The National Association of Insurance Commissioners (NAIC) recently commented on the proposed rule for the Department of Labor (DOL) to change the definition of employer under the ERISA Association Health Plans.
This change would make it easier for small businesses to join with the intention of forming a collective group or Association Health Plans. The name for these sorts of plans is MEWAs. This is short for Multiple Employer Welfare Arrangements.
The focus of MEWAs is to keep health insurance costs low for small employers. While the idea of MEWAs sounds intriguing, the plans have generally failed in practice. Most plans were not able to cover the medical expenses of the small group. Even worse, there were many cases of the individuals that were operating the plans as a scam. The individuals were charging large fees and depositing the money for themselves. This left employees that were enrolled in these plans without coverage and having to pay for expenses themselves.
Before 1983, MEWAs were exempt from state insurance regulation. This was due to the enactment of ERISA or Employee Retirement Income Security Act. Due to the limited regulations, MEWA sponsors took advantage of participants. This left them without health insurance and no way to afford claim expenses. Along with fraud and embezzlement, most MEWA plans failed to keep costs low. The reason being, small employers may have an unbalanced group of participants as compared to a large employer. With an unbalanced group, claims can become far too high for the MEWA to back and thus leave the participants to pay out of pocket.
This changed after the 1983 ERISA Amendments.
This allowed states to regulate Multiple Employer Welfare Arrangements in accordance with their insurance laws.
With the Department of Labor’s recently proposed change to the definition of an employer within the AHP, the issue is whether this would allow MEWAs to be less regulated by states. If that were to happen, we could see many of the same problems arise from MEWAs. The National Association of Insurance Commissioners has strongly advised that states expressly retain full power to regulate Reno Association Health Plans. Some important points the NAIC makes in addition to their recommendation are as follows,
Coordination between the DOL and State Insurance Departments
Do not make exceptions for certain non-fully insured MEWAs
Allow states to continue to have authority to set service areas
Also, allow states to continue to regulate nondiscrimination provisions
Additional notification to employers, employees, and beneficiaries of rights and responsibilities to AHP coverage
DOL should wait to confirm this rule till 2020. This allows states time to review and adjust to the new regulation.
The overarching theme is the NAIC strongly recommends against giving any room for MEWAs to operate under the DOL’s newly proposed plan. Furthermore, states should not lose or have any lesser ability to regulate MEWAs since it is not a legitimate ERISA plan.
The U.S. Department of Labor also gives a full explanation here: MEWAs, A Guide to Federal and State Regulation. Please give our office a call if you are looking for a health insurance small business plan. We offer free group health insurance quotes and are available for information all year.