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July 3, 2007

DEFENSE DEPARTMENT PROHIBITS PLAN SPONSORS FROM OFFERING TRICARE SUPPLEMENTS

Effective January 1, 2008,¹ group health plan sponsors cannot offer TRICARE²-eligible employees a financial or other incentive not to enroll in a group health plan that would provide primary coverage. This new ban on incentives is aimed at preventing employers from shifting health costs to the Department of Defense (DoD). In a Report to Congress released in May 2007, the DoD provides important guidance on how it will interpret this new prohibition.³ In this Report, the DoD also states that it expects to publish an interim final rule soon.

New TRICARE Legislation

The new TRICARE law was enacted in October 2006 as part of the John Warner National Defense Authorization Act for Fiscal Year 2007 (H.R. 5122).⁴ The law prohibits an employer or other entity, including a group health plan, from offering any financial or other incentive to a TRICARE-eligible employee not to enroll (or to terminate enrollment) in a group health plan that would be primary. It also requires that TRICARE-eligible employees be given the same opportunities to participate in a plan as similarly situated non-TRICARE eligible employees. Violations are subject to civil monetary penalties of up to $5,000.

The law applies to employers with 20 or more employees, including state and local governments. It also applies to both insured and self-insured group health plans. TRICARE-eligible employees include both employees and dependents.

Group Health Plan Coverage Is Always Primary

The Report confirms that in all instances where a TRICARE-eligible person is employed by a public or private entity, any group health plan coverage elected by the employee pays primary. TRICARE coordinates with this group health plan coverage by paying secondary.

The DoD announced in the Report that it will interpret the new ban on financial and other incentives in the same way that the Centers for Medicare & Medicaid Services (CMS) interprets the similar ban in the Medicare Secondary Payer (MSP) statute and regulations. This includes drawing similar lines between permissible and impermissible incentives, including the following two key plan design issues:

• Permissible A cash payment election offered through a valid Section 125 cafeteria plan to all employees (including those also eligible for TRICARE) is permissible.
• Impermissible It will no longer be permissible for group health plan sponsors to offer employees a TRICARE supplement policy, as this will be considered an improper incentive targeted to TRICARE-eligible employees. However, a TRICARE beneficiary may still purchase a TRICARE supplement plan from an insurer or beneficiary association as long as it is not offered through an employer.

Although not addressed in the Report, it is likely that the interim final rules will also provide that plan sponsors cannot take TRICARE into account when offering TRICARE-eligible employees and their dependents the opportunity to participate in group health plan benefits.

Implications for Group Health Plan Sponsors

Plan sponsors should review their plans to determine whether TRICARE-eligible employees and dependents are treated differently from other par-ticipants, and whether changes will be required in light of this new guidance. The new law takes effect on January 1, 2008, which means that calendar year plans will need to make any necessary changes by the end of the year.

Plan sponsors will need to wait for the forthcoming regulations to get final answers to implementation concerns, but this report addresses two key issues with important implications for plan design.

As with all issues involving the interpretation or application of laws and regulations, plan sponsors should rely on their attorneys for authoritative advice on the new federal law concerning coordination of TRICARE and group health plan coverage. The Segal Company can be retained to work with plan sponsors and their attorneys to review the current benefit design and make necessary changes.

1	For more information about this new federal law, see The Segal Company's November 2006 Bulletin, "New TRICARE Rule Affects Coordination of Group Health Plans and Military Coverage." Public Law No. 109-364 can be accessed here. (To return to the Capital Checkup, click here.)
2	TRICARE is the military health program. To see information about TRICARE, click here. (To return to the Capital Checkup, click here.)
3	To see the report, click here. (To return to the Capital Checkup, click here.)
4	The John Warner National Defense Authorization Act for Fiscal Year 2007 will be codified at 10 U.S.C. Section 1097c. (To return to the Capital Checkup, click here.)

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