Employers that do not have large employee populations have for many years struggled to provide competitive health coverage to their employees. In an effort to offer the economies of scale and risk spreading that exist when large numbers of employees are covered in a single group health plan, there have been many attempts to structure health insurance arrangements (typically referred to as multiple employer welfare arrangements, or MEWAs) in which unrelated employers can participate. Unfortunately, many MEWAs have been undercapitalized, unable to provide the cost savings they promoted, and/or noncompliant with state and federal law. Although there has been a recent effort by the US Department of Labor (DOL) (through a final regulation issued in June of 2018) to expand the ability of employer associations to offer group health plan coverage to their members, this effort will primarily benefit small employers who currently obtain health coverage through the individual or small group insurance markets.
Employers that contribute to multiemployer health plans on behalf of unionized employees often find it difficult to offer competitive health coverage to their nonunion employees. This is particularly true where an employer’s nonunion workforce is small compared to its union workforce. In response to this, some multiemployer health plans have chosen to offer coverage to contributing employers’ nonunion employees. Opening up a multiemployer plan’s coverage in this way can be very beneficial to the plan, because it increases the total number of plan participants and helps contributing employers remain viable.
Unlike MEWAs, multiemployer plans are established through the collective bargaining process to provide health, retirement, and other benefits to employees who are covered by a collective bargaining agreement. Like any other group health plan, a large multiemployer health plan can typically offer competitive coverage because of the size of the covered group. And as long as some basic requirements are met, a multiemployer plan can extend the plan’s coverage to (or create an entirely different tier of coverage for) employees who are not performing bargaining unit work.
The first general requirement to consider when offering coverage to non-bargaining unit employees comes from the DOL’s MEWA regulations. To avoid becoming a MEWA, which would subject the plan to state insurance law, the plan must be “established or maintained under a collective bargaining agreement.” To meet this standard, at least 85% of the plan's participants must fall into one of several specified categories. These categories include bargaining unit employees, retirees, and employees of the sponsoring union, employer association, and the plan itself. There is also a category for non-bargaining unit employees who are employed by a contributing employer and covered by the plan on terms that are no more favorable than those that apply to the bargaining unit employees. If more than 10% of the plan's participants are in this last category (i.e., non-bargained employees of contributing employers), then the number of such individuals above 10% is disregarded for purposes of the 85% threshold.
The second general requirement comes from the rules on the deductibility of contributions to a funded health plan. Internal Revenue Code Section 419 imposes limits on the amount of health plan contributions that can be deducted in a particular year to the “direct cost” of the plan and an amount of allowable reserves. These deduction rules do not apply to a collectively bargained plan in which no more than 10% of the covered employees are non-bargained or to a “10 or more employer” plan to which no single employer normally contributes more than 10% of the total contributions and that does not maintain an experience-rating arrangement with respect to any individual employer.
In addition to these general legal requirements, there are other safeguards and practices that multiemployer plans may impose for non-bargaining unit employee coverage. For example, plans will often have eligibility and participation rules that prevent employers from engaging in adverse selection when choosing which employees to enroll.
Employers that contribute to multiemployer health plans on behalf of their unionized workforces should consider whether multiemployer plan coverage is available for their nonunion employees, and multiemployer plan boards of trustees should similarly consider whether allowing participation by non-bargaining unit employees may be beneficial to their plans.