Responding to millions of dollars worth of unpaid medical claims and countless stranded small business employees, the U.S. Department of Labor (“DOL”) has proposed new rules to regulate “multiple employer” health plans, known as Multiple Employer Welfare Arrangements (“MEWAs”), under the 2010 health care reform law.
Small businesses and self-employed individuals use MEWAs to provide health care coverage. In such arrangements, two or more employers or self-employed individuals pool their premium contributions, resulting in lower-cost health care coverage than traditional health insurance plans.
While health insurance is largely state-regulated, the Employee Retirement Income Security Act of 1974 (“ERISA”) restricted states from regulating multiple employer arrangements. Federal law, however, lacks a mechanism by which to regulate MEWAs. In light of this lack of oversight, some MEWAs failed to maintain adequate cash reserves to pay claims, and others drained their assets completely with excessive administrative fees and embezzlement.
Under the new rules, MEWAs must register with the DOL before operating or they will be subject to penalties. If the DOL suspects fraud or other abuse, the proposed rules would authorize the Secretary of Labor to issue a cease-and-desist order. Similarly, the Secretary can seize assets and stop marketing if it is clear that the plan is financially unstable. The proposed rules are expected to be implemented in 2012, following a public comment period.