CSFS Course 7
MEWA and VEBA
Multiple employer welfare arrangements and voluntary employees’ beneficiary associations: what they are, how they are regulated, and why both attract more scrutiny than a single-employer plan.
225 practice questions · page 2 of 5, questions 51–100 · answers and explanations included · updated September 2026
50 questions on this page 2 of 5, each with the answer and the reasoning behind it. Read straight through, or quiz yourself on them and the ones you miss stay in rotation until you get them right.
- 51
According to the course, the IRS regulatory role regarding MEWAs primarily concerns which area?
- •Approval of plan design and benefit levels to ensure compliance with the ACA's essential health benefits mandate
- •Enforcement of fiduciary duties and prohibited transaction rules under ERISA Title I
- •Licensing and solvency requirements for MEWAs operating across state lines
- •Tax treatment of contributions to, and distributions from, MEWAs, as well as compliance with tax-related provisions applicable to employee benefit plans
Show answer
Tax treatment of contributions to, and distributions from, MEWAs, as well as compliance with tax-related provisions applicable to employee benefit plans
The course states that the IRS has a regulatory role regarding MEWAs primarily concerning the tax treatment of contributions to, and distributions from, MEWAs, as well as compliance with tax-related provisions applicable to employee benefit plans.
- 52
According to the course, which federal law gives states the primary authority to regulate the business of insurance, which in turn supports their authority over MEWAs operating within their borders?
- •The Affordable Care Act (ACA)
- •The Erlenborn Amendment to ERISA
- •The Health Insurance Portability and Accountability Act (HIPAA)
- •The McCarran-Ferguson Act
Show answer
The McCarran-Ferguson Act
The course states that under the McCarran-Ferguson Act, states have the primary authority to regulate the business of insurance. This means that any MEWA operating in a state and providing benefits to residents of that state is subject to that state's insurance laws and regulations.
- 53
The course discusses the Erlenborn Amendment's specific provision allowing states to regulate the financial solvency of fully insured MEWAs. How does this apply differently to self-funded MEWAs?
- •Self-funded MEWAs must obtain solvency certification from the DOL rather than from the state, eliminating state jurisdiction
- •States can regulate the financial solvency of self-funded MEWAs to some extent, though they have more leeway to regulate fully insured MEWAs
- •States cannot regulate self-funded MEWAs at all because ERISA fully preempts state authority over self-funded arrangements
- •States may only regulate self-funded MEWAs through the state attorney general's office, not through the insurance department
Show answer
States can regulate the financial solvency of self-funded MEWAs to some extent, though they have more leeway to regulate fully insured MEWAs
The course states that although states have more leeway to regulate fully insured MEWAs, they can regulate the financial solvency of self-funded MEWAs to some extent. ERISA's preemption does not prevent states from regulating the insurance practices of MEWAs, even self-funded ones, particularly regarding solvency and consumer protection.
- 54
The course explains that ERISA does not generally prevent state insurance departments from taking certain actions against ERISA plans that are MEWAs providing insurance. Which of the following does the course identify as a specific area where ERISA's 'savings clause' preserves state authority?
- •State laws that regulate insurance, banking, or securities are specifically saved from ERISA preemption, allowing states to apply insurance regulations to MEWAs including subpoena of records
- •States may mandate specific benefit designs for ERISA-covered MEWAs that supersede the plan document
- •States may override ERISA's fiduciary standards with their own stricter fiduciary requirements for MEWA trustees
- •States may require ERISA-covered MEWAs to participate in the state guaranty fund for insolvent insurers
Show answer
State laws that regulate insurance, banking, or securities are specifically saved from ERISA preemption, allowing states to apply insurance regulations to MEWAs including subpoena of records
The course states that ERISA specifically saves from preemption state laws that regulate insurance, banking, or securities. Therefore, if a MEWA is providing insurance, states can apply their insurance regulations, which may include the power to subpoena records or conduct financial examinations.
- 55
According to the course, whether a state can charge an ERISA plan for the costs of a financial examination depends on what factor?
- •Whether the plan has filed Form M-1 with the DOL within the past 12 months
- •Whether the plan has more than 500 participants
- •Whether the plan is deemed to be an insurance company or similar entity subject to state insurance laws
- •Whether the state has entered into a memorandum of understanding with the DOL
Show answer
Whether the plan is deemed to be an insurance company or similar entity subject to state insurance laws
The course states that whether a state can charge an ERISA plan for the costs of a financial examination can depend on whether the plan is deemed to be an insurance company or similar entity that is subject to state insurance laws.
- 56
Which of the following best describes the primary purpose of a MEWA sponsoring organization?
- •To act as the state-appointed regulatory body that certifies MEWAs for operation within a given jurisdiction
- •To establish and maintain a MEWA for the purpose of offering health and welfare benefits to the employees of multiple employers
- •To function as the collective bargaining representative that negotiates benefit terms on behalf of participating unions
- •To serve as the stop-loss insurance carrier that underwrites the catastrophic risk layer for pooled employer groups
Show answer
To establish and maintain a MEWA for the purpose of offering health and welfare benefits to the employees of multiple employers
The course states that a MEWA sponsoring organization establishes and maintains a MEWA for the purpose of offering health and welfare benefits to the employees of multiple employers. It is not an insurer, regulator, or bargaining agent — it is the organizing entity that creates the framework for pooled benefits.
