Labor Day

Here's a short update on the Early Retiree Reinsurance Program - ERRP. See earlier update here.

ERRP was enacted as Section 1102 of the Affordable Care Act, signed by the President on March 23, 2010. In Section 1102, Congress appropriated $5 billion for a temporary subsidy to "stabilize this market" by subsidizing employers' early-retiree insurance coverage until the Federally-mandated Exchanges become effective in 2014. Eligible retirees are age 55-64.

When the $5 billion runs out - there is no more insurance subsidy. It's important to know that HHS began accepting ERRP applications on June 29, 2010 and stopped accepting applications barely 10 months later, on May 6, 2011.

So other than that, how's it going?

The July 15, 2011 HHS update provides some tantalizing details. (there were 41 subsidies awarded above $10 million and 3 more between $9 million and $10 million, so I looked at all 44). There are several hundred groups in the list.

Total awards for all the groups now amount to about $2.7 billion. The top 44 groups account for more than $1.6 billion, or about 60%.

Of the 44, there were 4 groups I identified as "union" funds; 23 public-employee or public-retiree funds; and 17 private employer groups. The union funds account for 17% of the $1.6 billion awarded, public funds account for 52% and private employer groups for 31%.

The largest single award was to the UAW retirement trust-- $221 million. The second-highest award was to AT & T - $141 million. I think the AT & T award largely reflects Communication Workers of America retirees--but I can't be certain.

Key observations: (1) the program is already closed; (2) the program transfers a significant share of employer-incurred early retirement costs from the employers to the taxpayers; (3) the awards to public employers constitute a benefits "bailout" that avoids the messy political business of you know, actually proposing individual bailouts and then, you know, having an actual public vote in Congress; (4) as suggested for AT & T, there may be a lot more award money going to unions than meets the eye - - for example, awards to GM, Ford, Chrysler, Caterpillar, Delphi, and others may be UAW-related and (5) over 2/3 of the awards going to unions and public employers suggests a tilt toward rewarding the administration's political allies.

Finally the speed at which the administration has slammed the window on further applications suggests the $5 billion cost projection was substantially underestimated, or was never a "estimate" at all. (That is, it may have been determined as a set amount for a specific purpose). But about all the taxpayers will ever have a prayer of knowing for sure, even approximately, is the final bill we have to pay.