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Senate Bill Takes Aim at Small Employer Insurance Groups

Cheryl Clark, for HealthLeaders Media, January 21, 2010

Congress is taking aim at MEWAs, or Multiple Employer Welfare Arrangements, which are cooperative-like entities in which health and other benefits are marketed to groups of small employers.

And while many MEWAs are providing small employers legitimate health insurance options, other MEWAs are associated with scams, experts say. When these health plan purveyors are dishonest, or don't have the money to pay claims, the federal government wants the right to shut them down with a prompt cease and desist.

"Promoters of MEWAs have typically represented to employers and state regulators that the MEWA is an employee benefit plan covered by the Employee Retirement Income Security Act (ERISA) and, therefore, exempt from State insurance regulation under ERISA's broad preemption provisions," according to the U.S. Department of Labor Web site.

"By avoiding state insurance reserve, contribution and other requirements applicable to insurance companies, MEWAs are often able to market insurance coverage at rates substantially below those of regulated insurance companies, thus, in concept, making the MEWA an attractive alternative for those small business finding it difficult to obtain affordable health care coverage for their employees.

"In practice, however," the Department of Labor added, "a number of MEWAs have been unable to pay claims as a result of insufficient funding and inadequate reserves. Or in the worst situations, they were operated by individuals who drained the MEWA's assets through excessive administrative fees and outright embezzlement."

But over the last two decades, states have been encouraged to crack down on dishonest or overextended MEWAs with regulations or enforcement.

But, according to Chantal Sheaks, an attorney specializing in health reform with Buck Consultants, many states never got around increasing enforcement. And as a result, some MEWAs proliferated in a fraudulent way.

The Senate reform bill would "subject these individuals to civil and criminal penalties if you lie about these benefits. It closes a loophole," she says.

The state of New Jersey's Department of Banking and Insurance called some of them a "setting for scams in which criminals market various low-cost fraudulent health plans, often claiming that state insurance laws don't apply."

That's why lawmakers have inserted language amid the many pages of the Senate Patient Protection and Affordable Care Act that would give the Department of Labor special powers when MEWAs run afoul of good practice.

The Senate proposal would prohibit MEWA organizers or marketers from making "a false statement or false representation of fact, knowing it to be false, in connection with the marketing or sale of such plan or arrangement." This would include any statements dealing with the financial condition or solvency of plans.

In Sec. 6605 of the PPACA, the department would have the ability to "issue administrative summary cease and desist orders and summary seizures orders against plans that are in financially hazardous condition."

It reads, "The Secretary may issue a cease and desist (ex parte) order under this title if it appears to the Secretary that the alleged conduct of a multiple employer welfare arrangement . . . is fraudulent, or creates an immediate danger to the public safety or welfare, or is causing or can be reasonably expected to cause significant, imminent, and irreparable public injury."

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