Few employers expect that offering benefits to a valued contractor, board member, or employee of a related company could subject their group health plan to federal scrutiny or state insurance regulation. Doing so, however, could cause a single-employer group health plan to become a multiple employer welfare arrangement (MEWA). Although MEWAs can provide legitimate advantages when intentionally established, employers that unknowingly create one may be unprepared for the additional reporting requirements, heightened regulatory oversight, and state insurance law obligations.
In general, federal law permits employers to sponsor group health benefit plans that cover their own employees, former employees, and dependents. When a plan extends coverage beyond that group, it may become a MEWA. Although many employers intentionally establish MEWAs to expand purchasing power or diversify risk, successfully operating a MEWA requires advance planning and compliance with both federal and state requirements.
Employers that inadvertently establish a MEWA often discover the issue only after a compliance review, corporate transaction, or regulatory inquiry. Recognizing the situations that commonly lead to MEWA status and understanding the consequences of creating a MEWA can help employers make informed decisions before expanding plan eligibility, reducing the risk of unexpected compliance obligations and costly corrective action.
The Inadvertent Paths to MEWA Status
While employers may intentionally establish MEWAs for a variety of reasons, many are created inadvertently. In some cases, a well-meaning employer establishes one by extending health benefits to individuals who seem closely connected to the organization but who are not its actual employees or who work for an organization outside of the employer’s controlled group.
Employers should be aware that MEWA status is not limited to medical coverage. Offering other welfare benefits, such as disability coverage, group term life insurance, AD&D coverage, certain EAPs, or similar ERISA welfare benefits to nonemployees or employees of an employer outside of its controlled group may raise many of the same MEWA concerns.
Independent Contractors and Other Nonemployees
Some organizations seek to reward individuals, such as independent contractors, gig workers, and nonemployee directors or board members, for their contributions to the business by offering them medical benefits. Such acts of gratitude, though well-intentioned, create MEWAs. This is because under ERISA, participants in an employee welfare benefit plan generally must be current or former employees of the employer. For this purpose, “employees” refers to an employer’s common-law employees. Accordingly, offering welfare benefits to self-employed individuals (like independent contractors), other nonemployee workers, or board members can convert a single-employer plan into a MEWA.
Aside from the possibility of creating a MEWA, offering benefits to independent contractors can contribute to the appearance that such workers are misclassified employees. The DOL has made worker classification a focal point in recent investigations, and employee misclassification may also attract IRS scrutiny. Employers that improperly classify workers may face legal liability, employment tax exposure, and benefit plan compliance issues.
For information on additional compliance issues with offering health coverage to independent contractors, see the Compliance Corner article FAQ: Health Coverage for Independent Contractors?
Employees Outside of a Controlled Group
Similarly, employers can inadvertently establish a MEWA by offering benefits to employees of a related organization without first confirming that the organizations belong to the same controlled group (under Section 414 of the Internal Revenue Code). Because ERISA generally treats controlled group members as a single employer, employees of those organizations may participate in the same welfare benefit plan without creating a MEWA. However, organizations must have a high degree of common ownership (generally 80%) or common control in order to form a controlled group. If controlled group status does not exist, extending coverage to employees of another organization may result in a MEWA. Employers should verify controlled group status before expanding plan eligibility.
Controlled group status can change over time as a result of acquisitions, ownership changes, reorganizations, or other business transactions. Employers that offer benefits across related organizations should reevaluate controlled group status after such changes. Continuing to offer coverage after controlled group status is lost can result in an unintended MEWA.
Determining an employer’s controlled group status requires a fact-specific legal or tax analysis. For more information on the benefits compliance obligations for employers belonging to a controlled group, including information on the different types of controlled groups, please ask your broker or consultant for a copy of the NFP publication Controlled Groups and Benefits Compliance Considerations: A Guide for Employers.
Additional Federal Reporting and Disclosure Requirements Apply to MEWAs
ERISA governs MEWAs established by most employers — generally all employers except public entities and religious institutions. As a result, MEWAs generally must comply with the same requirements applicable to other employee welfare benefit plans, such as SPD and Form 5500 requirements and, for health plans, COBRA, HIPAA, MHPAEA, and the ACA. Additionally, MEWAs are subject to special federal reporting requirements intended to provide the DOL with greater insight into their operations.
