Defense Department Documents and Publications

SUMMARY: This final rule implements section 1097c of Title 10, United States Code, as added by section 707 of the John Warner National Defense Authorization Act for Fiscal Year 2007, Public Law 109-364. This law prohibits employers from offering incentives to TRICARE-eligible employees to not enroll or to terminate enrollment in an employer-offered Group Health Plan (GHP) that is or would be primary to TRICARE. Benefits offered through cafeteria plans that comport with section 125 of the Internal Revenue Code will be permissible as long as the plan treats all similarly situated employees eligible for benefits the same and does not illegally take TRICARE eligibility into account. TRICARE supplemental insurance plans, because they are limited to TRICARE beneficiaries exclusively, are generally impermissible. Properly documented non-employer contributed TRICARE supplemental plans, however, are allowed.

DATES: Effective June 18, 2010.

FOR FURTHER INFORMATION CONTACT: Ms. Kathleen Larkin, TRICARE Policy and Operations, TRICARE Management Activity, 5111 Leesburg Pike, Suite 810, Falls Church, VA 22041, telephone (703) 681-0039.

SUPPLEMENTARY INFORMATION: Section 707 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Pub. L. 109-364) added section 1097c to Title 10, United States Code. Section 1097c prohibits employers from offering financial or other incentives to certain TRICARE-eligible employees (essentially retirees and their family members) to not enroll in an employer-offered GHP in the same manner as employers are currently prohibited from offering incentives to Medicare-eligible employees under section 1862(b)(3)(C) of the Social Security Act (42 U.S.C. 1395y(b)(3)(C)). Many employers, including state and local governments, have begun to offer their employees who are TRICARE-eligible a TRICARE supplement as an incentive not to enroll in the employer's primary GHP. These actions shift thousands of dollars of annual health costs per employee to the Defense Department, draining resources from higher national security priorities. TRICARE is, as is Medicare, a secondary payer to employer-provided health insurance. In all instances where a TRICARE beneficiary is employed by a public or private entity and elects to participate in a GHP, reimbursements for TRICARE claims will be paid as a secondary payer to the TRICARE beneficiary's employer-sponsored GHP. TRICARE is not responsible for paying first as it relates to reimbursements for a TRICARE beneficiary's health care and the coordination of benefits with employer-sponsored GHPs.

An identified employer-sponsored health plan will be the primary payer and TRICARE will be the secondary payer. TRICARE will generally pay no more than the amount it would have paid if there were no employer GHP. As applicable to both the Medicare and TRICARE secondary payer programs, the term "group health plan" means a plan (including a self-insured plan) of, or contributed to by, an employer (including a self-employed person) or employee organization to provide health care (directly or otherwise) to the employees, former employees, the employer, others associated or formerly associated with the employer in a business relationship, or their families. It should be noted that by including any plan of an employer to provide health care to employees, this definition is very broad.

The purpose of the prohibition on incentives not to enroll in employer-sponsored GHPs is to prevent employers from shifting their responsibility for their employees onto the Federal taxpayers. Certain common employer benefit programs do not constitute improper incentives under the law. For example, the general rule is that an employer-funded benefit offered through an employer's cafeteria plan that comports with section 125 of the Internal Revenue Code would not be considered improper incentive, as long as it is not a TRICARE exclusive benefit. A cafeteria plan, as defined by the Internal Revenue Code, 26 U.S.C. 125(d), is a written plan under which all participants are employees and the participants may choose among two or more benefits consisting of cash and qualified benefits. Employers who adhere to the requirements of section 125 and offer all similarly situated employees without regard to TRICARE eligibility a choice between health insurance and cash payment equivalents are not considered in violation of 42 U.S.C. 1395y(b)(3)(C). Therefore, if a TRICARE beneficiary elects the cash-payment option as a benefit offered via the employer's cafeteria plan, one which meets section 125 requirements, then the employer would not be in violation of these provisions. In general, 10 U.S.C. 1097c prohibits employer-endorsed TRICARE supplemental plans as an option for health coverage under an employer-sponsored GHP to TRICARE-eligible beneficiaries. This type of benefit cannot be offered as part of a cafeteria plan because the employer, by endorsing this type of plan, effectively offers an improper incentive targeted only at TRICARE beneficiaries for not enrolling in the employer's main health plan option or options.

