print this page

May 21, 2008

DEFENSE DEPARTMENT RELEASES PROPOSED RULES ON TRICARE SUPPLEMENTS AND OTHER PROHIBITED FINANCIAL INCENTIVES

The U.S. Department of Defense (DoD) recently published proposed rules¹ affecting the relationship between employer-sponsored group health plans and the TRICARE² program. These rules implement certain provisions in the John Warner National Defense Authorization Act for Fiscal Year 2007 (Public Law No. 109-364) that took effect on January 1, 2008. Those provisions prohibit group health plan sponsors from offering TRICARE-eligible employees a financial or other incentive not to enroll or to terminate enrollment in a group health plan.³

The new proposed rules would codify the DoD's approach to enforcing these prohibitions and contain very little new information beyond that already published in a May 2007 DoD Report to Congress.⁴ Comments on the proposed rules may be submitted until May 27, 2008.

Overview

The statute and the proposed rules prohibit an employer or other entity, including a group health plan, from offering any financial or other incentive to a TRICARE beneficiary not to enroll (or to terminate enrollment) in a group health plan that is or would be primary. Because employer-sponsored group health plan coverage always pays primary to TRICARE, all group health plans must be designed to avoid those incentives the DoD considers impermissible.

This ban on incentives is aimed at preventing employers from shifting health costs to the DoD. 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. Violations are subject to civil monetary penalties of up to $5,000.

Prohibitions Similar to Medicare Secondary Payer Rules

The proposed rules state that the DoD ban on financial and other incentives will be applied in the same manner as the similar ban in the Medicare Secondary Payer (MSP) statute and regulations. The proposed rules contemplate that the DoD and the Department of Health and Human Services will enter into agreements to implement this TRICARE-related prohibition.

Ban on Targeted Incentives and TRICARE Supplements

Under the proposed rules, a group health plan may not offer TRICARE beneficiaries an alternative to the group health plan unless the beneficiary has primary coverage other than TRICARE, or the benefit is a valid Section 125 cafeteria plan offered to all employees, including those not eligible for TRICARE.

Consequently, the proposed rules appear to permit a group health plan sponsor to do the following:

• Offer a cash payment election (or other bona fide fringe benefits) through a cafeteria plan to all employees (including those also eligible for TRICARE). Additional plan requirements are permissible if they treat all employees the same and do not illegally take TRICARE eligibility into account. This would appear to include, for example, a group health plan requirement that all employees declining group coverage sign statements attesting that they have other coverage in place.
• Offer supplemental insurance through a cafeteria plan to all employees, as long as the supplement is not a TRICARE-exclusive supplemental plan.

Although the proposed rules are not clear, it appears that an employer could not allow an employee to pay for a TRICARE supplement on a pre-tax basis, even if the supplement is a voluntary plan. However, the rules do not prohibit TRICARE supplements that are sold by insurers or beneficiary associations.

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 participants, and whether changes are required in light of these proposed rules. Plan sponsors with specific questions about how the proposed rules would apply to certain plan designs should consider submitting comments to the DoD by the May 27 deadline. Instructions for submitting comments may be found at the Federal eRulemaking Portal (http://www.regulations.gov) by referring to the following docket numbers or RIN number: DoD-2007-HA-0078; RIN 07200-AB17.

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 federal law affecting coordination of TRICARE and group health plan coverage. Sibson Consulting can be retained to work with plan sponsors and their attorneys to review the current benefit design and make necessary changes and also to assist in drafting formal comments for submission to the DoD.

1	The proposed rules were published in the Federal Register on March 28, 2008. (Click on the following text to return to Capital Checkup.)
2	TRICARE is the military health program. Information about TRICARE is available on the TRICARE Web site. (Click on the following text to return to Capital Checkup.)
3	Public Law No. 109-364 can be accessed from http://thomas.loc.gov/bss/d109/d109laws.html. For more information about the law, see Sibson Consulting's November 2006 Bulletin, "New TRICARE Rule Affects Coordination of Group Health Plans and Military Coverage", and Sibson Consulting's July 3, 2007 Capital Checkup, "Defense Department Prohibits Plan Sponsors from Offering TRICARE Supplements." These provisions of the John Warner National Defense Authorization Act for Fiscal Year 2007 are codified at 10 U.S.C. Section 1097c. (Click on the following text to return to Capital Checkup.)
4	The TRICARE Web site has the May 2007 report. (Click on the following text to return to Capital Checkup.)

Back to Top