The DOL might finally be getting serious about regulating certain abusive welfare "plans", but your best defense is to avoid these plans in the first place.
Background
For many years, promoters and others have established and operated multiple employer welfare arrangements (MEWAs) as vehicles for marketing health and welfare benefits to employers.
Promoters typically represent these plans as subject to ERISA and therefore exempt from state insurance regulation. To add substance to the ERISA claim, promoters sometimes establish a "union" to house the plan participants, and, if regulators start to ask questions, they sometimes move large blocks of "members" from one union to another.
Many plans are characterized by "associate members", many of whom have not idea that they are "union members".
Greatest danger of MEWAs: promoters who generate large fees/commissions to themselves in the early periods, plans that are underpriced, and therefore can not meet claims when they start to accumulate, difficulty of state insurance regulators to establish authority. Plans collapse when they run out of funds, participants' claims are left unpaid, and promoters set up a new union and start over.
Some MEWAs serve a legitimate purpose often this is the best selling tool a union can offer in trying to organize new members. A legitimate plan must be actuarially sound.
In general, if a plan is adequately funded and members are receiving the benefits promised under the plan, DOL is likely to leave it alone.
Questions to ask if someone is selling you a MEWA:
1. If a union is involved, is it a legitimate union? How long has it been around, and what groups does it represent? Do "union members" receive any benefit form their membership other than eligibility for the health plan? Is the union involved in genuine collective bargaining?
2. Where does your money go? Who is making a profit from your participation, and how much? Look at the plan's financial statements and Form 5500; generally, no more than 15% of employer contributions should be paid out in administrative expenses, commissions, etc.
3. Is the plan actuarially sound? If prices are too low, the plan can't survive. (If it sounds too good to be true, it probably is.)
4. If the plan includes stop loss coverage, who is underwriting the policy; are they licensed for stop loss in your state?
Attempts to Regulate MEWAs
In 2000, DOL introduced Form M-1, which is a required annual report for MEWAs and certain Enties Claiming Exemption ("ECEs'), which includes certain collectively bargained welfare plans. Penalties for noncompliance may be as high as $1,000 per day.
For this purpose:
A MEWA is a multiple employer welfare arrangement, a welfare plan established for the purpose of providing a welfare benefit to employees of two or more employers, except that a MEWA excludes any plan established or maintained 1) pursuant to one or more agreements that the Secretary of Labor finds to be collective bargaining agreements, 2) by a rural electric or rural telephone cooperative association.
An ECE is an "entity claiming exemption" from MEWA status based on a collective bargaining agreement. ECEs must file Form M-1 for three years following an "origination", and an ECE can have multiple originations.
Origination occurs whenever:1) an entity first begins offering coverage, 2) coverage is offered after a merger, if any entity in the merger is less than three years old, or 3) an entity grows more than 50% in a single year, excluding a merger.
If your plan is collectively bargained, and has not had an origination in the last three years, you are not required to file. Even so, you should become familiar with the form, especially with the compliance worksheets
In 2011, DOL announced proposed rules for more regulation. Under the proposed rules:
MEWAs must register with DOL prior to operating in a state, or be subject to substantial penalties.
DOL will be able to issue cease and desist orders in cases of apparent fraud or risk of loss.
DOL could seize the assets of a MEWA when it is probable the plan is "in financially hazardous condition."
The preregistration requirement appears to indicate a new focus by DOL on tracking MEWAs and their principals as they reorganize in different forms and in different states, and the powers to shut down a MEWA and seize its assets is an indication that DOL might finally be getting serious about protecting participants from scam insurance marketers.
More information about the proposed rules and Form M-1 reporting can be found on the DOL website.
