is 
certified, the application approved, and the sponsor continues to meet 
the requirements of the statute, this part,

[[Page 24456]]

and applicable guidance, the plan and sponsor will continue to be 
certified and the application approved.
    We set out in Sec.  149.40 what we believe we will need in order to 
approve an application. The application must include the applicant's 
Tax Identification Number, the applicant's name and address, and 
contact information for the applicant. To ensure compliance with the 
requirements of the statute, an applicant must provide a summary in its 
application of how it will use the reimbursement to meet the 
requirements of the program, including how it will use the 
reimbursement to reduce plan participant or sponsor costs, or any 
combination of these costs, and its plans to implement programs and 
procedures to generate savings for plan participants with chronic and 
high-cost conditions. Because the statute requires that the funds 
dispersed under this program not be used as general revenue, we are 
requiring sponsors to maintain the level of effort in contributing to 
support their applicable plan or plans. Otherwise, sponsors might 
circumvent the prohibition on using the program funds as general 
revenue by using, dollar for dollar, sponsors' funds not otherwise used 
for health benefits due to the program reimbursement, as general 
revenue. We expect that sponsors will use the reimbursement to pay for 
increases in, for example, the sponsor's premium, or increases in other 
health benefit costs (or to reduce plan participants' costs). Therefore 
the sponsor's summary of how it will use the program's reimbursement 
must also explain how the reimbursement will be applied to maintain the 
sponsor's level of effort in contributing to support the applicable 
plan. We do not expect a sponsor to explain every detail of their 
programs and procedures and use of program funds but to give us an idea 
of how it will meet these requirements. We understand that these 
submissions may vary because applicants' situations with respect to 
their plans may vary widely. For example, reimbursements received in 
the first year that a sponsor participates may be applied the second 
year of participation because many plans will have already been 
negotiated, agreed to, and implemented upon the effective date of this 
regulation. Other sponsors may have more flexibility to use these 
reimbursements immediately to lower costs.
    We will also require applicants to project their reimbursement 
amounts for the first two plan-year cycles in the application so that 
we can project total reimbursement amounts. To help us with our funding 
projections, we will need sponsors to identify specific projected 
reimbursement amounts for each of the two plan-year cycles. This 
assessment will help us determine if and when we should stop accepting 
applications due to funding limitations. We will also require 
applicants to identify all benefit options under the employment-based 
plan that any early retiree, for whom the applicant may receive program 
reimbursement, may be claimed. This is necessary for us to track where 
funds are being spent and to otherwise manage the program. We will also 
require sponsors to attest that there are fraud, waste and abuse 
policies and procedures in place.
    As is required in the RDS program, as a condition of participation, 
the sponsor will be required to sign a plan sponsor agreement, which 
will include certain assurances made by the sponsor. Included in this 
agreement will be a provision stating that reimbursement is based on 
information and data submitted by the sponsor and if the information 
and data are found to be inaccurate, incomplete or otherwise incorrect, 
the Secretary may reopen and revise a reimbursement determination, 
including recouping reimbursement from the sponsor. The sponsor will be 
required to specifically agree to comply with the terms and conditions 
for participation in the program, and acknowledge that information in 
the application is being provided for the purpose of obtaining federal 
funds. This list of application requirements is not exhaustive. Due to 
the compressed timeline for implementing this program, we may need to 
request additional information in the application.
    Finally, we allow the Secretary to reopen a determination under 
which an application had been approved or denied so that if it is later 
determined that a sponsor committed fraud or otherwise was untruthful 
in the application, the Secretary can revisit the determination.
4. Consequences of Non-Compliance, Fraud or Similar Fault (Sec.  
149.41)
    To clarify the actions the Secretary may take in instances when 
non-compliance, fraud, waste, and abuse, or similar fault are found, we 
include a regulation that states that failure to comply with the 
requirements of this part, or if fraud, waste, and abuse, or similar 
fault are found, the Secretary may recoup or withhold funds, terminate 
or deny an application, or take any combination of these actions. We 
include termination of an application because, depending upon the 
specific situation involved, if it is found that a sponsor committed 
fraud or otherwise was untruthful in the application, the determination 
to approve an application can be revised under Sec.  149.40. We believe 
it is important to set out what actions the Secretary may take so that 
sponsors are aware of the ramifications of non-compliance, fraud, waste 
and abuse, or similar fault. This regulation does not, of course, 
supersede other Federal laws or consequences of non-compliance fraud, 
waste and abuse, or similar fault.
5. Funding Limitation (Sec.  149.45)
    Section 1102(f) authorizes the Secretary to stop accepting 
applications based on the availability of funds. We clarify that a 
reimbursement request made on behalf of a certified plan may also be 
denied, in whole or in part, due to limitation of funds. Determinations 
based on funding limitations are final, binding and cannot be appealed, 
because any appeal, even if a sponsor is successful, would not result 
in reimbursement to a sponsor. Once the program funds are exhausted 
there will be no funds to reimburse a sponsor that may have been 
successful upon appeal.

