DOL Final Rules Target MEWA Abuses | Practical Law

DOL Final Rules Target MEWA Abuses | Practical Law

The DOL's Employee Benefits Security Administration (EBSA) has issued final regulations and related guidance addressing multiple employer welfare arrangements (MEWAs). The guidance, which implements requirements added under the Affordable Care Act (ACA), includes expanded reporting obligations for MEWAs.

DOL Final Rules Target MEWA Abuses

Practical Law Legal Update 8-524-6187 (Approx. 5 pages)

DOL Final Rules Target MEWA Abuses

by PLC Employee Benefits & Executive Compensation
Published on 04 Mar 2013 • USA (National/Federal)
The DOL's Employee Benefits Security Administration (EBSA) has issued final regulations and related guidance addressing multiple employer welfare arrangements (MEWAs). The guidance, which implements requirements added under the Affordable Care Act (ACA), includes expanded reporting obligations for MEWAs.
The DOL's Employee Benefits Security Administration (EBSA) has issued final regulations and related guidance addressing multiple employer welfare arrangements (MEWAs), which include:
A MEWA is a plan or funding arrangement offered by two or more employers that provides health or welfare benefits to the employers' employees and their beneficiaries. MEWAs are often marketed to small employers as a low-cost alternative to traditional forms of health insurance. According to the DOL, however, some MEWAs have used abusive or fraudulent practices and become financially unstable, making the MEWAs unable to pay benefit claims.

Authority to Issue Cease and Desist and Summary Seizure Orders

The final regulations state the criteria under which the DOL can issue cease and desist and summary seizure orders. The DOL must make final cease and desist and summary seizure orders, and modifications or terminations of these orders, available to the public.

Cease and Desist Orders

Under the Affordable Care Act (ACA), the DOL is authorized to issue cease and desist orders, without prior notice or hearing, when it appears that a MEWA's alleged conduct:
  • Is fraudulent, for example, involving misrepresentations of:
    • the benefit terms offered in connection with the MEWA; or
    • the MEWA's financial condition or regulatory status.
  • Creates an immediate danger to public safety or welfare.
  • Causes or can be reasonably expected to cause significant, imminent and irreparable injury.
A cease and desist order could be used, for example, to prevent a person from performing any administrative, management, financial or marketing services for any MEWA or health plan. Under the final regulations, a cease and desist order may apply to a MEWA or to persons with:
  • Custody or control of the MEWA's assets.
  • Any management authority over the MEWA.
  • Any role in carrying out the MEWA's business.
The DOL's authority to issue cease and desist orders is not limited to MEWAs that are ERISA-covered employee welfare benefit plans. However, the final regulations do not apply to MEWAs providing coverage in connection with governmental or church plans. In a clarification, the DOL notes that the final regulations do not apply to traditional health insurers (including HMOs) that are fully licensed to offer coverage to the public and employers in every state in which they offer coverage.
The final regulations include procedures for individuals to request an administrative hearing to show why a cease and desist order should be changed or set aside. Individuals subject to a cease and desist order have 30 days from receiving the order to request a hearing before an administrative law judge (ALJ). Otherwise, the order becomes final. The procedures were revised from the proposed version to clarify, among other things, the types of evidence that must be presented to an ALJ.

Summary Seizure Orders

The ACA authorizes the DOL to issue summary seizure orders when a MEWA is in a financially hazardous condition. This could occur, for example, if the MEWA is unable to pay benefit claims as they become due. A summary seizure order:
  • Is intended to preserve the MEWA's assets for use in paying claims and legitimate expenses.
  • Can remove plan assets and other property from a MEWA's control, management or administration.
Unlike cease and desist orders, which can be issued without court approval, the DOL must obtain court authorization before issuing a summary seizure order. The final regulations clarify that the DOL, in obtaining court authorization, can ask the court to appoint a receiver or independent fiduciary, in addition to seeking other relief.

Expanded Reporting Requirements

Related final regulations amend reporting requirements for MEWAs and certain other entities, which include:
  • Form M-1 ("Report for Multiple Employer Welfare Arrangements (MEWAs) and Certain Entities Claiming Exception (ECEs)"), revised to reflect rules added under the ACA.
  • Expanded Form 5500 requirements for ERISA-covered plans subject to Form M-1 reporting.
Before the ACA, MEWAs were required to report on their compliance with ERISA's group health plan requirements, which include HIPAA's portability and nondiscrimination rules. Under the ACA, MEWAs that provide medical care benefits and that are not ERISA-covered group health plans must:
  • Register with the DOL before operating in any state.
  • Report annually regarding their compliance with ERISA's group health plan requirements, including:
The final regulations eliminate the paper filing option for Form M-1 and require the form to be filed electronically. In general, the final regulations apply for filing events beginning on or after July 1, 2013. However, the deadline for the 2012 Form M-1 is May 1, 2013, with an available extension until July 1, 2013.
The final regulations also expand certain special filing events, for example, if a MEWA opens operations in additional states. The final regulations include substantial revisions to Form M-1 and its instructions. Among other changes, revised Form M-1:
  • Expands the custodial and financial information reported.
  • Includes additional fields for filers to indicate the type of entity and filing.

Changes to Form 5500

The final regulations require all employee welfare benefit plans that are MEWAs and ECEs subject to Form M-1 reporting to:
  • File Form 5500, regardless of plan size or type of funding.
  • Provide information as part of Form 5500 regarding compliance with the Form M-1 filing requirements, including proof of Form M-1 filings.
Form 5500 will include a new Part III addressing Form M-1 compliance information. For 2013 Form 5500s:
  • The Part III questions will be included in the Form 5500 instructions.
  • Filers must include the answers to these questions in a non-standard attachment.
For 2014 (and later years) Form 5500s, new Part III will be included in the Form 5500.

Practical Impact: TPAs, Form 5500

The DOL rejected commenters' requests to narrow the scope of entities subject to cease and desist and seizure orders, and indicated, in the preamble to the final regulations, that third-party administrators (TPAs) that work with MEWAs could be subject to an order. In this regard, the DOL noted that:
  • Where a TPA's functions are essential to a MEWA's operations, cease and desist orders must cover those functions, whether or not the TPA engaged in the conduct giving rise to the order.
  • Orders are often issued to individuals whose cooperation is necessary to carry out an order's purpose, even if they were not involved in wrongdoing.
In addition, regarding the expanded reporting requirements, the DOL warns that failing to answer the Form M-1 compliance questions may cause a Form 5500 to be rejected as incomplete, with the result that civil penalties can be imposed under ERISA.