Enforcement Alert - Protecting Employers from Mismanaged Healthcare Arrangements

This page is most useful for:
icon to denote employer Employer

The Department of Labor (the Department) is committed to ensuring employers have access to innovative, low-cost choices when purchasing healthcare coverage for their employees – Multiple Employer Welfare Arrangements (MEWA) are one such option. However, during the course of its investigations, the Department has sometimes identified fraudulent or mismanaged MEWAs that promise benefits they can’t or won’t pay. Employers can reduce the risk of MEWA fraud by following the tips in this document. 

MEWAs provide health and welfare benefits to employees of two or more unrelated employers who join a group health arrangement including a plan,(1) and are required to follow the Employee Retirement Income Security Act (ERISA) and comply with state laws and regulations. Most MEWAs are properly managed and provide promised benefits to the employees of participating employers. There have been instances, however, where the Department has identified MEWAs and similar healthcare arrangements that do not provide promised benefits and that harm American workers.

In these instances, these fraudulent, mismanaged, and abusive healthcare arrangements can cause significant harm by:

  • Imposing millions of dollars in unpaid claims on employees.

  • Charging employers excessive administrative fees without providing valuable services.

  • Exposing employers without licensed insurance to the risk of covering massive medical expenses.

The Employee Benefits Security Administration (EBSA) and state agencies work together to protect the public from problematic MEWAs and similar arrangements. 

Stay Alert: Exercise caution with promises that sound too good to be true. For example, MEWAs without fully-insured policies from state-licensed carriers may try to entice employers by charging low contribution rates, but these arrangements can sometimes put employers at significant risk of being directly liable for their employees’ health claims.

Protect yourself from problematic MEWAs: This alert will help you:

  1. Spot red flags

    or common warning signs of problematic MEWAs.

  2. Ask the right questions

    when evaluating MEWAs for employee health coverage.

  3. Learn from EBSA investigations

    about the risks problematic MEWAs pose for employers and employees.

Red flag

Red Flags

With the right information, employers can determine if a MEWA could be harmful. Here are some common red flags to look for when evaluating MEWAs for employee health programs, based on actual investigation findings.

  • FLAG 1 — Promises that seem too good to be true

    Some MEWAs offer contribution rates much lower than competitors to attract clients. However, these artificially low rates may not provide enough funding to cover claims. If the funding gap is too large, the MEWA could collapse, leaving employers and employees with unpaid claims.

  • FLAG 2 — No actuary

    It is best practice for MEWAs to use an actuary to set contribution or premium rates. Without one, they lack the analysis to ensure financial stability, making them a risky choice.

  • FLAG 3 — Complaints about unpaid or delayed claims

    Delayed or unpaid claims raise concerns about a MEWA's financial stability. Even if claims are eventually paid, delays can suggest a funding shortfall as the MEWA waits to gather enough funds to cover payments.

  • FLAG 4 — Frequent changes in claims processors

    Regularly switching claim processors may signal operational or financial issues within a MEWA. Claims processors may stop working with a MEWA because of these underlying problems.

  • FLAG 5 — Lack of transparency

    Be cautious if basic documents are missing, such as a service agreement, plan document, Summary Plan Description, insuring agreement, or stop loss policy. You should not have to sign a non-disclosure agreement to access these documents. Missing fee schedules, signature pages, incomplete policies, or rate sheets without full coverage details can also indicate problems.

    Best Practice: To extent the arrangement is based on account balances, ensure you receive clear documentation of your account balance, separate from other employers in the MEWA. And always ask for periodic statements so you know deficit and surplus amounts.

  • FLAG 6 — Gaps in coverage

    What does the plan exactly cover? Many plans are marketed as Minimum Essential Coverage, and do not provide participants with major medical coverage.

    Best Practice: Review plan documents and evidence of coverage to understand the scope of benefits. Employers must have a clear understanding of the benefits being offered. You may want to seek advice from a qualified employee benefits insurance broker.

  • FLAG 7 — Confusion about who bears the risk

    If MEWA documents state a plan is "administered by" rather than "fully-insured by" the MEWA operator, employers should expect to retain the risk for paying employee health claims. Similarly, with a "level-funded" arrangement, employers will still bear a portion of the risk.

