You asked for information about TriCare, the federal health care program for the Uniformed Services. Specifically, you asked if:

1. Connecticut legislators have proposed bills to encourage health care providers to participate in the program;

2. other states have tax incentives for those who do and, if so, what such a law's fiscal impact and effects on TriCare enrollee's access to providers has been; and

3. there is a way to estimate the fiscal impact of enacting a tax credit in Connecticut for TriCare-participating providers.

SUMMARY

Connecticut legislators have proposed bills in the last several sessions that would require health care providers (e. g. , doctors, nurses, hospitals) to participate in TriCare, but none passed out of committee. This report includes a table summarizing the proposals. Federal law and regulations regarding TriCare may preempt such a state law, as discussed further below.

Oregon appears to be the only state with tax incentives for providers participating in TriCare. The Oregon legislature passed a law in the 2007 session that gives a one-time $ 2,500 personal income tax credit to a provider who, for the first time, joins a TriCare network of preferred providers who furnish health care services to people enrolled in TriCare in exchange for negotiated fees. The law gives providers who actively participate in TriCare an annual $ 1,000 tax credit. And, it allows a tax deduction for the first two years of participating in TriCare in an amount equal to any payments received from TriCare for services rendered. The tax credit provisions are applicable to tax years beginning January 1, 2008 and before January 1, 2012. The deduction provision is applicable to tax years beginning January 1, 2007 and before January 1, 2012. The law takes effect on September 27, 2007.

The Oregon Legislative Fiscal Office was unable to determine a fiscal impact for the new tax provisions because they could not verify the number of providers already participating in TriCare or estimate how many providers may join to obtain the tax benefits. (OFA will separately address the fiscal impact of enacting a tax credit in Connecticut for providers participating in TriCare. )

TriCare only pays claims for services rendered by an “authorized provider,” a provider who has been certified to provide care under TriCare by meeting certain qualifications. Once authorized, a provider may or may not choose to “accept assignment,” which is the TriCare reimbursement rate established by the Secretary of Defense based on methods and calculations set by law. If the provider does, he or she is a “participating provider. ” An authorized provider also has a choice of entering into a contractual agreement to become a “network provider. ” Network providers accept negotiated payment amounts for services rendered to TriCare enrollees.

Health Net Federal Services, Inc. (Health Net) is the current TriCare regional contractor for the North region, which includes Connecticut. TriCare enrollees often express concern with how difficult it can be to find authorized TriCare providers. Health Net indicates that “some providers have either chosen to not contract with Health Net as a TriCare provider or terminated their contracts citing low reimbursement rates and authorization requirements as the reasons” (https: //www. hnfs. net; response to FAQ “Why can't I find a provider who will accept TriCare?”).

FEDERAL TRICARE PROGRAM

CHAMPUS

TriCare is a part of the Civilian Health and Medical Program of the Uniformed Services (CHAMPUS) (32 CFR § 199, authorized by 10 U. S. C. § 1071, et seq. ). CHAMPUS is the health benefit program that the U. S. Government provides under public law to specified individuals based on their relationship to one of the seven Uniformed Services: Army, Navy, Air Force, Marine Corps, Coast Guard, Commissioned Corps of the U. S. Public Health Service, and the Commissioned Corps of the National Oceanic and Atmospheric Administration.

Federal regulations specify that CHAMPUS is not an insurance program because it does not indemnify an insured person against a specified loss in exchange for a paid premium. Funds for CHAMPUS are appropriated by Congress and used to hire and reimburse fiscal intermediaries (e. g. , program administrators or contractors) to receive, adjudicate, and pay claims submitted by people covered by the plan (i. e. , enrollees) (32 CFR § 199. 1(d) and (e)).

Although the law refers to CHAMPUS, TriCare effectively replaced CHAMPUS in 1993, when it became the only health care program being administered for the Unformed Services. There are several plan options available to eligible individuals (e. g. , TriCare Prime, TriCare Standard, TriCare Extra, TriCare Reserve Select, and TriCare Dental).