- 57
A MEWA sponsoring organization can take various forms. Which combination of organizational types is explicitly listed in the course as possible sponsoring organizations?
- •A health maintenance organization, a preferred provider organization, or a managed care entity
- •A labor union, a collective bargaining unit, or a Taft-Hartley trust
- •A state insurance department, a licensed TPA, or a stop-loss carrier
- •A trade association, a PEO, or an industry group
Show answer
A trade association, a PEO, or an industry group
The course explicitly states that the sponsoring organization could be a trade association, a PEO (Professional Employer Organization), an industry group, or any other type of organization that represents a collective of employers. Insurers, regulators, unions, and managed care entities are not listed as sponsoring organization types.
- 58
According to the course, the operating committee of a MEWA is best described as which of the following?
- •A committee of employee representatives elected by plan participants to advocate for benefit improvements
- •An arm of the sponsoring organization or board of trustees responsible for day-to-day management and administrative oversight
- •An external consulting group hired to perform actuarial valuations and financial reporting for the MEWA
- •An independent regulatory body appointed by the state insurance department to audit the MEWA's solvency
Show answer
An arm of the sponsoring organization or board of trustees responsible for day-to-day management and administrative oversight
The course defines the operating committee as a group of individuals tasked with the day-to-day management and administrative oversight of the MEWA. It is typically an arm of the sponsoring organization or board of trustees — not an external regulator, employee advocacy group, or consulting firm.
- 59
Which of the following is NOT listed as a function of the MEWA operating committee?
- •Compiling and presenting reports to the board of trustees regarding the MEWA's operations and financial status
- •Implementing the policies set by the sponsoring organization or board of trustees
- •Negotiating stop-loss reinsurance treaties directly with Lloyd's of London syndicates
- •Serving as the main point of communication between the MEWA and member employers
Show answer
Negotiating stop-loss reinsurance treaties directly with Lloyd's of London syndicates
The course lists numerous operating committee functions including implementing policies, overseeing enrollment, managing relationships with service providers, ensuring regulatory compliance, financial oversight, risk management, communication with member employers, and reporting to the board. Negotiating reinsurance treaties with specific markets like Lloyd's is not mentioned as a committee function.
- 60
According to the course, which federal filings function as a form of certification of a MEWA's operations, even though they are not certifications per se?
- •Form 1024 and Form 8928 filed with the IRS for initial plan qualification
- •Form 5558 and Schedule SB filed with the DOL for actuarial certification
- •Form 990-T and Form 1041 filed with the IRS for tax-exempt verification
- •Form M-1 and Form 5500 filed annually under ERISA compliance requirements
Show answer
Form M-1 and Form 5500 filed annually under ERISA compliance requirements
The course states that if a MEWA is subject to ERISA, it must comply with federal reporting and disclosure requirements, which includes filing Form M-1 and Form 5500 annually. The course notes that although these are not certifications per se, they are federal compliance requirements that function as a form of certification of the MEWA's operations.
- 61
A MEWA that offers prescription drug coverage faces which additional certification requirement according to the course?
- •It may need to certify that it is in compliance with specific healthcare laws, such as Medicare Part D requirements
- •It must file a supplemental actuarial certification with the DOL attesting to the adequacy of its pharmacy benefit reserves
- •It must obtain a separate pharmaceutical license from the DEA before administering any drug benefit claims
- •It must register with CMS as a Medicare Advantage plan before it can process any prescription drug claims
Show answer
It may need to certify that it is in compliance with specific healthcare laws, such as Medicare Part D requirements
The course states that MEWAs offering specific plans such as prescription drug coverage may need to certify that they are in compliance with specific healthcare laws, such as Medicare Part D requirements. This is categorized under 'specific plan certifications' — distinct from general MEWA certification.
- 62
Regarding MEWA certification, the course indicates that certification is typically which of the following?
- •A one-time federal requirement that, once granted, remains valid for the life of the MEWA
- •A voluntary process that MEWAs may elect to undergo to gain competitive advantage in the marketplace
- •An annual requirement imposed exclusively by the DOL with no state-level component
- •Not a one-time event — MEWAs may be required to renew their certification periodically, demonstrating ongoing compliance
Show answer
Not a one-time event — MEWAs may be required to renew their certification periodically, demonstrating ongoing compliance
The course states that certification is often not a one-time event; MEWAs may be required to renew their certification or approval periodically, demonstrating ongoing compliance with regulatory requirements. This underscores the continuous nature of MEWA regulatory obligations.
- 63
Which of the following correctly describes the relationship between MEWA certification requirements at the state level and ERISA compliance at the federal level?
- •A MEWA must first obtain ERISA certification from the DOL before any state insurance department will accept its application for state-level authorization
- •ERISA preempts all state certification requirements, so a MEWA that satisfies federal ERISA filing is automatically certified in every state
- •State certification is required only for fully insured MEWAs, while ERISA compliance applies exclusively to self-funded MEWAs
- •State certification typically requires demonstrating compliance with state insurance laws including solvency and consumer protection standards, while ERISA compliance involves federal reporting and disclosure requirements — both layers apply simultaneously
Show answer
State certification typically requires demonstrating compliance with state insurance laws including solvency and consumer protection standards, while ERISA compliance involves federal reporting and disclosure requirements — both layers apply simultaneously
The course describes state approval as requiring demonstration of compliance with state insurance laws including solvency and consumer protection standards, while separately noting that ERISA compliance includes filing Form M-1 and Form 5500. Both layers operate simultaneously — ERISA does not eliminate state-level certification for MEWAs.
