Multi-employers that continue to offer health care benefits to retirees are embracing retiree-only plans — exempt from many requirements of the Affordable Care Act — as a cost-saving measure. While retiree-only plans are not subject to all of the rules of the ACA, there are still requirements employers and advisers should be aware of, including what qualifies the plan for exemption.

“Some employers have decided they are going to split off their retirement coverage in order to avoid some of the ACA mandates,” says Kathryn Bakich, senior vice president and National Health Compliance Practice Leader at the Segal Company.

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She told attendees of the 2015 International Foundation of Employee Benefit Plans Washington Legislative Update in Washington, D.C., that 79% of Segal clients provide some form of coverage to pre-Medicaid eligible retirees and 67% provide some form of coverage to Medicare eligible retirees.

Some plans provide coverage based on the current plan, others design a different kind of plan and other plans only provide an allowance to retirees purchasing individual coverage, she says.

Retiree-only plans exempt from the ACA requirements are defined as a group health plan with no more than two active employees.

The retiree-only plan must also have a separate summary plan description, separate financials and accounting and separate policies for paying for coverage, Bakich says.

Retiree-only plans still have to comply with PCORI fees, temporary reinsurance fees, certain reporting requirements and the excise tax, she adds.

Having a retiree-only plan “doesn’t get you out of everything, but it can get you out of some of the expensive health plan mandates, particularly the mandate that you can’t have an annual limitation on coverage,” she says.

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There is no guidance on what constitutes a retiree-only plan, Bakich says, so employers and advisers should work with legal counsel to determine the structure of the plan. However, she says, she and her employer clients typically reference ERISA principles for when a separate plan exists, including a separate plan document and separate financials.

“I look to see if the benefits are administered separately, are there separate plan documents, and are there separate funding arrangements and/or financial statements,” she says.

The instruments governing the plan, such as the plan document and SPD, must make it clear the retiree plan is separate from the active plan, Bakich adds.

ACA exemptions

Retiree-only plans can help employers cut costs because they are exempt from a number of the ACA-mandates, including:

  • No lifetime or annual dollar limits
  • Coverage of preventive health services
  • Dependent coverage to age 26
  • Prohibiting discrimination based on health status or pre-existing conditions
  • Cost-sharing requirements and essential benefit requirements
  • Medical loss ratio requirements
  • Prohibition on waiting periods of more than 90 days


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