Secretary of Labor Hilda Solis
The U.S. Department of Labor (DOL) has published two proposed rules under the Patient Protection and Affordable Care Act to help prevent multiple-employer welfare arrangements (MEWAs) from defrauding consumers.
The rules, published in the Dec. 6, 2011, Federal Register, are "Filings Required of Multiple Employer Welfare Arrangements and Certain Other Related Entities" and "Ex Parte Cease and Desist and Summary Seizure Orders-Multiple Employer Welfare Arrangements." They would require MEWAs to meet enhanced reporting requirements and would expand the DOL's enforcement authority to protect participants in such plans by allowing the department to shut down and collect assets from MEWAs engaged in fraud.
The comment period for both rules ends on March 5, 2012. [Update: EBSA extended until March 19, 2012, the comment period on its proposed rule requiring MEWAs to register with the department.]
What's a MEWA?
The MEWAs in the DOL's crosshairs are not multiemployer "Taft Hartley" pension plans co-managed by management and union representatives. And they should not be confused with defined contribution multiple employer plans (MEPs), which provide a way for 401(k) plan sponsors to band together to reduce costs and compliance burdens.
Instead, a MEWA provides health benefits to the employees of two or more unrelated employers—typically small businesses seeking to provide health care to their workers at a lower cost than traditional forms of coverage.
Because a MEWA is a health and welfare plan covered by the Employee Retirement Income Security Act (ERISA), it is exempt from state insurance regulation under ERISA’s broad pre-emption provisions. By avoiding state requirements applicable to insurance companies, MEWAs often are able to offer insurance coverage at rates substantially below those of regulated insurance companies, making the MEWA an attractive alternative for small businesses finding it difficult to obtain affordable health care coverage for their employees.
MEWAs’ Checkered Past
In practice, however, a number of MEWAs have been unable to pay claims as a result of insufficient funding and inadequate reserves. And in the worst situations, they were operated by individuals who drained the MEWA’s assets through excessive administrative fees and outright embezzlement, the department said.
“MEWAs frequently have been used by scam artists and criminals to defraud consumers, resulting in an inability to pay medical claims,” Secretary of Labor Hilda Solis said at a news conference announcing the proposed rules. The insolvent MEWAs then leave consumers with substantial unpaid medical bills. “For employers or employee organizations that have paid premiums or made contributions to a MEWA and thought they were doing the right thing for their workers and their families, the impact can be significant,” Solis said.
In the past two decades, the DOL has initiated 800 civil investigations and more than 300 criminal probes, but often it has been unable to prevent the operators of the plans from draining assets of the plans through a variety of schemes. The people who promote and operate the plans often divert premiums for their use, leaving employers and individuals stuck with unpaid claims, Solis said.
In some cases, the MEWA might have lacked sufficient resources or financial and administrative expertise to carry out contractual and legal obligations. These plans will also be considered fraudulent and targeted under the new rules.
The DOL estimates that more than 2 million Americans are enrolled in hundreds of MEWAs, but the actual number of MEWAs is not known and neither is the percentage of bad actors in the group.
Under the proposed rules:
• MEWAs must register with the DOL prior to operating in a state or be subject to substantial penalties. This step will allow the DOL to track MEWAs as they move from state to state and to identify their principals, which will provide the DOL with important information regarding potentially fraudulent MEWAs. The lack of licensure or registration made MEWAs a fertile opportunity for fraud, according to the DOL. The Form M-1 has been revised substantially for this purpose; it will be filed electronically with the department and posted on the DOL's website for consumers to study.
• The secretary of labor could issue a cease-and-desist order, without prior notice or hearing, when it appears that the alleged conduct of a MEWA is fraudulent, creates an immediate danger to the public safety or welfare, or is causing or can be reasonably expected to cause significant, imminent and irreparable public injury.
• The secretary of labor could issue a summary seizure order and seize assets from a MEWA when there is probable cause that the plan is in a financially hazardous condition.
“This will allow us to go in there early before the money is gone and everybody is left in the lurch,” said Phyllis Borzi, assistant secretary of labor for the DOL's Employee Benefits Security Administration (EBSA). “EBSA will continue to work with the state insurance agencies to get in early, shut down fraudulent operators and seize whatever assets are there,” she added.
Roy Maurer is a staff writer for SHRM.