The Department of Labor (DOL) recently proposed a new regulation that could make Multiple Employer Welfare Arrangements (MEWAs) an attractive option for reducing employer costs and time spent on providing health insurance for employees. A MEWA is an association of two or more employers not related by common ownership that jointly purchases health insurance from a third party or creates a self-insured health program for employees and their families.
There are many advantages to joining a MEWA. Employers can increase the size of the insurance pool to which their employees belong—this spreads risk, which may result in lower insurance costs. Compared to the premiums paid by small employers, a greater percentage of insurance premium dollars paid by large, fully-insured MEWAs is spent on healthcare services (instead of advertising, administration, and profit for the insurance company). For a self-insured MEWA, the cost to provide health care may be further reduced because the MEWA’s assets not initially spent on healthcare claims and quality improvement are reinvested for the benefit of the program itself (and may not be used for profit).
Under current law, however, many advantages to joining a MEWA are lost unless all employers in the MEWA constitute a bona fide group or association under DOL rules. Where the employers do constitute a bona fide group or association, the MEWA can act as a single plan for purposes of complying with Federal laws such as the ACA, COBRA, ERISA, and HIPAA.[i] However, if the MEWA does not consist of a bona fide group or association, each employer in the MEWA is treated as a separate employer that maintains its own plan or arrangement, and each employer must comply separately with these laws. So, for example, each individual employer would have to draft and distribute all of the required HIPAA procedures and notices for the plan and file the annual Form 5500 to comply with the reporting and disclosure requirements under ERISA.
Another challenge for plan sponsors is that current DOL rules make it difficult for many employers participating in a MEWA to be certain that their MEWA consists of a bona fide group or association. The current rules require a commonality of interest—an economic or representational interest among the participating employers. Whether the economic or representational interest is sufficient is based on a facts-and-circumstances test. Since the penalties for not complying with the various Federal laws on an individual employer basis can be expensive, there is a heavy amount of risk in joining a MEWA and assuming that the MEWA’s member employers constitute a bona fide group or association.
Fortunately, the DOL has proposed a new regulation that will expand the definition of bona fide group or association and make it much easier to determine objectively whether a commonality of interest exists. Under the proposed regulation, a bona fide group or association is a formal organization controlled by member employers and which is set up for the purpose of sponsoring a group health plan that covers exclusively employees, former employees, and their family members. A commonality of interest exists where the participating employers operate (a) in the same trade, industry, line of business or profession, (b) within the same state, or (c) within the same metropolitan area. A single metropolitan area may cross state lines. For example, the Portland, Oregon metropolitan area, which includes Vancouver, Washington, is an example of a single metropolitan area that crosses state lines. It is not necessary that employers both belong to the same trade or industry and have a geographic connection. Either condition is sufficient.
For some employers, the time and cost associated with providing health benefits to employees can be significantly reduced by joining or creating a MEWA. The DOL is currently reviewing comments to the proposed rules, which may not yet be relied upon, but if you think you may benefit from belonging to a MEWA in the future, please contact us. We can walk you through the rules and help you determine whether creating or joining a MEWA is right for your company or organization.
[i] COBRA is the Consolidated Omnibus Budget Reconciliation Act of 1985; ERISA is the Employee Retirement Income Security Act of 1974; HIPAA is the Health Insurance Portability and Accountability Act of 1996.
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