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Working retirees win access to Tricare supplement option

By Tom Philpott

Civilian employers of military retirees once again can offer a TRICARE supplemental plan with their 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 an interim regulation unveiled two years. Employers still 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. They also are barred from offering cash incentives exclusively to military retirees if these workers will elect to opt out of employer-paid health plans.

But 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 of 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 allow under the law. Employers once again 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.

"The important thing now is to inform retirees that they can get a　TRICARE supplement through their employer again,"said Halseth.

Retirees will want to do that, 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 finding ways to encourage 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, Defense officials agreed it was only reasonable to permit employers to offer TRICARE supplements if the plans are not paid for, even partially, by employers.

"The employer’s only involvement is providing the administrative support for the benefits under the cafeteria plan,"said officials in an analysis that accompanied the final regulation. Convenience can be restored to buying supplemental coverage and premiums can qualify for the tax break.

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 only $64 million.

Halseth suggested the trend will continue. Even if TRICARE were to double annual fees and co-pays paid by military retirees, he said, the number of working retirees relying on TRICARE will continue to rise using TRICARE is so 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."

The first priority for workers shifted from what benefits were covered to what was affordable, and nothing looked more affordable than their TRICARE. And with each passing year, as TRICARE fees, co-payments and deductibles have remained frozen at levels set in 1995, more working retirees have come to rely on health coverage earned while in service.

Several retirees working in the civilian sector, in commenting on the interim rule for employer-paid plans, complained that their employers misunderstood the law. Some employers, for example, thought they had to exclude TRICARE-eligible employees from accepting the company’s cash incentive for any employee who opts out of the employer-paid plan.

"We hope this final rule will eliminate these misunderstandings,"officials said.

Some retirees said they are upset that Congress acted to lessen 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 did save money both for retirees and their employers but "by shifting costs to the former employer, the United States Government and the federal taxpayers,"Defense officials responded.

Despite what some retirees still believe, they added, "under the law, there is no entitlement to free, comprehensive care."

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