Essential StaffCARE has been contacted by several staffing companies reporting they have received unexpected mid-year termination notices from their Voluntary Employee Beneficiary Association (VEBA) Trust/Captive plan. These notices made reference to their networks pulling out of the plans.
The possibility of VEBA Trust/Captive plan promoters putting their clients at risk was predicted by Essential StaffCARE in our October 2015 Industry Alert.
The U.S. Department of Labor has issued a temporary restraining order
to protect enrollees and beneficiaries who had been participating in this plan, and has filed a Cease and Desist order to prevent further marketing of the failed fund.
The abrupt failure of these VEBA Trust/Captive self-funded plans leaves their clients potentially exposed to ACA penalties and employee claims that are not being paid.
Continue to Exercise Caution
Staffing companies that offer major medical healthcare benefits through alternative plan funding scenarios should remember to exercise caution and diligence. Group plans structured under VEBA Trusts, Captive insurance scenarios or those designated as ERISA-exempt are likely to draw attention from industry regulators, and for good reason.
VEBA Trusts and captive off-shore organizations such as these are not regulated by state law, the way a licensed health insurance company would be. The plans they offer are often appealing because of their perceived low pricing, tax advantage and self-operated structure. Their status as exempt, however, can open the door to a host of operational and financial pitfalls if not managed with proper oversight.
The Federation Of Regulatory Counsel (FORC) – a national association of attorneys specialized in the arena of insurance regulatory law – saw this coming as ACA legislation was being enacted. In 2010, they quickly warned
, “Some unauthorized insurance promoters, wary of the administrative burden and cost of insurance regulation, seek to avoid state regulation
of these products as insurance. They do so by cloaking these programs as “exempt” from regulation by flawed reference to federal law, such as the Internal Revenue Code or the Employee Retirement Income Security Act (ERISA).”
Employers May Be Responsible for Unpaid Claims
It is important to not only understand the inherent risks involved with unlicensed insurance scenarios, but also the liability of cost should the claims fund become insufficient. In self-funded scenarios, the employer is ultimately responsible.
Essential StaffCARE urges any staffing company currently participating in a VEBA Trust/Captive scenario or other ERISA-exempt plan to evaluate the financial stability, managerial acumen and funding equilibrium behind their plan.