History of MEWAs

MEWAs originated to provide small employers access to affordable health care coverage for their employees. By pooling risk across multiple employers, MEWAs have a lower  underwriting risk and are eligible to purchase a more affordable policy from a health insurer. Historically, promoters of these arrangements have argued they were subject to ERISA and exempt from state insurance regulation. As a result of ERISA preemption, MEWAs avoided state reserve and contribution requirements. While many MEWAs provided the promised benefits, others were unable to pay claims due to insufficient  funding or reserves. In some circumstances, employers realized too late that the promotors drained the plan’s assets through excessive administrative fees or embezzlement.

In response, Congress amended ERISA in 1983 to grant states the power to enforce state insurance laws against MEWAs, regardless of whether the MEWA was self-funded or fully-insured. Even with the amendment, MEWAs often remained underfunded and susceptible to promotors’ fraudulent practices. Because of he high propensity of abuse, the Patient Protection and Affordable Care Act, among other things, expanded the Department of Labor’s (DOL) reporting program (Form M-1) and gave the Secretary of Labor additional enforcement authority when confronting a fraudulent or severely underfunded plan.

Accidental MEWAs

To become a MEWA, a plan needs only to cover employees of two or  more employers. Because intent is irrelevant, an employer can find itself inadvertently creating a MEWA if it allows employees of other employers or nonemployees to participate in its welfare plan. For example, if an employer allowed its independent contractors to participate in its welfare plan, the plan would be classified as a MEWA. Or, in the context of a corporate transaction, an employer could create a MEWA if it allowed employees who were transferred to an unrelated buyer to stay on the seller’s medical plan.

Once a MEWA, a plan can face penalties of more than $1,500/day for failing to timely file the DOL’s Form M-1, regardless of whether the plan administrator was aware of the requirement. Further, the plan would be subject to state laws and state enforcement, leading to a greater administrative burden requiring the reconciliation of federal and, potentially, multiple states’ laws.

Professional Employer Organizations (PEOs), Staffing and Leasing Companies

Often businesses look to Professional Employer Organizations (PEOs) and/or staffing and leasing companies for cost-effective labor or to outsource certain business functions. Generally, the leasing firm is responsible for paying the leased employee and providing benefits. In many circumstances, however, the recipient business controls and directs the work performed. Depending on the extent of the relationship, the recipient business may be considered the common law employer of the leased employee. The leasing company would then be providing benefits not only to its own employees but to employees of other employers (e.g., the recipient business). If the leasing company is not a common law  employer or joint employer of the leased workers, the leasing company’s plan would be covering employees of two employers, so it would be classified as a MEWA and subject to M-1 filing and state regulation.

Given that these types of arrangements can quickly turn a single-employer plan into a MEWA, PEOs, staffing and leasing companies should periodically examine their plans, including eligibility criteria, as well as the relationships between their leased employees and recipient businesses. This situation is not limited to organizations explicably defined as PEOs, staffing or leasing companies. Other similarly structured businesses should also consider reviewing whether their plans fit the criteria of a MEWA. The consequences of maintaining a MEWA without knowing it can be expensive with no opportunity to remedy late filings.

Associations

Association Health Plans (AHPs) are another arrangement where employers inadvertently enter into a MEWA. Originally devised as a way for small businesses to obtain affordable health care coverage for themselves and their employees, AHPs are receiving more attention due to a recent Executive Order (October 12, 2017) and Proposed Regulations (January 5, 2018). In these arrangements, small businesses purchase health  through bona fide trade and/or professional associations. Many professional or trade associations were created to further common interests and incidentally offered AHPs as a benefit to their members. Other associations were created for the purpose of selling health insurance. Generally, member-employers pay premiums/contributions to the association and the association either purchases a fully-insured health plan from an insurer or self-funds a plan. However, since the AHP would be covering employees of multiple employers, the AHP would be classified as a MEWA, and subject to the additional regulation.

The recent proposed regulations reiterated that AHPs would retain their MEWA status and be subject to state insurance laws, pending further guidance. Until DOL issues additional guidance, employers and associations should review their plans and confirm they are complying with applicable state and federal laws, including the Form M-1 filing.

While MEWAs can certainly be a useful arrangement, they should be entered into knowingly, with full understanding of the increased scrutiny and administrative burden. Plan sponsors should review their plans and eligibility requirements to confirm their status as either a single-employer plan or MEWA. Plan sponsors concerned with or unsure about their status should contact legal counsel to determine how to best structure their plans.

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