Last week, CHIRblog shared what we learned about common types of misconduct by multiple employer welfare arrangements (MEWAs), including association health plans (AHPs) from our previously released (and recently updated!) trove of U.S. Department of Labor’s (DOL) civil investigative reports and case files. In this third post in our series, we are turning to what these records show about federal enforcement efforts to rectify misconduct, and the extent to which these efforts have provided meaningful protection to employers, employees, and health care providers.
Before digging into the details, however, remember that DOL shares enforcement authority with state departments of insurance, as well as state attorney generals and other regulatory bodies. These agencies play a critical role in protecting consumers from fraudulent health plans—including issuing cease and desist orders and taking control of plan assets. Private lawsuits, whereby injured parties seek to force bad actors to comply with their legal or contractual obligations or seek damages, are also not uncommon. In some cases we reviewed, DOL opted not to take action because these other proceedings were ongoing. See, e.g., Case No. 30-100897. In addition, in certain situations, DOL refers matters to the Department of Justice or the Federal Bureau of Investigation for criminal prosecution. Action on these fronts can delay and even preempt civil enforcement.
Because we have only DOL’s civil investigative records, we know about these other efforts only to the extent they are referenced by DOL. It is possible that some of the harms we identify as outstanding were effectively addressed by states or through private litigation. At the same time, it is also possible that the other proceedings to which DOL sometimes deferred were ineffectual, and the injured parties might have benefited from more aggressive federal enforcement.
With that caveat, let’s look at what we were able to learn from DOL’s records:
To begin, DOL has secured several million-dollar-plus recoveries in major cases involving AHPs. Two of the more prominent examples are a pair of cases involving the Pennsylvania Builders Association. See Case Nos. 22-013388 and 22-014423. We touched on the conduct at issue in these two cases in last week’s post. As a refresher, the first case involved up to $12 million in prohibited transactions, while the second case involved nearly $6.4 million in unpaid claims. Now let’s dig into how DOL’s investigations played out: In both cases, the Washington, D.C. district office engaged in a detailed investigation, reviewing thousands of pages of documents and conducting interviews with the key players and witnesses. The district office then brought in the Philadelphia Regional Solicitor’s office, who was able to negotiate multi-million-dollar settlements and avoid prolonged litigation. You can read more about these two cases here. DOL similarly was able to secure voluntary recoveries exceeding $1 million in some of the other cases discussed in last week’s post, including the Ohio Bankers League case, Case No. 43-008516, and one of the later cases involving Ray Palombo’s Contractors & Merchants Associations, Case No. 50-027125.
There are also a multitude of examples of where federal intervention resulted in the plans fixing problems before they appear to have resulted in significant, if any, harm. These changes frequently involved steps like securing stop-loss insurance or fidelity bonds, moving plan assets into trust accounts so they weren’t commingled with an administrator or sponsor’s other funds, or correcting plan documents and notices to ensure rights and benefits required under federal law were available and properly communicated to plan participants. DOL district and regional offices typically opened these investigations not because of complaints, but as part of broader sweeps looking at certain types of plans (e.g., plans operated by trade associations, or professional employer organizations) or certain issues in filings (e.g., failure to identify stop-loss insurance or fidelity bond coverage, or suspicious expenses). For example, in Case No. 30-103549, the New York Regional Office targeted for investigation MEWAs sponsored by trade associations and found that Association Master Trust, a MEWA that provided benefits to several trade associations, had paid out approximately $20,000 in improper administrative expenses and lacked internal controls over accounts and expenses. Thanks to DOL’s intervention, the trustees repaid the trust (plus interest) and established new procedures to ensure proper administration going forward.
In some cases, DOL was able to make corrections to the policies of larger insurance companies that were either insuring or administering the plans under investigation, thereby benefiting a much broader swathe of the public. For example, in Case No. 43-009280, DOL found that a plan’s insurer, Anthem, was not in compliance with the Affordable Care Act’s appeal rules and sought a global correction. And in cases spanning the country, DOL identified violations related to the Affordable Care Act’s emergency services protection, requiring corrections by BlueCross BlueShield carriers and Health Net. See Case Nos. 40-022543; 72-033652; 72-033881.
