Alphabet Soup of Regulations


One key area unscrupulous insurance promoters exploit is based on the wording of ERISA (Employee Retirement Income Security Act) -- a law passed in 1974 to safeguard private-sector pension plans and employee benefit programs.  This federal law seemingly supersedes state regulation of employer-provided benefit plans, such as health insurance.  In reality, ERISA imposes certain requirements on many persons offering employee benefits, but does not override state insurance laws that may apply to these plans.   In fact, Congress amended this law in 1983, to more clearly spell out continued application of state insurance laws over “ERISA plans“ -- including licensing of entities selling health care benefits.  Unfortunately, the language of that amendment was written as an “exemption” to a “preemption” -- in effect a double negative.  The net result was to create more confusion than it solved.   For twenty years, operators have continued to dodge state licensure by claiming an exemption as an “ERISA plan”.  By  misinterpreting the complex and technical language of ERISA, these promoters have bamboozled unsuspecting employers who find affordable, legitimate health insurance coverage hard to come by.  

One way these promoters exploit the unsuspecting is by packaging the benefit plan as a “multiple employer welfare arrangement” or MEWA.   ERISA applies to health plans established by an individual employer, or a “group or association” of employers.  Single employer plans are exempt from state regulation, while multiple employer, or so-called association plans,  are subject to state insurance laws.  The 1983 amendment to ERISA, specifically addressed these “multiple employer welfare arrangements”.  But as noted earlier, the amendment to ERISA, to the untrained eye, seems to grant MEWAs an “exemption” from state insurance law -- rather than subjecting it to state regulation.    

The following is a warning to agents from Luke Brown, supervisor of the Unauthorized Entities Section within the Office of Insurance Regulation's Division of Fraud:

In the face of a difficult health insurance market, the purveyors of “the answer” have created products and plans, cloaked them with names, and filled them with terminology that may at first glance make them look like something other than insurance as you know it.  You'll be told that they are exempt from Department regulation.  Don’t take it at face value.  They have not been subjected to Department examination for actuarial soundness or solvency, and they are not backed by any guaranty funding the likely event of insolvency.  Your clients may not qualify for guaranteed-issue coverage once this “coverage” ends.

Some tips for analyzing plans claiming to be ERISA:

Is the plan offered to more than one employer?  Is everyone a prospect?  Any plan involving for than one employer is a Multiple Employer Welfare Arrangement and is subject to licensure and regulation by the Department of Insurance.

Does the employer have a voice in the day-to-day operation of the plan?  A true ERISA plan must by single-employer based.  Shouldn’t the employer have the power to control the health plan’s operation?  Does this plan provide for that control.

Do the organizers or promoters tout their “substantial experience in the insurance industry”? (But didn’t they say that this wasn’t insurance?)

Is someone making a profit?  Don’t be misled by mere claims that the entity is nonprofit; it’s easy to print those words on letterhead and forms.

Does the plan purport to be an association plan?  Genuine out-of-state group association plans are not subject to Department regulation, but they are underwritten by authorized insurers (Section 627.654, Florida Statutes).  The involvement of a stop-loss carrier at some attachment point is not the same as the plan being “underwritten.”

Ask hard questions.  Make them commit. Conduct your own due diligence.

By the way, it is both a violation of the Insurance Code and a crime to solicit to sell an unauthorized insurance product; by touching it you will jeopardize your Florida insurance license.  Likewise if an unauthorized insurer fails to pay claims, the agent who sold the product is responsible for payment (Section 626.901, F.S.)

In sum, If it seems too good to be true, it probably is.  STAY AWAY FROM IT.

Just as some promoters used the “association or group” wording to claim an ERISA exemption, others exploit a legitimate exemption for “collective bargaining agreements” in the federal law as a way to avoid state regulation.  Sometimes promoters will market their bogus plans as a “union plan”, “union ERISA plan” or “union MEWA”.  


Another variation on this scam is the so-called VEBA or “voluntary employee's benefit arrangement”.  Like the MEWA argument, promoters of VEBA rely on the conflicting jurisdiction of federal and state laws.   Technically, VEBAs are unrelated to MEWAs or ERISA, but the scam plays out just the same.  VEBAs are legitimate arrangements under the federal tax code -- and provide tax-deductions for employer who fund employee benefits.  Promoters of bogus insurance have twisted that concept into an alleged-exemption from state insurance laws.

Again, from Mr. Brown of the Unauthorized Entities Section of the Department of Financial Services:

....  The most recent generation of health insurance scams was recently hatched. Billed as a VEBA (Voluntary Employees’ Beneficiary Association), their promoters and the agents who sell them again twist reality to suit their needs — all to the detriment of the consumers who depend upon you.

