Pros and Cons of Multiple Employer Welfare Arrangements

From smSmallBiz

Question:

What would happen if a group, say five to six small businesses, got together and contracted with an independent clinic/physician to provide their non-hospital health care? Many large companies who are self-insured are going to a similar model. –Name Withheld

Answer:

According to the U.S. Department of Labor, what you’re describing is known as a “multiple employer welfare arrangement,” or MEWA. Since a MEWA is considered an employee benefit plan covered under the Employee Retirement Income Security Act, or ERISA, it’s exempt from state insurance regulations, thereby making it legal to form these groups as long as it benefits employees.

MEWA's are also potentially cheaper. By bypassing a state’s insurance reserve and contribution requirements, MEWAs are often able to offer insurance coverage at lower rates than those charged by regulated insurance companies.

There are, however, a number of drawbacks to these arrangements, says Marion Schremp, chief executive of Multiple Benefit Services, an employee benefits firm in Kennesaw, Ga. A number of MEWAs have failed to honor payment claims as a result of insufficient funding and inadequate reserves. And since the company signs up with one medical group or health clinic they are heavily reliant on that group’s livelihood. The lack of stability in such plans is a huge risk, she says, adding: “Usually, small businesses receive greater rate [of] stability in the larger pool of an insurance company.”