This is in reply to your request on behalf of the Washington State
Insurance Commissioner for an advisory opinion regarding Title I of the
Employee Retirement Income Security Act of 1974 (ERISA). Specifically, you
asked for the view of the Department of Labor (Department) on whether
section 514(a) of ERISA would preempt certain recently enacted amendments
to the Washington State Insurance Code that provide for a premium tax and
high-risk pool assessment to be paid by self-funded multiple employer
welfare arrangements (MEWAs).
Your correspondence and other materials submitted in support of your
request contain the following facts and representations. The State of
Washington recently enacted the “Self-Funded Multiple Employer Welfare
Arrangement Regulation Act” (Act), which amended and added sections to
the Washington State Insurance Code. The purposes of the Act are to
provide for the authorization and registration of self-funded MEWAs in
Washington, to ensure the financial integrity of the arrangements, to
provide reporting requirements, and to provide sanctions on self-funded
MEWAs organized, operated, providing benefits, or maintained in Washington
that do not comply with the Act.
Under section 24(2) of the Act, self-funded MEWAs are subject to an
annual premium tax equal to two percent of the total premiums and
prepayments for health care services received by the MEWA during the
preceding calendar year. The premium tax rate for self-insured MEWAs under
the Act is the same premium tax rate that is imposed on all authorized
insurers in the State of Washington. Rev. Code Wash. § 48.14.020 (“each
authorized insurer . . . shall on or before the first day of March of each
year pay to the state treasurer . . . a tax on premiums . . . in the
amount of two percent of all premiums”). Section 26 of the Act provides
that the Board of Directors of the Washington State Health Insurance Pool
(WSHIP) may assess self-funded MEWAs for contributions to the State
Insurance Pool (high-risk pool assessment). The high-risk pool assessment
for a MEWA is determined by the same formula that the Board of Directors
uses to determine an insurer’s high-risk pool assessment. Rev. Code
Wash. § 48.41.090 (the assessment is determined by multiplying the total
cost of pool operation by a fraction that represents the percentage of all
insured state residents that are covered by the MEWA/insurer).
The Act states that the premium taxes collected from self-funded MEWAs
pursuant to the Act are deposited into the state’s “health services
account.” Funds collected from the high-risk pool assessment are
exclusively dedicated to the high-risk pool and are used to defray health
care expenses of individuals covered by that pool. Section 3(7) of the Act
defines a “self-funded MEWA” as a “multiple employer welfare
arrangement that does not provide for payments of benefits under the
arrangement solely through a policy or policies of insurance issued by one
or more insurance companies licensed under this title.” Section 3(5) of
the Act further provides that a “multiple employer welfare arrangement”
under the Act means a MEWA “as defined by [ERISA].”(1)
A provision in the Act states that the premium tax and high-risk pool
assessment provisions will apply to self-funded MEWAs “only in the event
that they are not preempted by [ERISA].” The Act directs that “the
arrangements and the commissioner shall initially request an advisory
opinion from the United States Department of Labor or obtain a declaratory
ruling from a federal court on the legality of imposing [state premium
taxes and high-risk pool assessments] on these arrangements.” In that
regard, we received letters and other materials submitted on behalf of the
Washington State Auto Dealers Insurance Trust, Pacific Benefits Trust,
Washington Employers Association and Trust, and Timber Products
Manufacturers Association and Trust (Associations). The Associations
represented that they sponsor self-funded MEWAs operating in Washington
State that would be subject to the premium tax and high-risk pool
assessment. The Associations asked that the Department consider their
submission a “joint request” with the State of Washington for the
Department’s view on whether the Act’s premium tax and high-risk pool
assessment are preempted by ERISA.(2)
Under the general preemption clause of ERISA section 514(a), state laws
are preempted to the extent that they “relate to” employee benefit
plans subject to Title I of ERISA. There are, however, a number of
exceptions to this broad preemption provision. Section 514(b)(2)(A),
referred to as the “savings clause,” provides in pertinent part that
“nothing in this title (Title I of ERISA) shall be construed to exempt
or relieve any person from any law of any State which regulates insurance
. . . .” While section 514(b)(2)(A) saves from ERISA preemption state
laws regulating insurance, section 514(b)(2)(B) of ERISA, referred to as
the “deemer clause,” provides that a state law “purporting to
regulate insurance” generally cannot deem an employee benefit plan to be
an insurance company (or in the business of insurance) for the purpose of
regulating such a plan as an insurance company. An additional piece of
analysis, however, is needed if the ERISA welfare plan is a MEWA as
defined in section 3(40) of ERISA. Section 514(b)(6)(A) creates a partial
exception to the deemer clause for employee welfare benefit plans that are
