State MEWA Regulation

[Guest Bird32]

Suppose two unrelated employers domiciled in State A form a MEWA to provide welfare benefits to their employees. Further suppose that one of the employers has limited operations in State B and therefore some of the employees covered by the MEWA reside and work in State B. Does the MEWA need to be registered and otherwise comply with State B's MEWA laws?

This question came up with a client of mine that is domiciled in one state (i.e. it is incorporated and headquartered in that state) but has employees in up to 15 different states. It wants to cover its employees and the employees of another related (but less than 25% commonly owned) employer (domiciled in the same state) under a single group health plan. Is this possible or would this arrangement be a MEWA subject to regulation of all 15 states?

[Don Levit]

A couple of questions, in regard to your first instance.

I assume you are thinking of a self-funded arrangement.

Are the employers in the same line of business? Are the 2 states comtiguous?

If the arrangement is self funded, each state has the right to regulate the MEWA, and the entity must be properly licensed in each state.

While the 2 states have the right to regulate the MEWA, the regulation must be uniform and consistent, according to federal law. That does not mean the regulation must be the same, but it does mean, in my opinion, there may need to be compromises in how the entity is regulated, as a whole.

In regards to your second instance, if 15 states are involved, the degree of cooperation between all 15 states is even more important for a self-funded plan, to achieve regulation that is uniform and consistent, as required by federal law.

By the way, the purpose for uniform and consistent regulation is to keep administrative costs low, in order to maximize the benefits for the participants.

Beware of state regulators that disregard federal law, and who desire to regulate the MEWA, as if it was located in only their particular state.

Don Levit

[Guest Bird32]

Don, thanks for the reply...

Yes, this would be a self-funded arrangement. Yes, the employers are in similar, but not the same, lines of business-- the connection between them is the common ownership (but lets assume it is less than 25% so there is no question that it is, in fact, a MEWA-- if it had more than 25% but less than 80% common ownership, do you think a state would attempt to regulate it?). No, the states are not contrigous.

I've been researching the individual state statutes, and it appears that some of them (e.g. Tennessee, Michigan, North Carolina) only apply to a MEWA that cover or solicit an employer domiciled in that state or that has its principal headquarters or principal administrative offices in that state. Therefore, it would seem the MEWA in my example could avoid regulation by these states (i.e. it wouldn't need to register or comply with the funding and reserve requirements, etc. of those states). The problem is that many state statutes apply to any MEWA "transacting business" in that state. If a MEWA only covers employers domiciled in one state, would the MEWA really be "transacting business" in another state where its only connection to that state is that some employees covered by the arrangement are residents there. Worse yet, some state statutes are even less clear about when they will attempt to assert jurisdiction over a MEWA.

Any additional insight?

[Don Levit]

Bird32:

My experience with many state regulators is that if a company has employees in more than one state, and they are covered under an employer health plan, the company is located in more than one state.

The discrepancies between different states' manners of regulating MEWAs points to the federal requirements of uniform and consistent regulation of MEWAs. Some ERISA attorneys believe the uniform and consistent requirements apply only to fully insured MEWAs, but have not been able to back up their premise with hard, case facts, or even ERISA provisions. The fact is that self funded employers who form MEWAs need the uniform and consistent guidelines even more than commercial insurers, who may very well be licensed anyway in all the states the MEWA has employees in. The extra cost of complying with each state's regulations has alrady been borne by the insurers.

The common ownership provisions are complicated, when one has to decide whether or not a MEWA exists. I would be happy to send you some DOL Advisory Opinions on this particular matter.

My advice would be to assume that the entity is a MEWA, and license the entity in each state in which employees are located. I can tell you it will be a battle with the regulators to get them to agree with the uniform and consistent regulations. Most states do not have self-funded MEWA laws, and, therefore, require the same reserve and surplus requirements as a full-fledged commercial insurer. California has banned MEWAs since 1995 (an act, in my opinion, which is illegal).

Don Levit

[Guest Bird32]

Don, just out of curiosity, what do you mean when you say California has banned MEWAs since 1995? See Ca. Ins. Code 742.23-- it just says self-funded MEWAs can't provide benefits to CA residents unless they obtain a certificate of compliance. Of course, the MEWA in my example probably couldn't obtain a certificate of compliance in many states even if it wanted to because it looks like most states (CA included) will only grant a certificate of complaince to MEWAs that are, among other things, established and maintained by a business or trade association.

[Don Levit]

Bird32:

That is correct, except the certificate of compliance must have been submitted by 12-31-95. Check out 23(a) and 31(h).

Do you think regulation of an entity includes the right to ban it? Even if that would be logical, it is quite a stretch, wouldn't you say? (almost bordering on arbitrary and capricious, if not actually both).

Don Levit

[Guest Bird32]

Interesting constitutional law question...one that I am certainly not qualified to answer. It appears Colorado has done the same thing though.

Can you point me to the advisory opinions you referenced earlier regarding the common ownership issue? I'm wondering whether states would even attempt to regulate a self-funded MEWA where there is more than 25% common ownership amongst the participating employers, since it is not clear under ERISA whether such an arrangment--where there is more than 25% but less than 80% common ownership-- is even a MEWA.

[Don Levit]

Bird32:

I understood Colorado passed a law about 3 years ago, allowing, finally, for self-funded MEWAs.

As of 6 months ago, or so, no MEWAs had been formed, apparently because the regulations were so onerous. Let's do the Advisory Opinions offline. Frankly, they're a bit tedious, and we seem to have an oligopoly on this discussion.

Don Levit