• TRICARE Secondary Payer Rules: Department of Defense Regulations Affecting Your Health Plan
  • June 4, 2010 | Authors: Sarah Lockwood Church; Paul A. Kasicky; Kristen Belz Ornato; Kevin A. Wiggins
  • Law Firm: Thorp Reed & Armstrong, LLP - Pittsburgh Office
  • On April 9, 2010, the Department of Defense (“DOD”) issued final regulations governing TRICARE Secondary Payer rules. The regulations implement remedies and penalties, including a penalty of up to $5,000 for each violation. These rules will be effective June 18, 2010.

    Background on TRICARE

    TRICARE is like Medicare for active or former military personnel and their dependents. TRICARE provides health care coverage for active duty service members, National Guard and Reserve members, retirees, their families, survivors and certain former spouses. Just as many insurers provide a supplement for Medicare, insurers also provide a supplement for TRICARE.

    Background on TRICARE Secondary Payer Rules

    The TRICARE Secondary Payer Rules are similar to the Medicare Secondary Payer rules. Many employers, including state and local governments, offered their employees who were eligible for TRICARE a TRICARE supplement as an incentive for the employee to enroll in TRICARE rather than the employer’s group health plan. Congress passed a law in 2007 to prohibit this practice. These rules apply to all state and local governments and all employers that employ at least twenty employees. The law became effective January 1, 2008, even though final regulations had not been adopted.

    DOD Final Regulations

    The DOD’s final regulations prohibit an employer from offering anyone who is eligible for TRICARE (hereafter, a “TRICARE beneficiary”) financial or other incentives not to enroll in, or terminate enrollment in, a group health plan that is or would be primary to TRICARE. This prohibition against offering TRICARE incentives applies in the same manner as the employer prohibition against offering incentives to Medicare-eligible employees under the Medicare Secondary Payer Act. More specifically, employers may not offer TRICARE beneficiaries an alternative to the employer’s primary health plan.

    There are three exceptions to the prohibition on offering alternative coverage. First, an employer can offer an alternative arrangement to a TRICARE beneficiary who has primary coverage other than TRICARE. Second, the prohibition does not apply if the alternative benefit is offered under a cafeteria plan and is offered to all similarly-situated employees, including non-TRICARE eligible employees. A TRICARE eligible employee essentially means military retirees and their eligible family members. Similarly-situated employees are classified based on employment status, such as part-time or full-time workers, but expressly including TRICARE eligibility as a permissible classification.

    Third, an employer can offer alternative benefit under a cafeteria plan that is offered only to TRICARE eligible employees if (1) the employer does not provide for any payment for the benefit nor receive any direct or indirect consideration or compensation for offering the benefit, (2) the employer’s only involvement is providing the administrative support for the benefits under the cafeteria, and (3) the employee’s participation in the plan is completely voluntary. This third exception is primarily designed to allow employers to offer employees TRICARE supplemental coverage that is not paid for or endorsed by the employer and where the employee’s participation is completely voluntary. To qualify for this third exception, an employer must maintain a signed certification of compliance in the employer’s records.

    The preamble to the DOD regulations suggests there are other exceptions that are not expressly incorporated into the final regulations. According to the preamble, a health reimbursement arrangement (“HRA”) that is available to and can be used by all similarly-situated employees (not limited to TRICARE beneficiaries) does not violate the TRICARE Secondary Payer rules. Moreover, cash payments and other bona fide fringe benefits that under government contracts (i.e., the McNamara-O’Hara Service Contract Act) are offered in lieu of health care coverage are permissible as long as the employer does not consider TRICARE eligibility when formulating the cash payment or fringe benefit options.