Regulators assert new power to seize assets of fraudulent healthcare pools

By Megan R. Wilson - 02/28/13 12:51 PM ET

Federal regulators will now have the power to freeze the assets of fraudulent or abusive small-business healthcare pools, according to a new rule to be published Friday.

The Department of Labor (DOL) is issuing two final rules authorized by the healthcare reform law that aim to protect small-business employers and their employees from predatory health benefit arrangements.

Multiple Employer Welfare Arrangements (MEWAs) offer healthcare coverage for a small group of employers – including the self-employed – who contribute to a pool. By lumping funds together, small businesses can offer affordable insurance plans to their employees and comparable coverage to those of larger businesses.

The Labor Department has prosecuted abuse of the insurance pools in the past, but the new rule would cut through the red tape associated with freezing assets and issuing a “cease and desist order” to a deceptive insurance promoter.

The rules allow the secretary of Labor to assess from a fraudulent program if there is “probable cause” that the plan is in a “financially hazardous condition.”

Regulators have often had to take action against pools with “actuarially unsound” premium structures that cannot support the promised benefits, according to the DOL’s website.

“In the worst situations, MEWAs have been operated by individuals who drained families of their assets through excessive administrative fees or outright embezzlement,” the Employee Benefits Security Administration (EBSA) said in a fact sheet attached to the rule’s proposal. “In some cases, individuals can incur significant medical bills before they learn that claims are not being paid – and that they are liable and need to pay their medical bills themselves.”

The other rule would strengthen the DOL’s ability to oversee MEWAs, requiring them to register with the department before operating in a state.

“This will allow the Department [of Labor] to track MEWAs as they move from State to State and identify their principals, which will provide the Department with important information regarding potentially fraudulent [arrangements],” the EBSA wrote about the rule in 2011.