Professional Employer Organizations (PEOs): Group Health Insurance Statutes and Self- Insured Benefits

The State of New Hampshire Insurance Department 21 South Fruit Street, Suite 14 Concord, NH 03301 Roger A. Sevigny Commissioner Alexander K. Feldvebel Deputy Commissioner BULLETIN Docket Number: INS NO. 08-079-AB TO: All Health Insurers and Third Party Administrators Authorized to Conduct Business in New Hampshire FROM: Roger A. Sevigny flJl-r; DATE: March 11, 2009 RE: Professional Employer Organizations (PEOs): Group Health Insurance Statutes and Self- Insured Benefits Professional Employer Organizations (“PEOs”), sometimes known as labor leasing, labor contractors, or employee leasing organizations, provide a variety of services for companies (client companies), including providing health insurance benefits. Questions have been raised regarding whether a carrier may issue a large group policy to a PEO and whether a third party administrator may provide administrative services for a PEO that elects to provide self-insured benefits. In determining the type of health insurance policy a PEO may procure on behalf of a client company, the central question is whether a PEO constitutes a single employer that is subject to regulation under the Employee Retirement Income Security Act of 1974 (ERISA), or conversely whether it is a multiple employer welfare arrangement (“MEWA”) subject to state regulation. In order for a PEO to obtain a large group policy of insurance or to provide employee benefits through a self-insured arrangement, it must qualify as a single employer under ERISA. The United States Department of Labor recently addressed the question of whether a PEO is a single employer subject to regulation under ERISA. In a letter issued to Nevada Attorney General Chanos, the Director of Regulations and Interpretations, Mr. Robert Doyle, concluded that a PEO did not meet the definition of a single employer under ERISA, and that Nevada had the authority to regulate a PEO as a multiple employer welfare arrangement. The federal government found that a Nevada state law that deemed a PEO to be a single employer of its leased employees did not override federal law. In reaching this conclusion, the Department of Labor made three determinations: 1) that ERISA generally preempts state laws that purport to regulate employee benefit plans; 2) that the question of whether a PEO is a single or a multiple employer is determined by federal law, not state law; and 3) that as a MEWA, 2 under federal law, a PEO is subject to state insurance regulation. The Department of Labor emphasized that a ‘deemer’ clause contained in a Nevada state statute that addressed the leasing company’s relationship to leased employees “would not govern the determination of whether any particular arrangement is a MEWA by reason of providing benefits to the employees of two or more employers.” See Exhibit A, 5/8/2006 DOL Letter to Attorney General Chanos. Based on recent discussions with carriers and third party administrators, it appears that some PEOs may lack an understanding of the requirements of New Hampshire’s small group insurance laws, including, but not limited to, small group rating laws and laws requiring guaranteed issue and guaranteed renewal. With respect to a PEO’s provision of health insurance to small employees that have contracted with a PEO to administer health benefits, all policies and certificates of insurance that are obtained must comply with New Hampshire’s small group rating laws and other applicable legal requirements. A policy covering small employer groups may not be held in the name of the PEO as the employer unless and until the PEO obtains a license as a purchasing alliance in accordance with the department’s rules. In addition, it further appears that some PEOs may be attempting to obtain self-insurance without complying with RSA 415-E, which regulates MEWAs. RSA 415-E prohibits the operation of a MEWA and the provision of employee benefits through a self-insured arrangement or through insurance without first obtaining approval from the New Hampshire Commissioner of Insurance. No PEO in New Hampshire has obtained approval from the Commissioner