    Best Practice: Carefully review service provider contracts, adoption agreements, and plan documents to understand who is ultimately responsible for paying health claims. Watch for phrases like "community-rated insurance," "level-funded insured," and "hybrid self-funded insurance," as they can make it difficult to determine who will bear the risk.

  • FLAG 8 — Level-funded arrangements

    When you buy a level-funded plan you don't fully transfer the risk for paying your employees' health claims. In many MEWA arrangements, the plan is partially self-insured. The employer pays a fixed monthly amount, but is responsible for any claims costs that exceed those monthly payments but fall below the attachment point for reinsurance (see Flag 9).

    Best Practice: Always expect that if a plan doesn't clearly say "fully insured," it isn't—and you'll be responsible for paying any claims beyond your monthly payments. Marketing materials may not provide clear explanations, so ask the right questions. A list of sample questions is provided in the next section of this alert.

  • FLAG 9 — Stop Loss and Reinsurance Policies

    Ask questions about the MEWA's stop loss and reinsurance policies. Stop loss is a risk management product for self-insured plans that is different from having a fully insured policy. Some stop loss and reinsurance policies may cover the wrong entity or provide insufficient coverage for claims. Some of these policies are issued through an insurance market, like the non-admitted or specialty lines insurance market, instead of through a licensed insurance company subject to state insurance oversight.

    Best Practice: Research the stop loss and reinsurance carrier and ask about the coverage provided. Ensure it is issued from a licensed and reputable company. Stop loss requirements vary from state to state, so consider contacting your state insurance department for guidance.

  • FLAG 10 — Money held overseas

    Holding funds offshore violates ERISA, which requires all assets of ERISA-covered plans to be held within the United States. Plans with offshore funds pose significant risk, as recovering money to pay claims can be challenging.

  • FLAG 11 — Health plan with a record of complaints

    Public complaints about a MEWA should raise concerns.

    Best Practice: Conduct an online search using the company's name along with key terms like "complaint," "scam," or "fraud."

  • FLAG 12 — ERISA versus state jurisdiction

    Does the arrangement advertise an exemption from state law, claiming to be governed by ERISA? Many MEWAs seeking to avoid state insurance regulator oversight often market their products as solely governed by ERISA or claim to be under the laws of a different state than where they operate. Federal law preserves state jurisdiction over MEWAs.

    Best Practice: Contact your state department of insurance to learn more about specific requirements for MEWAs in your state.

Questions to Ask

Below are some questions to ask an insurance broker to help uncover any possible red flags.

  • Is this arrangement self-funded or fully insured?

  • Is this a level-funded arrangement?

  • What benefits are provided to participants?

  • What are the fees; Ask for a breakdown of the percentage of premiums used for paying claims, fees, and insurance premiums.(2)

  • Is there an actuary?

  • How are the monthly rates determined? What happens if the monthly contributions aren’t enough to cover the claims costs?

  • Will a participant ever need to pay more than the monthly premium?

  • Do the rates reflect the level of benefits being offered? Does it seem too good to be true?

  • Are there any insurance contracts involved? If so, with whom are they placed, and what risks do they cover? Are they licensed in the state?

  • What are the terms of the stop loss and reinsurance policy? What are the attachment points?

  • Who is responsible for paying claims that exceed the monthly premiums and are not covered by stop loss insurance?

  • Who is the insurer of the stop loss policy? Do they have any affiliation with the plan administrator?

  • What are the administrative fees? Who receives these fees? How are the operators compensated?

  • What happens to the contribution money once the employer sends it to the MEWA or the third-party administrator? Which account does it go to? Is there an individual account for each employer? If not, is there a separate accounting kept for each employer?

  • Are there any overseas accounts? If so, why?

  • Is an M-1 form available for this arrangement?(3)

Troubling MEWA Examples

These examples from EBSA investigations highlight the importance of spotting, avoiding, and stopping problematic MEWAs.

