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Long Running Saga of TRICARE Management Contracts Coming to an End?

Updated – To make clear this was an Agency level protest and not a GAO one.

TRICARE is the primary medical insurance program for the United States’ military. It covers those personnel, their dependents and retirees along with selected Reservists and National Guardsmen. It functions like a HMO for its members. The Defense Department divides up the country into regions and awards large contracts to individual health insurers to manage these. In 2009 new contracts were awarded but three of them were protested by different losers. Since then the Department of Defense has been working through the protests and getting new contracts in place.

The contracts are awarded regionally to provide management of care and providers. The West contract was originally won by the incumbent, TriWest, but UnitedHealth Group (UNH) protested. The Department of Defense upheld the protest and the contract was put up for bid again. Again TriWest and UnitedHealth bid on the contract. Now it is expected that a decision on the winner will be made in the near future.

Of course with the history of these contracts there is no guarantee that the loser may protest this decision. With the Southern contract Humana (HUM) and UnitedHealth went trough several iterations as the awards and protests followed each other. The last decision was by a Federal court in October that sided with Humana. This contract was in protest and litigation for over two years.

If the government can make a decision with this contract that sticks it should close out this saga. TRICARE contracts are usually only for five years so the next round should be coming up in 2014-2015. Expect competition to be just as fierce with that round.

Military health care is in transition as the Department of Defense looks for ways to reduce costs. These have increased greatly over the last decade due to the commitments to Iraq and Afghanistan and the larger size of the military. There are also now much more retirees and veterans who need care. In the next budget there is a proposal to increase the co-pays and fees paid by members for their TRICARE. There will also be pressure to reduce payments to service providers.

Even so expect the large health insurance companies compete for these contracts just like the last round.

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Companies Continue Fights for U.S. Military Health Care Contracts

The United States’ Department of Defense spends a great deal of money on health care. They are responsible for not only the active duty members but also their dependents, retirees as well as National Guardsmen and Reservists. The fighting since 9/11 has seen the expansion of the size of the military. Many personnel have families. There has also been an increase in the number of wounded and those needing long term car. The sustained fighting and activity also caused more retirees. Combined these pressures have required that total spending dramatically increase. In 2010 it was almost $50 billion or roughly 8 percent of the defense budget.

This has been recognized by leadership such as departing Secretary of Defense Robert Gates and some moves have been proposed to reduce spending or slow the rate of growth. If changes are not made then more-and-more of available funding will go for personnel related matters leaving less for investment in new weapons and technology. At the same time the growth has made this an attractive area for large U.S. health insurance companies and they are currently fighting over the contracts to manage the health care program.

The basic program used to do this is called TRICARE. It is like a large HMO that requires the military participants to pay a small upfront fee and then co-pays for visits and services. Because the military is so large and geographically diverse the Department of Defense centrally manages the program and divides the U.S. into regions with a contract for each. There are also omnibus contracts for overseas and dental care. The contracts average values of $4-5 billion a year.

In 2009 the Department went ahead and awarded the next set of five year contracts for the different regions. These were bid on by familiar insurance companies such as Aetna (AET), Humana (HUM) and UnitedHealth. In the late summer the winners were announced and often the incumbent did not retain the contract. Immediately several protests were filed by the losers.

Incredibly two of these protests remain unsettled today almost two years later. That indicates the importance of these contracts to the providers. In a time when the entire health care market in the U.S. is about to see radical change TRICARE does offer some stability at least for the next several years and may provide a decent source of revenues and income for these companies to offset future changes in the civilian market.

UnitedHealthCare is pursuing protests for the South and West contracts. The South has now gone through two source selection cycles with UnitedHealth winning the first one over Humana who protested which led to a new competition. This was awarded to Humana in March and that was protested by UnitedHealth. The Government Accountability Office (GAO) upheld the award and UnitedHealth has now sued in Federal Court which is the final step in the protest process. UnitedHealth believes that Humana in order to minimize costs has reduced the proposed payments to providers to such an extent that few if any will accept TRICARE patients leading to poorer choice for military members. The GAO did not sustain that argument.

UnitedHealth and Humana have also been fighting over the West contract. Here UnitedHealth was the incumbent and Humana won the new contract. That protest has also led to a decision to have a new contest that is yet to occur.

The size of the TRICARE management contracts and their value has caused those companies involved in them to try to win and keep them. Despite pressure by the Defense Department to reduce costs they are expected to remain sizable for a variety of reasons. They offer some stability as the U.S. moves to reform the civilian market. It can be expected that these protests will continue for the next few months as the contract awards are worked through.

Article first published as Companies Continue Fights for U.S. Military Health Care Contracts on Technorati.

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Administration Continues to Propose Increases in TRICARE Premiums

TRICARE is the major health insurance program for the U.S. military, their dependents and retirees. It was created in the Nineties as a follow on to the CHAMPUS program primarily due to the end of the Cold War and the BRAC process. This led to the closing of hundreds of installations across the country making it harder for military retirees especially to gain access to health care. TRICARE is similar to an HMO in that it allows members to utilize private health care providers and facilities. The way it is set up requires a small premium each year.

As the U.S. military has grown over the past decade which includes numbers of dependents and retirees health care has become a major cost to the Defense Department. In 2012 it will cost over $50 billion or about eight percent of the total proposed budget. In the last decade the cost of military health care has increased from about $20 billion to a projected $64 billion in 2015 in unadjusted dollars.

