The new TRICARE rule affects coordination of Group Health Plans and Military Coverage.

Under a new federal law, group health plan sponsors can no longer offer employees eligible for TRICARE, the military health program, a financial incentive not to enroll in their plan. The law, effective January 1, 2008, will require plan sponsors to revisit plan designs during 2007 and assure that plan offerings for 2008 do not contain an impermissible incentives to TRICARE eligible employees. The law applies to employers with 20 or more employees, including state and local government plans, and group health plans. Both insured and self-insured employer-sponsored plans as defined in Section 5000(b)(1) of the Internal Revenue Code (IRC) are considered group health plans subject to the law.

Although the general purpose of the change is to prevent plans from shifting health costs to the TRICARE program, there is little information in legislative history on how group health plans must implement the change.

Specifically the law prohibits an employer or other entity from offering any financial or other incentive to a TRICARE eligible employee not to enroll or to terminate enrollment under a group health plan that would be primary to the TRICARE plan. Violating this rule would subject the employer or plan sponsor to civil monetary penalties of up to $5,000 for each violation. A TRICARE eligible employee must be given the opportunity to elect to participate in an employer-sponsored group health plan and to have primary coverage under that employer plan in the same manner and to the same extent as similarly situated non-TRICARE eligible employees.

An employee may be covered by TRICARE and an employer’s group health plan in one of two ways. First, an employee who is in the reserves may become eligible for TRICARE due to being called up to active duty. This employee may continue coverage under his or her employer’s group health plan either because the terms of the plan provide for such coverage or by electing to continue coverage under COBRA and/or USERRA. In this situation, the employer’s group health plan will be the primary payer and TRICARE will be the secondary payer for services that are covered by the employer group health plan. Second, an active employee may be eligible for and covered by TRICARE due to the military service of the employee’s spouse. Again, in this instance, the active employee would have double coverage, with the employer group health plan paying primary and TRICARE paying secondary.

Possible Implications for Employer Group Health Plans

Can a Cafeteria Plan offer a financial incentive to drop coverage to all employees, some of whom may be TRICARE eligible? Many employers provide cashable credits to employees who waive coverage under the employer’s group health plan. For example, an employer may provide a credit of $100.00 per month for any employee who does not enroll in the employer’s medical coverage. This type of credit may be considered a “financial incentive,” and therefore prohibited by the act.

Congress is aware of concerns regarding the treatment of Cafeteria Plans that is why the conference report accompanying the act directs the Secretary of Defense to report no later than April 1, 2007 on the treatment of cafeteria plans and non-TRICARE exclusive employer provided incentives under this new provision in the act.

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