The Tricare Twist

Pentagon to pay new contractor $200 million more while upping fees for military retirees

March 19, 2012

The Pentagon has agreed to pay a health care provider about $200 million more than a competing contractor’s bid for military retirees’ Tricare services at the same time as it is asking retirees to pay large increases for their care.

UnitedHealthcare won the bid last week over TriWest, the health care provider for retirees in 21 western states since 1996, despite TriWest’s bid on the three-year, $20.4 billion contract that was about $200 million less than UnitedHealth’s winning offer, according to a source close to the competition.

"We are extremely disappointed that the Department of Defense chose to reverse their decision [in awarding the contract]," said David J. McIntyre Jr., president and CEO of the TriWest Healthcare Alliance in a statement issued Friday.

"For the past 16 years, we have worked tirelessly and with the highest levels of respect to meet the healthcare needs of West Region military families who have very much become our family."

McIntyre said details on the losing bid and the Pentagon’s reasons for picking UnitedHealthcare will be disclosed later this week.

Members of Congress are expected to be briefed on the Tricare west region contract as early as Wednesday.

House Armed Services Committee Chairman Rep. Howard P. "Buck" McKeon has been an outspoken critic of a Pentagon plan to sharply increase fees for Tricare, calling the plan another "hit" on the military by the Obama administration, which is cutting $487 billion in defense spending over 10 years and may cut an additional $600 billion under congressional budget-cutting legislation.

Pentagon spokeswoman Cynthia O. Smith defended the awarding of the contract to UnitedHealthcare.

"All proposals were carefully considered and rated based on technical proficiency, past performance, and price," she told the Free Beacon.

"The source selection team originally rated TriWest’s proposal as delivering the best overall value considering these factors. Once [the Tricare Management Activity] requested new information and proposal updates, the new information, carefully considered by the TMA procurement team, resulted in a different ‘best value’ selection."

Smith said the price for the contract to UnitedHealth was $20.4 billion, compared to an original price of $16.9 billion paid in 2009 to TriWest and "reflects the increased cost of health care as we moved the period of performance out by three years."

The contract covers Tricare’s western region and will start April 1. Under the contract, $1.1 billion will go to administrative fees while $19.3 billion represents estimated costs of health care, Smith said.

Lori C. McDougal, chief executive officer of UnitedHealth Military & Veterans Services, said in a statement to the Free Beacon Sunday night that the company believed service members and their families will benefit from the Pentagon’s careful consideration of the contract, "given the need to provide the highest quality of care while also controlling health care costs."

"We are committed to working with the Department of Defense to ensure beneficiaries have access to cost-effective, quality, and innovative care, and we are grateful for the opportunity to deliver exceptional care and service for Tricare beneficiaries in the West Region," McDougal said.

The Pentagon’s plan to cut Tricare benefits, which must be approved by Congress, is based on what defense officials have said is skyrocketing costs for military healthcare.

The Free Beacon first reported the health care cost increases Feb. 27. The cost increases, according to the Pentagon, target under-65 retirees and Medicare-eligible military retirees using a three-tiered increase in annual Tricare premiums based on yearly retirement pay.

Increases in premiums range from between 30 percent and 78 percent for the first year and over five years will boost costs from 94 percent to 345 percent.

The plan hits retired military officers harder than enlisted personnel. For example, according to congressional assessments, a retired Army colonel with a family currently paying $460 a year for health care will pay $2,048.

For many retirees, the plan to increase expenses represents a reversal of promises made to troops to provide free or low-cost health care for life.

McIntyre, the TriWest president, said: "While we wait to learn about the basis for the government’s decision, it is important to all of us at TriWest that military families in the West Region continue to receive the exemplary customer service they have become accustomed to over the last several years."

"TriWest will continue to deliver on the promise of TRICARE throughout this challenging transition period."

USA Today, which first reported TriWest’s losing contract bid, also reported that TriWest was fined $10 million by the Justice Department in February after former TriWest employees alleged the company had improperly billed Tricare and did not conduct proper checks and authorizations in order to avoid paying late fees.

However, according to the American Medical Association’s 2010 Report of Health Insurer Fines Issued by State Regulatory Agencies, from 1997 to 2009 UnitedHealthcare was fined over $42.5 million by government regulators and prosecutors in 14 states for improper practices.

Tricare’s west region includes Alaska, Arizona, California, Colorado, Hawaii, Idaho, Iowa, Kansas, Minnesota, Missouri, Montana, Nebraska, Nevada, New Mexico, North Dakota, Oregon, South Dakota, Utah, western Texas, Washington, and Wyoming.

Defense Secretary Leon Panetta defended the health care cost increases during a House hearing Feb. 29, telling lawmakers that fees have not been increased since 1990. "We’ve looked at … the retirement area with the proviso that we grandfather those benefits so that those that are serving will not lose the benefits that were promised to them, but at the same time try to look at what reforms can be made on retirement for the future," he said, calling the increased "a tough and challenging responsibility."

Republican congressional aides noted that Pentagon officials said during briefings last month on the health care cuts that one objective of the increases was to move military retirees from Tricare to Obamacare, the new nationalized healthcare system.