In a move to try and counter these increases Secretary of Defense Robert Gates has proposed charging more for the premiums by as much as 300 percent. These moves have not been included in the defense budget as Congress has eliminated the increases. In 2012 the proposal is a much more modest $2.50 to $5.00 a month and this may have a better chance of approval.

The size of TRICARE is illustrated by the on-going struggle between Humana (HUM) and UnitedHealth Group (UNC) over the Southern region management contract. The two companies have protested the awards to each other of this potentially $20 billion contract.

Personnel costs as a whole have increased dramatically over the last two decades and this is eating up the Defense top line budget authority. Gates has already proposed the simplest way to lower these costs by eliminating Soldiers and Marines but this is also being fought by Congress as it makes little sense to reduce the size of the military when it is still engaged in Iraq and Afghanistan.

If defense spending will stay flat or start to be reduced to keep a decent amount of money for development and production of weapons health care costs need to have their growth limited. At the same time the nation and Government must pay for the care of its active duty forces and retirees as failure to do so would negatively impact recruiting, retention and the effectiveness of the U.S. military. Transferring some of the costs to the users may be a simple solution in the short term but it does set a precedent where larger and more harsh increases to premiums could be added by a future administration and Congress which then could lead to lack of access and care for military personnel.

As with all aspects of cutting Federal spending this won’t be easy but it is clear that something needs to be done due to the current deficits and budgetary pressures.

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Department of Defense Awards Health Net Appointment Contracts

The U.S. Department of Defense procures many different items and services. A great deal of these are to support their personnel, their families, dependents and retirees. Through various programs and delivery systems the military funds health care for millions of people. They do this through their own medical facilities as well as for the HMO like TRICARE.

Health Net Federal Services, part of Health Net (HNT), was awarded three separate contracts to provide appointment services at different military bases across the U.S. Two of the contracts are through the end of March and one is until January of next year. All include a potential six month extension option. No value for the contracts were given.

Health Net provides management of portions of the TRICARE system used by the majority of DoD customers. These are large contracts with values over $1 billion a year and smaller contracts like the appointment services only increase the value of the military health care business for companies.

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Why Military Healthcare Costs Are Rising Twice as Fast as the Nation’s

April 28, 2010 by · 1 Comment
Filed under: BNET 

The portion of the U.S. defense budget used to pay for the military health care keeps increasing. It has been doing so at a rate twice as high as…

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Why Military Healthcare Costs Are Rising Twice as Fast as the Nation’s

April 28, 2010 by · Comment
Filed under: BNET, Syndicated Industry News 

The portion of the U.S. defense budget used to pay for the military health care keeps increasing. It has been doing so at a rate twice as high as health care inflation overall. Something must be…

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House Armed Services Committee: Skelton’s TRICARE Affirmation Act Signed into Law

April 26, 2010 by · Comment
Filed under: Syndicated Industry News 
House Armed Services Committee: Skelton’s TRICARE Affirmation Act Signed into Law
Ike Skelton, Chairman
April 26, 2010

Skelton’s TRICARE Affirmation Act Signed into Law

Washington, D.C.—Today, House Armed Services Committee Chairman Ike Skelton (D-Mo.) released the statement below on H.R. 4887, the TRICARE Affirmation Act, which the President signed into law. The TRICARE Affirmation Act, which was introduced by Skelton, was approved unanimously by the House and the Senate.

“Our brave men and women in uniform provide us with first-class protection, and it is our obligation to provide them—and their families—with first-class health care in return. By signing the TRICARE Affirmation Act, President Obama reinforces that military health care coverage will not be adversely affected by the health care reform law.

“The TRICARE and NAF health plans are such great plans that they already meet the minimum requirements for individual health insurance coverage in the recently enacted health care bill, and no TRICARE or NAF health plan beneficiary will be required to purchase additional coverage beyond what they already have. However, to reassure our military service members and their families and make it perfectly clear that they will not be negatively affected by the health care reform law, the TRICARE Affirmation Act explicitly states that TRICARE and the NAF health plans meet the minimum requirements for individual health insurance.”

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House Armed Services Committee: Skelton to Introduce Legislation to Protect TRICARE

March 18, 2010 by · Comment
Filed under: Syndicated Industry News 
House Armed Services Committee: Skelton to Introduce Legislation to Protect TRICARE
Ike Skelton, Chairman
March 18, 2010

Skelton to Introduce Legislation to Protect TRICARE

Washington, D.C.—Today, House Armed Services Committee Chairman Ike Skelton (D-Mo.) released the statement below regarding his intent to introduce legislation to explicitly state in law that TRICARE and the DOD nonappropriated fund (NAF) health plans meet all of the health care requirements currently under consideration by Congress for individual health insurance. These programs provide health coverage to members of the military and their families, military retirees and their families, and employees of U.S. military post/base exchanges and other nonappropriated fund activities.

“Our nation’s military provides us with first-class protection, and it is our obligation to provide them—and their families—with first-class health care in return. While some of this Committee’s members may disagree on overall health care reform, we are united in our commitment to ensuring that any measure signed into law will not have any unintended consequences that adversely impact the military health care programs for our men and women in uniform and their families.

“Although the health care legislation passed by the House explicitly exempted TRICARE from being affected, the Senate bill did not. Unfortunately, the parliamentary rules of the reconciliation process did not allow for the inclusion of language that specifically protects these programs. To reassure our nation’s service members and their families that their health coverage will remain unaffected by this, I will introduce legislation this week to explicitly state that TRICARE and the NAF health plans meet all requirements for individual health insurance; this language will also be included in this year’s national defense authorization bill.”

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