On the flip side, there are also several cases where DOL was unable to achieve the outcome it sought. In too many cases, DOL is simply unable to recover any funds to pay outstanding claims, reimburse plan trust accounts (and thereby the plan participants and employers that contribute to the trust account) for improper or excessive fees, or otherwise remedy wrongful conduct. For example, in Case No. 63-021211, DOL found that the Win Association had failed to pay approximately $340,000 in claims and had withdrawn approximately $240,000 in plan assets without authorization. Although several states issued cease and desist orders against the association and were able to get it shut down, by the time regulators intervened, there were no funds left to pay claims.
Similarly, in Case No. 22-013810, DOL found that the plan sponsored by the Center for Nonprofit Advancement Benefits had paid excessive administrative expenses totaling over $1 million (inclusive of lost opportunity costs) over five years, and that more than $67,000 in employer/employee contributions were missing. The defendants agreed to a consent judgment ordering them to restore all plan assets and lost interest earnings, but subsequently failed to fulfill their payment obligations. DOL considered seeking to hold them in contempt, but, upon review of financial documents showing the company was in debt for over $4 million, determined it was unlikely that it would recover any funds.
A third example comes from the series of cases involving Herb McDowell, discussed in last week’s blog, where DOL found that participants were paying approximately 15-30% more than they should have—an average of $100-250 per member per month. This collectively resulted in approximately $5.2 million in excess fees over about 4.5 years, of which $1.58 million went to McDowell and entities he owned. When DOL sought to pursue McDowell for his role in this scheme, his attorney informed the agency that McDowell had “no money.”
Then there are the cases were DOL’s own delays and inaction appear to have contributed to an unsatisfactory result. Most frustrating are cases where DOL simply ran out of time to file suit. See Case Nos. 60-102805 and 63-021712. (Depending on the violation, DOL generally has either three or six years from when the agency learns of the conduct at issue to file suit.) In most cases, including the successful Pennsylvania Builders Association cases, the under-resourced DOL relies on “tolling agreements”—that is, voluntary agreements where the parties under investigation agree to extend the deadline by which DOL must file a complaint in court.
There are also some cases where it appears that more could have been done had DOL been willing or able to fight harder. In Case No. 43-009474, for instance, DOL cited the Ohio Funeral Directors Association for collecting $588,000 in improper administrative fees. But DOL opted to close the case less than a year later without taking further action, despite maintaining its position that these fees violated federal law. There are also multiple cases, like Case Nos. 72-033685 and 43-009439, where DOL found significantly higher amounts of improper expenses and prohibited transactions than what it ultimately accepted in repayment from the parties, or like Case No. 72-033652, where DOL opted not to pursue all of the issues it had identified after some were corrected. Perhaps these were reasonable concessions given DOL’s competing needs and priorities, as well as the specific facts of the cases, but one must wonder whether DOL could have done more if it had more resources to pursue these cases.
Even DOL’s successful cases are not the clear-cut victories they may appear to be.
First, as should already be clear from the cases discussed above but is worth reiterating, these cases tend to take years to resolve. This is due in part to the limited resources DOL has to investigate and litigate cases. Generally, it appears that a single investigator is assigned to a given case, and sometimes months will pass during which that investigator is tied up with other more pressing matters or is on leave and no progress is made. See, e.g., Case Nos. 70-014353, 71-009839, 71-010155. Even more often, a quarterly update will refer to a specific action being started (such as the drafting of a voluntary compliance letter, or getting legal guidance from another office), but several months, or even a year or more, will pass before the action is completed. See, e.g., Case Nos. 31-026338; 43-008516; 43-010091; 50-027990; 50-027994; 72-031229. What’s more, regardless of who is involved, litigation itself, once initiated, is generally slow-moving. Finally, misconduct—particularly involving improper fees, self-dealing, and other prohibited transactions—can fly under the radar for years without DOL taking action, such as with the decade-plus experience of improper royalty payments and excessive fees in the first Pennsylvania Builders Association case.