- 64
Under ERISA, what is the minimum bonding requirement for persons who handle funds or other property of an employee benefit plan, including a MEWA?
- •10% of the amount handled, with a minimum of $1,000 and a maximum of $500,000
- •15% of the amount handled, with a minimum of $10,000 and a maximum of $1,000,000
- •20% of the amount handled, with a minimum of $2,500 and no statutory maximum
- •5% of the amount handled, with a minimum of $5,000 and a maximum of $250,000
Show answer
10% of the amount handled, with a minimum of $1,000 and a maximum of $500,000
The course states that ERISA sets the minimum bonding at 10% of the amount handled, but not less than $1,000 and not more than $500,000 (or $1,000,000 in the case of plans that hold employer securities). These specific thresholds are fundamental to MEWA financial assurance requirements.
- 65
According to the course, ERISA's maximum bonding limit is higher for a specific category of plans. Which category receives the higher $1,000,000 maximum bond limit?
- •Plans that are self-funded and purchase aggregate stop-loss coverage
- •Plans that cover more than 1,000 participants across multiple employer groups
- •Plans that hold employer securities
- •Plans that operate in more than five states simultaneously
Show answer
Plans that hold employer securities
The course specifies that the ERISA bonding maximum is $500,000, except in the case of plans that hold employer securities, where the maximum is $1,000,000. This higher threshold reflects the additional fiduciary risk associated with holding employer securities within a benefit plan.
- 66
The course identifies multiple types of financial security that states may require from MEWAs. Which of the following is a complete list of the types mentioned?
- •Capital deposits, risk-based capital reserves, and federal guaranty fund contributions
- •Fidelity bonds, letters of credit, and PBGC-backed guarantees
- •Fidelity bonds, surety bonds, and excess stop-loss insurance
- •Letters of credit, guaranty fund assessments, and reinsurance treaties
Show answer
Fidelity bonds, surety bonds, and excess stop-loss insurance
The course states that states may have additional bonding or financial security requirements for MEWAs, which might include fidelity bonds, surety bonds, or excess stop-loss insurance. Letters of credit, guaranty fund assessments, capital deposits, and PBGC-backed guarantees are not mentioned in this context.
- 67
A MEWA fails to meet its bonding and financial assurance requirements. According to the course, what are the potential consequences?
- •A federal conservatorship administered by the DOL with a court-appointed trustee managing claims
- •An automatic 90-day grace period during which the MEWA may continue operations while seeking compliance
- •Penalties, additional oversight, or the inability to operate legally
- •Transfer of the MEWA's assets to the state guaranty fund and mandatory dissolution within 60 days
Show answer
Penalties, additional oversight, or the inability to operate legally
The course states that MEWAs must carefully navigate financial requirements, as failure to meet them can result in penalties, additional oversight, or the inability to operate legally. There is no mention of automatic grace periods, guaranty fund transfers, or federal conservatorship.
- 68
Which of the following is identified by the course as a primary financial solvency concern for MEWAs in the context of risk management?
- •Accurately estimating and managing healthcare costs, which can be unpredictable and influenced by rising medical expenses and high-cost claims
- •Depositing 25% of annual premium equivalents with the state insurance department as a statutory reserve
- •Maintaining a minimum risk-based capital ratio as prescribed by NAIC model legislation
- •Securing reinsurance from an A.M. Best A-rated carrier for all claims above the aggregate corridor
Show answer
Accurately estimating and managing healthcare costs, which can be unpredictable and influenced by rising medical expenses and high-cost claims
The course identifies financial solvency and reserves as a primary risk management concern, specifically stating that MEWAs must accurately estimate and manage healthcare costs, which can be unpredictable and influenced by factors like rising medical expenses and high-cost claims. RBC ratios, specific reinsurance ratings, and statutory deposit percentages are not mentioned.
- 69
The course identifies high turnover among member employers as a risk management challenge for MEWAs. What specific consequence does the course attribute to this turnover?
- •It automatically increases the MEWA's specific stop-loss attachment points
- •It can lead to instability in the risk pool
- •It disqualifies the MEWA from filing Form M-1 electronically
- •It triggers mandatory DOL audits of the MEWA's financial reserves
Show answer
It can lead to instability in the risk pool
The course states that maintaining a stable base of participating employers is crucial for risk distribution, and that high turnover among member employers can lead to instability in the risk pool. The course does not link employer turnover to mandatory audits, attachment point changes, or filing eligibility.
- 70
According to the course, which regulation is specifically mentioned as requiring robust data-security measures for MEWAs that handle sensitive health information?
