MEWA vs. Level-Funded Health Plans: Which Group Strategy Actually Saves Small Employers Money?

If you run a small business with 15, 30, or even 60 employees, you've probably felt the squeeze: health insurance premiums go up every single year, and your options seem to get worse. Your broker shows you two or three fully insured plans, you pick the least painful one, and you brace yourself for next year's renewal.

But here's what most small business owners don't realize: you don't have to play that game. Two alternative funding strategies — MEWAs and level-funded health plans — can give you access to better rates, more transparency, and in some cases, money back at the end of the year.

The catch? They work very differently, and picking the wrong one can cost you. Let's break down exactly how each works, what they actually cost, and which one makes sense for your business.

What Is a MEWA — and Why Haven't You Heard of It?

A MEWA (Multiple Employer Welfare Arrangement) is exactly what it sounds like: multiple employers band together into a single welfare arrangement to purchase health benefits as a group. Think of it like a co-op for health insurance.

Instead of your 25-person company negotiating alone against Blue Cross or UnitedHealthcare, you join a pool of dozens — sometimes hundreds — of other small businesses. Together, you have the bargaining power of a 2,000- or 5,000-person company.

MEWAs aren't new. They've been around since ERISA was enacted in 1974. But they've historically been overshadowed by PEOs and fully insured plans. According to the Department of Labor, there were approximately 80 MEWAs filing Form M-1 reports as of 2024, covering hundreds of thousands of employees across the country.¹

Why haven't more small businesses heard of them? Because most brokers don't offer them. Brokers earn commissions on fully insured plans — typically 4–6% of premium. MEWAs often pay brokers differently (or less), so they simply don't get brought up in renewal conversations.

How Level-Funded Health Plans Work

A level-funded health plan is a hybrid between fully insured and self-funded. You pay a fixed monthly amount — just like a fully insured plan — but that payment gets split into three buckets:

1. Expected claims — what your employees are projected to use in medical care
2. Administrative fees — the TPA (third-party administrator) charges for processing claims
3. Stop-loss insurance — a safety net that kicks in if any individual employee or your group overall has catastrophic claims

Here's the good news: if your employees use less healthcare than projected, you may get a refund at the end of the year. According to the Kaiser Family Foundation's 2024 Employer Health Benefits Survey, 24% of small firms (3–199 workers) with health benefits were enrolled in a plan that was self-funded or level-funded — up from 17% five years prior.²

The not-so-good news: you're still one bad claims year away from a painful renewal, because your rates are based on your company's claims alone. There's no pooling with other employers to spread the risk.

MEWA vs. Level-Funded: The Head-to-Head Comparison

Let's say you run a 40-person electrical contracting company. Your current fully insured plan costs $680 per employee per month (PEPM), and you just got hit with an 11% renewal increase. Here's how a MEWA and a level-funded plan might compare:

BIH model estimate based on mid-Atlantic rates for a 40-person contractor group with average demographics. Actual costs vary by state, age, and claims history.

The "Pool Power" Advantage: Why MEWAs Beat Solo Purchasing

Here's something most articles about health insurance funding won't tell you: the biggest driver of your premium isn't your plan design. It's your pool size.

Insurance is a math game. The more people in your pool, the more predictable the claims, and the lower the risk charge the carrier or reinsurer tacks onto your rate. When you're a 30-person company buying fully insured, the carrier prices in a hefty risk margin because one bad claim can blow up the entire pool.

We call this The Pool Power Multiplier. When we ran the numbers across dozens of client scenarios, we found that employers who moved from solo fully insured plans into pooled arrangements (MEWAs, Taft-Hartley trusts, or group captives) saw risk charges drop by 3–7 percentage points — before accounting for any administrative savings.³

According to NAPEO, PEOs — which use a similar pooling mechanism — deliver health insurance costs that are 7–11% lower than comparable small-group plans.⁴ MEWAs and Taft-Hartley multiemployer plans achieve similar pooling economics through different legal structures.

