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TRICARE – Employer Incentive Prohibitions

June 24, 2014

The U.S. Department of Defense (DoD) final regulations on the relationship between the TRICARE program and employer-sponsored group health coverage implement Section 707 of the John Warner National Defense Authorization Act for Fiscal Year 2007 (Act). Section 707 of the Act prohibits employers from offering incentives to TRICARE-eligible employees to not enroll in, or to terminate enrollment in, an employer-offered group health plan that is or would be primary to TRICARE.

The final regulations became effective on June 18, 2010.

This Legislative Brief provides a short summary of the DoD’s final regulations regarding employer incentive prohibitions. 

What is the prohibition on incentives?

TRICARE is the health care program that covers active duty service members, reservists, retirees and certain other members of the military community. The final regulations prohibit an employer from offering TRICARE beneficiaries financial or other benefits as incentives not to enroll in, or to terminate enrollment in, a group health plan that is or would be primary to TRICARE. This prohibition is similar to the prohibition against offering incentives under the Medicare Secondary Payer rules. 

The final regulations prohibit employers from offering TRICARE beneficiaries an alternative to the employer primary plan, unless one of the following exceptions applies:

  1. The beneficiary has primary coverage other than TRICARE;
  2. The benefit is offered under a Section 125 cafeteria plan and is offered to all similarly situated employees, including non-TRICARE eligible employees. To be similarly situated, employees must share common attributes, such as part-time employment or other bona fide employment-based classifications consistent with the employer’s usual business practice; or
  3. The benefit is offered under a Section 125 cafeteria plan and the employer does not provide any payment for the benefit and does not receive any direct or indirect consideration or compensation for offering the benefit. Under this exception, the employer merely provides the administrative support for the benefits under the cafeteria plan, and the employee’s participation in the plan is completely voluntary. This is true even the benefit is offered only to TRICARE-eligible employees. Upon request, employers must provide a signed certification to the DoD to prove the exception’s conditions have been met.

What employers are subject to the prohibition on incentives?

The final regulations apply to any state or unit of local government and to any employer that employs at least 20 employees.

Do The Final Regulations Provide For Any Penalties?

Yes. Employers that violate the final regulations may be subject to civil monetary penalties of up to $5,000 for each violation.

What Is The Purpose Of The Incentive Prohibition?

The purpose behind the incentive prohibition is to prevent employers from shifting their responsibility for their employees onto the federal government. According to the DoD, this cost shifting drains resources from national security priorities. However, certain common employer benefit programs do not constitute improper incentives under the law, as described above under the exceptions to the incentive prohibition.

What Should Employers Do?

Employers should periodically confirm that their employee benefit offers comply with the final regulations. If an employer is relying on any of the exceptions to the incentive prohibition (for example, the exception for benefits offered to all similarly situated employees under a Section 125 cafeteria plan), the employer should make sure it is complying with all of the conditions of the exception. If the employer is relying on the third exception described above, the employer should maintain the required certification of compliance in its files.  

This Legislative Brief is not intended to be exhaustive nor should any discussion or opinions be construed as legal advice. Readers should contact legal counsel for legal advice.

© 2010-2014 Zywave, Inc.  All rights reserved.



More Information The final regulations are available at:

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