- •The Federal Information Security Modernization Act (FISMA)
- •The Gramm-Leach-Bliley Act (GLBA)
- •The Health Insurance Portability and Accountability Act (HIPAA)
- •The Sarbanes-Oxley Act (SOX)
Show answer
The Health Insurance Portability and Accountability Act (HIPAA)
The course specifically identifies HIPAA as the regulation requiring robust data-security measures for MEWAs handling sensitive health information. SOX, GLBA, and FISMA address security in other contexts but are not mentioned in the course's discussion of MEWA risk management challenges.
- 71
The course lists healthcare cost management strategies that MEWAs should implement as part of risk management. Which combination of strategies is explicitly mentioned?
- •Capitated provider arrangements, accountable care organization partnerships, and bundled payment models
- •Health savings account incentives, telemedicine mandates, and centers of excellence designations
- •Reference-based pricing, direct primary care contracts, and pharmacy benefit carve-outs
- •Wellness programs, disease management initiatives, and careful provider network selection
Show answer
Wellness programs, disease management initiatives, and careful provider network selection
The course explicitly states that MEWAs must implement strategies to control healthcare costs, including wellness programs, disease management initiatives, and careful provider network selection. Reference-based pricing, HSA incentives, capitated arrangements, and the other options are not specifically mentioned in the course.
- 72
Under state regulation, what mechanism does the course identify as limiting a MEWA's ability to cherry-pick employer groups?
- •A requirement that MEWAs must accept any employer group referred by the state insurance exchange
- •Community rating requirements or other rules that limit the ability to vary premiums across employer groups
- •Federal preemption under ERISA that prohibits any form of health status underwriting in the MEWA context
- •Mandatory participation in the state guaranty fund, which spreads risk across all licensed entities
Show answer
Community rating requirements or other rules that limit the ability to vary premiums across employer groups
The course states that MEWAs may be subject to community rating requirements or other rules that limit their ability to vary premiums across employer groups, which reduces the potential for cherry-picking. The course distinguishes this state-level mechanism from federal ACA and ERISA protections discussed separately.
- 73
The course discusses protections against MEWA cherry-picking at both the state and federal levels. Which federal law is cited as prohibiting health status underwriting and requiring coverage of essential health benefits?
- •The Affordable Care Act (ACA)
- •The Consolidated Omnibus Budget Reconciliation Act (COBRA)
- •The Employee Retirement Income Security Act (ERISA)
- •The Health Insurance Portability and Accountability Act (HIPAA)
Show answer
The Affordable Care Act (ACA)
The course states that the ACA implemented reforms that apply to the group market and MEWAs, such as prohibiting health status underwriting and requiring coverage of essential health benefits. While ERISA has non-discrimination rules and HIPAA addresses portability, the specific combination of prohibiting health status underwriting and requiring essential health benefits is attributed to the ACA.
- 74
The course notes that a MEWA's reputation can be adversely affected by cherry-picking. What practical consequence does the course identify?
- •It could discourage potential member employers from participating in the MEWA
- •It would cause the state to revoke the MEWA's stop-loss insurance license
- •It would require the MEWA to convert from self-funded to fully insured status within 12 months
- •It would trigger an automatic DOL investigation and mandatory filing of a corrective action plan
Show answer
It could discourage potential member employers from participating in the MEWA
The course states that the reputation and sustainability of a MEWA can be adversely affected if it gains a reputation for cherry-picking, as it could discourage potential member employers from participating. The course frames this as a practical marketplace consequence rather than a regulatory trigger.
- 75
According to the course, which type of employer does a MEWA most commonly serve?
- •Government agencies that want to supplement their existing FEHB (Federal Employees Health Benefits) coverage
- •Large multinational corporations seeking to consolidate benefit plans across international subsidiaries
- •Self-employed individuals and sole proprietors who have no employees other than themselves
- •Small to medium-sized employers who may not have the bargaining power to obtain affordable health coverage on their own
Show answer
Small to medium-sized employers who may not have the bargaining power to obtain affordable health coverage on their own
The course states that MEWAs often serve small to medium-sized employers who may not have the bargaining power to obtain affordable health coverage on their own. While MEWAs can include larger employers depending on the MEWA's goals and structure, the primary constituency is smaller employers.
- 76
The course lists several requirements employers must typically meet to participate in a MEWA. Which of the following is NOT identified as a participation requirement?
- •Agreeing to non-discriminatory practices by offering the MEWA's benefits to all eligible employees
- •Complying with minimum contribution rates established by the MEWA
- •Maintaining a minimum of 50 full-time equivalent employees on payroll
- •Meeting minimum employee participation rates set by the MEWA
Show answer
Maintaining a minimum of 50 full-time equivalent employees on payroll
The course lists compliance with minimum contribution rates, minimum employee participation rates, adherence to plan rules, and agreement to non-discriminatory practices as participation requirements. A minimum of 50 FTEs is not mentioned — in fact, MEWAs often serve small to medium-sized employers.
- 77
According to the course, what happens when a self-funded MEWA has a less diverse risk pool with a higher prevalence of high-cost claims?
- •ERISA requires the MEWA to freeze enrollment until its claims experience returns to actuarially expected levels
- •It could result in higher overall costs, which might lead to higher premiums for its members compared to the broader insurance market
- •The MEWA must immediately purchase specific stop-loss insurance with attachment points no higher than $25,000
- •The state insurance department automatically assigns the MEWA to a high-risk pool with subsidized reinsurance
Show answer
It could result in higher overall costs, which might lead to higher premiums for its members compared to the broader insurance market
The course states that if a self-funded MEWA has a less diverse risk pool with a higher prevalence of high-cost claims, it could result in higher overall costs, which might lead to higher premiums for its members compared to the broader insurance market. The course does not describe automatic regulatory interventions in this scenario.
