Multiple Employer Welfare Arrangement (MEWA):
- Group of unrelated employers form a coalition to gain greater economy of scale in offering health benefits to their respective employees – can be fully insured or self funded and tends to be state specific
- Troubled past – organizers frequently used ERISA preemption clause as a shield against State Regulators
- Because of excessive fraud and insolvency rates, in 1983 Congress reintroduced State Regulation over them to help enforce solvency standards (to the extent that state level enforcement is not inconsistent with ERISA)
- Continued fraudulent or underfunded MEWAs forced Congress to pass additional legislation in PPACA (2010) that gave DOL additional enforcement authority over MEWAs
- These days, MEWAs are essentially regulated much like any other insurance company in a state
Discussion: MEWAs were originally formed to assist small business owners obtain coverage that was unable to them due to poor underwriting risks. However they have historically been used as a marketing tool to achieve high marketing/administrative fees by the organizers, leaving little money to pay claims. Healthy groups will eventually find cheaper rates “outside” the MEWA, leaving only the sicker groups that will eventually break the bank.
There are many well run MEWAs in the market that are fully compliant with all regulations and act in the best interest of the covered members. But the administrative and compliance cost of these well run programs continue to rise as MEWAs oversight are an enforcement priority for the DOL and State Regulators.
Group Health Captive:
- Group Health Captives are a mainstream tool for efficiently financing risk, free from excessive regulatory oversight – they have been challenged repeatedly in the federal court systems (mostly by the IRS) and have stood the test of time
- Group Captives are Federally regulated and are generally offered Nationwide
- Offer cost savings through individualized risk retention points: allows that employer to benefit from favorable loss experience and wellness programs
- Individualized plans and rates for each employer group (MEWAs generally offer one set of rates / plan designs)
- Allows employers to re-capture surplus stop loss premiums (MEWAs tend to operate like a Insurance Carrier with healthier groups subsidizing sick ones)
Discussion: Group Health Captives are a stable, well recognized tool that can offer diverse benefits to its organizers in a cost effective manner. Their use is main stream and growing with many states now jumping on the bandwagon with Captive Insurance programs to benefit from the additional premium tax revenue. Properly designed, they can offer benefits down to 10 employee (varies by state) and are well collateralized to cover any adverse claims risk.
CHP Opinion: Experience has sharpened our senses and made us wise in picking and choosing our battles. We know we can’t be all things to all people, and just because we “can do something” doesn’t mean we should. CHP believes MEWAs served a purpose at one point in time but believes the market has moved on. Their checkered past continues to draw the intense scrutiny of Regulators and the compliance cost are too high to overcome. CHP advocates that Group Health Captives are more cost effective and can achieve better results for the organizers.