Bakke Issues MEWA Caution

Commissioner Holly C. Bakke warns New Jersey employers, consumers and insurance agents to be cautious about self-funded multiple employer welfare arrangements (MEWAs). Although self-funded MEWAs may offer inexpensive rates for health coverage, recent experience has shown that self-funded MEWAs fail when claims begin to accumulate. The Commissioner alerts the public to the recent collapse of two MEWAs in New Jersey, the New Jersey Coalition of Automobile Retailers and the New Jersey Licensed Beverage Association, that are expected to leave unpaid claims in excess of $20 million. These claims will either be paid by covered persons and participating employers themselves, or absorbed by healthcare providers (hospitals and physicians).

A MEWA is an employee welfare benefit plan or other arrangement which is established or maintained for the purpose of offering or providing any welfare plan benefits, including health coverage, to the employees of two or more employers. MEWAs can be insured or self-funded. The benefits provided by insured MEWAs are fully backed by insurance and the carriers that underwrite the plans must be licensed by the New Jersey Department of Banking and Insurance. Self-funded plans are not fully backed by insurance and are not licensed by this Department. Although a self-funded MEWA may have "stop loss" coverage which pays a portion of very large claims, such insurance is not sufficient to guarantee the payment of most or all of a MEWAs claims.

Individuals covered by self-funded MEWAs do not benefit from any of the State consumer protection laws that apply to persons covered by plans issued by insurers, health maintenance organizations and Blues plans, including prompt payment of claims, mandated benefits, external appeals and protection against unfair trade practices. And most important, persons covered by self-funded MEWAs are not protected by State guaranty funds that pay claims of failed insurance companies, but not of failed MEWAs.

Protect yourself, your family and your employees from self-funded MEWAs by taking these steps:

• Question any offer of health coverage that boasts unusually low premiums.
• Verify that the plan is issued by a licensed insurer. Ask for the insurer’s name and check the benefits booklet to see if it names a licensed company. Contact the named company to be sure it is issuing the plan.
• Contact the New Jersey Department of Banking and Insurance to verify that the insurance company backing the MEWA is licensed in New Jersey.
• Be extremely doubtful when salespeople or sales material claims that the plan is not insurance and not subject to state regulation.