- 78
The course identifies a dual adverse selection problem with MEWAs. In one direction, a poorly underwritten MEWA attracts higher-risk groups. In the other direction, what does the course say happens when a MEWA successfully underwrites for lower risks?
- •It could leave traditional insurance pools with a higher proportion of high-risk groups, leading to adverse selection in the broader market and potentially higher premiums outside the MEWA
- •It triggers a federal risk corridor payment from CMS to compensate traditional insurers for the resulting imbalance
- •State regulators require the MEWA to make equalization payments to the state guaranty fund to offset the market distortion
- •The MEWA is required to accept a proportional share of high-risk enrollees from the state exchange to rebalance the market
Show answer
It could leave traditional insurance pools with a higher proportion of high-risk groups, leading to adverse selection in the broader market and potentially higher premiums outside the MEWA
The course explicitly describes a bidirectional adverse selection dynamic: a MEWA that successfully underwrites for lower risks could leave traditional insurance pools with a higher proportion of high-risk groups, leading to adverse selection in the broader market and potentially higher premiums outside the MEWA. No equalization payments or risk corridors are mentioned.
- 79
Which of the following does the course identify as a mechanism some states use to mitigate adverse selection among plans, including MEWAs?
- •ERISA-mandated risk equalization payments transferred quarterly between all self-funded arrangements in the state
- •Federal reinsurance corridors that reimburse plans for 80% of claims exceeding two standard deviations above the mean
- •Mandatory participation in a state-operated common risk pool that blends all employer group experience together
- •Risk adjustment programs that redistribute funds from plans with lower-risk enrollees to plans with higher-risk enrollees
Show answer
Risk adjustment programs that redistribute funds from plans with lower-risk enrollees to plans with higher-risk enrollees
The course states that some states have risk adjustment programs that redistribute funds from plans with lower-risk enrollees to plans with higher-risk enrollees to mitigate adverse selection. Federal reinsurance corridors, common risk pools, and ERISA-mandated equalization payments are not described in the course.
- 80
The course describes how the ACA limits underwriting practices for self-funded plans including MEWAs. How does this relate to mitigating adverse selection within a MEWA?
- •The ACA exempts self-funded MEWAs from underwriting restrictions provided they maintain reserves equal to 150% of expected claims
- •The ACA imposes requirements that limit the extent to which self-funded plans, including MEWAs, can underwrite based on health factors, thereby serving as an underwriting control against adverse selection
- •The ACA mandates that self-funded MEWAs participate in the ACA's permanent risk corridor program, which eliminates adverse selection through federal subsidies
- •The ACA requires all MEWAs to use adjusted community rating with age bands no wider than 2:1, eliminating health-factor underwriting entirely
Show answer
The ACA imposes requirements that limit the extent to which self-funded plans, including MEWAs, can underwrite based on health factors, thereby serving as an underwriting control against adverse selection
The course states that effective underwriting practices that comply with applicable laws can mitigate the risk of adverse selection within a MEWA, and specifically notes that the ACA imposes requirements that limit the extent to which self-funded plans, including MEWAs, can underwrite based on health factors. The 2:1 age band, risk corridor program participation, and reserve-based exemption are not described in the course.
- 81
According to the course, what is the risk of setting stop-loss attachment points too low for a MEWA?
- •The MEWA may pay higher stop-loss premiums
- •The MEWA will be disqualified from filing Form M-1 with the DOL
- •The MEWA's self-funded status will be reclassified as fully insured by the state insurance department
- •The stop-loss carrier will automatically impose lasering on all plan participants
Show answer
The MEWA may pay higher stop-loss premiums
The course states that setting the right attachment points is crucial: if the attachment points are set too low, the MEWA may pay higher premiums; if set too high, the MEWA risks greater financial exposure. The course does not link low attachment points to M-1 filing disqualification, reclassification, or automatic lasering.
- 82
The course describes 'lasering' in the context of MEWA stop-loss insurance. What does lasering entail, and what is its impact on the MEWA?
- •Insurers exclude entire employer groups from the stop-loss policy, requiring the MEWA to self-insure those groups at the aggregate level without any reinsurance protection
- •Insurers impose a lifetime maximum benefit on high-risk members, capping the stop-loss carrier's exposure per individual across all policy years
- •Insurers reduce the aggregate attachment point for the entire MEWA by the amount of known large claimants' expected costs, increasing the MEWA's aggregate premium
- •Insurers set higher individual attachment points for members with known high-risk conditions, leaving the MEWA with greater financial responsibility for those individuals and impacting overall risk management
Show answer
Insurers set higher individual attachment points for members with known high-risk conditions, leaving the MEWA with greater financial responsibility for those individuals and impacting overall risk management
The course defines lasering as insurers setting higher individual attachment points for members with known high-risk conditions. This practice can leave the MEWA with greater financial responsibility for these individuals, impacting overall risk management. It is distinct from excluding groups entirely, adjusting aggregate points, or imposing lifetime maximums.