to operate as a MEWA. Therefore, no PEO can offer benefits through a self-insured arrangement to either small or large employer client companies. Any carrier or third party administrator that is presently providing health insurance to a PEO, or is administering a self-funded health insurance plan arrangement for a PEO in New Hampshire, is reminded that it must report the specific details of the coverage in its response to the Department’s annual Line of Business Survey, including the name of the PEO, the number of employees covered, and the names of each employer group that obtains health coverage through the PEO. Please be advised that this Bulletin applies only to health benefits provided by a PEO to employees of its client companies, and not to other lines of insurance, including, but not limited to, workers compensation and other employer liability insurance. Please contact Leslie Ludtke, Insurance Department, Life & Health Division, leslie.ludtke@ins.nh.gov with any questions about this bulletin. U.S. Department ofl.abor May 8. 2006 The Honornble George J. Chanos f\ttom~y Gt.-.ncral N i:>vada Dcp;.-:rtmc-nf o! Justkc 555 East Washingtrm Avl'.'nuc La~ \/pg;is, Nevada 89101-1088 Derir Attorney Gl'm·ral Chimns: Employer lknt fm Security Admin~1n1tion Wnshln~on, l>.C'. 1011 0 This is in rc,;pon<;t> to the request from :,our Office for guidance rcr,arding th(' definition of '"multiple c-mplny<>r Wiclforc ammgemrnt"' (MEWA) in ,;cction 3(40) of the Employee Ri-tirt•1Tumt Income Security Act of 1974 ('CR[SA). Y<>ur inquiry indicatt.•s that an issue h,1s mi.st't tn comwction w-ith an order -issued by the Division of J nsurance of the Nevada D<-partmenl of Business and Jndush, 1 dir<'Cting Payroll Solutiurs Group Limited {Company), a profos~ional amployecr oTganization doing business in Nevada, to l't'a<;e and desist offering unlicemf."d in-,urann• L1irough a MF WA, the PSG Emplc,·Pe Medical Plan (Plan), to its client cmploy<'rs i11 the State of N0vada. The Compam· is resisting the order claiming th0 Plan b a single t'mp k,yer plan. not a MEW A, and th/\t s<>c-tion 514(a) or ER1SA prct.'rr.p s the <1p? !ic,1tion o( state insurance rl!gulation. <i.,ction 514(a) of Title l of rRTSA gern:rnUy preempts statt' laws purporting to :·egulatt.-' an employee bf'" f'fit plat covered under tha-t title. There are, however, exceptions to th;s genc>r.il p:-t•rmption provision. The relC'v.1nt exception for p mpnS<.'S of your inqiiiry is in S\1b-s1xtion 514{b)(6)< A), which aUows state insunmc-e rcgtila tion nf ~IF\ V /\s without :-egard to wl1<'thcr tht'>' an• cmployt'e benefit plans covered by Title I ,,f ERISA. Section 3{40)(AJ o! FRISA d f."nncs the tE'm1 MF.WA, in relevant part, to mMn: "[A]n employee welfare bcn<:'fit p.lan, or any olher arrangement (othJ?r than an employee wdfare be1wfit plan), whkh ic; esrablisht>rl or maintainC'd for the purpose' of offt>rint; or provilling an; bt>ndit df'<icribed in [st:'ction 3(1) of FRlSA) to the employr·es of tv,,o or more employ<'~ (im-luding one or mo-re seH-<'mptoyed individuals), or to their beneficiaries except that such tc-rm do"s not include any such plan or other n .. angi:>mC'nt ',vhich is est1hljshcd or maintained - (i) under or pur,;uant to one or more ar;r~emt•nts which the Secrctar:;,- {of L1borl finds t0 bE- coll<>clive barp;aining afrN'ments, (ii) by a rural tcilectric coopentive, or (iii) hr a rural telephon<' cooperative association." TI1c Dep1rtmcnt has prc\'iously expressed the vk w thar a plan that i,,; maintc1i11erl by a single emplon:r for the l:'xclu,;i...-e pm-pose of prm•iding hene-fit~ to thrit emp!oynr's ~•nnlo •ee", fnnner empfon ~e'>, or their ht>nefici.arics wo uld be a single employPr p(, n 2 and not a l\lD VA within the meaning of FRfSA section 3(40). S(fe Employl"e Benefits Security Adn,inistraticm, U.S. D~pa-rtnm:nt of Labor. MEW As - Multiple Empkwer Wt>lforl' Arranr:l'mer,ts undt>r the Employee R0tir<>mcnt fncom c- Sec~irity Act: A Guide to fed-.:1ral and State Regulation 30 (2003). On the other hand, the D"J'artment has also p;'-',.;ously cx-rr<'S'it'd th,' view that where the employees participc1ting in the plan of an rTpiow ,' l< 3;1sing organization include employees