When Level-Funded Makes More Sense

Level-funded isn't always the wrong answer. In fact, for certain businesses, it's the better fit. Here's when:

You have a young, healthy workforce. If your average employee age is under 35 and you haven't had a major claim in two years, level-funded lets you capture that upside. A good claims year means money back in your pocket — and that refund goes to you, not a MEWA pool.

You want full plan design control. MEWAs typically offer a menu of pre-designed plans. With level-funded, you can customize deductibles, copays, network options, and even add integrated HRAs. If integrated HRA design is important to your benefits strategy, level-funded gives you more latitude.

You want to see your claims data. Level-funded plans give you monthly claims reports showing exactly where your healthcare dollars go. MEWAs give you aggregate pool data — useful for big-picture trends, but not granular enough for targeted cost containment.

You're planning to grow past 100 employees. Level-funded is a stepping stone to full self-funding. The infrastructure — stop-loss management, claims analytics, TPA relationships — transfers directly. MEWAs don't build that infrastructure for you.

When a MEWA Is the Smarter Play

On the flip side, MEWAs shine in these situations:

You're a very small group (under 25 employees). Level-funded plans become less cost-effective below 25 employees because the stop-loss premium eats into your savings. MEWAs let you access pool rates regardless of your headcount.

You have volatile claims history. If you've had a $300,000 cancer claim in the last two years, level-funded carriers will either decline you or quote you sky-high stop-loss premiums. A MEWA spreads that risk across the pool. Your one bad year doesn't define your rate.

You're in a high-risk industry. Construction, roofing, trucking, manufacturing — these industries get hammered on fully insured and level-funded rates because carriers see "construction" and add a risk surcharge. MEWAs that specialize in your industry understand the actual risk profile and price accordingly.

You value stability over upside. Level-funded can save you 15% in a good year — or nothing in a bad year. MEWAs offer more predictable, moderate savings year after year. The Bureau of Labor Statistics reports that employer health insurance costs rose an average of 5.2% per year from 2019 to 2024.⁵ MEWAs have historically kept renewals in the 3–6% range for stable pools.

The Hidden Math: A 3-Year Cost Projection

Let's model what happens over three years for our 40-person electrical contractor. We'll assume:

• Current fully insured rate: $755 PEPM (post-11% renewal)
• Annual trend: 8% (the Mercer National Survey of Employer-Sponsored Health Plans reported a 5.8% average increase in 2024, but small groups typically face 7–10%).⁶
• MEWA rate: $590 PEPM (midpoint of range)
• Level-funded rate: $615 PEPM (midpoint of range)
• MEWA annual trend: 5% (pool stability advantage)
• Level-funded annual trend: 7% (individual experience-rated)

BIH model estimate. Assumes stable headcount and no catastrophic claims. Actual results depend on claims experience, pool performance (MEWA), and stop-loss renewal (level-funded).

That's a $56,000 difference between the two alternatives over three years — and a $228,000–$284,000 difference compared to staying fully insured. Want to model this with your own numbers? The Premium Renewal Stress Test at Business Insurance Health lets you project costs across multiple funding strategies — free, no login required.

What About Taft-Hartley and PEO Options?

MEWAs and level-funded plans aren't the only alternatives. Two other funding arrangements deserve a mention:

Taft-Hartley multiemployer trust plans work similarly to MEWAs but are governed by a joint board of labor and management trustees. They're common in unionized trades but increasingly available to non-union employers through certain trust arrangements. If you're in construction, manufacturing, or transportation, multiemployer plans may offer even larger pooling advantages than a standard MEWA.

PEO-integrated health plans bundle health insurance with HR, payroll, and compliance services through a co-employment model. The PEO's pooled purchasing power delivers similar rate advantages to a MEWA, with the added benefit of outsourced administration. For businesses that want both cost savings and HR support, PEO health insurance may be the most comprehensive option.

5 Questions to Ask Before Choosing

Before you commit to either path, ask these questions:

1. What's my claims history? Pull your loss runs for the last three years. If you've had a claim over $150,000, level-funded carriers may price you out — making a MEWA the better option.
2. How many employees do I have? Under 25? MEWA. Over 50 with stable claims? Level-funded or self-funded may offer more upside.
3. Do I want plan design flexibility? If you need custom copays, deductibles, or network configurations, level-funded gives you more control.
4. Can I absorb a bad claims year? Level-funded means your rates respond to YOUR claims. If one employee has a $400,000 surgery, your renewal could spike 25–40%. MEWAs spread that risk.
5. What's my 3-year plan? Growing fast? Level-funded builds infrastructure for eventual self-funding. Stable headcount? MEWA delivers consistent pooled savings.

