Published by Brian Olsen, CEBS, CSFS, ISCEBS Fellow
“The term ‘multiple employer welfare arrangement’ (MEWA) means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), which is established or maintained for the purpose of offering or providing… benefit(s)… to the employees of two or more employers (including one or more self-employed individuals)…” (ERISA §3(40)(A)). Two entities will be treated as a single employer for the purpose of ERISA if there is sufficient common control between the two entities as defined in §414 of the tax code.
Employers predominantly choose to form MEWAs in an effort to provide more cost-effective coverage to employees. For instance, small employers banding together to form a larger group may receive access to lower premiums by avoiding the small-group market rates. Alternatively, small employers banding together and providing self-insured coverage can benefit from a larger risk pool.
However, MEWAs are not always formed on purpose. In some cases, an employer’s misunderstanding of the controlled-group rules can lead to instances where an employer accidentally offers a single plan to employees of two or more employers. Another recent source of confusion has been the evolution of the “association health plan” rules (recently invalidated), although the rules provided no exceptions to ERISA’s MEWA definition. Additionally, employers going through mergers and acquisitions are at greater risk of creating an accidental MEWA when only a portion of an entity is sold and the benefit plans remain unchanged. Finally, since ERISA defines a self-employed individual as a separate employer, offering coverage to non-employee board members or independent contractors can result in the accidental creation of a MEWA.
Primarily, MEWAs are not prohibited (although some states have regulations that effectively make it impossible to have a compliant self-insured MEWA). However, MEWAs are subject to additional regulations and requirements that single employer plans are not subject to. Therefore, it is essential that employer plan sponsors carefully monitor whether coverage under the plan is being offered to the employees of two or more employers.
ERISA preempts any state laws that “relate to” an ERISA plan. Thus, plans that are subject to ERISA are generally not required to comply with state insurance laws; however, there are certain exceptions to this general rule. For example, if a plan is fully insured, the insurer underwriting the plan will typically have to comply with state insurance laws. Self-insured plans, on the other hand, are not typically subject to state insurance laws. One notable exception to this rule is that ERISA specifically provides that states are permitted to regulate plans that are considered Multiple Employer Welfare Arrangements (MEWAs). Therefore, states will often have specific regulations that address self-insured MEWAs (fully insured MEWAs will be subject to the insurance laws of the state).
State regulation of self-insured MEWAs can become problematic, especially when the plan covers employers and employees in multiple states. Often, states will require MEWAs to register or become licensed to do business in the state. This can involve providing significant information to the state and, in some cases, paying large fees. If a MEWA does not comply with these requirements, it can be found to be illegally providing insurance within the state. Plan sponsors who are not aware that they have created a self-insured MEWA cannot possibly comply with any applicable state MEWA regulations.
In some cases, a MEWA is in and of itself considered an ERISA plan. In other instances, however, the status of the ERISA plan applies on the participating employer level. This determination is a necessary yet complex legal analysis that involves examining the relationship of participating employers. The outcome determines the documentation and 5,500 filing requirements (whether one or multiple are required) of the MEWA. A plan sponsor of an accidental MEWA is at greater risk of failing to properly comply with these ERISA requirements.
Finally, a plan sponsor who is unaware that a plan is considered a MEWA will not be aware of the requirement to file Form M-1. MEWAs that provide medical benefits are required to report information on Form M-1 regarding the plan’s compliance with various mandates such as the Health Insurance Portability and Accountability Act (HIPAA); the Mental Health Parity Act (MHPA) and the Mental Health Parity and Addiction Equity Act (MHPAEA); the Newborns’ and Mothers’ Health Protection Act (NMHPA); the Women’s Health and Cancer Rights Act (WHCRA); the Genetic Information Nondiscrimination Act (GINA); Michelle’s Law; and certain health care reform mandates.
Plan sponsors should carefully consider the population of individuals to which they are offering coverage and be on the lookout for situations that may pose a risk of accidentally creating a MEWA because it will be nearly impossible for a plan sponsor to effectively comply with every requirement imposed on a MEWA without knowledge of its formation.