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U.S. Department of Labor
Employee
Benefits Security Administration
June 2004
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Multiple Employer Welfare Arrangements (MEWAs)
provide health and welfare benefits to employees of two or
more unrelated employers who are not parties to bona fide
collective bargaining agreements. In concept, MEWAs are
designed to give small employers access to low cost health
coverage on terms similar to those available to large
employers. For certain employers they represent the only
available option for providing employees with health care
because insurance companies often will not insure small
employers who do not fall within their desirable risk
category.
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Although MEWAs can be provided through
legitimate organizations, they are sometimes marketed using
attractive but actuarially unsound premium structures which
generate large administrative fees for the promoters. In
addition, certain promoters will set up arrangements which
they claim are established pursuant to a collective bargaining
agreement and, therefore, are not MEWAs but legitimate benefit
plans free from state insurance regulations. Often, however,
these collective bargaining agreements are nothing more than
shams designed to avoid state insurance regulation.
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States and the federal government
coordinate the regulation of MEWAs pursuant to a 1982
amendment to ERISA. This dual jurisdiction gives states
primary responsibility for overseeing the financial soundness
of MEWAs and the licensing of MEWA operators. The Department
of Labor enforces the fiduciary provisions of the Employee
Retirement Income Security Act (ERISA) against MEWA operators
to the extent a MEWA is an ERISA plan or is holding plan
assets. State insurance laws which set standards requiring
specified levels of reserves or contributions are applicable
to MEWAs even if they are also covered by ERISA.
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While no comprehensive data exists on how
many MEWAs there are, a 1992 General Accounting Office report
estimated over 2.5 million participants and beneficiaries in
46 states were enrolled in MEWAs. However, in February 2000,
the EBSA published the new Form M-1 Annual Report for Multiple
Employer Welfare Arrangements (MEWAs) and certain Entities
Claiming Exception (ECEs), which, over time, should establish
a reliable database for the number of MEWAs operating across
the country.
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The Department has devoted significant
resources to investigating and litigating issues connected
with abusive MEWAs created by unscrupulous promoters who sell
the promise of inexpensive health benefit insurance, but
default on their obligations. Particular emphasis has been put
on identifying ongoing abusive and fraudulent MEWAs, and
working to shut down such operations.
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In further recognition of the importance of
aggressive enforcement in the MEWA area, the Department
affirmed MEWAs as one of the significant issues in its
Enforcement Strategy Implementation Plan (ESIP) in the1990s.
In EBSA’s Strategic Enforcement Plan (StEP), EBSA has
identified MEWAs as one of its longstanding national projects
that it continues to aggressively pursue.
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To date, the Department has:
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Initiated 637 civil and
117 criminal investigations affecting over 1.946 million
participants and their beneficiaries and identifying
monetary violations of over $143 million. There are
currently 122 civil and 38 criminal investigations open.
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Filed 68 civil
complaints.
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Indicted 98 individuals
with 70 convictions.
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Published technical
assistance materials, including a booklet explaining
federal and state regulation of MEWAs.
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Issued numerous advisory
opinions to assist state prosecutors and regulators to
enforce state insurance laws against MEWAs.
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Convicted individuals
have been sentenced total prison terms of approximately
201 years. Most of these investigations have been jointly
investigated with other agencies, including the Department’s
Division of Labor Racketeering, the FBI, the U.S. Postal
Inspection Service, and the Internal Revenue Service’s
Criminal Investigative Division.
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In April 2004, the Department obtained a
consent decree appointing a temporary fiduciary for 45 days to
manage the Paramount, Calif.-based International Union of
Industrial and Independent Workers Benefit Fund and to conduct
an accounting of the plan’s finances and claims. The order
also temporarily relieves the trustees and the union of their
positions and duties as plan fiduciaries. Under the order, the
court-appointed fiduciary will assume control of the fund for
45 days, continue to pay claims incurred by participants and
report to the court on the fund’s finances and claims.
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In April 2004, The Department filed a
lawsuit against the purported union, former plan administrator
Oak Tree Administrators, its owner Cherille Shelp and current
and former trustees Geoffrey J. Beltz, James Miller, David
Wright, and Henry Solowiej.
The Department’s suit alleges that the
purported union is a MEWA that operates in Alpharetta,
Georgia, Plano, Texas, and Paramount, California. The
purported union was part of a MEWA that marketed health
benefits to employers in Texas, Georgia, Oklahoma, California
and many other states. Several states, including Oklahoma and
Georgia, have ordered the fund’s operators to stop all
insurance-related activities.
In its suit, the Department alleged that
from July 2000 to June 2003, the defendants allegedly spent
millions of dollars of fund assets on administrative expenses
– including several hundred thousand dollars paid to the
purported union and more than $1 million to marketers of the
arrangement. The Department also alleged that the defendants
delayed processing health claims, failed to operate the fund
in an actuarially sound manner and paid excessive fees for
services provided to the fund. In the court action, the
Department seeks to restore losses to the fund and to appoint
a permanent fiduciary to manage it.
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In April 2004, the Department sued the
former president of the Memphis-based International Staff Management Inc. for
mismanagement of the Section 125 cafeteria health plan.
ISM was a staff-leasing firm that operated a Multiple Employer Welfare
Arrangement (MEWA) that left participants with as much as $535,000 in unpaid health
claims.
The suit alleges that Don Starkey violated
the Employee Retirement Income Security Act (ERISA) by failing
to take reasonable action to ensure that the plan had adequate
reserves to pay claims. The suit also alleges that he did not
ensure that the plan was covered by stop loss insurance from
May 1999, until it was terminated on September 30, 2001.
