Beware of scams - small companies victimized by health-insurance scams - column

Nation's Business, July, 1990

Beware Of Scams Small companies desperate to find affordable health-insurance plans should be alert to potential problems if they are considering self-funded, multiple-employer health plans.

The plans are known as MEWAs, or Multiple Employer Welfare Associations. They also are sometimes called METs, or Multiple Employer Trusts. These plans attract small companies with cut-rate health-insurance premiums. But they often collapse or vanish when it's time to pay out big claims.

The self-funded plans most likely to run into trouble are those that lack reserves and rely entirely on premiums to pay claims.

When the claims exceed premiums, they have no further resources.

In one Texas case, a MEWA promoter left a medical plan with $7 million in unpaid bills. A pair of MEWA promoters operating in California, Texas, and Florida left over $10 million in unpaid claims.

"In reality, many of these plans are nothing more than sophisticated pyramid schemes, in which the ability to pay the claims of existing participants depends on the ability to attract more and more participants and thereby obtain more and more premium dollars," Sen. Sam Nunn, D-Ga., told a Senate Permanent Subcommittee on Investigations hearing on the MEWA problem in May.

Nunn, the subcommittee's chairman, said that "ambiguity over the exact jurisdictional boundaries between the states and federal government" has created a legal environment in which fraudulent MEWAs exist in a "twilight world" of regulation.

MEWA promoters maintain that a federal law, the Employee Retirement Income Security Act (ERISA), exempts them from state regulation. But Department of Labor officials say there is no such exemption.

"Congress amended ERISA in 1983 to make clear that states would be free to regulate these programs under their insurance regulations," Assistant Labor Secretary David George Ball told the subcommittee.

Whatever was intended by the 1983 amendment, the language used was unclear and created confusion over exactly what states could do to regulate MEWAs, said JAmes E. Long, North Carolina's commissioner of insurance and vice president of the National Association of Insurance Commissioners.

The result of this confusion has been a proliferation of health-insurance scams that have gone virtually unchecked by either the states or the federal government until fairly recently. No one knows the number of problem MEWAs, however, or even how many MEWAs exist nationwide.

Under pressure from the states to help crack down on fraudulent MEWAs, the Department of Labor over the past year has launched 60 investigations. And Labor Secretary Elizabeth Dole in May wrote to all state insurance commissioners "emphasizing their authority to take action against MEWAs and underscoring our commitment to take effective, coordinated enforcement between the department and the states."

Dole also has proposed legislation that would require MEWA promoters to file registration documents with the Department of Labor, making it easier for states to locate promoters and enforce their own insurance laws.

Meanwhile, law-enforcement officials recommend that small companies be on guard against self-funded, multiple-employer health-insurance scams.

Before buying a multiple-employer plan, research the MEWA thoroughly, ask for the plan's financial statement, press your insurance agent for details on what you are buying, and keep an eye on the plan once you have bought into it.