This is the 30th in a series of WorkCite articles concerning the Patient Protection and Affordable Care Act and its companion statute, the Health Care and Education Reconciliation Act of 2010 (referred to collectively as the Act). In this article, we discuss two sets of final rules issued by the Department of Labor (DOL or Department) addressing multiple employer welfare arrangements (MEWAs) in light of changes made by the Act. The rules serve to expand the Department’s enforcement authority over MEWAs.
One set of rules contains expanded reporting requirements applicable to both MEWAs and entities claiming exception from MEWA status (the Reporting Rules). In conjunction with the Reporting Rules, the DOL also issued notices detailing changes to the Form M-1, Report for Multiple Employer Welfare Arrangements and Certain Entities Claiming Exception, and to the Form 5500, Annual Return/Report of Employee Benefit Plan.
The other new rules implement the direct enforcement techniques the DOL is now authorized by the Act to use to target fraudulent MEWAs, such as ex parte cease-and-desist orders and summary seizures of assets of financially unstable MEWAs (the Enforcement Rules).
MEWAs are arrangements that provide healthcare and other welfare benefits to employees of two or more unrelated employers. They can be ERISA-covered employee welfare benefit plans (plan MEWAs) or other non-ERISA funding arrangements (non-plan MEWAs). MEWAs do not include plans or arrangements that are established or maintained pursuant to a collective bargaining agreement. Entities that claim to fall under this exception are known as Entities Claiming Exception (ECEs).
MEWAs can provide employers with an effective, affordable way to make medical coverage available to their employees. However, historical gaps in enforcement and regulation of MEWAs have often given rise to abuses and fraud perpetrated by MEWA promoters and operators, particularly those associated with unlicensed entities. In extreme cases, MEWAs have been drained of their resources and left unable to pay benefit claims. Both sets of final rules are intended to help combat such abuses.
Since the passage of HIPAA in 1996, both plan and non-plan MEWAs that provide medical benefits have been required to file an annual Form M-1 with the DOL to demonstrate compliance with the group health plan requirements in Part 7 of ERISA. ECEs have also been required to file the Form M-1 annually but only during the first three years of operation.
The Reporting Rules implement additional filing requirements applicable to both MEWAs and ECEs. In addition to the annual Forms M-1, MEWAs and ECEs must now file a Form M-1 at least 30 days before beginning initial operations and within 30 days after specified triggering events, such as beginning operations in an additional state not previously reported on a Form M-1 or experiencing a “material change” as defined in the Form M-1 instructions. In conjunction with the expanded Form M-1 filing requirements, the DOL also issued a notice revising the Form M-1 itself. The revised form requests more information than previously required, including expanded custodial and financial information, additional information regarding assets and fiduciaries, and identification of a broader group of individuals associated with the MEWA or ECE.
On account of the new filing requirements, the filing deadline for the annual 2012 Form M-1 has been moved from March 1, 2013 to May 1, 2013, but an extension may be granted until July 1, 2013. Forms M-1 reporting on initial operations or other special events must be filed for events beginning on or after July 1, 2013, with a 60-day extension available. The Reporting Rules eliminate the paper filing option and require that the new Form M-1 be filed electronically.
Entities exempt from the reporting requirements in the Reporting Rules include MEWAs and ECEs that are licensed as health insurance issuers in every state in which they operate and those that provide coverage only through group health plans that are not covered by ERISA (for example, a governmental plan or church plan).
The Reporting Rules also require all MEWAs or ECEs that are employee welfare benefit plans and that are subject to the Form M-1 filing requirement to file a Form 5500 as well, beginning with the 2013 filing year, regardless of plan size or type of funding. The 2013 Form 5500 will include a new Part III, which MEWAs and ECEs will be required to complete to demonstrate compliance with the Form M-1 filing requirements. The instructions to the 2013 Form 5500 will include directions for completing this new section in a nonstandardized attachment. The new Part III will be fully integrated into the Form 5500 for 2014 and all subsequent years. The DOL has indicated that the failure to provide information on the Form 5500 about compliance with the Form M-1 filing requirement could result in the rejection of the form as incomplete and the assessment of civil penalties.
As indicated above, the Act gave the DOL the power to issue cease-and-desist orders against abusive MEWAs and individuals associated with them, and to seize the assets of a financially unstable MEWA if necessary to protect participants, employers or other members of the public. The Enforcement Rules implement these two new DOL powers and set forth the criteria under which they may be invoked. The rules only apply to plan MEWAs and to those non-plan MEWAs that offer benefits in connection with one or more employee welfare benefit plans subject to ERISA. Health insurance issuers that are licensed and approved by each state in which they offer health insurance coverage are excepted from coverage under the rules.
Under the final rules, the DOL may issue a cease-and-desist order, without prior notice or hearing, when it determines it has reasonable cause to believe that the MEWA or any individual acting on behalf of the MEWA (including a third-party administrator) has engaged in conduct that:
- Is fraudulent;
- Creates an immediate danger to the public safety or welfare (in that it unreasonably increases the risk of nonpayment of benefits); or
- Is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury.
Seizures of MEWA Assets
The DOL also has the authority under ERISA and the final rules to summarily seize a MEWA’s assets if it appears that the MEWA is in financial jeopardy. In the normal course, the rules require the DOL to obtain court authorization prior to seizing assets. However, the Department may issue a summary seizure order without prior court authorization if it reasonably believes that a delay in issuing the order will result in the dissipation of plan assets or the destruction of plan records. Under the rules, a seizure order may apply to the MEWA or to any person with custody over its assets or control over its management or business. The DOL may also request that a court appoint a receiver or independent fiduciary, in addition to seeking other relief.
The rules allow parties who are subject to a DOL cease-and-desist order or seizure to request an administrative hearing with a DOL administrative law judge in order to show cause as to why the order should be modified or set aside.