Tricare, the healthcare program that covers U.S. military personnel and their dependents, is planning a change that could leave one of the three insurers it now contracts with out in the cold starting in 2017, according to a new draft request for proposals from the program released recently.
Tricare, which is managed by the Defense Health Agency within the Defense Department, now contracts with three private insurers to administer health benefits to military members and their families. They receive care at facilities within the Military Health System.
UnitedHealthcare manages the West region, Humana covers the South region, and Health Net oversees the North region. The 9.2 million Tricare beneficiaries are spread out roughly evenly among the three companies.
However, starting in April 2017, the North and South regions will be combined into an East region, leaving only two coverage areas, according to a draft request for proposals. Iowa, Missouri and Texas each will be split across the West and East regions (PDF).
Justin Lake, an analyst at J.P. Morgan Securities, wrote in a research note that the new bid could potentially hurt Health Net the most because Tricare represents a larger portion of its overall business. Health Net's Tricare contract, which brings in $448 million of revenue annually for the insurer, has a 13.5% operating margin and an earnings-per-share value of 45 cents, Lake estimated.
Humana has a 10.4% operating margin on its $442 million annual Tricare award, with 18 cents in earnings per share. UnitedHealthcare's yearly contract rakes in $280 million with a 12% margin, but only has an earnings-per-share value of 2 cents, he estimated.
“Given the company's relatively smaller size, Tricare is most significant by far to” Health Net, Lake said.
Of course, there's no guarantee each insurer will retain any of the business. UnitedHealthcare is in a “more favorable position to maintain its West contract,” but Humana and Health Net will likely have to fight off Aetna, a consortium of Blues plans and TriWest Healthcare Alliance, Lake suggested.
The bidding process is far from beginning, meaning the government can still change the structure of the contract. And no timeline was given for when a final bid proposal will be released, nor were financial terms disclosed. All feedback on the draft is due by Dec. 8. Defense Health Agency officials weren't available for further comment.
Follow Bob Herman on Twitter: @MHbherman
