Does two unrelated employers make a MEWA?

[Peter Gulia]

Two businesses that are not commonly controlled, affiliated, or otherwise related under Internal Revenue Code section 414(b)-©-(m)-(n)-(o) acted together and applied for group health insurance as though they were one employer.

Have they created a multiple employer welfare arrangement?

[Chaz]

More facts are needed but your example seems to meet the definition of a MEWA.

[Peter Gulia]

Chaz, thank you for your response, and for helping me feel that I didn't miss something obvious.

Which other facts could affect whether the arrangement is or isn't a MEWA?

Because the Federal and State governments' fight against MEWAs has been about an arrangement that tries to avoid insurance regulation and that involves risks of the claims payer's insolvency, it seems odd to apply MEWA reporting to plans that are fully insured.

[KJohnson]

Although you might be a MEWA for certain purposes, there are exceptions from Federal reporting if you have 25% common ownership among the entities, the entities were once related and there was a change in control and the arrangement does not extent beyond the year following the change in control. There is also this exception:

"A MEWA or ECE licensed or authorized to operate as a health insurance issuer in every State in which it offers or provides coverage for medical care to employees;"

But I read this as the MEWA itself being licensed and not an exemption for fully insured MEWAs. The federal reporting might be a nuisance but the real issue is state law. In many states, however, their MEWA statutes don't apply to fully insured MEWAs. Also be careful with what you represented to the insurers. In some instances when multiple employers apply for a single policy the insurer wants representation that there is a controlled group/common control.

Also you can't use the ASG rules to avoid MEWA status.

[Peter Gulia]

KJohnson, thank you for the further help.

I had thought about ERISA section 3(5)'s different definition of employer. The businesses in my not-entirely-hypothetical do not have (and never had) 25% common ownership, and were not otherwise previously related.

I considered too the possibility that an applicant's false statement might be grounds for an insurer to cancel coverage.

But am I right in guessing that the arrangement is a MEWA at least until the coverage is cancelled or expired?

[Flyboyjohn]

Playing devils advocate I would argue that to have a MEWA requires a single "plan" that covers unrelated employers and what you really have here are 2 "plans" that are sharing a single insurance contract.

I'm betting you don't have ERISA plan documents and maybe your solution is to create 2 plan documents.

[jpod]

I would be less concerned about technical MEWA status than I would the risk that the insurance company may try to cancel or deny coverage.

[Peter Gulia]

jpod, that was my immediate and highest-order concern when first I heard about this situation.

I advised my client that each employer must make truthful, accurate, and complete insurance applications from now on. I advised also about duties and obligations to inform the insurer about previous misstatements.

Once the insurer has the true information, will the insurer retroactively cancel the coverage?

Or will the insurer increase the premiums for past periods to what they ought to have been had each (separate) group contract been rated using the true information?

[Flyboyjohn]

How does the ownership of the entities impact how the insurance company assesses its risk and determines the premiums?

I'm not seeing where the level of common ownership would or should have any bearing on how the insurer underwrites the group.