- 83
Which of the following does the course identify as a challenge related to claims lag in the context of MEWA stop-loss coverage?
- •Claims lag eliminates the MEWA's ability to file Form 5500 because incurred-but-not-reported claims cannot be actuarially certified
- •Claims lag forces the stop-loss carrier to increase aggregate attachment points by a fixed percentage each quarter
- •Claims lag reduces the MEWA's COBRA continuation period from 36 months to 18 months for all qualifying events
- •Misalignment between the timing of services provided and claims paid can lead to coverage gaps
Show answer
Misalignment between the timing of services provided and claims paid can lead to coverage gaps
The course states that managing the timing of claims (the lag between when services are provided and when claims are paid) is important to ensure that coverage aligns with the MEWA's financial obligations, and that misalignment can lead to coverage gaps. Claims lag is not linked to attachment point formulas, Form 5500 filing, or COBRA duration.
- 84
The course lists several factors that influence the availability and terms of stop-loss coverage for MEWAs. Which combination of factors is explicitly identified?
- •Market conditions, the MEWA's claims history, and member demographics
- •The aggregate corridor width, the specific deductible trend factor, and the MEWA's TPA accreditation status
- •The MEWA's IRS tax classification, the number of states in which it operates, and its Form M-1 filing history
- •The stop-loss carrier's A.M. Best rating, the MEWA's network discount percentage, and CMS risk adjustment scores
Show answer
Market conditions, the MEWA's claims history, and member demographics
The course states that market conditions, the MEWA's claims history, and member demographics all influence the availability and terms of stop-loss coverage. Tax classification, number of states, carrier ratings, network discounts, and corridor widths are not listed as the influencing factors in this context.
- 85
According to the course, why is the financial stability of the stop-loss carrier a critical concern for a MEWA?
- •A carrier's inability to meet its obligations can pose significant risks to the MEWA
- •An unstable carrier will automatically trigger ERISA fiduciary breach liability for the MEWA's board of trustees
- •State law requires MEWAs to indemnify participants directly if the stop-loss carrier becomes insolvent, making the MEWA the guarantor of last resort
- •The DOL will revoke the MEWA's Form M-1 filing exemption if its stop-loss carrier falls below an A-minus A.M. Best rating
Show answer
A carrier's inability to meet its obligations can pose significant risks to the MEWA
The course states that the financial strength and stability of the stop-loss carrier are crucial, and that a carrier's inability to meet its obligations can pose significant risks to the MEWA. The course does not describe automatic fiduciary breach triggers, indemnification obligations, or rating-linked filing exemptions.
- 86
The DOL can deny a MEWA's application for operating authority under which circumstance, according to the course?
- •If the MEWA covers fewer than 100 employees across all participating employer groups
- •If the MEWA fails to demonstrate adequate financial stability or fails to comply with reporting and disclosure requirements under ERISA
- •If the MEWA has not obtained aggregate stop-loss coverage with an attachment point at or below 125% of expected claims
- •If the MEWA's sponsoring organization is a 501(c)(6) trade association rather than a 501(c)(9) trust
Show answer
If the MEWA fails to demonstrate adequate financial stability or fails to comply with reporting and disclosure requirements under ERISA
The course states that the DOL can deny a MEWA's application for operating authority if it does not meet the necessary federal requirements set forth by ERISA. This could happen if a MEWA fails to demonstrate adequate financial stability or fails to comply with reporting and disclosure requirements. The type of sponsoring organization, number of employees, and stop-loss attachment points are not listed as denial criteria.
- 87
Under what circumstances may the DOL suspend a MEWA's operations, according to the course?
- •If more than 30% of the MEWA's participating employers terminate coverage within a single plan year
- •If the MEWA fails to file Form M-1 by the March 1 deadline for two consecutive years
- •If the MEWA is in a hazardous financial condition or is engaging in fraudulent activities
- •If the MEWA's stop-loss carrier downgrades its policy terms at renewal without prior DOL approval
Show answer
If the MEWA is in a hazardous financial condition or is engaging in fraudulent activities
The course states that the DOL may suspend a MEWA's operations if it finds the MEWA is in a hazardous financial condition or is engaging in fraudulent activities. A suspension can be temporary and put in place while investigations are ongoing or while a MEWA works to correct deficiencies. Filing delays, employer terminations, and stop-loss terms are not listed as suspension triggers.
- 88
When the DOL takes an enforcement action against a MEWA, the MEWA has the right to appeal. According to the course, what does the initial appeal involve?
- •A mandatory arbitration hearing conducted by FINRA with binding results and no further judicial review
- •A review by an administrative law judge, with potential further appeals to federal courts
- •A review by the state insurance commissioner, followed by an appeal to the state supreme court
- •An informal mediation session between the MEWA and DOL officials, with the DOL retaining final decision authority
Show answer
A review by an administrative law judge, with potential further appeals to federal courts
The course states that the appeals process involves a review by an administrative law judge and, potentially, further appeals to federal courts. The MEWA may present evidence and arguments as to why the enforcement action should be overturned or modified. FINRA arbitration, state commissioner review, and informal mediation are not described.
- 89
The course describes revocation as a severe enforcement action by the DOL. Under what conditions does revocation typically follow, according to the course?
