By: HUB’s EB Compliance Department

We’ve all heard the saying, “If it sounds too good to be true, it probably is.” When it comes to health benefits, this principle is sometimes manifested by a new provider who claims to have cracked the code on aggregating smaller employers and bringing down premiums. While these are admirable goals, they have to be done in a compliant way. In some cases, the plans offered in this space are not.

The Hook

Ever since the federal courts invalidated parts of the Trump administration’s association health plan rule, providers of these schemes have marketed “workarounds” that supposedly aggregate risk and bring down costs. They often target groups with low participation rates. However, in many cases the net result is that the plan is a self-funded multiple employer welfare arrangement or “MEWA.” 

A ME-What?

A MEWA is an arrangement where multiple, unrelated employers sponsor what is intended to be a single health plan for all of their employees. While MEWAs are not illegal per se, they have historically been fraught with issues. In the 80s and 90s, many MEWAs went bankrupt and were unable to pay claims. As a result, Congress amended ERISA to allow states to regulate MEWAs. This means that self-funded MEWAs do not benefit from ERISA preemption of state laws. In response, many states have regulated MEWAs very tightly, either prohibiting self-funded MEWAs from operating in their state after a specific date (e.g., CA,CO) or requiring them to comply with insurance carrier funding, reserve, and reporting obligations (many states). As a result, MEWAs are subject to a patchwork of state regulations that makes it difficult, if not impossible, for them to operate nationally.

Additionally, Congress amended ERISA as part of the Affordable Care Act to increase penalties for MEWAs that do not comply with certain federal rules. With overlapping regulations and the historical concerns, employers should always tread carefully and be skeptical of any claims made by someone promoting a MEWA (or any arrangement that resembles a MEWA).

A MEWA by any Other Name

In most cases, the promoters will not advertise their plan as a MEWA, but rather as a purchasing alliance where employers are asked to delegate the administration of their plans to a third party (purported trustee) or are asked to remit premium dollars to a single source and those funds are being aggregated into a single account. In either case, the arrangement is most likely a MEWA. These schemes often gloss over (or ignore) the state requirements described above. They will represent that the arrangement is “fully-compliant” often without a complete understanding of what that means. The promoters of these arrangements generally rely on the sales pitch of saving money and providing limited details hoping that the savings alone will be enough to persuade potential employers to join. 

Features to Watch Out For

There is no single template for these types of arrangements and they often try to incorporate features that, in other contexts, are perfectly legitimate, but are being applied incorrectly. These may include some or all of the following:

  1. The plan is offered by an association or employer coalition. To participate in the program, the employer is required to be a member of an association or coalition of employers in related or unrelated industries. This is not alone a cause for concern. Many associations, for example, may have legitimate group purchasing arrangements where employers can receive discounted services. Some even offer MEWAs (often, fully-insured ones) in states where they can. In both cases, these are usually limited to members of a particular industry group.
  2. The plan is “level-funded”. Level funding is not, by itself, a problem if done properly as we detailed here. However, with these self-funded MEWAs, the promoters often say that the employer’s “only” liability is the payment of the premium. There is no true-up element after the end of the year, which is not typical of level-funded plans. 
  3. Funds are paid to a trust or collective account. Again, a trust is not inherently non-compliant (and in some cases, is actually required unless certain requirements are met). However, with these self-funded MEWAs, the employer’s premiums are going into a master trust (or sometimes just a collective bank account). Initially, the employer’s claims may be paid from a sub-trust that is in the employer’s name, however the trustee is not the employer. Then, if claims exceed the balance in that sub-trust, the master trust (or collective account) acts like a stop loss carrier and pays the excess. Sometimes the master trust actually obtains stop loss for itself. This is problematic because the master trust is aggregating dollars from multiple employers (and presumably includes employee contributions). As a result, it is a self-funded MEWA.
  4. Inflexible plan designs. The plans involved are sometimes “off the shelf” with little or no modification. Part of the “cost savings” the plans advertise is based on the design (meaning the design is usually limited). However, in some cases, the plan may have provisions that violate the law (like annual dollar limits on certain essential health benefits or excluding all pregnancy benefits) or that are very aggressive. Additionally, one of the benefits of self-funding is being able to modify your plan design (within legal limits). Therefore, the inflexibility seems to run counter to the advertisement that the plan is self-funded or level-funded.
  5. Mandated TPAs. The plans will usually have a required TPA that the employer must use. In fact, in many cases, the employer does not have a direct contract with the TPA, but instead delegates the authority to hire the TPA to the master trust or another service provider. The employer just signs a participation agreement or signs onto some master agreement. This is a red flag. As ERISA fiduciaries, employers should have oversight over their plan service providers. If they cannot even be involved in the selection or monitoring of the TPA, that limits their ability to provide oversight.
  6. No stop-loss/insurance policy for the employer. If a plan is actually level-funded, then there should be a policy issued by an insurance carrier to the employer. Alternatively, self-funded employers can also purchase stop-loss insurance directly from a stop-loss carrier to cover claims over certain thresholds. Either approach can be done in a compliant way. However, with these MEWAs, the stop-loss policy may be issued in the name of the master trust or in some cases the TPA. They may even secure the stop loss through a captive insurer that the TPA or another provider in the arrangement owns. Captives are not prohibited per se, but if a plan fiduciary is using a captive it owns or controls to provide stop loss insurance, a prohibited transaction exemption from the U.S. Department of Labor is required.

What to Do?

A second (or sometimes third or fourth) look at these arrangements usually pays off. Many times, if the promoters are asked direct questions (such as, “Is this a MEWA?”) they won’t fully answer the question or may say “no”. Instead, employers need to ask questions to try and ferret out some of the above features or other concerns, such as:

  1. How are claims paid? Do I need to establish a trust?
  2. Can you describe the flow of funds from employers to the TPA, stop-loss carrier and healthcare providers?
  3. If I want to adopt my own plan design, can I? Can I amend my plan at any time?
  4. Can I have a direct relationship with the TPA? Will I receive an ASO agreement from the TPA?
  5. Who has fiduciary responsibility for the plan?
  6. Can I see copies of plan documents and stop loss policies? (If the answer is “no”, that’s a red flag.)
  7. Who holds the premiums I pay for the level-funded plan?
  8. How many other employers are participating in the program?
  9. Can you provide any U.S. Department of Labor or state department of insurance rulings on this arrangement? This question is especially important if the promoter claims that the DOL or a state agency as “signed off on” or “approved” the plan. In many cases, the promoter cannot actually prove that claim and relies instead on unofficial statements that cannot be independently verified.

While there’s no silver bullet for identifying a non-compliant MEWA, the above-listed features, or the vendor’s resistance to respond to the suggested questions and provide supporting documentation, should raise a concern. Employers encountering these schemes should examine them closely before jumping in. They can also contact their HUB advisor who can put them in touch with various HUB resources that can assist in the evaluation of these programs.

If you have any questions, please contact your HUB Advisor. View more compliance articles in our Compliance Directory. 

NOTICE OF DISCLAIMER 

Neither Hub International Limited nor any of its affiliated companies is a law or accounting firm, and therefore they cannot provide legal or tax advice. The information herein is provided for general information only, and is not intended to constitute legal or tax advice as to an organization’s or individual's specific circumstances. It is based on Hub International's understanding of the law as it exists on the date of this publication. Subsequent developments may result in this information becoming outdated or incorrect and Hub International does not have an obligation to update this information. You should consult an attorney, accountant, or other legal or tax professional regarding the application of the general information provided here to your organization’s specific situation in light of your or your organization’s particular needs.