The problem with these delays is that they come with a cost for those who have been injured by a fraudulent or poorly managed MEWA, even when DOL is ultimately able to negotiate a settlement or secure a judgment in court. One measurable form of this cost is lost opportunity costs or interest, which DOL is sometimes, but not always able to get reimbursed at the end of a case. But what does not appear to be accounted for in any of the cases is the fact that taking all the steps necessary to prove a claim and get reimbursed gets harder with the passage of time. People lose track of the relevant records, or they move or otherwise change their contact information such that they missed the notice, or even die. There is also the stress and mental anguish that unpaid bills can cause, particularly when they are left hanging in limbo for years.
Take Case No. 72-033184. DOL found that the plan had $622,552 in unpaid claims when it terminated in 2009. Seven years later, an errors and omissions insurer had paid out $282,242 in settlement payments and the company agreed to pay $33,705 to twenty-one providers or participants who had completed the process. Although there’s no documentation of what happened to the roughly $300,000 in outstanding claims, in all likelihood health care providers, employers, or employees were ultimately responsible for those costs.
Similarly, in Case No. 50-027796, DOL had evidence that a professional employer organization (PEO, a common type of non-AHP MEWA), which recently filed for bankruptcy, had accumulated more than $1 million in unpaid claims. But, when DOL sent letters to client employers in July 2008 requesting the status of unpaid claims, less than 25% responded and those that did advised that they and the affected employees had “resolved” the claims. The case reports do not elaborate on what this means, but it was apparently adequate for DOL to close the case. It’s possible that the plan found funds to cover the claims, perhaps through its reinsurer. But it seems just as likely based on the information available that some combination of the health care providers, employers, or employees ate the costs.
Second, DOL’s records reflect a narrow perspective on who it is protecting—specifically, plan participants and beneficiaries. But participants and beneficiaries are not the only ones who can be injured by fraudulent or mismanaged MEWAs. Employers and medical providers must absorb many of the costs, even in cases DOL successfully resolves.
For example, in the second investigation into the Pennsylvania Builders Association, the successful resolution of the millions of dollars in unpaid claims appears to have relied heavily on negotiations with health care providers to write-off or discount claims. Similarly, in Case No. 72-031018, a PEO had accumulated nearly $1 million in unpaid claims with respect to its self-funded health insurance plan. Under DOL’s supervision, the PEO was able to secure a $400,000 payment from its errors and omissions carrier to go towards outstanding claims, but ultimately providers settled for approximately 22% to 30% of the total amount of unpaid claims, and forgave some smaller claims in full so that the plan paid only $273,000 on the claims it owed. And in Case No. 40-018443, an association was terminating with nearly $5.9 million in outstanding claims and was only able to pay approximately $414,000, representing just 7 cents on the dollar. Over the next several years, with DOL’s oversight, the association paid an additional $237,000 to $284,000 in claims, but the majority of claims were written off by the health care providers. In other cases involving unpaid claims, participating employers are asked to cover these costs through increased contributions. See, e.g., Case No. 60-104362. These employers may reasonably feel that they were misled, particularly if they would have chosen an alternative coverage option had they known what the real price was going to be.
DOL does not always fully credit the harm caused by excessive premium payments or fees, which can affect both employers and plan participants, to the same extent as unpaid claims. In Case No. 72-034448, for instance, DOL had identified more than $500,000 in prohibited transactions but closed the case after only recovering approximately $64,000. The records note that this did not restore all of the plan’s losses, but explain that no further action was taken because the benefits were fully insured, there was no evidence of unpaid claims or harmed participants, and the plan was scheduled to terminate. But as a result, the employers and employees will never get back the $436,000 they contributed that was spent by the AHP on prohibited transactions.
In sum, federal enforcement efforts—even when at their most successful—do not fully rectify the harms that can come from fraudulent or poorly managed MEWAs. Put another way, the adage “prevention is better than a cure” holds true here, just as in medicine.
This blog concludes our deep dive into the MEWA files. But stay tuned, because in the new year, the team at CHIR will take a step back and reflect on the broader lessons that we should take away from these records and situate them in the current legal and policy debates regarding AHPs. We hope you will keep reading, and, in the meantime, share your thoughts, perspectives, and stories in the comments!