TriCare

The TriCare program is a managed health care program established by the Department of Defense as authorized by 10 U. S. C. § 1097. TriCare preferred provider networks may be established in a variety of ways, including modifying the agreement with a contractor to add TriCare program functions to their existing responsibilities (132 CFR § 199. 17(p)(7)).

The Secretary of Defense must enter into arrangements with contractors for timely, efficient claims processing (10 U. S. C. § 1074(B)). The secretary may contract with (1) health maintenance organizations, preferred provider organizations, health care providers, medical facilities, and insurers for the delivery of health care services and (2) other managed health care programs to coordinate an enrollee's dual coverage under other coverage plans and TriCare (10 U. S. C. § 1097(a) and (d)).

By law, the secretary is permitted to prescribe cost-sharing requirements for enrollees, including premiums, deductibles, copayments, or other charges for health care provided through the TriCare program (10 U. S. C. § 1097(e)).

There are three TriCare geographical regions in the United States—North, South, and West. Health Net Federal Services, Inc. (Health Net) is the current TriCare regional contractor for the North region, which includes Connecticut.

Provider Reimbursement under TriCare

The law requires the secretary to determine the appropriate reimbursement rate for health care services (10 U. S. C. § 1079(h)(1)). It also permits him to reimburse providers at rates higher than otherwise authorized if he determines that the higher rates are necessary to assure that program enrollees have adequate access to health care (10 U. S. C. §§ 1079(h)(2) and 1097b(a)(1)). He may also reimburse at a rate lower than otherwise authorized, with a provider's consent (10 U. S. C. § 1079(h)(3)).

In general, provider reimbursement may not exceed the lesser of (1) the usual, customary, and reasonable charge for the service in the local area and (2) 115% of the TriCare maximum allowable charge for the service (10 U. S. C. § 1097b(a)(2)). Regulations identify the various provider reimbursement methods the secretary is to use and the rules for adjusting the maximum allowable charge for geographic location (10 U. S. C. § 199. 14). The various reimbursement methods and rules factor in those used for Medicare. As a result, TriCare reimbursement rates are generally similar to Medicare's but can differ.

With respect to preferred provider networks, the secretary may establish reimbursement rates and methods that are different from those just discussed. These special reimbursement methods for network providers may be expressed as a percentage discount off the maximum allowable charge, or in other terms. Reimbursement rates for network hospitals may be based on discounts from the national or regional prevailing rates (32 CFR § 199. 17(p)(7)).

Provider Participation in TriCare

There are three ways a health care provider can be involved with TriCare—by being an authorized, participating, or network provider.

Authorized Provider. TriCare will only pay claims for services rendered by a provider who has been authorized to provide care under TriCare. The TriCare regional contractor sets the terms and conditions for certifying that a provider meets the requirements to be an authorized provider for TriCare enrollees. Gaining authorization is a necessary requirement for a provider to participate in TriCare.

An authorized provider may or may not agree to “accept assignment,” which means accepting the TriCare maximum allowable charge (TMAC) as reimbursement (payment-in-full) for services rendered. An authorized provider may accept assignment, or not, on a case-by-case, claim-by-claim basis.

Participating Provider. A “participating provider” is an authorized provider who accepts assignment for all TriCare claims or "accepts TriCare on assignment” (i. e. , accepts TMAC on a claim-by-claim basis). A participating provider has agreed to accept TMAC as payment-in-full for medical services rendered.

By law, an authorized provider who does not accept assignment (i. e. , is an authorized non-participating provider) may charge no more than 15% percent above TMAC.

Network Provider. A “network provider” is an authorized provider who has entered into a contractual agreement with the TriCare regional contractor to serve TriCare enrollees as part of the contractor's network of providers and facilities. Under the contract, the provider agrees to accept a negotiated rate as payment-in-full for medical services rendered.

FEDERAL PREEMPTION OF STATE AND LOCAL LAW

Federal CHAMPUS/TriCare law and regulations preempt state and local laws and regulations relating to health insurance, health care plans, or other health care delivery or financing methods for contracts entered into under such federal provisions (10 U. S. C. § 1103 nt; 32 CFR §§ 199. 1(d) and 199. 17(a)(7)).

