The $5 billion reinsurance program that provides health benefits to retirees who are over age 55 and not yet eligible for Medicare will likely dry up in two years, according to a study by the Employee Benefit Research Institute. This would be two years ahead of the program’s planned termination date.

Congress appropriated the funds for sponsors of employment-based health plans effective June 1 as part of the Patient Protection and Affordable Care Act of 2010. The program gives an 80% subsidy for retiree claims of between $15,000 and $90,000. The funding plan is designed to terminate on Jan. 1, 2014.

But according to the study by Paul Fronstin, director of the EBRI Health Research and Education Program, about half of the funds ($2.5 billion) will be exhausted at the end of the first year. Furthermore, he estimates that the program will likely run out of money in 2011, leaving no money for subsidies in 2012 and 2013. This estimation is contingent on the subsidy being drawn down for all early retirees and their dependents. A study in May of 245 large employers that offer medical benefits to more than 1.3 million retirees found that more than three-quarters (76%) of the companies plan to pursue reimbursement through reimbursement plan. Hewitt concluded that because the funding is limited “employers will need to act quickly” in order to secure a share of the proceeds.

Fronstin, however, points to data from Mercer that found there has been no erosion in the percentage of employers with 500 or more employees offering health insurance to retirees between 1993 and 2009. “It raises a question as to why offer $5 billion to begin with,” he says. Fronstin called the earmarked subsidy amount an “arbitrary number.” According to Fronsitin’s study, early retiree health benefit programs cover 1.3 million people, either as retirees (55-64) or their spouses and dependents (any age) and some of the retirees have jobs.

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