One variation of self-funding is a Multiple Employer Welfare Arrangement (Self Funded MEWAs). In this arrangement, many small employers pool their health insurance needs into a single plan (often PEOs). This offers them greater leverage, lower administrative and insurance cost, plus the ability to have plans outside of the government run health exchanges (this being important because many physicians no longer accept “Obamacare” Insurance because of the low reimbursements). In the right circumstances, this model is a great long-term solution for providing quality benefits, but the approach is not without its challenges.
What are the challenges with this model? It has to be the right fit. The startup costs are prohibitive for most and it is a more sophisticated form of self funding….you need the right business partners.
Unlike traditional self-funded plans that are federally regulated by ERISA and generally preempt State Insurance Laws, Self Funded MEWAs enjoy no such luxury. The reason being many of this plans collapsed in days past and the last few covered members in these plans we left “holding” the bag with their medical claims, typically high cost claimants. Additionally Self Funded MEWAs got a bad reputation because organizers frequently used them to skirt State Regulations (claiming Federal Pre-exemption) and in the wilderness between State and Federal Regulations, a lot of fraud went undetected until great harm was done. As such, the Feds passed regulations that essentially banned Self Funded MEWAs (some plans were grandfathered). Specifically the regulations banned any self funded program that lessened the protection of the covered member afforded by ERISA.
Page Forward – PPACA (Obamacare)
One of the positive outcomes with Obamacare is it pushed program managers and state officials back to the drawing board to re-evaluate the available health insurance program options. Lower cost and great efficiency was the mantra. At this point in time, state regulated Self Funded MEWAs were possible but many states did not have laws on the books that supported these programs. Additionally many stop loss carriers did not want to cover the risk because the available regulations were lacking important details (shock face) and with carriers tending to be conservative by nature, they avoided MEWAs altogether. But with the winds of change in the air, this market began to evolve.
Several states passed regulations that outlined a process for Self Funded MEWAs to obtain a Certificate of Authority (COA) from their respective DOI, much as any other startup insurance carrier would obtain. It generally requires an actuarial study of the proposed program, a business plan and the posting of reserves. With this level of detail and oversight by the State DOI, stop loss carriers have begun embracing this alternative approach to self-funding and have began offering coverage, contingent upon the program maintaining their COA with the State. Although Federal Law simple “implies” this approach meets the protections afforded the members by ERISA, we really need more case law that clarifies the issue. However until then, the model is working great and both States and several stop loss carriers are growing this market fairly rapidly.
Once these smaller employers get a taste of how a MEWA works, they: