The U.S. Defense Department has awarded multiyear contracts worth $58 billion to Humana and Centene Corp. to manage Tricare, surprisingly booting incumbent health insurer UnitedHealthcare in the process.
Humana's five-year deal, which consists of five one-year options, is estimated to cost federal taxpayers $40.5 billion. Centene and its newly acquired Health Net will receive $17.7 billion over five one-year contract periods.
In 2014, the Defense Department and Defense Health Agency decided to alter the structure of the Tricare program, which provides health coverage for U.S. military members and their families. Instead of dividing Tricare into three regions (North, South and West), the government wanted to consolidate to two coverage areas (East and West).
Humana, which had managed the South region, will now provide coverage for 6 million Tricare members in the new 32-state East region, essentially absorbing most of UnitedHealthcare's members. Centene will gain the 21-state West region, which covers about 3.4 million people. Iowa, Missouri and Texas will include both companies.
The contracts are expected to start April 2017, pending the appeals process.
Bruce Jasurda, a spokesman for UnitedHealthcare's military and veterans division, said the company is “evaluating next steps,” although he did not specify whether UnitedHealthcare would appeal the decision. UnitedHealthcare, the health insurance arm of UnitedHealth Group, had about 3 million Tricare members in 2015, and the contract brought in about $650 million of annual revenue, according to Wall Street estimates.
“We remain committed to serving the healthcare needs of our country's military service members, retirees and their families,” Jasurda said in a statement.
The Tricare contract award was a piece of good news for Humana on Thursday, which also was the day the U.S. Justice Department formally moved to block Humana's pending merger with Aetna.