Another reminder that the Congressional drafters of what’s come to be called ObamaCare shaved fiscal corners came early this month in a notice published in the Federal Register. The news: after May 5, 2011, no more applications will be received for the Early Retiree Reinsurance Program. Why? The applications already received plus those expected to be received by May 5 will blow through the money available.

This small program—less than one percent of all the spending in ObamaCare’s first decade—was, like subsidies for state high risk pools, one of the “early implementation” provisions of the law. It would show somebody getting something during the period when most of the action would be bureaucratic rumbling getting ready for the “Big Bang” on January 1, 2014. All sorts of new subsidies take effect on that date.

It would have been more than one percent if Congress funded the whole thing. Instead, the Congressional drafters opted for an installment plan. They would put up a defined amount of money for the whole program, and then close enrollment once enough companies had signed up.

It is an odd approach to an odd program. The money does not go to provide health insurance to people who are without. Instead, it is a subsidy for coverage for people who already have it. And it isn’t a subsidy for people. It is a subsidy for the former employers. And it isn’t a per retiree subsidy. It is reinsurance, an agreement by one insurer (here the government) to take on some of the risk of another insurer. And it isn’t full reinsurance, it is reinsurance over a particular risk corridor. The program makes payments to employers for 80 percent of their costs for services covered by Medicare for costs that fall between $15,000 and $90,000.

A total of $5 billion is available until 2014. Rather than accepting what the Congressional Budget Office (CBO) would say a program that lasts until 2014 would cost, it only lasts until the money runs out. And rather than make the reinsurance fit with the money they had, something they could do by saying we’ve got so much money each year and we’ll vary the percentage paid or the risk corridor according to the money available, they wrote a range into the law, $15,000 to $90,000 and decided to make how long the program lasts the margin of adjustment. At the time the money runs out, the program is over. At least that’s the story they told CBO, taking advantage of CBO’s dedication to the proposition that the stories Congress tells us are all true. Applying the programs rules, CBO projected the money would run out about half way through 2012.

The history of this proposal seems to go back to the 2004 election. The Democratic presidential nominee, Sen. John Kerry, embraced reinsurance as a way to subsidize retiree health insurance costs. In a different era, many employers, particularly those with unionized workforces, added health insurance benefits for retirees as an additional inducement for older, more expensive workers to leave voluntarily. Without health insurance, retiring before reaching age 65 and Medicare eligibility meant taking on a lot of risk. By offering to continue health benefits, employers would have a better chance of getting employees younger than age 65 to leave.

A lot of reality intervened between the time when those commitments were made and the present day. Health care costs turned out to be higher than expected. Employers made promises but did not put aside the money to make good on them. As employers wised up, the share of workers who had retiree health benefits or could look forward to getting them when they retired fell. Estimates of the share of the workforce who can look forward to getting health benefits from their current employer say about one in five will get them.

Two groups were distinctly less nimble in getting out of their retiree health benefit commitments—unionized employers, particularly in the automobile industry, and public sector employers. And now that there is a government program to subsidize employers’ cost for their retirees, where are the funds going in greatest concentration? Unionized employers and public sector employers.

General Motors would have been the biggest beneficiary had it lived to cash the check. As part of old GM’s demise, its health insurance obligations have gone over to the United Auto Workers Retiree Benefits Trust. A report from the Department of Health and Human Services identifies that entity as the largest source of claims in 2010 and presumably it is also the recipient of the largest payment, $108.6 million, made to an unnamed entity.

If the idea was to help out the UAW and the auto industry, the program has worked. The likely UAW payment was one-fifth of the $535 million paid out by the end of 2010. While the political muscle might have been the UAW’s, the largest amount of payments is going to state and local governments. They received 55 percent of the 2010 payouts.

After the UAW, the next six largest claimants, measured as number of retirees with costs high enough to trigger a payout, are all state governments or their pension funds (California, New Jersey, Kentucky, Georgia, Texas and Louisiana.) Only after them is there a private employer, Alcatent-Lucent USA, successor to the old AT&T’s Western Electric.

Relative to other people who have retired, retirees with health benefits are better off. This is not a program for the truly needy. And while the program’s rules require that sponsors raise their right hands and swear or affirm that they are using the money to reduce retiree costs or otherwise help retirees, the anecdotes about what they are doing sound like things they would have done anyway in the name of controlling costs: disease management programs, case management for high cost cases, etc.

The question is: what happens when the music stops? As that Federal Register notice reminded us, $5 billion won’t last as long as the retiree health commitments employers have made. The UAW’s health benefits trust fund will still be just as underfunded when the federal funds run out as it is today. States and local governments will still have crushing amounts of unfunded retirement liabilities. It could be that it was fun while it lasted. It will also be an opportunity for employers and retirees to bang the tin cup and ask for more.

The story Congress told its budget office was that when the money runs out, the spigot shuts off. Whether that’s a promise they will keep likely depends on who controls Congress when that happens.

Hanns Kuttner is a visiting fellow at Hudson Institute

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