Section 1097c does not impact TRICARE supplemental plans that are not offered by an employer but are sold by an insurer and/or beneficiary association working in conjunction with an insurer. Such non-employer-sponsored TRICARE supplemental plans will continue to be expressly excluded as double coverage under 32 CFR 199.2(b) and 199.8(b)(4)(ii), so that TRICARE is the primary payer and the TRICARE supplemental plan is the secondary payer.

II. Public Comments

The proposed rule was published in the Federal Register on March 24, 2008, for a 60-day comment period. We received 21 comments. We thank those who provided comments. Specific matters raised by those who submitted comments are summarized below.

Comment: One commenter approved of the rule but suggested the text be clarified to refer more precisely to a "cafeteria plan" as a vehicle for offering benefits to employees, rather than as a benefit itself. Further, this commenter suggested our references to "benefits offered to all employees" overlook that benefits are oftentimes not offered to all employees due to their being in different divisions or geographic locations.

Response: We agree with the commenter. We have clarified our references to "cafeteria plan." Additionally, references to "all employees" have been changed to "all similarly situated employees."

Comment: Several commenters urged that we revise the rule to permit employers to offer TRICARE supplemental plans that are not paid for in whole or in part by the employer and are not endorsed by the employer. Plans such as this, sometimes referred to as "voluntary plans," might allow employees to purchase TRICARE supplements with pre-tax dollars.

Response: We agree that this is a reasonable proposal, allowing the employer to have some involvement in offering a TRICARE-exclusive plan. Thus, we have revised the rule to make clear that the prohibition on employer incentives does not include TRICARE supplemental plans when it is properly documented that the employer does not provide any payment for the benefit nor receive any direct or indirect consideration or compensation for offering the benefit; the employer's only involvement is providing the administrative support for the benefits under the cafeteria plan.

Comment: Several commenters reported they had been inappropriately excluded from benefits due to their employers' misunderstanding of the law. For example, several commented that their employers stopped allowing TRICARE eligibles from taking advantage of a permissible cash option under a proper cafeteria plan. Another commenter who similarly lost a medical-insurance stipend applauded the rule as she believes its implementation will correct her employer's misunderstanding since it clearly states cash options are permissible when offered to all similarly situated employees under a proper cafeteria plan.

Response: We hope this final rule will eliminate these misunderstandings. This regulation does not prohibit TRICARE-eligible employees from electing a cash option offered to all similarly situated employees under a proper cafeteria plan.

Comment: One commenter, an active duty service member, reported that his daughter's employer ceased funding her 403(b) benefit and required her to acquire the employer health insurance plan in order to comply with this law.

Response: Again, nothing of the sort is required by the law or this regulation. Further, both the statute and this regulation expressly define a TRICARE-eligible employee as a person who is eligible for TRICARE coverage under 10 U.S.C. 1086. This essentially applies to retirees and their family members and does not include dependents of active duty personnel.

Comment: One commenter offered a different numbering scheme for the insertion of this rule into section 1097(c) of Title 10, U.S. Code.

Response. Section 1097c is a new, complete section and will not be added as subsection 1097(c) under section 1097.

Comment: One commenter stated military retirees should have the same access to civilian employer cafeteria plan offerings as their fellow employees.

Response: We agree that military retirees should have the same access to employer benefit plans as their civilian counterparts. The rule makes clear that employer-sponsored benefits offered to all similarly situated employees do not violate 10 U.S.C. 1097c or this regulation.

Comment: Several commenters believe section 707 exceeds what is necessary to ensure improper incentives are not provided by employers; they feel a qualifying cafeteria plan which offers a TRICARE supplement is not an improper incentive.

--This is a summary of a Federal Register article originally published on the page number listed below--

Final rule.

CFR Part: "32 CFR Part 199"

Citation: "75 FR 18051"

Document Number: "Docket ID: DoD-2007-HA-0078; RIN 0720-AB17"

Federal Register Page Number: "18051"

"Rules and Regulations"