Employee Retirement Income Security Act &
Multiple Employer Welfare Arrangements
One key area unscrupulous insurance promoters exploit is based on the wording of ERISA (Employee Retirement Income Security Act) — a law passed in 1974 to safeguard private-sector pension plans and employee benefit programs. This federal law seemingly supersedes state regulation of employer-provided benefit plans, such as health insurance.
In reality, ERISA imposes certain requirements on many persons offering employee benefits, but does not override state insurance laws that may apply to these plans. Congress amended this law in 1983 to more clearly spell out continued application of state insurance laws over “ERISA plans.” Unfortunately, the language of that amendment was written as an “exemption” to a “preemption” — in effect a double negative. The net result was to create more confusion than it solved. For twenty years, operators continued to dodge state licensure by claiming an exemption as an “ERISA plan.”
One way these promoters exploit the unsuspecting is by packaging the benefit plan as a Multiple Employer Welfare Arrangement (MEWA). Single employer plans are exempt from state regulation, while multiple employer or association plans are subject to state insurance laws. The 1983 amendment to ERISA specifically addressed these arrangements — but to the untrained eye, it seems to grant MEWAs an “exemption” from state insurance law rather than subjecting them to state regulation.
In the face of a difficult health insurance market, the purveyors of “the answer” have created products and plans, cloaked them with names, and filled them with terminology that may at first glance make them look like something other than insurance as you know it. You’ll be told that they are exempt from Department regulation. Don’t take it at face value.
They have not been subjected to Department examination for actuarial soundness or solvency, and they are not backed by any guaranty funding in the likely event of insolvency. Your clients may not qualify for guaranteed-issue coverage once this “coverage” ends.
Some tips for analyzing plans claiming to be ERISA:
- Is the plan offered to more than one employer? Any plan involving more than one employer is a MEWA and is subject to licensure and regulation by the Department of Insurance.
- Does the employer have a voice in the day-to-day operation of the plan? A true ERISA plan must be single-employer based.
- Do the organizers or promoters tout their “substantial experience in the insurance industry”? (But didn’t they say this wasn’t insurance?)
- Is someone making a profit? Don’t be misled by mere claims that the entity is nonprofit — it’s easy to print those words on letterhead.
- Does the plan purport to be an association plan? Genuine out-of-state group association plans are underwritten by authorized insurers (§627.654, F.S.). The involvement of a stop-loss carrier is not the same as the plan being “underwritten.”
- Ask hard questions. Make them commit. Conduct your own due diligence.
It is both a violation of the Insurance Code and a crime to solicit or sell an unauthorized insurance product. By touching it you will jeopardize your Florida insurance license. If an unauthorized insurer fails to pay claims, the agent who sold the product is responsible for payment (§626.901, F.S.)
If it seems too good to be true, it probably is. STAY AWAY FROM IT.
Just as some promoters used the “association or group” wording to claim an ERISA exemption, others exploit a legitimate exemption for “collective bargaining agreements” in the federal law as a way to avoid state regulation. Sometimes promoters will market their bogus plans as a “union plan,” “union ERISA plan,” or “union MEWA.”
Voluntary Employee’s Benefit Arrangements
Another variation on this scam is the so-called VEBA or “Voluntary Employee’s Benefit Arrangement.” Like the MEWA argument, promoters of VEBAs rely on the conflicting jurisdiction of federal and state laws. Technically, VEBAs are unrelated to MEWAs or ERISA, but the scam plays out just the same.
VEBAs are legitimate arrangements under the federal tax code — providing tax-deductions for employers who fund employee benefits. Promoters of bogus insurance have twisted that concept into an alleged exemption from state insurance laws.
A VEBA is a creature of the Internal Revenue Code (Sections 419 and 419a). It is not an insurance concept. Instead, it is merely a vehicle by which certain employee benefits, including health-care benefits, can be funded. It is a tax-exempt (not regulatory-exempt) vehicle that allows an employer to deduct payments made to the VEBA to fund the payment of employee benefits.
The next question is obvious: Who or what is the risk-bearing entity to which the consumer and provider looks for the payment of claims? A third-party administrator (TPA) is not authorized to bear risk. Regardless of whether the broker or MGA claims to be your “life partner” in the deal, they don’t bear risk.
Unless the plan is single-employer based and fully self-insured, the risk-bearing entity must have a Certificate of Authority from the Florida Department of Insurance as an insurer or as a MEWA — it is that simple. A MEWA is never eligible for ERISA pre-emption from state insurance regulation.
The fast-talkers will argue that they have filed, or will file, the Form 5500, which validates ERISA status. The reality is that anyone can file a Form 5500 for anything and doing so, in and of itself, is meaningless. The only thing that counts is an official written determination or opinion by the United States Department of Labor on the bona fides of that plan in its then-current form.
Don’t do it. Your professional and personal reputation, your license, your livelihood, and most importantly, the welfare of the people whom you serve are at risk if you do.
Professional Employment Organizations
Professional Employment Organizations (PEOs) — also called “employee leasing firms” — have become an increasingly popular way for smaller businesses to economize on administrative costs and provide competitive benefit packages to their employees. Employee leasing arrangements, in effect, transfer employees from the client firm to the PEO. The client firm then leases the employees back from the PEO, which processes payroll, remits taxes, obtains worker compensation coverage, and provides employee benefits such as group life and health coverage.
However, ERISA views the employer-employee relationship as more than just a technical transfer. Since the client firm continues to control the work rules for the employee, under ERISA the client firm is considered the employer. The PEO’s benefit package — available to employees of many different employers — is therefore classified as a MEWA and subject to state insurance regulations.
The Bottom Line
Regardless of the guise of the deception — no matter how many acronyms the promoter cares to use — any benefit plan which assumes risk for two or more unrelated employers is subject to state insurance regulation. Likewise, if there is a commingling of funds of unrelated employers — at any level such as primary insurance, re-insurance, or stop-loss coverage — the plan is subject to state insurance laws.