also MEWAs. Specifically, if the employee benefit plan MEWA is “fully
insured,” then, under section 516(b)(6)(A)(i), any state law that
regulates insurance may apply to the MEWA to the extent the law provides
standards, or provisions to enforce those standards, requiring the
maintenance of specified levels of reserves and contributions in order to
be considered able to pay benefits. If the employee benefit plan MEWA is
not fully insured, then, under section 514(b)(6)(A)(ii), any law of any
state that “regulates insurance” may apply to the extent it is “not
inconsistent with” the provisions ERISA.(3)
The first question, thus, is whether the high-risk pool assessment and
the premium tax are laws that “regulate insurance” within the meaning
of section 514(b)(6)(A). Although addressing the general savings clause
for insurance regulation in section 514(b)(2)(A) of ERISA, the Supreme
Court in Kentucky Ass’n of Health Plans, Inc. v. Miller, 538 U.S. 329
(2003), articulated a two part test for determining what state laws “regulate
insurance.”(4)
In that case, the Supreme Court held that for a state law to
regulate insurance it must (1) be specifically directed toward entities
engaged in insurance and (2) substantially affect the risk pooling
arrangement between the insurer and the insured. With respect to the first
requirement, it is the Department’s view that the premium tax and
high-risk pool assessment provisions clearly are directed at entities
engaged in insurance, i.e., self funded MEWAs. In this regard, the Supreme
Court noted in Miller that “self-insured plans engage in the same sort
of risk pooling arrangements as separate entities that provide insurance
to an employee benefit plan.” Miller at 336. Regarding the second
requirement, the Supreme Court specifically stated that its test requires
“only that the state law substantially affect the risk pooling
arrangement between the insurer and insured; it does not require that the
state law actually spread risk.” Miller at 339 n.3. The Washington State
Insurance Commissioner explained in a submission how the premium tax
provisions satisfy this requirement:
Since 1996, pursuant to RCW 48.14.0201, these taxes have gone into the
state’s health services account which funds Washington’s Basic Health
Plan. Pursuant to RCW 43.72.900, this account is dedicated to maintaining
and expanding health services access for low income residents, maintaining
and expanding the public health system, maintaining and improving the
capacity of the health care system, containing health care costs, and the
regulation, planning, and administration of the health care system. In
short, Washington’s health carrier premium tax and the uses to which it
is dedicated directly involve risk shifting and risk pooling and are at
the core of health insurance regulation.
Similarly, as to the high-risk pool assessment, the Washington
Insurance Commissioner states:
WSHIP members include carriers, like MEWAs, that operate only in the
group market, carriers that operate only in the individual market, and
carriers that operate in both. The pool may extend coverage to individuals
who once had group coverage, including coverage through a self-insured
MEWA, but who do not qualify for guaranteed issue. In short, WSHIP helps
stabilize the entire health care market and provides a safety net for all
Washington residents including those who currently obtain health coverage
through MEWAs. Like the state’s health services account, WSHIP directly
involves risk pooling that cuts across all health coverage markets and the
statutory duties that accompany WSHIP membership fall squarely within the
Kentucky Ass’n of Health Plans, Inc., test of insurance regulation.
The Department agrees that the premium tax and high-risk pool
assessment regulate insurance within the meaning of ERISA section
514(b)(6)(A).(5)
As described above, if a MEWA is an ERISA-covered plan, the permissible
scope of state insurance regulation would, for purposes of section
514(b)(6)(A), be determined on the basis of whether the MEWA is “fully
insured” within the meaning of section 514(b)(6)(D). Inasmuch as the Act
at issue in your request is limited to self-funded MEWAs, we need focus
only on whether application of the Act’s premium tax and high-risk pool
assessment provisions are “inconsistent with” ERISA within the meaning
of section 514(b)(6)(A)(ii). In Advisory Opinion 90-18A (July 2, 1990),
the Department expressed the view that a state law regulating insurance
would be inconsistent with ERISA to the extent that compliance with such
law would abolish or abridge an affirmative protection or safeguard
otherwise available to plan participants and beneficiaries under Title I
of ERISA or conflict with any provision of Title I of ERISA.(6)
The
Department further explained in that opinion that a state insurance law
will not be deemed “inconsistent with” the provisions of Title I if it
requires ERISA-covered plans constituting MEWAs to meet more stringent
standards of conduct, to provide more or greater protection to plan
participants and beneficiaries than required by ERISA, to meet standards
requiring the maintenance of specified levels of reserves and specified
levels of contributions, to obtain a license or certificate of authority
as a condition precedent or otherwise to transacting insurance business,
or which subjects persons who failed to comply with such requirements to
taxation, fines or other civil penalties, including injunctive relief.
