OGC Opinion No. 09-03-06
The Office of General Counsel issued the following opinion on March 17, 2009 representing the position of the New York State Insurance Department.
Re: Multiple Employer Welfare Association
Questions Presented:
1. May several not-for-profit corporations whose Boards of Directors have common members, join together to self-fund employee health benefits, without being considered a MEWA?
2. If it is a MEWA, would it have to become licensed as an insurer?
3. If it had to become licensed as an insurer, what requirements would be imposed?
4. What would be the consequence if it does not become licensed as an insurer?
Conclusions:
1. No. Absent a regulation or opinion from the United States Department of Labor, New York would consider the proposed group to be a self-funded MEWA.
2. Yes. As a self-funded MEWA, it would have to become licensed as an insurer in order to provide health benefits.
3. The requirements to be licensed as an accident and health insurer are set forth in Articles 11 and 42 of the New York Insurance Law.
4. If the entity does not become licensed as an insurer, it would be in violation of the New York Insurance Law.
Facts:
While the inquirer has not furnished detailed information, he reports that a number of nursing homes located in various parts of the United States are all operated under the aegis of an unidentified religious order. Each nursing home is a separate corporation created under the N.Y. Not-For-Profit Corp. L. (McKinney 2002), or the equivalent statute of its domiciliary jurisdiction, and is recognized as a tax exempt organization pursuant to the United States Internal Revenue Code. While each nursing home corporation has local members on its Board of Directors, the majority of each Board is composed of the same representatives of the sponsoring religious order.
He further reports that it is his understanding that under the Employee Retirement Income Security Act, 29 U.S.C. Chapter 18, (ERISA), a “controlled group” of companies is not considered to be a MEWA, and thus is exempt from state regulation. Because determination of “control” is usually based on stock ownership, he questions how “control” is determined with respect to not-for-profit entities.
Analysis:
The inquirer asks whether several not-for-profit corporations whose Boards of Directors have common members may join together to self-fund employee health benefits without being considered a MEWA. He also asks whether, if a MEWA, it must be licensed as an insurer.
The definition of “doing an insurance business” is relevant to the inquiry. N.Y. Ins. Law § 1101(b)(1)(A) (McKinney 2006) provides in relevant part that the making, or proposing to make an insurance contract constitutes the doing of an insurance business. Insurance Law § 1101(a) reads as follows:
(1) "Insurance contract" means any agreement or other transaction whereby one party, the "insurer", is obligated to confer benefit of pecuniary value upon another party, the "insured" or "beneficiary", dependent upon the happening of a fortuitous event in which the insured or beneficiary has, or is expected to have at the time of such happening, a material interest which will be adversely affected by the happening of such event.
(2) "Fortuitous event" means any occurrence or failure to occur which is, or is assumed by the parties to be, to a substantial extent beyond the control of either party.
Thus, the provision of health benefits by an employer falls squarely within the definition of an “insurance contract”, and therefore constitutes the doing of an insurance business. Insurance Law § 1102(a) requires that anyone doing an insurance business, unless otherwise exempted, to have a license from the Insurance Department. Under certain circumstances, ERISA constitutes such an exemption.
ERISA is “a comprehensive and reticulated statute” regulating employee benefit plans. See Great-West Life & Annuity Insurance Company v. Knudson, 534 U.S. 204 at 209 (2002). An employee welfare benefit plan is defined in 29 U.S.C. § 1002(1) as follows:
The terms "employee welfare benefit plan" and "welfare plan" mean any plan, fund, or program which was heretofore or is hereafter established or maintained by an employer or by an employee organization, or by both, to the extent that such plan, fund, or program was established or is maintained for the purpose of providing for its participants or their beneficiaries, through the purchase of insurance or otherwise, (A) medical, surgical, or hospital care or benefits, or benefits in the event of sickness, accident, disability, death or unemployment, or vacation benefits, apprenticeship or other training programs, or day care centers, scholarship funds, or prepaid legal services . . . .
The scope of ERISA is set forth in 29 U.S.C. § 1003 as covering any employee benefit plan, except a governmental or church plan, established by an employer, a union, or by both. 29 U.S.C. § 1144(a) generally preempts state statutes affecting such plan, although ERISA excepts from its preemption state statutes regulating insurance from state laws for ERISA plans is modified in the case of MEWAs1 , which are subject to state regulation if engaged in the business of insurance.
The rule for state regulation of a MEWA is set forth in 29 U.S.C. § 1144(b)(6), which reads:
(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 (or which is a multiple employer welfare arrangement subject to an exemption under subparagraph (B)), 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.
(B) The Secretary may, under regulations which may be prescribed by the Secretary, exempt from subparagraph (A)(ii), individually or by class, multiple employer welfare arrangements which are not fully insured. Any such exemption may be granted with respect to any arrangement or class of arrangements only if such arrangement or each arrangement which is a member of such class meets the requirements of section 3(1) and section 4 necessary to be considered an employee welfare benefit plan to which this title applies.
Therefore, under ERISA, two or more trades or businesses are not considered to be a MEWA, but rather a single employer, if they are within the same control group. See 29 U.S.C. § 1002(40)(B)(i). Whether a trade or business is under “common control” with another trade or business is a determination to be made under regulations of the federal Secretary of Labor. See 29 U.S.C. § 1002(40)(B)(iii).
The inquirer has not provided the Insurance Department with an analysis or determination from the Secretary of Labor addressing whether the aggregation of nursing homes would qualify as a control group under ERISA. In the absence thereof, it appears that the aggregation of nursing homes would constitute a self-funded MEWA, and that the New York Insurance Law would prohibit self-funding of health benefits, unless licensed as an insurer in New York.
Finally, he asks what requirements would be imposed if the MEWA must be licensed as an insurer, and the consequences of not becoming licensed as an insurer. The requirements for forming an insurance company are detailed in Articles 11 and 42 of the Insurance Law. If the entity in question does not become licensed as an insurer, then it could not lawfully provide health benefits in New York.
For further information you may contact Principal Attorney Alan Rachlin at the New York City Office.
1 A MEWA is defined in 29 U.S.C. § 1002(40) as:
(A) The term "multiple employer welfare arrangement" means an employee welfare benefit plan, or any other arrangement (other than an employee welfare benefit plan), 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, except that such term does not include any such plan or other arrangement which is established or maintained--(i) under or pursuant to one or more agreements which the Secretary finds to be collective bargaining agreements, (ii) by a rural electric cooperative, or (iii) by a rural telephone cooperative association.
(B) For purposes of this paragraph--(i) two or more trades or businesses, whether or not incorporated, shall be deemed a single employer if such trades or businesses are within the same control group, (ii) the term "control group" means a group of trades or businesses under common control, (iii) the determination of whether a trade or business is under "common control" with another trade or business shall be determined under regulations of the Secretary applying principles similar to the principles applied in determining whether employees of two or more trades or businesses are treated as employed by a single employer under section 1301(b) of this title, except that, for purposes of this paragraph, common control shall not be based on an interest of less than 25 percent, . . . .