A Sheep in Black Wolf’s Clothing: A Cautionary Tale

The U.S. Department of Labor has taken a series of legal actions against Black Wolf Consulting

The Department of Labor has shut down a multiple employer welfare association (MEWA) plan that allegedly pocketed health insurance premiums and left tens of millions in unpaid claims. There are some important lessons to be learned.

The U.S. Department of Labor has taken a series of legal actions against a multiple employer welfare association (MEWA) plan operated by Black Wolf Consulting.

The actions taken by the DOL against this plan (the AEU Holdings LLC Employee Benefits Plan) include freezing bank accounts, replacing the plan fiduciaries, and issuing an order to dozens of brokers to stop marketing the AEU Plan. At the core of the DOL actions are claims that the AEU Plan collected tens of millions of dollars from small employers to pay for health insurance coverage, the plan management kept over half of those payments in fees, and the plan has left millions of dollars in claims unpaid.

Does the name Bernie Madoff ring a bell?

At this point it is too soon to tell how much money was pocketed by Black Wolf and AEU or what will happen to the unpaid claims. And, not all of the facts are in yet. But, the DOL has provided enough factual evidence of this scheme to obtain court orders allowing the DOL to act now. And, based on the facts presented by DOL, it is not too soon to start drawing some cautionary lessons from this case – or to make some connections to some other recent events in the health care debate.

The root of the Black Wolf/AEU scheme is the fact that MEWAs are not directly regulated by ERISA – ERISA governs plans sponsored by an “employer” and the MEWA falls outside of the definition of an “employer sponsored” plan. At the same time, MEWAs can seek to avoid state regulation, by claiming that they are covered by ERISA and that ERISA preemption takes them out of state oversight. And, MEWAs can be marketed in ways that appeal to small employers – the AEU Plan offered employers “ERISA qualified benefits” that were “ACA compliant,” but with the “potential for significant savings” and “fewer ACA fees and state taxes”.

The Black Wolf/AEU plan represents a familiar risk – of a fraudulent MEWA – that has existed for many years. However, perhaps more importantly, the Black Wolf/AEU plan should serve as a vivid reminder of the risks posed by the October 12 Executive Order issued by President Trump regarding Association Health Plans (“AHPs”). Under this order, previously described on this site, the Department of Labor was directed to consider expanding access to AHPs.

AHPs are another form of MEWA: they allow (otherwise unrelated) employers to aggregate in offering health plans.

However, the Executive Order could take the familiar MEWA risk and expand it in new – and potentially disruptive – ways. AHPs under the Executive Order would be exempt from many consumer protections in the ACA, such as requirements regarding coverage of essential health benefits and the prohibition on charging higher premiums for individuals with pre-existing conditions. Federal approval (and oversight) of AHPs would also reduce states’ ability to protect against consumer fraud; this is significant because state regulators are currently active players in protecting against fraudulent schemes. And, AHPs offering skinnier benefits could drive insurance carriers further away from these markets.

In effect, the Executive Order creates a situation where the Black Wolves of the world have a ready-made marketing pitch (“lower cost health insurance with fewer ACA-related costs”) and a vulnerable regulatory environment.

Over the years, MEWA scams have come in waves. As small employers look ways to provide affordable health insurance and the Trump administration looks to decreasing regulatory oversight as a path to lower health insurance costs, it may be time to get ready for the next wave.