SECTION 7.1904. Application for Initial Certificate of Authority

(a) Entities which must file applications under this subchapter are set out in paragraphs (1) and (2) of this subsection.

(1) Any person wishing to establish a multiple-employer welfare arrangement which is not fully insured, as that term is defined in the Insurance Code, Article 3.95-1(4), must apply for and obtain a license after September 1, 1993.

(2) To avoid prosecution for engaging in the unauthorized business of insurance, a multiple-employer welfare arrangement which is not fully insured, as that term is defined in the Insurance Code, Article 3.95-1(4), and which was in existence on June 1, 1993, and which has continued after that date to provide any of the services regulated by Insurance Code, Chapter 3, Subchapter I, shall complete its application for initial certificate of authority by June 1, 1994, and timely file an application for final certificate of authority.

(b) A complete application for initial certificate of authority must be submitted to the commissioner. In order to be considered complete, the application must contain the items described in paragraphs (1)-(13) of this subsection:

(1) certified copy of the articles of incorporation, if applicable;

(2) bylaws, constitution, or rules or regulations establishing and operating the multiple-employer welfare arrangement;

(3) trust agreements created in connection with the multiple-employer welfare arrangement. The trust agreements must be signed by all trustees;

(4) a welfare benefit plan document, including documentation or instruments describing the rights and obligations of employers, employees, and beneficiaries with respect to the multiple-employer welfare arrangement;

(5) summary plan description with components and characteristics consistent with 29 United States Code §1022, as provided in subparagraphs (A) and (B) of this paragraph:

(A) the summary plan description shall be written in a manner calculated to be understood by the average plan participant and shall be sufficiently accurate and comprehensive to reasonably apprise such participants and beneficiaries of their rights and obligations under the plan;

(B) the summary plan description shall contain the items of information set out in clauses (i)-(xii) of this subparagraph as follows:

(i) name and type of administration of the plan;

(ii) name and address of the administrator;

(iii) names and addresses of any trustee or trustees if they are persons different from the administrator;

(iv) plan requirements with respect to eligibility for participation and benefits;

(v) a description of provisions relating to nonforfeitable benefits if any are included in the plan;

(vi) a description of circumstances which may result in disqualification, ineligibility, or denial or loss of benefits;

(vii) the source of financing of the plan;

(viii) the identity of any organization through which benefits are provided;

(ix) the date of the end of the plan year and whether the records of the plan are kept on a calendar, policy, or fiscal year basis;

(x) the procedures to be followed in presenting claims for benefits under the plan;

(xi) remedies available under the plan for the redress of claims which are denied in whole or in part; and

(xii) a statement of guaranty fund non-participation, if applicable, in the same form as set out for insurers and health maintenance organizations in §1.1001 of this title (relating to Disclosure of Guaranty Fund Non-participation);

(6) financial statements, as described in subparagraphs (A)-(F) of this paragraph:

(A) a current financial statement. If the multiple-employer welfare arrangement is already in business, the financial statement must include an annual balance sheet and income statement, developed on generally accepted accounting principles, for the past five years, or since the inception of the MEWA, whichever time period is shorter;

(B) a projected balance sheet for a minimum of three years on a quarterly basis, including assumptions used in producing projections and must be developed in conformity with generally accepted accounting principles;

(C) a projected income statement, providing income forecasts for a minimum interval of three years, detailed on a quarterly basis. The projected income statement must be developed in conformity with generally accepted accounting principles;

(D) a projected cash flow analysis on a quarterly basis, for a minimum of three years. Line by line documentation of anticipated cash inflow and outflow by specific account type must be submitted;

(E) a statement of the proposed initial cash and cash reserves summary. This statement must include all items of funding, including but not limited to loan receipts, loan repayments, and stock sales. The statement must include a description of the source and terms of the funding;

(F) if an existing multiple-employer welfare arrangement, it must submit a copy of its Federal Form 5500 for the past five years, or since the inception of the MEWA, whichever time period is shorter;

(7) a copy of the fidelity bond issued in the name of the multiple-employer welfare arrangement protecting against acts of fraud and dishonesty by its trustees, directors, officers, employees, administrator, or other individuals responsible for servicing the employer welfare benefit plan. Such bond should be in an amount equal to the greater of 10% of the premiums and contributions received by the multiple-employer welfare arrangement, or 10% of the benefits paid, during the preceding calendar year, with a minimum of $10,000 and a maximum of $500,000. No additional bond will be required of a third party administrator licensed to engage in business in this state;

(8) a business plan which includes the six major areas addressed in subparagraphs (A)-(F) of this paragraph:

(A) Current or proposed operations must be outlined with information by the applicant identifying the number of employers in the group currently participating or proposed to participate in the multiple-employer welfare arrangement. The outline should also include the number of participating units. To the extent such information is available, it also should include the number of dependents covered or to be covered by the multiple-employer welfare arrangement. A specific list of the benefits being provided or to be provided must also be included.

(B) Specific information about individuals providing or to provide management services is required. The applicant should indicate whether each trustee is an owner, partner, officer, or director, and/or employee of a participating employer or is committed to participate in the multiple-employer welfare arrangement. In addition, the applicant should provide the name and address of the employer represented by each trustee and by each officer and provide the association of the trustee or officer with such employer. The applicant must list the individuals responsible for managing or handling funds or assets of the multiple-employer welfare arrangement. A biographical affidavit must be completed and filed for each trustee, or officer or director or administrator of the multiple-employer welfare arrangement.

