Banking and Insurance Commissioner issues MEWA caution
Self-funded plans that become insolvent leave patients with the bills

TRENTON - Banking and Insurance Commissioner Holly C. Bakke issued a warning today to New Jersey employers, consumers and insurance agents to be cautious about getting health care coverage through self-funded multiple employer welfare arrangements (MEWAs).

"Typically, self-funded MEWAs offer less expensive rates for health coverage, but these low-cost plans often fail when claims outpace premiums," Commissioner Bakke said. "Because self-funded MEWAs do not benefit from New Jersey's consumer protection laws, patients in a failed MEWA are left to face the harsh reality of having to pay the full cost of their medical bills themselves."

MEWAs can be insured or self-funded. A MEWA is an employee welfare benefit plan or other arrangement established for the purpose of offering any welfare plan benefits, including health coverage, to the employees of two or more employers. Self-funded MEWAs have historically eluded state regulation because technically they are not "insurance."

Individuals covered by self-funded MEWAs do not benefit from New Jersey's consumer protection laws that apply to insurers, health maintenance organizations (HMOs) and health service corporations, including prompt payment of claims, mandated benefits, external appeals and protection against unfair trade practices. Most important, individuals covered by self-funded MEWAs are not protected by the New Jersey Guaranty Fund that pay the claims of failed insurance companies.

Unlike self-funded MEWAs, the benefits provided by insured MEWAs are fully backed by insurance and the carriers that underwrite the plans must be licensed by the Department.

Two self-funded MEWAs that collapsed recently in New Jersey - the New Jersey Coalition of Automotive Retailers and the New Jersey Licensed Beverage Association - are expected to leave claims in excess of $20 million. These claims will either be paid by covered persons or participating employers themselves, or they will be absorbed by the doctors and hospitals.

The New Jersey Coalition of Automotive Retailers and the New Jersey Licensed Beverage Association MEWAs were formed before a new law was enacted in 2001, which gives the Department limited regulatory authority over MEWAs by mandating that all MEWAs register with the Department and provide financial data on an annual basis.

Protect yourself, your family and your employees from self-funded MEWAs by taking the following steps:
· Question any offer of health coverage that boasts unusually low premiums.
· Verify that a 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 company.
· Contact the 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, therefore, not subject to regulation.

"Be guided by the adage, 'If it looks too good to be true, it probably is,' " Commissioner Bakke said. "A self-funded MEWA is not an insurance company and it will not pay your claims if the MEWA becomes insolvent and is unable to make payments as promised."