of two or tnt"lrr client r mploycrs, or 0mp!oyE>c-s oi the leasing or :mization and at lca,;t one client <'lT'plo,·er, the plan o! the k;ising orgnni7,ntion would, by definition, rnnc;titute a MEWA b('uiUSe the plan would b<' pnwidi.ng lwncfrts to the <'mploveec; of two or more employ<'r<i. Advisory Opinion 92-07 A (Feb. 20, 1992). The DcpartmPnt belie\·es tJ1c c;ame a1111Jyc;is is applicable to p1ans of professional <'tnployer organizations wvc-ring Lhe employc<>,; of their clien t ,-omp:mics. The relevant issue £or purpoc;cc; of y(lur .inquiry thu.:r; is whether the employees who partid p:ite in the Pion arc exclusivl'ly 1•mployccs of tht? Compam, or are, ra her, t'tnployees of more thim one 1'mployer. 7hc ~rm "1:>mployec" is drfined in '-f:'Ction 3(6) of ERIS.~ to me-an "any indivfriual cmploved by :m em plover." Wh<'tht'r an individual is an "rmployee" fol' pm-poses ,;ection 3(6) of Title l of [RfSA gcrn'rnllv ret1uires a dc>tenninalion of , • .,helher there is an crnplnye--r-Mnp!oyet' rclatio1 ship .ipplying common law princ-iples. See Nnlh•nu:irll' Mutual !us1m1,1ce Comp1111y ,1. Dn11le11, 503 U.S. 318 (199::!); Yntrs i,. Heud1)11, 541 U.S. ·1 (2004). ln m.iking such deteamin.'\tion'-, therefore, considenltion mu<:t be given, among other mattt?~s. to whc-t1w r the person for whom ,;ervices are bt'ing perfornwd has the rir ht to control ,ind direct thC' individual who performs the sen-ices, not only c1~ tu Hh" result to be acn,mpli.'ihed. by tht' work, but aL5o as to the details and means bv which the result is to he accomplished; whcth,!r the person for whom <;~ffices v-l' bc-ing p 0 rformed hil<; th"' right to discharge the individual performing the S<"rvices; and whether Uw individual rerfom1ing the services is as a mntter of economic realitv dependent upon the hu!.iness to which he or she renders services. Advisory Op:inim1 95-29A (DN:. 7, 19C/5); Advi,;nry Opinion 95-??A (Aug. 25, 1995). Jn this r<'g:ird, the Department has taken the p<'<;ition that payment of \<.·age,; payment of federal, state, and local employment taxt''>i and the provision of health or p en!,iOn benefits (or both) arC' not cktcrmimttive of an cmploy<'e-employer relationship. Advisory Opinion 9:\ 29A (Oct. 22, 1 ~i). Further, a contract purporting to crcffte m 1 employcr-emplovce relationc:hip i.tlso vvill not control whim! common I.aw foctor,; (as applied to the facts and c:r<",1mstance,<;) establi$1; tJ,at the rclatic-.nship doe<; not exist. Advisory Opinion 2005- 12A (Mav 16, 2005); ~t"' al.',() Advisory Opinkm Q5-2:2A (Aug. 25, 1995). lnchidE'd in y<'ur -;ubmission ,-vas a rnpy of n leUl'r, dated March 24, 2004, from the Dcpart:nont of I-1hoi's Regional Office· l1 San Fr:mci<;C.1 to I l.uold \--V:.nter<; Presid~nt <if tht> Company, and Tin Mrnifield, Tru,;te-P of the Pl,in. Jn thnt letter, the Dep.ir•nwnt dt•scr:ti(•d the Company as a profossionnl emplovce organintion that t' XCrn tf's k asing agreements with client employers from various industries. Undt.'T the Jcac;ing arrnnr,i"'ment en1ployees nr<" "shilred" by the>' Company and the re,;pecti;-e client 3 employer, but th<! Con-panv and the d k nt employer have different obligations. In exchange for a fre the Company performs certain a.dministrotive and support services indudinr, payroll, bencfitc;, and workc>r's {'Ompensation. 11-le payments collc, t'd by the Company fr0m p.-irtk ipating emplowrs include health cor,tribution payments or " premiums'' that zirc to be used to pny mcdkal claims under tbe Plan's sclf-f-u ndoo inangPm<'nL llie Dt'partnwnt's letter rnncluded that the client employers, in practice, rrrain thl' re,;pnnsibility of supcwising, training, hiring, and firing ofitc; E"mplc-yccs, and thus, the client en ploycr,; m d th<'i.r emplnyecs have a common-Jaw emptoycr~mplo\'Pl' rclations;hip Under the d rrnn stances s~t forth above, the participantc; in the Plan thus include cmplovt>eS of two o:r more cmployt'T'i, n{ll,~ithst.inding the foct that the Comprny mny 1.,__, a co-employer or jojnt cmployt"T for Clthe.r purpost:";. A profP<;Sional "1Tl-p1oyer organization's rrsponsibilil,t", a-s employer, or co-employer, under laws othrr than f:Rlt;;A is not dl'tc-rminativc for purposes of