C. Reinsurance Amounts (Subpart C)

1. Amount of Reimbursement (Sec.  149.100)
    The statute at section 1102(c) requires the Secretary, upon receipt 
of a valid claim for health benefits, to make reimbursement in an 
amount of 80 percent of the portion of the health benefit costs (net of 
negotiated price concessions) attributable to the claims that exceed 
$15,000, but are below $90,000. We interpret the statute to mean that 
cumulative health benefits incurred in a given plan year and paid for a 
given early retiree, as defined in Sec.  149.2, that fall between those 
amounts will receive reimbursement, rather than reimbursement being 
made only for discrete health benefit items or services whose 
reimbursement total falls between those amounts. This interpretation 
will get much needed program funds to plan sponsors more quickly. The 
statute also specifies that in determining the amount of claims, the 
costs paid by the early retiree (or his or her spouse, surviving 
spouse, or dependent) in the form of deductibles, copayments, or 
coinsurance shall be included in the amounts paid by the participating 
employment-based plan. As an initial matter, we clarify in the 
regulation that reimbursement will be made under the program only for 
claims that are incurred during the applicable plan year, and paid.
    The regulation refers to the $15,000 lower limit and the $90,000 
ceiling as

[[Page 24457]]

the ``cost threshold'' and ``cost limit'', respectively, and indicates 
that reimbursement under the program is calculated by first determining 
the costs for health benefits net of negotiated price concessions, 
within the applicable plan year for each early retiree, and then 
subtracting amounts below the cost threshold and above the cost limit 
within the applicable plan year for each early retiree. We also clarify 
that for purposes of determining the amounts below the cost threshold 
and above the cost limit for any given early retiree, all costs for 
health benefits paid by the plan or by the early retiree for all 
benefit options the early retiree is enrolled in with respect to a 
given certified employment-based plan for a given plan year, will be 
combined. We make this clarification because the statute, at section 
1102(c)(3), specifies that ``a claim submitted by a participating 
employment-based plan shall not be less than $15,000 nor greater than 
$90,000'' (emphasis added). For example, an early retiree is 
simultaneously enrolled in two different benefit options within one 
group health plan--Option 1 as a retiree, and Option 2 as a spouse of a 
retiree. For purposes of determining when the early retiree satisfies 
the cost threshold, all claims incurred and paid for that early retiree 
by both benefit options within the applicable plan year, will be 
counted. The claims for that early retiree under each benefit option 
will not be separately counted. For purposes of determining if and when 
the early enrollee has satisfied the cost limit, the same principle 
applies. In other words, within one employment-based plan for a given 
plan year, there is one threshold limit, and one cost limit, per early 
retiree.
    We also indicate that the reimbursement formula specified in the 
regulation applies to insured plans as well as self-funded plans, and 
that with respect to insured plans, costs for health benefits means 
costs the insurer and the early retiree pay for health benefits net of 
negotiated price concessions the insurer receives for health benefits. 
Thus, for insured plans, the amount of premium the sponsor pays (and 
the amount of premium contribution the early retiree pays) is 
irrelevant for purposes of calculating reimbursement under the program. 
We believe this is the correct interpretation because section 
1102(c)(1)(A) states that claims for reimbursement must ``contain 
documentation of actual costs of items and services * * *.'' Premiums 
are not costs for items and services.
2. Transition (Sec.  149.105)
    The program becomes effective June 1, 2010. We carefully considered 
whether to allow sponsors to participate in the program for plan years 
that ended before the program's effective date, but decided that such 
an approach would seem inconsistent with the program's effective date. 
We also considered whether to permit sponsors to participate only for 
plan years that start on or after the program's effective date, but 
decided that such an approach would arbitrarily favor sponsors with 
plan years that start soon after June 1, 2010. Therefore, we decided to 
allow sponsors to apply for plan years that start before June 1, 2010, 
provided they end after that date (for example, calendar year 2010 
plans).\1\ This raised the question of how claims incurred during such 
a plan year, but before June 1, 2010, would be dealt with under the 
program. Under one approach considered, any such claims would count 
toward the cost threshold, and any such claims exceeding the threshold, 
but below the cost limit, would be eligible for program reimbursement. 
We did not adopt that approach, as it arguably would unfairly favor 
sponsors with plan years that started significantly before the 
program's effective date, especially in light of the program's limited 
funding.
---------------------------------------------------------------------------