- •A determination that the MEWA's aggregate claims exceeded 110% of projected claims in two of the last three plan years
- •A finding that the MEWA is unable to rectify issues that led to a suspension or is otherwise unfit to operate
- •A single instance of filing Form M-1 more than 30 days past the deadline, regardless of the MEWA's financial condition
- •An administrative law judge's ruling that the MEWA's board of trustees failed to hold quarterly meetings as required by ERISA
Show answer
A finding that the MEWA is unable to rectify issues that led to a suspension or is otherwise unfit to operate
The course states that if a MEWA consistently fails to comply with ERISA requirements, engages in serious misconduct, or poses a significant risk to participants, the DOL can revoke its authority to operate. This is described as a severe action that typically follows a finding that a MEWA is unable to rectify issues that led to a suspension or is otherwise unfit to operate.
- 90
Which of the following is identified by the course as a positive marketplace impact of MEWAs?
- •MEWAs can increase access to health coverage, especially for small employers who might not otherwise be able to afford to offer health benefits
- •MEWAs eliminate the need for state insurance regulation because ERISA fully preempts state oversight of all MEWA operations
- •MEWAs guarantee lower premiums than the individual market because they are exempt from ACA essential health benefit requirements
- •MEWAs replace the need for stop-loss insurance because pooling inherently eliminates catastrophic claim risk
Show answer
MEWAs can increase access to health coverage, especially for small employers who might not otherwise be able to afford to offer health benefits
The course lists increased access as a positive impact, specifically stating that MEWAs can increase access to health coverage, especially for small employers who might not otherwise be able to afford to offer health benefits. The course does not claim MEWAs eliminate state regulation, guarantee lower premiums, or replace stop-loss insurance.
- 91
The course identifies 'regulatory arbitrage' as a potential negative marketplace impact of MEWAs. What does the course say this entails?
- •MEWAs establish domicile in states with the lowest stop-loss attachment point requirements, then sell coverage nationwide without regard to other states' rules
- •MEWAs exploit differences between state and federal tax codes to generate unrelated business income that is never reported to the IRS
- •MEWAs that are not fully insured may operate under less stringent rules than traditional insurers, potentially leading to solvency issues or less consumer protection
- •MEWAs use their ERISA status to avoid all state insurance department oversight, including financial examinations and market conduct reviews
Show answer
MEWAs that are not fully insured may operate under less stringent rules than traditional insurers, potentially leading to solvency issues or less consumer protection
The course defines regulatory arbitrage in the MEWA context as MEWAs that are not fully insured possibly not being subject to all state insurance regulations, which could lead to regulatory arbitrage where MEWAs operate under less stringent rules than traditional insurers, potentially leading to solvency issues or less protection for consumers.
- 92
According to the course, what determines the extent to which MEWAs impact the marketplace, and what federal law is cited as introducing regulations to protect consumers?
- •Effective regulatory oversight determines the extent of marketplace impact, and the ACA introduced regulations requiring MEWAs to meet certain coverage standards
- •The MEWA's claims-to-premium ratio determines marketplace impact, and the Dodd-Frank Act introduced systemic risk oversight for MEWAs exceeding $1 billion in assets
- •The MEWA's market share in each state determines marketplace impact, and HIPAA introduced mandatory risk adjustment transfers between MEWAs and traditional insurers
- •The number of participating employers determines marketplace impact, and ERISA introduced minimum solvency requirements specifically for self-funded MEWAs
Show answer
Effective regulatory oversight determines the extent of marketplace impact, and the ACA introduced regulations requiring MEWAs to meet certain coverage standards
The course states that the extent to which MEWAs impact the marketplace is largely dependent on effective regulatory oversight, and specifically cites the ACA as introducing regulations that apply to MEWAs to protect consumers, such as requiring MEWAs to meet certain coverage standards.
- 93
What is the primary purpose of IRC Section 419 as it relates to MEWAs?
- •It establishes the tax-exempt status of MEWAs organized as 501(c)(9) trusts and defines their permissible benefit offerings
- •It mandates that all MEWA contributions be held in an irrevocable trust and prohibits employer access to plan assets
- •It provides guidelines on how employers can deduct contributions made to welfare benefit funds and limits the deductible amount to prevent excessive funding to defer taxes
- •It requires MEWAs to distribute all accumulated reserves to participants within five years of the plan year in which they were contributed
Show answer
It provides guidelines on how employers can deduct contributions made to welfare benefit funds and limits the deductible amount to prevent excessive funding to defer taxes
The course states that IRC Section 419 concerns the tax treatment of welfare benefit funds and provides guidelines on how employers can deduct contributions. It limits the amount employers can deduct in a given tax year, aiming to prevent employers from excessively funding these plans to defer taxes. It does not establish tax-exempt status (that is Section 501(c)(9)), mandate irrevocable trusts, or require reserve distributions.
- 94
Under IRC 419, the course describes 'qualified cost' in the context of deductible contributions to a welfare benefit fund. What does qualified cost include?
