MEWAs: State Regulation vs ERISA Preemption

There has long been confusion around a state’s ability to regulate Multiple Employer Welfare Arrangements (MEWAs) and ERISA’s preemption of those regulations. The reason for the confusion is that it can be a very confusing subject! We’ll try to bring some clarity to this issue by looking at different types of MEWAs and how they are impacted by state laws.

To begin, you must remember that although ERISA generally preempts state regulation of group health plans, special, somewhat narrower, preemption rules apply to MEWAs.

Is the MEWA a Health Plan?

The scope of preemption rules depends on whether the MEWA is a health plan.  Examples of MEWAs that are not health plans¹ include MEWAs whose members:

• Do not have a commonality of interest (for example, employers not in the same line of business);
• Do not actually control the MEWA; or
• Include individuals who are not common-law employers.

If a MEWA is not a health plan, there is nothing for ERISA to preempt and states can regulate the arrangement in any way they want.²

Because of this, most MEWAs would like to be health plans.  If they are, the degree to which states can regulate them depends on whether they are fully insured of self-insured.

A plan is considered fully insured if all the plan’s benefits are guaranteed under an insurance policy issued by an appropriately licensed insurance company.  Self-insured arrangements with stop-loss coverage will not qualify as fully insured.

Fully Insured MEWAs

If a MEWA plan is fully insured, states may impose requirements regarding the maintenance of specific reserves or contributions designed to ensure that the MEWA will be able to satisfy its benefit obligations.  This may include:

• Licensing;
• Reporting;
• Auditing;
• Other similar requirements to aid a state in regulating contributions and funding.

In practice, many states do not impose a significant regulatory burden on fully insured MEWAs because they can indirectly address any concerns about the MEWA through direct regulation of the insurers involved.

Self-Insured MEWAs

States may subject plans that are self-insured to any state law that regulates insurance³, provided only that the regulation may not be inconsistent with ERISA.  For example, a state could require a self-insured MEWA to:

• Provide specific benefits;
• Accept certain employers for coverage;
• Obtain stop-loss coverage;
• Maintain specified levels of reserves;
• Cover a minimum number of individuals;
• Obtain actuarial certifications;
• Impose deficiency liability on member employers;
• Pay various fees, taxes and risk pool assessments; and
• Meet various organizational requirements.

The prohibition against state regulation that is inconsistent with ERISA is not as restrictive as it may appear at first blush.  “Inconsistent with” in this context does not mean “different than.”  If the plan can comply with both the state regulation and ERISA, the state regulation will not be preempted.  Conversely, a regulation that would abolish or reduce protections available to plan participants under ERISA would not be permitted.

Examples

Department of Labor examples illustrate that state insurance laws considered “inconsistent with” ERISA are those that would:

• Adversely affect a participant’s right to obtain plan documents to which they have a right under ERISA;
• Adversely affect a participant’s right to pursue claims procedures in accordance with ERISA; or
• Require an ERISA-covered plan to make imprudent investments.

Consider ERISA’s rule that claimants must be given at least 180 days to appeal a benefit denial.  A state law that allowed claimants one year to file an appeal would not be preempted; however, a state law that required appeals to filed within 90 days would be.

Real world questions regarding preemption tend not to be as neat and tidy as the examples and illustrations given.  MEWAs seeking to avoid state regulation based on preemption should consult with counsel.

¹ Rules that would have modified some of these requirements were overturned by a court.  That decision is currently on appeal.

² This does not mean that a MEWA that is not a health plan can simply ignore ERISA.  The MEWA and its officials are likely to be fiduciaries of the MEWA member’s health plan.  A MEWA is also considered a “group health plan” for HIPAA purposes, meaning, among other things, that it must comply with HIPAA’s privacy and security rules.

³ The issue of whether a given state law “regulates insurance” is complex and nuanced and far beyond the scope of this article.