Retiree Health-Plans’ U.S. Subsidies May Run Out This Year

A $5 billion U.S. government fund to subsidize retiree health costs for employers including Johnson & Johnson, Alcoa Inc. (AA) and General Electric Co. (GE) may run out of money as soon as this year, a congressional report found.

The health law President Barack Obama signed last year created the fund as a stop-gap measure to help keep people insured until 2014, when the measure creates a national system of subsidized plans for most Americans. The government pays 80 percent of insurance costs, as much as $90,000 a year, for retirees aged 55 to 65, who don’t yet qualify for Medicare.

Government officials have never promised that the money would last until 2014, and it may run out sooner, according to a report released yesterday by the Republican-controlled Energy and Commerce Committee. An official at the Health and Human Services Department told the committee leadership in a private briefing March 2 that the fund would be exhausted in 2012, according to the report.

“Majority Committee staff believes that the program could exhaust its resources even sooner,” the authors wrote.

Jessica Santillo, a spokeswoman for the secretary of the U.S. Department of Health and Human Services, Kathleen Sebelius, said in an e-mail that “employers were dropping coverage for early retirees,” those age 55 to 65, before passage of the health law.

The retiree insurance program, she said, “gives critical assistance to businesses so they may continue to provide coverage to retirees who aren’t eligible for Medicare.”

Retiree Fund Payments

According to the fiscal 2012 budget, the fund’s balance will fall to $24 million in fiscal 2013 from $1.4 billion in fiscal 2012 and $3.6 billion in 2011. New insurance exchanges are scheduled to open Jan. 1, 2014, where retirees will be able to shop for coverage, eliminating the need for the health fund.

The retiree health fund paid out $535 million to 253 organizations in 2010 the report found. More than 5,000 additional organizations have been approved for future payments from the fund. The report didn’t outline the effects on retirees when the fund is depleted.

Employers can use the money to reduce benefit costs or premiums, retirees’ premiums, co-payments, deductibles and other out-of-pocket costs, or a combination.

Johnson & Johnson (JNJ) of New Brunswick, New Jersey, New York- based Alcoa and General Electric of Fairfield, Connecticut, are named in the report as among the 253 organizations that have already received money from the fund. The companies didn’t immediately respond to calls or e-mail seeking comment.

The report didn’t say how much each employer was paid, instead singling out government organizations that it said received 56 percent of the money.

State Plans Benefit

The largest amount, $57.8 million, went to the California Public Employees’ Retirement System, the report said. The State of New Jersey’s pension office got $38.6 million, Georgia’s employee health benefit plan received $34.9 million, Kentucky was the recipient of $29.7 million and Texas got $21 million.

The report states that funds not spent on “government entities will go to companies that do not appear to need the financial assistance of the federal government.”

If the 5,000 additional applicants withdraw money at the same rate as the first 235, the fund will be exhausted “as early as this year,” the report found.

Sebelius’ agency said in a regulatory filing last May that it would require fund applicants to project how much money they would need to “help us determine if and when we should stop accepting applications due to funding limitations.”

Even if a group’s application is approved, Sebelius “may deny all or part” of any requested payments, the filing said.

To contact the reporter on this story: Alex Wayne in Washington at awayne3@bloomberg.net.

To contact the editor responsible for this story: Adriel Bettelheim at abettelheim@bloomberg.net.

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