A California-based Multiple Employer Welfare Arrangement (MEWA) has effectively been ordered by the Department of Labor (DOL) to cease all operations due to violations under the Employee Retirement Income Security Act (ERISA).
Riverstone Capital LLC; NexGen Insurance Services Inc.; and NGI Brokerage Services Inc. has been in operation since 2016. The group has 112 ERISA participating plans, of which approximately 96 are employers based in California.
On February 1, 2019, the Secretary of Labor, Alexander Acosta, filed a complaint for violations of ERISA with regards to the MEWA operating under Nexgen Insurance Services.
The basis of the complaint includes several points:
- Assets are commingled and not held in a trust. All premiums collected from participating employers were remitted to Nexgen’s corporate bank account, which is a clear violation of ERISA.
- The DOL complaint also states that Nexgen was found to be skimming 20 percent of the collected premiums for a management fee that was not disclosed nor contractually agreed upon by the employer participating in the plan until recently.
- Nexgen is charged with setting premiums at rates below the market for corresponding fully insured plans without determining if the premiums were actuarially sound.
- Furthermore, the DOL asserts that the plan operated in a manner likely to result in having insufficient funds to pay claims.
- Nexgen’s MEWA has fallen behind in paying claims, asserting that there are $24 million in unpaid claims with very little reserve to cover these claims. To illustrate the potential significant shortfall, the MEWA only collects $4-6 million in premium per month.
- The DOL claims that Nexgen has breached their duty of “prudence and loyalty” by making misrepresentations to the participants and to the public.
- The MEWA did not obtain a license to operate in the state of California.
The DOL complaint I reference above is quite lengthy—you can access the full version here.
The news of these violations is detrimental to the benefits industry and will likely further validate the restrictions that the state of California has placed on MEWAs, which allows for Association Health Plans (AHP).
In June of 2018, we wrote about the DOL expanding the regulations on AHPs to make it easier for companies to band together to purchase insurance.
The state of California quickly enacted measures to override the flexibility that was created under the new final rule.
An AHP or a MEWA is an alternative option to deliver benefits to companies who band together to leverage resources, and it has suffered its share of abuse in the past decades.
This misuse has led to California putting significant restrictions in place to operate this type of arrangement.
Even then, there are companies who will fly under the radar by not obtaining the license needed to operate legally in the state of California.
If you have any questions or concerns, please don’t hesitate to contact me.
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