idcntif)i ng a single employer to the exdusion of othl'"~ under ERISA ,c;cction 3(4.0). For example, the employer responsible for purpo9'<: of withholding federal income laxes and Federal Instrran, e O J11trjbutions Act tax pavments can be th"" trust<'c of an empl\)yer' s bankruptcy estate. Ottt 11. U.S., 119 U.S. 43 (1974), the rt-'liulations under the Fair Labor Standards Act of 1938 contemplate jC'lint c- mplianc<' respomibility among joint emplo ·en;, 29 C.F.R. § 79l.2(a), and undet the Familv l eave Medical Act of 1983 a leasjng comp,my that is an employt'r of rmployec,; is Rl'nl'rnlly a joint employer nnd compliance 1·equire1nents an~ divided among the le;.sing company, as primary emplorer, and its client cmployi..'r as secondary cmplcwer 29 C.F.R. § 825.l(b),(c). Similarlv, although the Dcpartm<-nt e>..11rP'>sed the view that a lf'asing company acting as co-employer was .in empio\'(~r under [R!SJ\ s1.Ytion 3(5} by acting directly or indirectly in the interest of an r-rnploycr in cstahli,;hi.ng or maintt1ining an (.>nrployet' bc:wfit plan within tl1emeaning of ERISA St>ction 3fl), the D~p;:irlment concluded that the "ame plan was a !\TEWA. Advisory Opinion 95-29A (:Jee. 7, ]995).1 Therefore, even if the P!an were found to be an emplo~·cc benefit plan wjiliin the nwani:'lg of section 3(1), it wouJd bo a multiplc employer pku,, not a single empfop~r plan, and would be a MEWA subj(>ct to state insurance regulatio1 at least to the extt'nt pcrmittrd umfor sc.:tion 514(b)(6){A) of ERIS .2 1 h :rtl -:: . although in c,;nnoctlon with the pro:-osco •e;:ul~lkns govcrnin~ Form .vi-I rt"pP:-ting,undcr ERIS . .\ s1.-ction In I (gl rc;,r.:s:mniivt", or pro!'~sitm:il en:pkwcr orenni7.a1ion .. an::.-cd that rhefr h'TOup health pl:int "'h!'uld nor he considc;-ed MF.WAS u:c11use the organiz.-uions act as lX'--clllplo~cr-; the Dcp:ir.mrnr wn< unable 10 cr-ndude th:!; s:1,h plans do n·" co,·t'r the ~mployt;:., of more than Oil<' cntployer. 63 FR l 7497 ( :!O(]J ). ' J f :i-" trw.~ i$ "f11lly insur~d .. within the mear:inr of -;ec1ion 5 I 4(b)(6)(D) of [RISA. 'itale insur.mc-c !aw '-11\"f apply lo tr~ c.,·um ii --.rrvidcS standards. requiring the- mainrenanct of specified levd s of rc.~crvcs Md co-:tr;burions. and pr1wisio11sto crforrc •ut "l ~~nd:m1s, w~ ~cctinn 514{b){6)(A)li)). If the lvJEWA is not f.lHy im;urcd :1ny l1tw of any s-:~1-c whid1 rt;:,!,m:t itt-nirrni.-e rn:1y apply to the (.xtent not inconsi~tMt w!th 1.1k I or FRISA (See 514t bJt6){,\ 11 iin. 4 You also asked thttt W€' spixifically ad«iress the Company's contentivn that the Plan cannot be a MEW/\ l"!C('.';:iuse Nevada state fow provides that "an employee> 1t>asing comp:my shall he df'i:>ml'd to be the cmp!oyc,r of its leased employees for the purpc,<;~ of sponstiring and moinraining any bent>fit plans." Nev R~v. <:;t;it, § 6.l6B.691(2) (2005). 1l is th~ Depa-tmcnt's view that whether an arr;lngemcnt is a JvfFW A within the m<'<lning of 5ecticin 1(40) is a question of fC'd~rn1 law. Set•, i'.g., Nnlimrwide Mu tun/ lnsumnce Crm:rm1y 11• Dnrcfcn, 503 U.S. 318, n. 5 (1992) (Court con'>trued ~he term employee undt•r ERISA to incorporate "the generai common law of agency, rather t1 ,m ... the law of any particu..lar 5tntc "); ~er' n/:i() "a,rpion P. M rrrtinr::. 119 F7>d 982, 988 (V1 Cir. 1997) (rourt rPjl::'ctt>d argltn ents regarding l?mr loycc st:1tus of partnc>rs und('T Title VTI of the Human Rights Act of 1 %4 bawct on PuPrto Rico law; absc-nt plain indication of contrary intent, "comk ought to presume that the interpn~tation of a fedora! stntutc is not dcpend-ent upon state law"). Thus, a state statute addressing the leasing company relntionship tt> !('a~cd employees wouid not govern the determination of whether anv particular arrangcn,cmt is a MEWA by rPason of proYiding bcnc.fits to the "mp!oyt't?<i of two or more E>mplovers. TI1i:-. l~ttl.·r should not be n•nd as expressing the view that the Plan is iLc;elf an "employee welfare hcnt'fit pl,m" within the menning of section 3(1) of ERISA, or that the C0mpnny would be i;hi.e:lded from the cons('qu£>nccs of employer or co-t'mployL':- mim,.; under rRlSA or ' I \ ' other law. Robert J. Doyh• D',-t'ctor of RPp,!ations and ln'"f'rp~Pt.ition,;