Under federal regulations, the preemption provision includes the preemption of laws imposing premium and similar taxes on insurers or other plan managers. However, it does not apply to taxes, fees, or other payments on the net income or profit realized by such entities relating to Department of Defense (DoD) health services contracts, if the taxes, fees, or other payments apply to a broad range of business activity. Further, interpretations regarding the federal preemption of state and local taxes and fees applicable to DoD health services contracts must be consistent with those under the Federal Employees Health Benefits Program (32 CFR § 199. 17(a)(7)(iii)).

CONNECTICUT LEGISLATIVE PROPOSALS

Connecticut legislators have proposed five bills in recent years that attempt to increase the number of health care providers participating in the TriCare program. The bills are summarized in the below table.

Table 1: Proposed Bills Requiring TriCare Participation

With respect to the three bills requiring Dempsey Hospital or other providers to “accept” TriCare (SB 471, SB 580, and SB 1031), it is unclear if this means the hospital or provider only has to become an authorized provider, or a participating or network provider. The other two bills (HB 5045 and HB 6384) appear to require a provider to become an authorized provider and either a participating or network provider.

Each of the bills had public hearings, except for HB 5045 (2005). None of the bills received a committee joint favorable report.

It is uncertain whether a law mandating provider participation in the TriCare program would survive a federal preemption challenge.

OREGON INCOME TAX INCENTIVES FOR TRICARE PHYSICIANS

Based on our research, Oregon is the only state offering income tax incentives to providers who contract to see patients enrolled in TriCare. Oregon recently passed HB 3201, an omnibus tax bill that Governor Theodore R. Kulongoski signed into law on July 31, 2007. It goes into effect on September 27, 2007.

Tax Credits

The law allows a one-time $ 2,500 personal income tax credit for a health care provider who enters into a contract for the first time on or after January 1, 2007 to provide health care services to TriCare enrollees. (Presumably this applies to a person who enters a contractual agreement with the regional administrator to be a network provider. )

It also allows a $ 1,000 personal income tax credit for a provider who “actively participates” in TriCare and provides services to at least 10 TriCare enrollees in the tax year, except providers in rural areas are exempt from the patient volume requirement. (It is unclear if “actively participates” means a provider must be an authorized provider, or if he or she has to be a participating or network provider to receive the credit. )

The law prohibits a provider from receiving both tax credits in the same tax year. It makes the tax credits available on a prorated basis to a nonresident provider working in Oregon and one whose state residency changes midyear.

The tax credit provisions are applicable to tax years beginning January 1, 2008 and before January 1, 2012 (HB 3201, §§ 5 & 7).

Tax Deduction

When determining taxable state income, the Oregon law allows a provider participating in TriCare to deduct the amount the TriCare health care system paid him or her during the first two years of such participation.

The deduction provision is applicable to tax years beginning January 1, 2007 and before January 1, 2012 (HB 3201, §§ 1, 2a, 7, & 10).

Determining and Limiting the Number of Eligible Providers

The law requires the Office of Rural Health (ORH) to establish criteria for certifying that a provider is eligible for the authorized tax credits and deduction. It prohibits ORH from (1) issuing more than 500 certifications in any calendar year and (2) certifying more than 1,000 providers before December 31, 2009. ORH must report the number of providers eligible for the $ 1,000 tax credit to the interim legislative revenue committees annually by October 1 (HB 3201, §§ 6(1) & 6(2)).

The law also requires the TriCare regional contractor for Oregon (currently TriWest Healthcare Alliance) to report the number of patients each provider has contracted to serve to ORH annually by December 31 (HB 3201, § 6(3)).

Fiscal Impact

The fiscal impact of the Oregon tax credits and deduction is unknown. The fiscal analysis for HB 3201 indicates that:

1. the Legislative Fiscal Office was unable to verify the number of providers who currently have TriCare contracts;

2. the number of new providers who would enter a TriCare contract, which means accepting reimbursement rates similar to Medicare, in order to receive the tax benefits is unknown; and

3. the fiscal impact to ORH is indeterminate (Oregon Legislative Fiscal Office's fiscal analysis of HB 3201 dated June 21, 2007).

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