This article has been published in "The Advocate", a monthly publication of the Arizona Association for Justice/Arizona Trial Lawyers Association, July/August 2010 issue, @2010 by Steven J. Bruzonsky, Esq.
ERISA LIENS - THE MULTIPLE EMPLOYER WELFARE ARRANGEMENT (MEWA) EXEMPTION
One of these days, you might be "lucky" enough to run across an alleged ERISA lien by a multiple employer welfare arrangement (MEWA), and if you do, then you have a compelling basis that the MEWA is exempt from ERISA (Employee Retirement Income Security Act of 1974, 29 U.S.C. §§ 1001 et seq) and subject to state insurance regulation and Arizona's anti-subrogation case law.
There is a lot of confusion and misunderstanding concerning what is a MEWA. If a large grocery store chain provided union mandated health benefits, is this a MEWA exempt from ERISA? How about employers of all sizes providing union mandated health benefits for construction workers?
Historically, promoters and others established and operated MEWAs to market health and welfare benefits to employers for their employees. MEWA promoters typically represented to employers and state regulators that the MEWA was an employee benefit plan covered under ERISA and therefore exempt from state insurance regulation under ERISA's broad preemption provisions. By avoiding state insurance reserve, contribution and other requirements applicable to insurance companies, MEWAs were able to market insurance coverage at rates substantially below those of state regulated insurance companies, thus making the MEWA an attractive alternative for small businesses finding it difficult to obtain affordable health coverage for their employees. In practice, a number of MEWAs were 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. Prior to 1983, although a number of states attempted to subject MEWAs to state insurance law requirements, such efforts were frustrated by MEWA promoter claims of ERISA plan status and federal preemption. In many instances MEWAs, while operating as insurers, had the appearance of an ERISA-covered plan â€” they provided the same benefits as ERISA-covered plans, benefits were typically paid out of the same type of tax-exempt trust used by ERISA-covered plans, and, in some cases, filings of ERISA-required documents were made to further enhance the appearance of ERISA-plan status. Recognizing that it was both appropriate and necessary for states to be able to establish, apply and enforce State insurance laws with respect to MEWAs, Congress amended ERISA in 1983 to remove federal preemption as an impediment to state regulation of MEWAs. "Multiple Employer Welfare Arrangements under the Employee Retirement Income Security Act (ERISA): A Guide to Federal and State Regulation", U.S. Department of Labor, at http://www.dol.gov/ebsa/Publications/mewas.html.
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. 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. 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 ERISA against MEWA operators to the extent a MEWA is an ERISA plan or is holding plan assets. State insurance laws that set standards requiring specified levels of reserves or contributions are applicable to MEWAs even if they also are covered by ERISA. "Fact Sheet - MEWA Enforcement", U.S. Department of Labor, Employee Benefits Security Administration, November 2009 http://www.dol.gov/ebsa/Newsroom/fsMEWAenforcement.html).
The statutory definition of a MEWA, which is set forth at 29 U.S.C. § 1002(40), excludes as MEWAs plans established or maintained pursuant to a collective bargaining agreement (as determined by the Secretary of Labor), and plans of a rural electric cooperative or a rural telephone cooperative association. A MEWA is not a single employer plan, as 29 U.S.C. § 1002(41) states that the term "single-employer plan" means a plan which is not a multi-employer plan".
MEWAs are exempt from ERISA, and are subject to state insurance regulation of "standards, requiring the maintenance of specified levels of reserves and specified levels of contributions", and "any law of any State which regulates insurance may apply to the extent not inconsistent" with ERISA, as set forth at 29 U.S.C. § 1144(6)(A). As the ERISA statute does not include any subrogation, lien or other third party reimbursement provisions, Arizona's anti-subrogation case law is not inconsistent with ERISA and therefore Arizona anti-subrogation caselaw remains applicable to MEWAs.
29 U.S.C. § 1144(6)(C) provides that nothing in subparagraph (A) (discussed above) "shall affect the manner or extent to which the provisions of this subchapter apply to any employee welfare benefit plan which is not a multiple employer welfare arrangement and which is a plan, fund, or program participating in, subscribing to, or otherwise using a multiple employer welfare arrangement to fund or administer benefits to such plan's participants and beneficiaries. " Keep in mind that the MEWA agreement is typically between the MEWA and the individual employer, so the MEWA is exempted from ERISA. If the MEWA attempts to assert a subrogation claim, then there is no federal or ERISA preemption and state insurance regulaton and any state anti-subrogation law or case law applies. However, the individual employer's employee welfare benefit plan itself remains subject to ERISA.