- •All contributions deposited into the welfare benefit fund during the tax year regardless of whether benefits were provided
- •Direct costs that can be deducted, including costs for benefits provided in the current year and reasonable administrative costs
- •Only the actuarially determined present value of future expected claims for the next three plan years
- •The total of claim payments, stop-loss premiums, and investment management fees, but excluding any administrative overhead costs
Show answer
Direct costs that can be deducted, including costs for benefits provided in the current year and reasonable administrative costs
The course defines qualified cost as direct costs that can be deducted, including costs for benefits provided in the current year and reasonable administrative costs. It does not extend to multi-year present values, all contributions regardless of benefits, or stop-loss premiums with administrative exclusions.
- 95
According to the course, what consequence do employers face if their contributions to a MEWA exceed the limits set forth in IRC 419?
- •A mandatory refund of excess contributions to all participating employees within 90 days
- •Automatic disqualification of the MEWA from ERISA coverage
- •Forfeiture of the excess contributions to the state insurance guaranty fund
- •Tax penalties for the contributing employers
Show answer
Tax penalties for the contributing employers
The course states that contributions exceeding the limits set forth in IRC 419 may result in tax penalties for the contributing employers. There is no mention of forfeiture to guaranty funds, ERISA disqualification, or mandatory employee refunds.
- 96
The course discusses IRC 419 financial reporting requirements for MEWAs. Which filing does the course specifically mention in connection with IRC 419 compliance?
- •Form 1024, filed biennially with the IRS to renew the MEWA's tax-exempt status
- •Form 5500, filed annually with the DOL
- •Form 990-T, filed quarterly with the IRS to report unrelated business income
- •Form M-1, filed semi-annually with the DOL to certify compliance with IRC 419 contribution limits
Show answer
Form 5500, filed annually with the DOL
The course states that MEWAs are required to report on their financial activities, including contributions and reserves, to ensure compliance with IRC 419, and this includes filing Form 5500 annually with the DOL. Form 990-T is mentioned elsewhere for UBI, Form 1024 is for tax exemption applications, and Form M-1 is filed annually (not semi-annually) for different purposes.
- 97
According to the course, unrelated business income (UBI) becomes a concern for a MEWA when which of the following occurs?
- •The MEWA collects premiums from participating employers that exceed the actual cost of benefits provided in the plan year
- •The MEWA earns passive investment income from a diversified portfolio of stocks and bonds held in its reserve account
- •The MEWA engages in activities that generate income beyond its primary purpose of providing welfare benefits to employees
- •The MEWA receives employer contributions that are tax-deductible under IRC 419
Show answer
The MEWA engages in activities that generate income beyond its primary purpose of providing welfare benefits to employees
The course states that UBI can be a concern for MEWAs if they engage in activities that generate income beyond their primary purpose of providing welfare benefits to employees. General investment income is typically excluded from UBI (with exceptions for leveraged investments), and premium collection and tax-deductible contributions are normal MEWA activities, not UBI triggers.
- 98
The course notes that investment income is generally excluded from unrelated business income for MEWAs. Under what exception could investment income become subject to UBI taxation?
- •If the investment income exceeds 10% of the MEWA's total annual premium revenue
- •If the investment portfolio is managed by an external advisor rather than an in-house fiduciary
- •If the MEWA generates income through investments that are leveraged or debt-financed
- •If the MEWA invests in securities issued by any of its participating employers
Show answer
If the MEWA generates income through investments that are leveraged or debt-financed
The course states that although investment income is generally excluded from unrelated business income, there are exceptions: if a MEWA generates income through investments that are leveraged or debt-financed, this could be subject to UBI taxation. Thresholds based on premium percentage, employer securities, or external versus in-house management are not described as UBI triggers.
- 99
According to the course, on which IRS form must MEWAs typically report unrelated business income?
- •DOL Form M-1, Part IV
- •IRS Form 1041, Schedule K-1
- •IRS Form 5500, Schedule C
- •IRS Form 990-T
Show answer
IRS Form 990-T
The course states that MEWAs must carefully monitor their income sources and activities to ensure compliance with UBI regulations, including accurate reporting of such income on their tax filings, typically on IRS Form 990-T. Form 5500, Form 1041, and Form M-1 serve different purposes.
- 100
According to the course, what is the primary tax-related risk for a 501(c)(6) trade association that operates a MEWA?
- •All contributions to the MEWA are treated as taxable income to the association regardless of how they are used
- •The association automatically loses its 501(c)(6) status the moment it begins collecting premiums from participating employers
- •The IRS requires the association to convert to a 501(c)(9) trust before it can legally sponsor a MEWA
- •The operation of the MEWA could jeopardize the association's tax-exempt status if the MEWA's activities do not align with the association's tax-exempt purpose
Show answer
The operation of the MEWA could jeopardize the association's tax-exempt status if the MEWA's activities do not align with the association's tax-exempt purpose
The course states that if a 501(c)(6) trade association operates a MEWA, it must ensure that the MEWA's activities align with its tax-exempt purpose, and the association should take care that the operation of the MEWA does not jeopardize its tax-exempt status. Loss of status is not automatic, conversion to 501(c)(9) is not required, and contributions are not automatically taxable.
CSFS is the Certified Self-Funding Specialist designation. These are my own practice questions, written while studying for the exam. This site is not affiliated with, endorsed by, or connected to the organisation that administers the CSFS designation, and nothing here is official exam content or a substitute for the course material.
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