Riverstone

In 2018, EBSA began investigating Riverstone, a MEWA that provided health benefits to over 16,000 participants through 112 plans. Riverstone set premiums artificially low to attract customers. However, after an actuary warned that Riverstone’s rates were unsustainable, Riverstone lied to potential clients, stating that its rates were acceptable. Additionally, Riverstone illegally stored employer and employee contributions in an offshore account based in the Cayman Islands.

As more claims piled up, Riverstone couldn’t pay them, so it borrowed over $3.5 million in high-interest loans. The monthly payments of these loans totaled over $575,000. Riverstone’s financial mismanagement led to significant delays in claim payments. The company provided misleading explanations to patients for the delays. As unpaid claims reached over $24 million, Riverstone stopped paying claims, forcing patients into collections and causing damage to their credit scores. Additionally, some patients experienced delays with care or stopped treatments because they could not get pre-authorizations for their doctors.

EBSA’s investigation led to the appointment of an independent fiduciary to resolve unpaid claims and liquidate the MEWA. To date, the fiduciary has recovered $27 million to pay health claims and negotiated a $50 million reduction of claims with healthcare providers.

U.S. Department of Labor Obtains Temporary Restraining Order To Protect Participants and Beneficiaries of Failing MEWA

WH Administrators

In 2016, EBSA opened an investigation into WH Administrators (WHA), which falsely advertised itself as an insurance carrier despite not being registered in any state.

WHA sold health and welfare plans designed by its CEO, without input from an actuary to ensure proper funding. The CEO and his spouse deposited employee contributions into personal accounts and used more than $100,000 for personal payments and personal loans to friends. They withdrew another $1.3 million to pay insurance broker commissions.

WHA also claimed its plans included stop loss coverage and charged employees for this service despite the fact that 48 out of WHA’s 52 clients had no stop loss coverage. This left more than $8 million in employee health claims unpaid.

Following EBSA’s investigation, EBSA obtained a court order barring the principals from promoting or selling employee welfare plans. The order also required the return of over $28 million to more than 100 affected employer health plans.

Federal Court Orders Maryland Company to Restore $28,650,604 To Employer Benefit Plans After U.S. Department of Labor Investigation

AEU/Blackwolf

In March 2017, EBSA opened an investigation into the AEU Holdings LLC Employee Benefit Plan, a MEWA that provided health benefits to about 14,000 participants working for over 560 employers across 36 states.

AEU and its consultant Black Wolf Consulting, Inc. illegally stored plan funds in an offshore account in Bermuda. They spent more than $10 million on reinsurance from these accounts, despite covering only $3.5 million in claims. AEU also charged excessive administrative fees, which accounted for over half of all contributions. Many of these fees were hidden and random.

Despite operating on the brink of financial collapse, AEU continued to enroll unsuspecting new clients without advising them of the plan’s inability to pay claims. By 2016, AEU had a $20 million shortfall; and by 2017, there were over 21,000 unpaid claims. The shortage continued to grow, with unpaid claims reaching $51 million by March 31, 2018. At one point, claims administrators received over 2,000 calls a week from participants whose health bills were unpaid. This left patients with collection referrals, damaged credit scores and delayed medical treatment.

Through litigation, EBSA secured the appointment of an independent fiduciary to resolve the unpaid claims. Under a court order, outstanding health claims continue to be paid.

U.S. Department of Labor Obtains a Temporary Restraining Order to Protect Participants and Beneficiaries of Failing MEWA

Footnotes

  1. With certain exceptions, MEWAs do not include plans established or maintained under collective bargaining agreements. ↩

  2. PHS Act Sec. 2718 establishes the Medical Loss Ratio. Under fully insured arrangements, only 15% of premiums can go to fees. While self-funded products may be a bit higher based on level of risk, anything over this percentage should be questioned. ↩

  3. All MEWAs are required to annually file an M-1 form with the federal government. In January 2025, the Department expanded its Delinquent Filer Voluntary Compliance Program to cover MEWAs that missed their Form M-1 filing requirements. This change makes it easter for MEWA administrators to catch up on overdue benefit plan filings, avoid significant civil penalties, and ensure plan participants receive protections and benefits they are entitled to under ERISA. ↩