MILITARY UPDATE: New Tricare rules in place for civilian employers
Civilian employers of military retirees once again can offer a Tricare supplemental plan with cafeteria-style health insurance options so that workers who elect to use their Tricare Standard benefit can buy coverage conveniently and with pre-taxed dollars.
The change took effect June 18 under a final rule published by the Department of Defense that implements a 2007 law prohibiting employers from enticing retirees to use Tricare instead of employer-paid insurance.
The final rule relaxes a two-year-old interim regulation. Employers are prohibited under section 707 of the John Warner National Defense Authorization Act (Public Law 109-364) from offering incentives to military retirees to leave employer-paid plans and use Tricare instead.
For example, they can’t subsidize a Tricare supplement and are barred from offering cash incentives exclusively to military retirees who opt out of employer-paid health plans.
Advocates for working-age military retirees, backed by Sens. Lindsey Graham, R-S.C., and Ben Nelson, D-Neb., had complained that the interim rule published in March 2008 created unnecessary hassles for military retirees in second careers and denied them a valuable tax break.
Defense officials agreed.
Under the final rule, which employers can find in the April 9 Federal Register, DoD exercises an exception allowed under the law. Employers can make available in their cafeteria-style health plans a Tricare insurance supplement as long as retiree participants cover the full cost.
Jeff Halseth with Government Contractors Insurance Services (GCIS), an insurance brokerage that sells benefit plans to government contractors, said the revised rule will help working-age military retirees.
Retirees will want to get the supplement through employers rather than buy a supplement directly from a broker, Halseth explained, because premiums paid for cafeteria health plans are exempt from federal and state taxes including social security tax. This lowers out-of-pocket costs of a Tricare supplement by about 27 percent, he said.
Congress acted three years ago to prohibit employers from offering incentives to Tricare-eligible employees to try to turn around a costly trend. More and more companies, as well as state and local governments, were encouraging their military retirees to use Tricare rather than employer-paid health plans. In effect, they were shifting their own health care costs onto federal taxpayers, defense officials complained.
On reviewing comments received on the interim rule, officials agreed it was reasonable to permit employers to offer Tricare supplements if the plans are not paid for, even partially, by employers.
Officials, meanwhile, have lowered their estimate of cost savings to Tricare from cracking down on employer-paid incentives. The Congressional Budget Office estimated $119 million in savings per year on the belief that 50,000 retirees and dependents would stop using Tricare.
The revised estimate is $64 million.
Even if Tricare were to double annual fees and co-pays paid by military retirees, Halseth said, the number of working retirees relying on Tricare will continue to rise because it is much less expensive than most employer-paid plans.
“The price of employer plans started sky-rocketing in the late 1990s. It literally doubled between 1999 and 2008,” Halseth said. “The cost of employer plans started getting so high for workers that there was a flood of military retirees leaving civilian plans.”
Tricare fees, co-payments and deductibles have remained frozen at levels set in 1995.Some retirees said they are upset that Congress lessened the value of the Tricare benefit by banning employer-paid incentives. The cash incentives had the effect of eliminating all their out of pocket health costs.
These arrangements saved money for retirees and their employers “by shifting costs to the former employer, the United States Government and the federal taxpayers,” Defense officials responded.
Despite what some retirees believe, they added, “under the law, there is no entitlement to free, comprehensive care.”
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