(C) With respect to administration of the present or proposed plan, the applicant must give the names and qualifications of individuals, or the third party administrator, responsible for or to be responsible for servicing the program of the multiple-employer welfare arrangement. If a third party administrator is to service the plan, a copy of the company's Texas license should be attached. In addition, a copy of the agreement between the multiple-employer welfare arrangement and the third party administrator should be submitted, signed by the administrator and trustees or directors of the multiple-employer welfare arrangement.

(D) The applicant must provide documentation that the multiple-employer welfare arrangement has provided or will provide a sufficient number of competent persons to service its program in the areas of claims adjusting and underwriting. The applicant should also describe the present or proposed plan to service billings, claims, and underwriting. The criteria for underwriting shall be actuarially justified.

(E) The applicant must provide a specific outline and description of the management's marketing efforts. The applicant should list the names of all persons directly employed or to be employed by the arrangement, who solicit participants or adjust claims, indicating the qualifications and credentials of such individuals, and whether such persons hold any license issued by the department. Any such licenses held should be specified by type.

(F) The applicant must provide documentation showing that a procedure has been established for handling claims for benefits in the event of dissolution of the multiple-employer welfare arrangement.

(9) an actuarial opinion prepared by an actuary who is not an employee of the multiple-employer welfare arrangement and who is a fellow of the Society of Actuaries, a member of the American Academy of Actuaries, or an enrolled actuary under the Employee Retirement Income Security Act of 1974 (29 United States Code §1241 and §1242). The actuarial opinion shall include the items described in subparagraphs (A)-(C) of this paragraph, as follows:

(A) a description of the actuarial soundness of the multiple-employer welfare arrangement, including any recommended actions that the multiple-employer welfare arrangement should take to improve its actuarial soundness;

(B) the recommended amount of cash reserves the multiple-employer welfare arrangement should maintain which shall not be less than the greater of 20% of the total contributions in the preceding plan year or 20% of the total estimated contributions for the current plan year; cash reserves shall be calculated with proper actuarial regard for known claims, paid and outstanding, a history of incurred but not reported claims, claims handling expenses, unearned premium, an estimate for bad debts, a trend factor, and a margin for error (cash reserves required by the Insurance Code, Article 3.95-8, shall be maintained in cash or federally guaranteed obligations of less than five-year maturity that have a fixed or recoverable principal amount, or such other investments as the commissioner may authorize by rule); and

(C) the recommended level of specific and aggregate stop-loss insurance the multiple-employer welfare arrangement should maintain;

(10) if the multiple-employer welfare arrangement is in existence at the time of its application, annual reports meeting the substantive requirements of 29 United States Code §1023 and §1024 shall be filed. To the extent that such annual reporting requirements are not otherwise met by existing multiple-employer welfare arrangements in complying with other provisions of this subchapter, a filing under this paragraph must be made, and must at a minimum include the items described in subparagraphs (A)-(C) of this paragraph, as follows:

(A) the administrator's report of essential information for most recent year ending, detailing the size and nature of the plan, and number of participating employees in the plan;

(B) the statement from any insurance company, insurance service, or other similar organization or organizations which sell or guarantee plan benefits, which statement shall detail:

(i) the premium rate or subscription charge and the total of such premiums or subscription charges in relation to the approximate number of persons covered by each class of benefits; and

(ii) the total amount of premiums received, approximate number of persons covered by each class of benefits, and total claims paid by such company, service, and other organization; and

(C) the published summary plan description and annual report to participants and beneficiaries of the plan;

(11) documentation indicating that the multiple-employer welfare arrangement has applications from not less than five employers and will provide similar benefits for not less than 200 separate participating employees, and that the annual gross premiums of or contributions to the plan will be not less than $20,000 for a vision-benefit-only plan, $75,000 for a dental-benefits-only plan, and $200,000 for all other plans;

(12) documentation that the multiple-employer welfare arrangement possesses a written commitment, binder, or policy for stop-loss insurance issued by an insurer authorized to do business in this state providing not less than 30 days notice to the commissioner of any cancellation or non-renewal of coverage and which provides both specific and aggregate coverage with an aggregate retention of no more than 125% of the amount of expected claims for the subsequent plan year and the specific retention amount determined by the actuarial report required by the Insurance Code, Article 3.95-8, and paragraph (9) of this subsection; and

(13) a certification, provided by the applicant and signed by the president and secretary or the trustee of the MEWA, or other such official, attesting that the multiple-employer welfare arrangement is in compliance with all applicable provisions of the Employee Retirement Income Security Act of 1974 (29 United States Code §1001 et seq.).

(c) On finding of good cause, the commissioner may order an actuarial review of a multiple-employer welfare arrangement in addition to the actuarial opinion required by the Insurance Code, Article 3.95-8(a)(2). The cost of any such additional actuarial review shall be paid by the multiple-employer welfare arrangement.

(d) Upon application of a multiple-employer welfare arrangement, the commissioner may waive or reduce the requirement for aggregate stop-loss coverage and the amount of reserves required by the Insurance Code, Article 3.95-8(a)(2)(B), if it is determined that the interests of the participating employers and employees are adequately protected.

Source Note: The provisions of this §7.1904 adopted to be effective May 27, 1994, 19 TexReg 3686.