    \1\ Sponsors can also apply for plan years that start after June 
1, 2010.
---------------------------------------------------------------------------

    We decided upon the following approach. For claims incurred before 
June 1, 2010, the amount of such claims up to $15,000 count toward the 
cost threshold and the cost limit. The amount of claims incurred before 
June 1, 2010 that exceed $15,000 are not eligible for reimbursement and 
do not count toward the cost limit. The reinsurance amount to be paid 
is based solely on claims incurred on and after June 1, 2010, and that 
fall between the cost threshold and cost limit for the plan year. As an 
example, for a plan with a plan year that began July 1, 2009, with an 
end date of June 30, 2010, with an early retiree for which it has spent 
$120,000 in health benefit claims before June 1, 2010, and it then 
spends another $30,000 in health benefit claims on the early retiree 
between June 1, 2010 and June 30, 2010, the sponsor would receive 
credit for $15,000 in claims incurred before June 1 and receive 
reimbursement of 80 percent of the $30,000 (for the claims incurred 
after June 1, 2010), or $24,000. We believe this is a reasonable 
approach because it provides as much relief as possible as soon as 
possible to sponsors, while giving meaning to the effective date of the 
program. A sponsor should therefore not submit claims above the $15,000 
cost threshold that were incurred before June 1, 2010, for 
reimbursement, as submission of such claims is outside the scope of the 
regulation. Also, to submit these claims for reimbursement will make 
the reimbursement process more complex than it needs to be.
3. Negotiated Price Concessions (Sec.  149.110) and Cost Threshold and 
Cost Limit (Sec.  149.115)
    Section 1102(c)(1)(B) states that any negotiated price concessions 
obtained by an employment-based plan with respect to a health benefit 
must be reflected in claims submitted for program reimbursement. We 
recognize that sponsors and insurers sometimes do not receive certain 
negotiated price concessions until after payment is made, and in many 
cases, after the plan year during which the claim is incurred and paid, 
has ended. For example, this is typically the case with prescription 
drug rebates. Thus, we specify in the regulation that sponsors must 
disclose such ``post-point-of-sale'' negotiated price concessions, in a 
form and manner to be specified by the Secretary. We expect to specify 
the form and manner of such disclosures in future guidance. This will 
ensure that sponsors ultimately submit accurate claims data, and thus 
ultimately receive accurate reimbursement.
    Finally, the statute indicates that the $15,000 and $90,000 figures 
shall be adjusted each fiscal year based on the percentage increase in 
the Medical Care Component of the Consumer Price Index for all urban 
consumers (rounded to the nearest multiple of $1,000) for the year 
involved. We specify in the regulations that for plan years starting on 
or after October 1, 2011, the figures will be so adjusted.

