Small Employer Health Plan Proposal Ripe for Fraud, Groups Say

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By Madison Alder

The Labor Department’s proposed expansion of health plans for employer groups would invite scammers back into the insurance market, several groups said in comment letters.

Employment lawyers, former DOL officials, insurers, and advocacy groups are among those to voice concerns about past fraud and insolvency problems with similar multiple employer health plans. The groups said consumers will be at risk for the same type of abuse if protections like giving states oversight of the plans and requiring employer groups to share a common interest other than the need for insurance, aren’t added to the final rule.

The proposed rule would change the definition of “employer” to make it easier for small businesses and individuals to band together in associations based on industry or geography to create health plans. The DOL’s Employee Benefits Security Administration created the rule in response to an October 2017 executive order. The comment period on the proposed rule ended March 6.

Remember History, Commenters Say

“The Department has a huge and long history with this kind of fraud,” Marc Machiz, former director of EBSA’s regional office in Philadelphia, told Bloomberg Law. “The effect of this reg is going to be to create new opportunities for fraudsters—the likes of which they’ve never had before.”

Fraudulent multiple employer plans operating before the Affordable Care Act were effective because they priced their coverage low to attract small employers that struggled to provide health insurance to their employees and didn’t provide the care they promised, Machiz said. “These things were really operating as Ponzi schemes,” he said.

Fraud has been less common since enactment of the ACA because it introduced a strict regulatory framework and opened health care exchanges that decreased the demand for cheap, potentially fraudulent plans, Mila Kofman, former state insurance commissioner of Maine and the executive director of DC Health Benefit Exchange Authority, told Bloomberg Law. The exchange is a private-public partnership established by the District of Columbia Council to develop and operate the District’s online health insurance marketplace, according to its website.

The proposed rule, however, would loosen the requirements for multiple employer plans, allowing them to form for the sole purpose of creating a health plan and cross state lines without clear jurisdiction for the states.

“Any new ambiguity that is created is going to be used by these criminals to evade the law,” Kofman said.

Fraudulent multiemployer plans left 200,000 people without coverage between 2000 and 2002, and racked up $252 million in unpaid bills, according to a 2004 Government Accountability Office report, Kofman’s organization said in its letter. Twice that number were left without coverage between 1988 and 1991, according to a 1992 GAO report, the group said.

The DC Health Benefit Exchange Authority was one of the organizations that joined Georgetown University Center on Health Insurance Reforms in its comment letter March 1 demanding the DOL release information about past fraud in the industry. The groups filed a Freedom of Information Act request with the DOL for documentation and data it has about the agency’s enforcement efforts against multiple employer welfare arrangements, or MEWAs, which are similar to association health plans.

NELP Questions Legality of Proposal

The National Employment Law Project also objected to the rule in a comment letter. Omitting information about past fraud and insolvency could render any final rule “arbitrary and capricious,” Patricia Smith told Bloomberg Law. Smith was a DOL solicitor during President Barack Obama’s administration and is now senior counsel at NELP.

“When I was at DOL, one of the main priorities was going after fraudulent or mismanaged MEWAs,” she said.

The rule also violates the ACA, she said. Small employers and individuals that form an association would be treated as a large employer but could circumvent the ACA’s “employer mandate,” which requires traditional large employers to provide certain levels of coverage at an affordable cost.

Not all of this type of multiple employer health plans are fraudulent or insolvent, but there has been a lot of fraud and mismanagement, Smith said. Although states have been key for enforcement of multiple employer plans, she said, the proposed rule doesn’t make it clear that states have the authority to regulate them.

The DOL didn’t respond to Bloomberg Law inquiries about whether it plans to address calls for fraud and insolvency protections.

State Oversight Called Key

Many commenters called for a clear definition of state oversight in the final rule.

The Coalition Against Insurance Fraud, a Washington-based advocacy group, said it isn’t against association health plans but fears history may repeat itself if the final rule doesn’t give states oversight.

Matthew Smith, the group’s director of governmental affairs and general counsel pointed to the states as a valuable enforcement resource. He said his group works closely with state legislators and regulators, and “strongly believes in state regulation of insurance matters.”

Kofman, who studied fraud in multiple employer arrangements for years, also said state oversight is critical for finding and preventing fraud. Federal regulators often find fraud by looking for patterns, and those often appear only after a bad plan has been operating for a while. She pointed to a case in which a fraudulent health plan called Employers Mutual LLC spread across the country in 10 months, racking up millions in unpaid claims.

“When you in any way impede state ability to find and shut the scams down, what you’re doing is allowing these operators to to victimize more people,” Kofman said. “The longer they exist, the more victims you get.”

Enforcement Resources Said Lacking

Machiz warned that the DOL wouldn’t have the resources to take on the additional responsibility of more association plans due to a shrinking staff and few resources.

EBSA received a funding increase of about 3 percent in the White House budget request for fiscal year 2019, specifically to support the association health plan rule. But that wouldn’t bring the sub-agency’s budget back to where it was the last two years of the Obama administration, which was about 8 to 8.5 percent higher than President Donald Trump’s fiscal year 2019 proposal.

In its letter to DOL, AARP also pointed to a lack of significant increases to DOL resources to enforce the proposal.

“We’re talking about changing a system that we see working for employees,” Megan O’Reilly, director of federal health and family team for AARP, told Bloomberg Law, adding that AARP’s concerns with association plans predate the ACA, when bills with similar proposals were being discussed in Congress.

Lawmakers Split on Rule

Lawmakers on House Committee on Education and the Workforce aren’t seeing eye-to-eye on the proposal, mostly along party lines.

Rep. Virginia Foxx (R-N.C.), committee chairwoman, and Tim Walberg (R-Mich.), chairman of the subcommittee on health, employment labor and pensions, submitted comments praising the DOL’s efforts to open up affordable health care to small businesses.

They said the rule would help small employers by allowing them to form a group that would have the same bargaining power afforded to large employers when creating a health plan for its employees.

Democratic members of the committee led by ranking committee member Rep. Bobby Scott (Va.), however, highlighted the fraud issue in their comment letter. The proposed regulation would “erode” increased oversight Congress gave to states years ago when it amended federal employment law, they wrote.

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