Understand "why" insurers aren't interested in developing and selling "Trumpcare" health insurance policies

#SmallBusinessHealthPlans, #AssociationHealthPlans, #ERISA, #Disintermediation, #MEWA, #Trumpcare, #AskMariaTodd

Last week, the U.S. Department of Labor did as it was instructed to do by the Trump Administration. It announced its proposal to expand access to healthcare through small business health plans. But then, headlines starting popping up everywhere that insurance plans weren't interested in creating these so-called Trumpcare Association Health Plan policies. Perhaps they didn't understand the nuance of this initiative and it's back story. I'll attempt to make the headline less confusing for all concerned, including the media which makes up roughly 10% of my followers.

The proposed rule only applies to employer-sponsored health insurance, which would allow small businesses and self-employed individuals to join together as a single group to purchase insurance just like their larger group counterparts. Up to 11 million Americans working for small businesses/sole proprietors and their families lack employer-sponsored insurance. These 11 million Americans could find coverage under this proposal. But will it really be accessible at a price point they can afford? Or just another illusory insurance scheme?

These not so new “Association Health Plans” are very similar to Multiple Employer Welfare Arrangements or "MEWAs". They've been the subject of fraud investigations and compliance problems since the mid-1970s. Eventually, they were determined to be more trouble than they were worth and fell out of favor. But some still exist.

The party line being quoted by Trump loyals is that "These improvements stand to open health insurance coverage for millions of Americans and their families by making it more affordable for thousands of small businesses and sole proprietors. By joining together, employers may reduce administrative costs through economies of scale, strengthen their bargaining position to obtain more favorable deals, enhance their ability to self-insure, and offer a wider array of insurance options."

MEWAs fell out of favor because they are laden with operational and risk management problems for the administrators of the plans. But to kickstart one, the costs of present-day compliance regulations related to HIPAA privacy, security, and benefits descriptions and coverage documents, continuation coverage and COBRA, dependent eligibility rules and auditing, reinsurance funding, risk underwriting, ERISA and hiring a TPA or ASO to access provider discounts (or alternative build and contract with a new narrow network of providers) can cost several million in sunk costs. These would have to be initially underwritten by the small employers and self-employed individuals.

How many of these small businesses and self-employed individuals who are not members of a labor union that collectively bargains health benefits will it take to make this Small Business Health Plan /MEWA/Association Health Plan proposition a reality? And will it be done, funded and launched before Trump leaves office and the entire proposed solution is scrapped in favor of a successor plan, like, for instance, s-i-n-g-l-e- p-a-y-e-r?

Because, if the small employers and self-employed individuals can't capitalize the "association" and fund the claims risk, they'll have to pay retail for someone else to do it. And retail usually means someone takes the entrepreneurial risk and then charges a margin on top of it as its reward. Hmm, does it puzzle you that insurers don't have interest in doing this when they are the most prepared with the know how, the provider network and contracts in place, a claims management system and more? What is it that they don't want to get involved in? Or is this just a great example of staying true to one's business and not trying to be everything to everyone?

I offer one explanation:

The reason insurers aren't interested is because for the most part, insurers in the USA are profit-making financial investment products owned by shareholders. In fact, that brings up another reason why you aren't hearing the word "insurance" being mentioned and you do keep hearing references to the US Department of Labor. Small Business Health Plans (Association Health Plans) cannot charge individuals higher premiums based on health factors or refuse to admit employees to a plan because of health factors.

Here's the subtle difference:

'Multiple Employer Welfare Arrangement - MEWAs and these "new" Small Business Health Plans (Association Health Plans) are arrangements where a group of employers pool their contributions in a self-contributing benefits plan for plan participants. They aren't buying "insurance" from an "insurance company" that sells a policy for financial risk indemnification through the purchase of an insurance subscriber policy that transfers the risk of the cost of claims to the licensed insurer.

These small employers and individuals who are self-employed would need to form a self-funded MEWA as an alternative to the fully insured market or going self-insured on their own, individually. A multiple employer welfare arrangement is defined as a single plan that covers the employees of two or more unrelated employers.

So here's where it gets really complicated

Under current IRS and Department of Labor Rules, the primary question is whether the businesses or participants are part of a "controlled group" (as defined in IRC Section 414).

If so, then the arrangement would not be viewed as a MEWA by the IRS or DOL, but as a single entity (since the businesses would have enough common control to be considered part of the same controlled group). If not, then the arrangement would be viewed as a MEWA, since a single plan would be covering employees of two or more unrelated (not part of the same controlled group) businesses.

Whether businesses are part of a controlled group under IRC Section 414 is a complicated calculation that should be made by competent legal counsel.

Generally speaking, though, there are two ways a group of businesses might be part of a controlled group—a parent/subsidiary relationship or a brother/sister relationship.