D. Use of Reimbursements (Subpart D)

Use of Reimbursements (Sec.  149.200)
    Section 1102(c)(4) requires that the reimbursement ``shall be used 
to lower costs for the plan. Such payments may be used to reduce 
premium costs for an entity'' receiving a reimbursement or to reduce 
premium contributions, co-payments, deductibles, co-insurance, or other 
out-of-pocket costs for plan participants. We encourage sponsors to use 
their reimbursement under the program for both of the following 
purposes: (1) To reduce the sponsor's health benefit premiums or health 
benefit costs, and (2) To reduce health benefit premium contributions, 
co-payments, deductibles, coinsurance, or

[[Page 24458]]

other out-of-pocket costs, or any combination of these costs, for plan 
participants. We expect that sponsors will continue to provide at least 
the same level of contribution to support the applicable plan, as it 
did before this program. For example, for a sponsor that pays a premium 
to an insurer, if the premium increases, program funds may be used to 
pay the sponsor's share of the premium increase from year to year, 
which reduces the sponsor's premium costs. Section 1102(c)(4) sets 
forth the requirements for use of reimbursements under this section and 
envisions a role for the Secretary in developing a mechanism to monitor 
the appropriate use of such reimbursements. Additional information 
about this mechanism will be disseminated as it is developed.
    The statute does not appear to use the terms ``early retiree'' and 
``plan participants'' interchangeably. Therefore, we interpret this 
provision to mean that a sponsor may only receive program funds for 
claims of early retirees or their spouses, surviving spouses or 
dependents, but the funds may be used to lower health benefit costs for 
all participants in the plan, including retirees, and their spouses and 
dependents, and active employees and their spouses and dependents. At 
Sec.  149.200 (b), we clarify the statutory prohibition on using the 
funds as general revenue of the sponsor.

E. Reimbursement Methods (Subpart E)

1. General Reimbursement Rules (Sec.  149.300), Timing (Sec.  149.310), 
Reimbursement Conditioned Upon Available Funds (Sec.  149.315), 
Universe of Claims That Must Be Submitted (Sec.  149.320), Requirements 
for Eligibility of Claims (Sec.  149.325), and Content of Claims (Sec.  
149.330)
    Section 1102(c)(1) of the Affordable Care Act states that a 
participating employment-based plan shall submit claims for 
reimbursement to the Secretary which shall contain documentation of the 
actual costs of the items and services for which each claim is being 
submitted. As noted above, we define ``claim'' as documentation 
specifying the health benefit provided, the provider or supplier, the 
incurred date, the individual for whom the health benefit was provided, 
the date and amount of payment net any known negotiated price 
concessions, and the employment-based plan and benefit option under 
which the health benefit was provided. The terms ``claim'' or ``medical 
claim'' include medical, surgical, hospital, prescription drug and 
other such claims as determined by the Secretary. We clarify in the 
regulation that claims for benefits for the diagnosis, cure, 
mitigation, or prevention of physical or mental disease or condition 
with respect to any structure or function of the body, may be filed. 
This clarification is not an exhaustive list of claims that the 
Secretary may determine are appropriate.
    The regulation also specifies that claims cannot be submitted for a 
given plan year until the application that is associated with the claim 
and that references the applicable plan year cycle has been approved. 
With respect to a given early retiree, claims cannot be submitted until 
the early retiree's total paid costs for health benefits incurred for 
the plan year exceed the applicable cost threshold. Once that threshold 
has been reached, claims can be submitted, but they must include all 
claims below the applicable cost threshold for the plan year in order 
to verify that the cost threshold has been met. Claims must be 
submitted based on the amounts actually paid, which may include the 
amounts paid by the early retiree. Once the cumulative claims of an 
early retiree, as defined in Sec.  149.2, exceed $90,000 for a plan 
year, a sponsor should not submit claims above this claims limit for 
that early retiree because no reimbursement will be paid on these 
claims.
2. Documentation of the Actual Cost of Medical Claims Involved (Sec.  
149.335), Rule for Insured Plans (Sec.  149.340), and Use of 
Information Provided (Sec.  149.345)
    All claims submissions mus