A VEBA is a creature of the Internal Revenue Code (Sections 419 and 419a). It is not an insurance concept. Instead, it is merely a vehicle by which certain employee benefits, including health-care benefits, can be funded. It is a tax-exempt (not regulatory-exempt) vehicle that allows an employer to deduct payments made to the VEBA to fund the payment of employee benefits. It may afford certain tax benefits including allowing the use of pre-tax dollars to fund benefits. Although promoters often use the word “trust” in conjunction with a VEBA, it does not change the basic nature of a VEBA.

So explained, the next question is obvious: Who or what is the risk-bearing entity to which the consumer and provider looks for the payment of claims? A third-party administrator? An agent, broker or MGA? One whose name you recognize? One that at present has a Florida license? Regardless of how advanced the administration may be, a TPA is not authorized to bear risk. Regardless of whether the broker or MGA claims to be your “life partner” in the deal, they don’t bear risk. Don’t be fooled just because the promoter of the plan now has a license.

As has been said over and over again, unless the plan is single-employer based and fully self-insured, the risk-bearing entity must have a Certificate of Authority from the Florida Department of Insurance as an insurer or as a multiple employer welfare arrangement (MEWA) — it is that simple. If the scheme does not meet the fully self-insured and single-employer based criteria, it is subject to both licensure and regulation by the Department — regardless of what the promoters say. Under current law, a MEWA is never eligible for ERISA pre-emption from state insurance regulation.

Because a VEBA is merely a funding mechanism (and a very complex one at that), the need for either a fully self-insured, or a fully licensed risk-bearing entity persists. The fact that the VEBA (the funding mechanism) is a creature of federal law does not change that reality at all — again, regardless of what the promoters say. ERISA is a creation of federal statutory law, and the VEBA concept is not a part of that body of law.

 The fast-talkers will argue that they have filed, or will file, the Form 5500, which validates ERISA status, and thereby, pre-emption from state insurance regulation. Bull. The reality is that anyone can file a Form 5500 for anything and doing so, in and of itself, is meaningless. It’s akin to saying, “I’m an insurance agent, and I play the piano.” One thing has nothing to do with the other. The only thing that counts is an official written determination or opinion by the United States Department of Labor on the bona fides of that plan in its then-current form. You cannot rely upon anything short of that as proof of pre-emption from state insurance regulation, especially from a fast-talker who has led you down this path before.

Don’t do it. Your professional and personal reputation, your license, your livelihood, and most importantly, the welfare of the people whom you serve are at risk if you do.


Profession Employment Organizations or PEOs can also play a part in the unlicensed sale of insurance.  PEOs or “employee leasing firms” have become an increasingly popular way for smaller businesses to economize on administrative costs and provide competitive benefit packages to their employees.  Employee leasing arrangements, in effect, transfer employees from one firm, the client or recipient firm, to the leasing firm or PEO.  The client firm then leases the employees back from the PEO.  In effect, the PEO becomes the employer of record for a large number of employees.  The PEO processes payroll; remits income, FICA and unemployment taxes; obtains worker compensation coverage; and provides employee benefits such as group life and health coverage.  Because of economies of scale, the PEO is able to provide these services and benefits at a substantially lower cost than the client firm could.  In some cases, providing services and benefits that the smaller client firm could not obtain at all.  The employees continue to work for the client firm and receive a more substantial benefit package.   Everyone, client firm, employees and PEO, wins.   And this is all perfectly legal.  However,  ERISA views the employer-employee relationship as more than just a technical transfer of employees between client and the PEO.  Since the client firm continues to control the work rules for the employee, under ERISA the client firm is considered the employer.  The PEO‘s benefit package -- which is available to the employees of many different employers -- is therefore classified as a MEWA.  As such, it is subject to state insurance regulations.  Claims by dishonest PEOs that their are exempt from state insurance laws due to ERISA’s pre-emption are just as bogus as claims by any other MEWA. Furthermore, Florida law specifically prohibits PEOs from sponsoring a self-insured health plan.  (And since ERISA’s exemption applies only to fully self-insured plans, a PEO cannot claim an exemption under ERISA.)

So -- regardless of the guise of the deception, no matter how many acronyms the promoter cares to use -- any benefit plan which assumes risk for two or more, unrelated employers is subject to state insurance regulation.   Likewise, if there is a commingling of funds of unrelated employers -- at any level such as primary insurance, re-insurance, stop-loss coverage -- the plan is subject to state insurance laws.