We applauded the IRS decision to credit customer employers, for employer mandate purposes, with leasing company offers of affordable, qualifying coverage to leased employees, as long as the customer employer is surcharged for each employee who takes the coverage offered.  But since then, we have seen no evidence that parties to employee leasing arrangements are accepting that invitation.  Some potential explanations are obvious; perhaps the most obvious is that people making the agreements have not read the employer mandate final rules.  But here’s an even more obscure rule that may explain what we’re not seeing.

Ever heard of a MEWA?  Sounds like it could be a Godzilla movie character, but MEWA stands for “multiple employer welfare arrangement.”  It’s the most uber-regulated, non-retirement ERISA benefit plan, subjected both to federal rules (some added by the ACA) and to state insurance department oversight. If you form an association with other employers to co-sponsor a group health plan, you’re likely making a MEWA.  But what if you supervise employees leased from a company that offers them its own group health plan?

DOL Opinion Letter 2007-05A saw that as a MEWA, even though a state law made the leasing company the relevant employer for employee benefit plan purposes.  Conceding that the state could define a MEWA its own way for purposes of its own rules, DOL gave the state law no weight for ERISA enforcement purposes.

So, if you’re a large employer that needs to rely on leased employees after 2014, what other changes to your lease agreement might avoid employer mandate taxes?  The market may require leasing companies to indemnify customers for leasing company ACA violations, but read the agreement.  Exactly how does it define each party’s obligation to offer health care coverage to leased employees?  If it obligates the leasing company specifically and solely, you might have the MEWA problem described above. If it does not, the indemnity may be illusory, because, if the leasing customer is the common law employer, the IRS probably will see it as having the employer mandate tax exposure.  A compliance indemnity offered by the opposite party is no good if you are the one with the compliance obligation.

Due to this dilemma, some leasing companies – known as Professional Employer Organizations (“PEOs”) – are offering to employ everyone presently on the customer’s payroll.  If the agreement is well-drafted, and if leased employees are supervised solely by their fellow leased employees, the MEWA problem might be dodged, and if all full-time employees are offered affordable, qualifying coverage, that might negate any employer mandate tax exposure.  There’s also time for employer and leasing industry lobbyists to try to persuade DOL to remove the MEWA cloud hanging over partial workforce leasing arrangements.

Here’s the key:  don’t wait much longer to analyze your options and make your decisions.