A Multiple Employer Welfare Arrangement (MEWA) is a strategic approach that enables a group of employers to collaborate and provide health and welfare benefits to their employees. Also known as a “multiple employer trust (MET),” MEWAs occur when several employers pool their contributions into a self-contributing benefits plan for the advantage of their workforce.
For a MEWA to function effectively, employers must contribute to the plan based on the number of employees and the estimated costs per employee. These arrangements are particularly beneficial for smaller companies, allowing them to offer competitive benefits beyond government-run health insurance exchanges by sharing risks. MEWAs gained significant traction following the advent of the Patient Protection and Affordable Care Act (ACA).
Key Takeaways
- A Multiple Employer Welfare Arrangement (MEWA) helps groups of employers pool their resources to secure better health-insurance options for their employees.
- In a MEWA, multiple employers combine contributions within a self-contributing benefits plan, with payments aligned to the number and estimated costs of employees.
- MEWAs are especially advantageous for small businesses, facilitating the provision of benefits beyond government-run health insurance exchanges through risk-sharing.
How a Multiple Employer Welfare Arrangement (MEWA) Works
Under the Employee Retirement Income Security Act (ERISA), a Multiple Employer Welfare Arrangement is defined as any employee welfare benefit plan (or similar arrangement) that offers or provides medical, surgical, or hospital care benefits, or coverage for sickness, accident, disability, death, unemployment, vacation, or other ancillary benefits, to the employees of two or more employers or their beneficiaries.
MEWAs are invaluable for small employers seeking collective health and insurance benefits. By pooling their contributions, these smaller businesses are better positioned to negotiate with insurance companies and achieve more favorable benefit packages due to economies of scale.
Furthermore, participation in a MEWA empowers employers to influence plan adjustments and enhancements, granting them more control over the benefit offerings than if they were to act independently.
Special Considerations
Participating in a MEWA entails certain financial considerations and potential challenges. There are instances where MEWAs face financial distress due to inadequate funding or lack of reserves, sometimes exacerbated by poor management or fraudulent activities, resulting in financial losses.
To mitigate such risks, most MEWAs secure stop-loss insurance that covers errors and omissions, fidelity bonds, directors and officers, crime, cyber liability, and related exposures.
MEWAs must comply with ERISA mandates and may also be subject to state-specific insurance regulations, which vary significantly by jurisdiction. States with stringent regulatory oversight, such as New Jersey, impose rigorous filing, reporting, and funding standards.
As such, comprehensive compliance with applicable laws and strategic risk management are crucial for the sustainable operation of a MEWA.
Related Terms: Employee Retirement Income Security Act (ERISA), Affordable Care Act (ACA), Group Health Insurance Plan, Economies of Scale, Stop-Loss Insurance.
