Lately, I feel cast in a cameo role for “Ground Hog Day” where I continue to repeat the same advice about Multiple Employer Welfare Arrangements (MEWA) under the Employee Retirement Income Security Act (ERISA). Every trade association or group offering health plans to members want to be “bona fide” to avoid some of the more intrusive elements of federal health care reform. Below, I offer the same observations from earlier posts and add the following in capital letters because no amount of emphasis seems to be enough:
- * Just because an organization constitutes a “bona fide” association of employers, that doesn’t mean the organization is not a MEWA.
- * Just because another statute establishes standards for MEWAs (e.g., HIPAA) or includes its own definition of “bona fide”, that doesn’t mean the ERISA definition has changed too.
As the day starts over again and I listen to the same muddied analysis of what it means to be a MEWA or a “bona fide” association, I repeat – health plan coverage offered to multiple, unrelated employers constitutes a MEWA; the MEWA will be considered a collection of separate employer plans under ERISA unless the MEWA also constitutes a “bona fide” association of employers under ERISA, in which case the MEWA will be treated as a single ERISA plan; and the application of another state or federal statute to MEWA’s (including HIPAA) does not alter the ERISA analysis. Finally, nothing in the ERISA definitions create time limited exclusions that prohibit either the immediate creation of a “bona fide” association of employers or the invalidation of a recently created association.
Federal law governs most employee benefit programs. Three essential elements must exist for ERISA to apply to a health insurance plan – (a) an employee, (b) covered under a welfare benefit plan (c) established or maintained by an employer or by an employee organization.
ERISA defines an employee as “any individual employed by an employer” [ERISA §3 (6)]. Both employee and employer are defined by law. Regulations adopted by DOL refine the statutory definitions by identifying individuals who are not employees for ERISA purposes. An association plan may fail the ERISA “bona fide association” standard because the plan covers “individuals” rather than or in addition to employees.
Next, the employer plan must provide “welfare benefits” which the law broadly describes as providing “medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability death or unemployment” [§1002(1)]. Health insurance plans qualify as welfare benefit plans under ERISA.
The third element is whether the plan sponsor qualifies as an “employer” or “employee organization” under ERISA. An association typically does not “employ” its member beneficiaries; however, the federal statute includes in its definition of “employer”:
“any person acting … indirectly in the interest of an employer, in relation to an employee benefit plan; and includes a group or association of employers acting for an employer in such capacity.” [§1002(5) emphasis added]
In addition, if more than one employer participates in the group plan then ERISA classifies the plan as a “multiple employer welfare arrangement” (MEWA) – a plan for “the employees of two or more employers (including one or more self-employed individuals)…” [§3 (40) (A)].
“Bona Fide” – Single versus Multiple Plans
In 2004, DOL issued a MEWA regulatory guide. The guide specifically outlines the structure and governance of various associations of employers providing health benefits to employees. In order for a group or association to constitute an employer within the meaning of Section 3(5), there must be a bona fide group or association of employers acting in the interest of its employer-members to provide benefits for their employees.
DOL lists the following factors that it will consider in making this judgment:
- How members are solicited;
- Who is entitled to participate and who actually participates in the association;
- The process by which the association was formed;
- The purposes for which it was formed and what, if any, were the pre-existing relationships of its members;
- The powers, rights and privileges of employer-members; and
- Who actually controls and directs the activities and operations of the benefit program.
In addition, employer-members of the group or association that participate in the benefit program must, either directly or indirectly, exercise control over that program, both in form and in substance, in order to act as a bona fide employer group or association with respect to the benefit program.
If the MEWA fails to satisfy all elements of the test, then the DOL considers each employer member as having a separate health plan subject to regulation independent of the association. Thus for example, federal health care reform would apply to each employer rather than to the association as a whole.
The definition of “employee welfare benefit plan” in ERISA is grounded on the premise that the person or group that maintains the plan is tied to the employers and employees that participate in the plan by some common economic or representation interest or genuine organizational relationship unrelated to the provision of benefits. [DOL advisory opinion 2008-07a at 3] A group of otherwise unrelated employers typically fails this common interest test resulting in a view that the association is a collection of employer plans rather than one large plan.
“[DOL’s] conclusion that [an association] health insurance program is not itself an employee welfare benefit plan under ERISA does not, however, prohibit the [association] from establishing and maintaining its proposed arrangement. Rather, the principal consequence for the [association] of its arrangement not being an employee benefit plan is that ERISA would not limit [a state’s] ability to regulate the [plan] under state insurance law.” [DOL advisory opinion 2008-07a]
The HIPAA standards do not determine association qualification for treatment as a single employer plan under ERISA. The HIPAA bona fide association standards serve to guide application of HIPAA standards to association health plan coverage. Although an association may qualify as a bona fide association under HIPAA, however similar to the ERISA analysis, such qualification does not automatically satisfy ERISA treatment of a MEWA as a single plan.