• For years, businesses joined together to create MEWAs, allowing them to reduce coverage costs by purchasing health coverage as a large group.
• Claiming they were covered by ERISA and thereby exempt from state insurance rules with regards to reserves and contribution, MEWAs were able to undercut other state regulated health insurance companies.
• Congress eliminated the state regulation exemption in 1983 and in 2010 the ACA strengthened reporting requirements for MEWAs, required registration of MEWAs with the DOL, and provided DOL with enforcement tools, including the authority to issue an ex parte cease-and-desist order when a MEWA engages in fraudulent conduct and issue a summary seizure order when a MEWA is in a financially hazardous condition.

A Multiple Employer Welfare Arrangement (MEWA) is one in which businesses band together to purchase health coverage as a large group. For many years, promoters and others have established and operated MEWAs, also described as “multiple employer trusts” or “METs,” as vehicles for marketing health and welfare benefits to employers for their employees.

Avoidance of state insurance regulation

Promoters of MEWAs have typically represented to employers and state regulators that the MEWA is an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA) and, therefore, exempt from state insurance regulation under ERISA’s broad preemption provisions.

By avoiding state insurance reserve, contribution, and other requirements applicable to insurance companies, MEWAs are often able to market insurance coverage at rates substantially below those of regulated insurance companies. This concept makes the MEWA an attractive alternative for those small businesses finding it difficult to obtain affordable health care coverage for their employees.

In practice, however, some MEWAs have been unable to pay claims because of insufficient funding and inadequate reserves. Or in the worst situations, were operated by individuals who drained the MEWA’s assets through excessive administrative fees and outright embezzlement.

Congress makes MEWAs subject to state regulation

Recognizing that it was both appropriate and necessary for states to be able to establish, apply and enforce state insurance laws with respect to MEWAs, the U.S. Congress amended ERISA in 1983 to provide an exception to ERISA’s broad preemption provisions for the regulation of MEWAs under state insurance laws.

While the 1983 ERISA amendments were intended to remove federal preemption as an impediment to state regulation of MEWAs, MEWA promoters and others have continued to create confusion and uncertainty as to the ability of states to regulate MEWAs by claiming ERISA coverage and protection from state regulation under ERISA’s preemption provisions. Obviously, to the extent that such claims have the effect of discouraging or delaying the application and enforcement of state insurance laws, the MEWA promoters benefit and those dependent on the MEWA for their health care coverage bear the risk.

Regulation under the ACA

In 2010, the Patient Protection and Affordable Care Act (ACA) established a multipronged approach to MEWA abuses. Improvements in reporting, together with stronger enforcement tools, are designed to reduce MEWA fraud and abuse. These include expanded reporting and required registration with the Department of Labor (DOL) prior to operating in a state. The additional information provided will enhance the state and federal governments’ joint mission to prevent harm and take enforcement action. The ACA also strengthened enforcement by giving the DOL authority to issue an ex parte cease-and-desist order when a MEWA engages in fraudulent or other abusive conduct and issue a summary seizure order when a MEWA is in a financially hazardous condition.

Current regulation under ERISA

ERISA covers only those plans, funds or arrangements that constitute an “employee welfare benefit plan,” as defined in ERISA Section 3(1), or an “employee pension benefit plan,” as defined in ERISA Section 3(2). By definition, MEWAs do not provide pension benefits; therefore, only those MEWAs that constitute “employee welfare benefit plans” are subject to ERISA’s provisions governing employee benefit plans.

Under current law, a MEWA that constitutes an ERISA-covered plan must comply with the provisions of Title I of ERISA applicable to employee welfare benefit plans, in addition to any state insurance laws that may apply to the MEWA. If a MEWA is determined not to be an ERISA-covered plan, the persons who operate or manage the MEWA may nonetheless be subject to ERISA’s fiduciary responsibility provisions if such persons are responsible for, or exercise control over, the assets of ERISA-covered plans. In both situations, the Department of Labor would have concurrent jurisdiction with the state(s) over the MEWA.