The plan provided health benefits to
approximately 94 participants under a re-insurance arrangement
that was administered by American Heartland Health
Administrators, Inc. until its insurer defaulted on benefit
claims. In May 1999, Carolina Benefit Administrators was
retained by Starkey to take over claims administration. From
May 1999, until the plan was terminated, the plan operated
without stop loss insurance and contribution rates created or
approved by the defendant were not adequate to pay claims.
The suit seeks a court order to require
that Starkey restore any losses with interest. In addition,
the suit asks the court to appoint an independent fiduciary to
administer the plan and permanently bar the defendant from
serving any employee benefit plan governed by ERISA in the
future.
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On January 30, 2004, the Department sued
the fiduciaries of Provider Medical Trust, a Tulsa-based
Multiple Employer Welfare Arrangement (MEWA), for taking
excessive fees and making misrepresentations that resulted in
the participants incurring millions of dollars in medical
bills while believing they had health plan coverage. Among the
parties named in the lawsuit, is Johnson Benefit
Administrators, LLC who controlled PMT and managed about 45
self-funded single employer group plans. It is no longer a
going concern.
The suit seeks the removal and a permanent
bar of the plan fiduciaries from serving any employee benefit
plan governed by the Employee Retirement Income Security Act (ERISA),
and asks that the fiduciaries provide an accounting of the
excessive fee charges and that they make full restitution to
the Plan.
Since January 1, 1996, the defendants
misrepresented the trust’s solvency and caused the trust to
pay excessive service fees to the plan administrator, which
was owned by the fiduciaries. The fiduciaries also allegedly
misrepresented the fund’s solvency to meet state insurance
solvency requirements and continued to market the trust
without disclosing its true financial situation.
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On September 10, 2003, a Federal Court in
Nevada entered a default judgment requiring the principals of
Employers Mutual LLC and affiliated companies to pay $7.3 million in
losses suffered by health plans operated by the corporation.
Employers Mutual LLC is a multiple employer welfare
arrangement (MEWA) that provided health benefits to more than
22,000 participants and beneficiaries in all 50 states. The
Department’s investigation disclosed numerous instances
where monies were transferred from the MEWA to the MEWA’s
operators to pay excessive expenses rather than paying
benefits for the participants. The investigation also
disclosed that the amount of unpaid claims for the MEWA was
approximately $27 million. On February 1, 2002, the Department
obtained a preliminary injunction and order appointing an
independent fiduciary to manage the Health Plan operated by
Employers Mutual LLC and affiliated associations. In February
2003, default judgments were filed against the principal
defendants.
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On November 15, 2001, the Department filed
a lawsuit against the trustees, corporations and principals
affiliated with Mutual Employees Benefit Trust (MEBT) for
diverting more than $2.2 million in assets of their health and
welfare plan to benefit sham labor unions and corporations.
MEBT is a MEWA that has provided group health and other
benefits to as many as 1,912 participants. The relief
requested required the defendants to restore all diverted
assets and losses with interest and be removed from their
position as fiduciaries. The Department also asked the Court
to appoint an independent fiduciary to manage the plan. On May
4, 2002, the Court appointed an independent fiduciary to
manage the plan, and barred the four plan trustees, the plan’s
third party administrator, its employer associations and
several principals involved from serving as fiduciaries to the
plan. On September 13, 2003, the Department obtained a partial
consent decree which required that the owners of MEBT restore
$1.7 million to the Plan.
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On October 28, 2003, the Department sued
executives of TRG Marketing, LLC for failing to prudently
manage the firm’s health plan, resulting in up to $17.5
million in unpaid health claims owed to plan participants
nationwide. The suit alleges TRG’s executives also diverted
health plan assets to pay personal expenses for themselves and
family members.
The defendants failed to charge adequate
premiums, and did not establish appropriate underwriting
procedures to ensure sufficient assets were available to pay
benefits. The defendants also diverted money targeted to pay
health benefits for personal enrichment, including paying for
European family vacations, personal lines of credit,
charitable contributions, brokerage commission and corporate
distribution to themselves and spouses.
The suit, seeks payment of all health
claims filed by participants and beneficiaries and also asks
that the defendants be removed from their positions with the
plan and permanently barred from serving as fiduciaries to any
ERISA-covered plan.
TRG Marketing was a Nevada limited
liability company. The TRG plan was a multiple employer
welfare arrangement (MEWA) designed to protect participants
and their dependents by providing reimbursement for
catastrophic health expenses. When terminated in November
2001, the TRG plan had approximately 11,000 participants
nationwide.
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On July 12, 2001, the Department obtained a
temporary restraining order freezing the assets of U.S.
Alliance, Inc. and related companies. U.S. Alliance and
Alliance Administrators operated numerous membership
associations that marketed plans to employers on the East
Coast. The employers paid contributions to purchase benefits
provided by the various association plans. The health plan
sponsored by U.S. Alliance resulted in more than $2.8 million of
unpaid medical claims for at least 1,500 participants. Plan
officials and corporate executives diverted over one million
dollars of plan assets for their personal use. The order also
appoints an independent fiduciary to manage the Plan. A
preliminary injunction was subsequently issued which continued
the appointment of the independent fiduciary and froze the
defendant’s assets. The Department obtained a final consent
judgment on May 16, 2003, holding that the health plan
administrators of U.S. Alliance are liable to pay up to $2.8
million from future income for the unpaid medical claims.
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