The Associations contend that application of the premium tax provisions
in the Act would be inconsistent with ERISA’s exclusive purpose and
prudence requirements, as set forth in sections 403(c)(1) and 404 of ERISA,
respectively. The payment by a self-funded MEWA of premium taxes or
high-risk pool assessments in accordance with the above referenced
provisions of the Washington Insurance Code would not, in the Department’s
view, violate ERISA section 403(c)(1) nor would it be an improper
expenditure of plan assets under ERISA section 404(a)(1). This view is
consistent with the principles articulated in Advisory Opinion 82-32A
(July 20,1982). At least one federal court has also concluded that
assessing administrative charges on MEWAs under state insurance law is not
inconsistent with Title I within the meaning of ERISA section 514(b)(6)(A)(ii).
See Atlantic Healthcare Benefits Trust v. Googins, 2 F.3d 1, 6 (2nd Cir.
1993), cert. denied, 510 U.S. 1043 (1994)(because regulatory fees are
legitimate administrative expenses, Connecticut's imposition of regulatory
fees on MEWAs is not inconsistent with either ERISA’s trust requirement
or ERISA’s requirement that plan assets be used only to provide benefits
and defray plan expenses).(7)
The Associations also contend that the Act as a whole is inconsistent
with ERISA because they claim it effectively prohibits MEWAs that have
been in existence for less than 10 years from obtaining a certificate of
authority to operate on a self-funded basis in Washington State. As noted
above, the Department stated in Advisory Opinion 90-18A that a state law
which regulates insurance would be inconsistent with the provisions of
ERISA for purposes of ERISA section 514(b)(6)(A)(ii) to the extent that
compliance with such law would conflict with any provision of Title I of
ERISA. The Department explained that such a conflict would occur when a
state insurance law makes compliance with a provision of Title I an
impossibility. In the Department’s view, the requirement that a MEWA be
in existence for ten years before it can operate in Washington on a
self-funded basis does not make compliance with any provision of Title I
impossible. In addition, this requirement of the Act only impacts a MEWA’s
ability to operate on a self-funded basis. It does not make it impossible
for MEWAs to operate on a fully insured basis in Washington. Furthermore,
the Associations did not point to anything in the Act that precludes a
MEWA from operating in Washington by obtaining a license to operate as a
licensed insurance company. Finally, even if a court determined that the
ten-year requirement was inconsistent with ERISA, the Washington Act
contains a severability clause under which that provision would be severed
and the remaining provisions in the legislation would be enforced.(8)
We note that the Associations’ initial submission requested, in the
event the Department determines that the premium tax and high-risk pool
assessment are not preempted by ERISA, that the Department consider the
submission as a request for an exemption under section 514(b)(6)(B) of
ERISA. Section 514(b)(6)(B) of ERISA provides that the Secretary of Labor
may prescribe regulations under which the Department may exempt MEWAs that
are employee welfare benefit plans and that are not fully insured from
state regulation that otherwise would be permissible under section
514(b)(6)(A)(ii) of ERISA. The Department has neither prescribed
regulations nor granted exemptions in this area, having concluded in
response to prior requests that there is no need for regulations under
section 514(b)(6)(B) to exempt MEWAs from state insurance regulation. See
e.g., Advisory Opinion 93-17A (July 7, 1993); Advisory Opinion 92-21A
(Oct. 19, 1992); DOL Information Letter to Ms. Renee Granger, April 5,
1993. Nothing in the Associations’ submissions persuaded the Department
to change its view.
In summary, based on the foregoing, it is the view of the Department
that the application of the premium tax and high-risk pool assessment
provisions to a self-funded MEWA in accordance with the above referenced
provisions of the Washington Insurance Code would not be preempted by
ERISA. This letter constitutes an advisory opinion under ERISA Procedure
76-1, and is issued subject to the provisions of that procedure, including
section 10 thereof relating to the effect of advisory opinions. We have
considered the Associations’ request for a conference under section 8 of
the procedure and, in light of the multiple submissions made by the
Washington State Insurance Commissioner’s Office and the Associations,
have decided that a conference is not necessary in providing this advisory
opinion.
Sincerely,
John J. Canary
Chief, Division of Coverage, Reporting, and Disclosure
Office of Regulations and Interpretations
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