What is the Multiple Employer Welfare Arrangement (MEWA)?
The Multiple Employer Welfare Arrangement (MEWA) is a procedure that involves multiple employers coming together with a particular association to offer health and welfare benefit plans for their employees. MEWA forms the basis of group healthcare coverage that is offered through association health plans. Essentially, MEWA is a single, cohesive health plan for multiple employers who negotiate health plans as a single entity.
In the U.S., MEWAs are regulated under the Employee Retirement Income Security Act (ERISA) of 1974. They fall under federal jurisdiction; however, some state regulations may apply to MEWAs as well.
Multiple Employer Welfare Arrangement (MEWA) Explained
The multiple employer welfare arrangement (MEWA) is a cohesive system for providing health and welfare benefits to employers and their respective employees. MEWA is also sometimes referred to as “multiple employer trust (MET).” Employers make contributions to the plan based on the number of employees that they employ.
Purpose of the Multiple Employer Welfare Arrangement
The multiple employer welfare arrangement aims to provide various healthcare benefits, such as medical, surgical, hospital, or other health benefits. The benefits include providing security for employees in the event of sickness, accidents, disability, death, or unemployment.
They sometimes provide other health benefits, such as dental benefits, vision benefits, and even additional benefits, such as vacation benefits, apprenticeship, or other vocational education, daycare services, scholarship funds, personal financial services, or legal services.
Benefits of the MEWA
Multiple employer welfare arrangement assists employers in providing healthcare coverage for all of their employees in a more cost-effective manner. MEWA is especially helpful for smaller employers who may not be able to gain access to a comprehensive healthcare benefit plan on their own. The benefits include:
1. Comprehensive coverage for employees
By negotiating through an association, or combination of employers within a single entity, in aggregate, even smaller employers can gain access to full, comprehensive coverage for their employees by leveraging the MEWA.
Employers of small companies can offer health plans beyond the government-run health insurance minimums. It assists employers in providing incentives for employees to continue to work for them and gives them more personal and financial security.
2. Increased bargaining power
MEWA helps multiple employers come together to negotiate terms with insurance providers. By pooling contributions together, they can make more favorable arrangements than they would have if they had separately negotiated a health benefit plan.
MEWAs are generally able to market insurance coverage at rates that are substantially lower than rates offered directly from regulated insurance providers.
3. Economies of scale
MEWA helps employers save costs due to economies of scale. The effect of economies of scale is that there are savings of costs gained from an increase in volume. It benefits employers by saving excess costs by negotiating individual health plans.
In addition, it benefits insurance providers, too, as they can develop a single health plan for multiple employers, instead of developing various separate plans, which would be more costly.
Issues with the MEWA
Although the multiple employer welfare arrangement is an arrangement meant to benefit all parties – insurance providers, employers, and employees – issues can arise.
In some cases, managers of MEWA funds have taken advantage of such arrangements for their benefit. In a few cases, MEWAs have been unable to finance the claims that arise due to insufficient funding. It can arise from poor management of MEWAs capital, excessive fees, fraud, and embezzlement. It can include management charging excess to participants and keeping the excess funds for themselves or stealing funds from the MEWA.
MEWA administrators and participants often implement stop-loss insurance to limit their liability. Stop-loss insurance is an insurance that is meant to protect against large claims that arise from special events. The insurance will cover crimes, errors, omissions, cyber liability, and other events.
The development of ERISA-covered plans was meant to protect participants of MEWAs by insuring that MEWAs are held to a regulated standard and enforcing insurance laws. It included the establishment of the Patient Protection and Affordable Care Act (ACA), which established a multi-faceted approach to mitigating MEWA abuses. It aims to improve reporting and implementing stronger enforcement tools designed for reducing MEWA abuse and fraud.
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