If you're a small business owner still paying fully insured rates and watching them climb 8–12% every year, you have options. MEWAs give you the pooling power of a large employer without giving up control of your business. Level-funded plans give you transparency and upside when your team stays healthy.

The right answer depends on your size, your claims history, and your appetite for risk. But the wrong answer — almost always — is doing nothing and renewing your fully insured plan at whatever the carrier decides to charge you.

If you want to see how MEWAs, level-funded, PEO, Taft-Hartley, and other funding strategies compare for your specific situation, start with a free comparison at PEO4YOU or call Sam Newland directly at 857-255-9394. No pressure, no obligation — just math.

Frequently Asked Questions

What is the minimum group size for a MEWA?

Most MEWAs accept employers with as few as 2–5 employees, though the sweet spot is typically 10–75 employees. The pooling benefit increases as more employers join — a MEWA with 500+ total covered lives can negotiate rates comparable to a single 500-person company. Some state-specific MEWAs have minimum participation requirements, so check with your state's Department of Insurance for local rules.

Can I switch from level-funded to a MEWA mid-year?

Generally, no. Both level-funded and MEWA plans operate on annual contract periods. You can transition at your plan renewal date. Start evaluating alternatives 90–120 days before renewal to allow time for underwriting, employee communication, and enrollment. Some MEWAs have open enrollment windows that may not align with your current plan year — plan ahead.

What happens if the MEWA pool has a bad claims year?

Well-managed MEWAs maintain reserves — typically 15–25% of annual claims — specifically for adverse experience years. Many also purchase aggregate stop-loss reinsurance for the entire pool. In a truly catastrophic year, members may see higher renewals, but the impact is shared across all employers in the pool rather than concentrated on one company. This is fundamentally different from level-funded, where a single large claim can wipe out your surplus and trigger a significant renewal increase.

Are MEWAs regulated differently than level-funded plans?

Yes. Fully insured MEWAs are regulated at the state level under state insurance departments. Self-funded MEWAs that don't operate through a licensed insurer may fall under both ERISA and state regulation — this is where the "rogue MEWA" problems of the 1990s originated. Today, reputable MEWAs are typically fully insured or operate under strict state oversight with financial auditing requirements. Level-funded plans are regulated as group health plans under ERISA, with the carrier holding the stop-loss component under state insurance regulation. Always verify your MEWA's licensing status with your state's DOI.

How does a MEWA compare to a PEO for health coverage savings?

Both use pooling to drive down costs, but they're structured differently. A PEO is a co-employment arrangement that bundles health coverage with HR, payroll, and compliance services. A MEWA is purely a benefits purchasing pool — you keep your own HR and payroll. If you only need health coverage savings, a MEWA may be simpler and less disruptive. If you also want outsourced HR, compliance support, and workers' compensation pooling, a PEO delivers more comprehensive value. Some employers use both — a PEO for administration and a MEWA-style arrangement within the PEO's master health plan.

References

1. U.S. Department of Labor, Employee Benefits Security Administration. "Multiple Employer Welfare Arrangements (MEWAs)." Form M-1 Filing Data, 2024. dol.gov/agencies/ebsa.
2. Kaiser Family Foundation. "2024 Employer Health Benefits Survey." October 2024. kff.org.
3. BIH model estimate based on analysis of pooled vs. solo purchasing arrangements across 50+ client scenarios, 2023–2025.
4. NAPEO (National Association of Professional Employer Organizations). "Financial Wellness in a PEO." 2024. napeo.org.
5. Bureau of Labor Statistics. "Employer Costs for Employee Compensation." ECEC Historical Data, 2019–2024. bls.gov.
6. Mercer. "National Survey of Employer-Sponsored Health Plans." 2024. mercer.com.