The Office of General Counsel issued the following opinion on September 7, 2005, representing the position of the New York State Insurance Department.
Re: Multiple Employer Welfare Arrangements (MEWA).
1. Is it possible for an organization of professional service firms to purchase health insurance as a group on an experience rated basis?
2. May an employer that employs less than 50 individuals join a MEWA?
3. What is the difference between a fully funded MEWA and a self-funded MEWA?
1. While such an organization could purchase health insurance as a group, whether the policy could be experience rated would depend on whether any member employer had less than 50 employees.
2. MEWAs are defined by and governed by the Employee Retirement Income Security Act (ERISA), 29 U.S.C.A. § 1001 et seq. (West 1999 and 2005 Supplement). The New York Insurance Law (McKinney 2000 and 2005 Supplement) and the regulations promulgated thereunder do not impose any restriction on membership in a MEWA.
3. The distinction is established by the relevant statute, explained below.
Since this was a general question, no facts were furnished.
New York Insurance Law §§ 4235(c)(1)(B) & (H) (McKinney 2000 and 2005 Supplement authorizes issuance of:
(B) A policy issued to a trustee or trustees of a fund established by, or participated in, by the employer members of a trade association, which trustees shall be deemed the policyholder, for the sole benefit of the employees of such employers, the policy must conform subject to the following requirements: (i) The policy may be issued only if: (I) the association has been in existence for at least two years and was formed for purposes principally other than obtaining insurance, and (II) the participating employers, meaning such employer members whose employees are to be insured, constitute at date of issue at least fifty percent of the total employers eligible to participate, unless the total number of persons covered at date of issue exceeds six hundred, in which event such participating employers must constitute at least twenty-five percent of such total employers, in either case omitting from consideration any employer whose employees are already insured under a similar group accident and health insurance policy. (ii) The persons eligible for insurance under the policy shall be all of the employees of the participating employers, or all of any class or classes thereof determined by conditions pertaining to their employment. (iii) The premium for the policy shall be paid by the trustee or trustees either from funds contributed by the employers or by the employees; or funds contributed jointly by the employers and the employees. A policy on which no part of the premium so payable is to be derived from funds contributed by the insured employees must insure all eligible employees. (iv) The policy must cover at least fifty employees at date of issue. (v) The insurance coverage under the policy must be based upon some plan precluding individual selection either by the employees or by the policyholder or the employer. . . .
(H) A policy issued to an association . . . all of whose eligible members have the same profession, trade or occupation, which association or associations have been organized and maintained in good faith for purposes principally other than that of obtaining insurance and have been in active existence for at least two years. The policy shall insure members, or employees of members, of such association or associations for the benefit of persons other than employers and the association or associations, or any officials, representatives, trustees or agents thereof and shall provide for the issuance of a certificate to the persons insured or such beneficiary as evidence of such insurance. The members or employees eligible for the insurance under the policy shall be all the members, or all the members and their employees, or all of any class or classes thereof determined by conditions pertaining to their employment or to association membership or both. The premiums for the policy shall be paid from association or members" funds, or partly from such funds and partly from funds contributed by the insured individuals, or from funds wholly contributed by the insured individuals. A policy on which all or part of the premium is to be derived from funds contributed by the insured individuals specifically for their insurance must insure at least fifty percent of the then eligible individuals or a minimum of two hundred individuals, whichever is less, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. A policy on which no part of the premium is to be derived from funds contributed by the insured individuals specifically for their insurance must cover all eligible individuals, excluding any as to whom evidence of individual insurability is not satisfactory to the insurer. In every case the policy must cover at least one hundred individuals at date of issue. The insurance coverage on employees insured under the policy shall be based upon some plan precluding individual selection. . . . If a policy dividend is declared or a reduction in rate is made under such a policy, the excess, if any, of the aggregate dividends or rate reductions under the policy over the aggregate expenditure for insurance under such policy made from association or employer funds, including expenditures made in connection with administration of such policy, shall be applied by the policyholder for the sole benefit of the insured individuals. . . .
An association as described would be eligible, under either New York Insurance Law §§ 4235(c)(1)(B) or (H), to secure a group health insurance policy in New York. However, New York Insurance Law § 3231(a) (McKinney 2000 and 2005 Supplement), regulating policies of commercial health insurers, provides:
No individual health insurance policy and no group health insurance policy covering between two and fifty employees or members of the group exclusive of spouses and dependents, hereinafter referred to as a small group, providing hospital and/or medical benefits . . . shall be issued in this state unless such policy is community rated and, notwithstanding any other provisions of law, the underwriting of such policy involves no more than the imposition of a pre-existing condition limitation as permitted by this article. Any . . . small group, including all employees or group members and dependents of employees or members, applying for . . . small group health insurance coverage . . . must be accepted at all times throughout the year for any hospital and/or medical coverage offered by the insurer to individuals or small groups in this state. Once accepted for coverage, an individual or small group cannot be terminated by the insurer due to claims experience. Termination of an individual or small group shall be based only on one or more of the reasons set forth in subsection (g) of section three thousand two hundred sixteen or subsection (p) of section three thousand two hundred twenty-one of this article. Group hospital and/or medical coverage . . . obtained through an out-of-state trust covering a group of fifty or fewer employees or participating persons who are residents of this state must be community rated regardless of the situs of delivery of the policy. . . . For the purposes of this section, "community rated" means a rating methodology in which the premium for all persons covered by a policy or contract form is the same based on the experience of the entire pool of risks covered by that policy or contract form without regard to age, sex, health status or occupation.