1. The parent/subsidiary relationship is fairly straightforward, and looks at whether a parent company owns at least 80 percent of the subsidiary.
2. The brother/sister relationship is much more complicated, but generally looks at whether five or fewer individuals (or trusts) own at least 80 percent of the businesses, and also looks at their identical ownership (which again, can get quite complicated).

If one of those two relationships exists, then a plan covering employees of the various businesses would not be a MEWA, as the businesses would be related.

On the other hand, if one of those two relationships does not exist, then a plan covering those employees would be viewed as a MEWA or one of these new Small Business Health Plans (Association Health Plans), as the businesses would be unrelated.

Contrary to many rumors floating around the nation, MEWAs are not prohibited arrangements.

I believe that the current Administration wanted to sidestep using the term MEWA so they could tout this option as their own newly contrived scheme to Make America Great Again. But nobody cares what I think when it comes to politics.

There are two key compliance obligations that have long applied to MEWAs and will likely also apply to Small Business Health Plans (Association Health Plans) under The Employee Retirement Income Security Act of 1974, ("ERISA"), a topic I've been focusing on in many of my blog articles for healthcare facility, clinical and other healthcare business entities in my reader audience. That's because contracting with PPOs and selling health services to ERISA plan sponsors has gained a lot of momentum as narrow networks lockout good providers from participating in HMOs and PPO contracted networks. As a result, a trend of "disintermediation" (contracting directly with the self-funded employers and labor unions) has been gaining traction across America.

1. A MEWA must file a Form M-1, which is an annual filing with the DOL that reports on the MEWA’s compliance with certain federal laws.
2. The MEWA and its participating employers must closely examine whether ERISA applies to the MEWA itself or to each participating employer separately. That determination is dependent on the facts and circumstances surrounding the situation, and must be made by competent legal counsel.
3. MEWAs do not include plans determined by the Secretary of Labor to be collectively bargained. So if the self-employed individual is a member of a labor union (plumbers, pipefitters, musicians, food workers, actors, electricians, and even some physicians, for example) they cannot join or form MEWAs if they can get health benefits through the Union Health and Welfare Benefit plan organized under the Taft-Hartley Act.

In most instances, though, ERISA applies at the participating employer level, meaning each participating employer must comply with ERISA’s plan document, SPD and Form 5500 requirements. That said, depending on the arrangement, participating employers may contract with the MEWA to assist with those compliance obligations. This will likely carry over to the Small Business Health Plans (Association Health Plans).

Another subtlety many people didn't catch

As I was reading about these Small Business Health Plans and Association Health Plans, I read a tiny detail that made me think it was a MEWA in disguise: In addition to ERISA, MEWAs must consider state insurance laws. States are generally allowed to regulate MEWAs, even if ERISA also applies. That complicates matters because many TPAs and ASOs don't educate their staff well enough to understand state law preemption under ERISA.

State regulation varies by state, with some states being very active and others being less active. Where present, state regulation may include filing, reporting and funding requirements, particularly for self-insured MEWAs. That may also implicate the matters of external review for coverage denials and interpretation of covered services and exclusions. ERISA preemptions leave the liability for these fiduciary decisions up to plan administrators.

Legislative uncertainties going forward present the need for superior expertise and administration to set these up. That's not me! Not by a long shot! But when I used Google to search the term "MEWA consultant" I found a few listings. Scarcity will drive up the consulting fees on this complicated issue.

Then there's the other related structure: Voluntary Employee's Beneficiary Associations. VEBAs trusts are tax-exempt employee benefit trusts. VEBAs were created by an Act of Congress in 1928 and are governed under IRC Section 501(c)(9). VEBAs have been used for years in private sector and Taft-Hartley Health and Welfare Benefit Funds. The private sector has commonly used VEBAs to pre-fund retiree health care benefit plans. Taft-Hartley Health and Welfare Benefit Funds are using VEBAs to hold assets for collectively bargained union benefit plans. I'll leave that topic for another day.

About Maria Todd

Maria Todd is a globally-renowned health industry entrepreneur and healthcare business strategist who consults to healthcare & health tourism businesses. She solves complex operations, marketing and payment challenges in healthcare business administration. 

Maria brings over 35 years of expertise in six complicated areas of healthcare business administration and strategy, namely: Managed Care Contract Analysis & Negotiation, Health Tourism Business Development, Concierge Medical Practice Consulting, Integrated Physician Group Consulting, Physician Employment Contracting and Negotiation, and Healthcare Marketing and Branding.

She is the author of 18 internationally published healthcare business administration professional books and has delivered more than 3000 keynote presentations, Master Classes, webinars, seminars and client onsite workshops in over 100 countries since 1989.

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