Multiple Employer Welfare Arrangements

Multiple employer welfare arrangements (MEWAs) provide health benefits to employees of two or more firms at lower cost than that of conventional insurers. MEWAs are designed to give small firms access to health coverage on terms similar to those available to large firms by avoiding costly state regulation of insurance. This Note analyzes the dynamics of the small-group insurance market, describes the alternative forms of MEWAs, and summarizes state regulation of MEWAs. The analysis suggests that the factors that make MEWAs attractive to price-sensitive buyers also contribute to their high failure rate. By providing coverage without adequate underwriting, MEWAs attract risks that were either refused insurance or quoted very high prices by conventional insurers. The marketing success of MEWAs suggests that there is a market among small firms for legitimately lower-priced health coverage. The analysis of state regulation indicates that MEWAs can be financially stable when they are subject to reserving requirements and premium taxes similar to those imposed on insurance companies. Requiring MEWAs to operate under constraints similar to those faced by conventional insurance companies and eliminating state-mandated requirements for state-regulated insurers are ways to make lower-cost health coverage available to all workers.