New York Insurance Law § 4317(a), regulating contracts of not-for-profit health insurers and all Health Maintenance Organizations has an identical requirement.
In order to effectuate New York Insurance Law §§ 3231(a) and 4317(a), the Insurance Department has promulgated N.Y. Comp. Codes R. & Regs. tit. 11, §§ 360.8(b)(1) and 360.8(e) (2000):
(b) Rules relating to insurers enrolling individuals and small groups through association groups. (1) For the purposes of this Part, insurers may issue small group health insurance policies in New York State only to or through groups specifically recognized as groups under subparagraphs (B) . . . (H) . . . of paragraph (1) of subsection (c) of Section 4235 of the Insurance Law. Where there is no statutory authority recognizing the group, insurers should issue individual health insurance policies in New York State.
(e) Community rates based on the size of the association groups. (1) A policy issued to an association group covering at least one participating group member with 50 or fewer employees or members exclusive of spouses and dependents requires the insurer to charge the same community rate to all association members.
(2) An insurer may issue an experience rated policy to an association group so long as all member employers or member groups covered by that policy exceed 50 persons exclusive of spouses and dependents. A second separate community rated policy may be issued by an insurer to the same association group covering all those member employers or member groups with 50 or fewer persons exclusive of spouses and dependents.
Accordingly, any association group health policy covering an employer with less than 50 employees must be community rated.
The provision of health benefits to employees constitutes an employee welfare benefit plan under ERISA.. All such plans, with the exception of church and governmental plans, are covered under ERISA. 29 U.S.C.A. § 1003(a) (West 1999 and 2005 Supplement). Generally, state laws affecting ERISA plans are preempted. 29 U.S.C.A. § 1144(a) (West 1999). However, in accordance with 29 U.S.C.A. § 1144(b)(2)(A) state laws regulating insurers are not preempted. Accordingly, New York Insurance Law §§ 3231 and 4317 and the regulations promulgated thereunder may, through their regulation of insurers, affect insured employee welfare benefit plans.
There is an exception to the general preemption of employee welfare benefit plans, however, for Multiple Employer Welfare Arrangements (MEWA), as defined in 29 U.S.C.A. § 1002(40)(A):
The term 'multiple employer welfare arrangement' means an employee welfare benefit plan, or any other arrangement . . . which is established or maintained for the purpose of offering or providing any benefit described in paragraph (1) to the employees of two or more employers (including one or more self-employed individuals), or to their beneficiaries . . . .
The extent of state jurisdictions over MEWAs and the distinction between insured and self-funded MEWAS are set forth in 29 U.S.C.A. § 1144(b)(6):
(A) Notwithstanding any other provision of this section--(i) in the case of an employee welfare benefit plan which is a multiple employer welfare arrangement and is fully insured . . . any law of any State which regulates insurance may apply to such arrangement to the extent that such law provides--(I) standards, requiring the maintenance of specified levels of reserves and specified levels of contributions, which any such plan, or any trust established under such a plan, must meet in order to be considered under such law able to pay benefits in full when due, and (II) provisions to enforce such standards, and (ii) in the case of any other employee welfare benefit plan which is a multiple employer welfare arrangement, in addition to this title, any law of any State which regulates insurance may apply to the extent not inconsistent with the preceding sections of this title.
. . . .
(D) For purposes of this paragraph, a multiple employer welfare arrangement shall be considered fully insured only if the terms of the arrangement provide for benefits the amount of all of which the Secretary determines are guaranteed under a contract, or policy of insurance, issued by an insurance company, insurance service, or insurance organization, qualified to conduct business in a State.
Accordingly, only those plans for which all benefits are provided through insurance could be considered to be an insured MEWA.
As to services that may be provided to a self-funded MEWA, commercial health insurers are subject to New York Insurance Law § 3231(h)(1):
Notwithstanding any other provision of this chapter, no insurer, subsidiary of an insurer, or controlled person of a holding company system may act as an administrator or claims paying agent, as opposed to an insurer, on behalf of small groups which, if they purchased insurance, would be subject to this section. No insurer, subsidiary of an insurer, or controlled person of a holding company may provide stop loss, catastrophic or reinsurance coverage to small groups which, if they purchased insurance, would be subject to this section.
New York Insurance Law § 4317(e)(1) imposes a similar restriction on not-for-profit health insurers and all HMOs.
Accordingly, an insurer could not provide administrative services or stop-loss coverage to a self-funded employee welfare benefit plan, including a self-funded MEWA, that would be subject to community rating.
For further information you may contact Principal Attorney Alan Rachlin at the New York City office.