If you are able to obtain a Form M-1 filed by an alleged ERISA lien claimant, then this might in some cases help establish that the alleged ERISA lien claimant is actually a MEWA exempt from ERISA. An administrator of a MEWA generally files the one-page Form M-1 once a year. Form M-1 first became effective with the 1999 plan year. The form contains general registration information including the states in which the entity operates and other information. Plan administrators of MEWAs must file the required form for every year that the MEWA offers benefits for medical care for the employees of two or more employers. MEWAs that are insurance companies are exempt from the filing requirement. "How To Obtain Employee Benefit Plan Documents from DOL", U.S. Department of Labor, Employee Benefits Security Administration, at http://www.dol.gov/ebsa/publications/how_to_obtain_docs.html. Also see "FAQS On The Form M-1", U.S Department of Labor, Employee Benefits Security Administration, at http://www.dol.gov/ebsa/faqs/faq-FormM1.html. As previously discussed, MEWAs do not include plans determined by the Secretary of Labor to be collectively bargained. Plans claiming this exception without a determination from the Labor Department are considered Entities Claiming Exception (ECEs) and must file for three years following an origination event (which is defined in regulations and in the instructions to the Form M-1).
Keep in mind that just because a Form 5500 is filed doesn't mean that the alleged ERISA lien claimant might not be a MEWA exempt from ERISA preemption of state anti-subrogation law or case law. The first page of the Form 5500, Part 1, includes requiring identification of whether the plan is for "(1) a multiemployer plan", "(2) a single-employer plan (other than a multi-employer plan", or "(3) a multiple-employer plan".
You may want to reread fellow AzTLA member Dan Ziskin's April 1997 article, published in The Advocate, "Some ERISA plans are not allowed liens; MEWAs are not exempt from state law", for some more information on this subject. In that article, it was noted that the Federal District Court in Atlantic Health Care Benefits Trust v. Foster, 809 F. Supp 365 (1992) ruled that a MEWA was subject to state law which was not inconsistent with ERISA. The court's opinion was affirmed by the Circuit Court at 6 F.3d 778 and Cert. was denied at 114 S.Ct. 689.
Thanks to fellow AzTLA member Kevin McAlonan for providing updated legal research showing that MEWAs continue to be subject to state regulation, which would include state anti-subrogation law and case law. Some cases include
Marcella v. Capital Dist. Physicians' Health Plan, Inc., 293 F.3d 42 (2d Cir. 2002) (a group or association that contains non-employers cannot be an "employer" within the meaning of ERISA).
Fuller v. Norton, 86 F.3d 1016 (10th Cir. 1996) (non-fully insured MEWAs are subject to the jurisdiction of the state's insurance regulatory agency);
ELCO Mechanical Contractors, Inc. v. Builders Supply, 832 F. Supp. 1054 (S.D. W. Va. 1993) (only a MEWA that is also an "employee welfare benefit plan" is governed by ERISA);
Hill v. Association of Small Business Employees, 824 F. Supp. 955 (D. Colo. 1992) ("ASBE did not at any time engage in any collective bargaining to qualify it as an employee organization, and its failure even to allow employee input places it even farther from the status of a labor organization.");
MDPhysicians & Assocs., Inc. v. Wrotenbery, 762 F. Supp. 695 (N.D. Tex. 1991) aff'd, 957 F.2d 178 (5th Cir.), cert. denied, 506 U.S. 861 (1992) (federal court lacked subject-matter jurisdiction because the MEWA was not an ERISA plan);
Baucom v. Pilot Life Ins. Co., 674 F. Supp. 1175 (M.D.N.C. 1987) (group that limited its membership to "golf professionals" was not an employee organization under ERISA);
Wisconsin Educ. Ass'n Ins. Trust v. Iowa State Bd. of Pub. Instruction, 804 F.2d 1059 (8th Cir. 1986) (discussing the difference between ERISA plans established by bona-fide employee organizations and non-ERISA plans "established and maintained by entrepreneurs for the purpose of marketing insurance products . . . .");
National Business Conf. Employee Benefit Ass'n v. Anderson, 451 F. Supp. 458 (S.D. Iowa 1977) (association open "to any person employed 1,000 hours per year in an employer-employee relationship" was not an employee organization under ERISA);
Bell v. Employee Sec. Benefit Ass'n, 437 F. Supp. 382 (D. Kan. 1977) (association that enrolled a self-employed carpenter, an insurance agent, a domestic, a self-employed truck driver, a teacher's aide, a sewer department employee, a sole proprietor, and a contractor was not an employee organization under ERISA);
Hamberlin v. VIP Ins. Trust, 434 F. Supp. 1196 (D. Ariz. 1977) (discussing the difference between ERISA plans established by bona-fide employee organizations and non-ERISA plans "established and maintained by entrepreneurs for the purpose of marketing insurance products . . . .").