Due to a history of fraud and abuse involving MEWA operators, the DOL has traditionally devoted significant enforcement attention to these arrangements. Employers that inadvertently establish a MEWA may therefore face scrutiny from regulators in addition to the underlying compliance obligations.
MEWAs that provide medical benefits generally must file a Form M-1 annually with the DOL. Among other things, this filing discloses information on the MEWA’s fiduciaries, service providers, financial solvency, and compliance with group health plan mandates. Failure to file can result in substantial penalties, which may accrue daily until the filing is made. In 2026, the DOL expanded its Delinquent Filer Voluntary Compliance Program (DFVC) to encourage plan administrators to file late or missing Form M-1 submissions in exchange for a reduced penalty.
The DFVC may provide relief for missed Form M-1 filings, but it does not eliminate other compliance obligations or provide relief from violations of state law. In addition, the DFVC generally is not available to plan administrators who have been notified by the DOL of their failure to file. Employers that discover they have inadvertently established a MEWA should consult legal counsel regarding any necessary corrective actions.
Self-Insured MEWAs Are Not Exempt from State Insurance Regulations
Self-insured group health plans offered by single employers typically enjoy a broad exemption from state insurance regulation, affording sponsors significant discretion to tailor benefits to their workforce and budget. This exemption is known as “ERISA preemption.” However, ERISA preemption does not extend to self-insured MEWAs. As a result, MEWAs, whether self-insured or fully insured, are generally subject to the insurance laws of the states in which they operate. Employers sponsoring self-insured plans that are later determined to be MEWAs may be subject to enforcement actions by state insurance commissioners if the arrangement does not comply with applicable state insurance laws.
States have broad authority to regulate MEWAs. As a result, a self-insured group health plan that becomes a MEWA may become subject to state insurance requirements that would not otherwise apply, including licensing requirements, financial solvency standards, reporting obligations, disclosure requirements, and other conditions for operating.
For more information on ERISA preemption and other benefits compliance considerations for self-insured, single-employer group health plans, please ask your broker or consultant for a copy of the NFP publication Self-Insured Group Health Plan Compliance Considerations: A Guide for Employers.
MEWAs May Be Subject to a Patchwork of State Insurance Laws
States take different approaches to regulating MEWAs that provide medical care, with some taking a hard-line approach to oversight and others being relatively permissive. Most states permit fully insured MEWAs to operate but subject them to certain limits; conversely, states tend to take a more skeptical view of self-insured MEWAs. A MEWA may also be subject to the laws of multiple states, depending on where it operates and where covered employees are located.
A MEWA with participants in multiple states may be subject to a host of plan design, reporting, financial, and disclosure requirements. For example, Connecticut deems self-insured MEWAs to be conducting illegal insurance operations if they operate without state authorization or an insurance license. Florida limits the types of employers that may form MEWAs and requires them to obtain certificates of authority from the state insurance department, file quarterly and annual reports, and satisfy ongoing financial solvency requirements. Nebraska similarly limits the types of employers that can form MEWAs and imposes licensing and financial requirements but specifically exempts MEWAs from most other insurance laws. Oregon requires MEWAs to obtain preapproval to operate and requires self-insured MEWAs to maintain cash reserves, make certain participant disclosures, and file annual statements. Complying with these requirements often requires advance planning, assuming the MEWA is permitted to operate at all. Without such planning, corrective action may be difficult and costly.
Due to the patchwork of state insurance laws with which a MEWA may have to comply, employers that unknowingly establish MEWAs face a heightened risk of state enforcement and liability. Such employers generally require legal counsel to navigate multistate operations and implement any necessary corrective actions.
Key Takeaways
Well-intentioned employers may inadvertently establish MEWAs by offering benefits to nonemployees or to employees of related organizations that do not belong to the same controlled group. Once a plan becomes a MEWA, employers may face a complex web of federal reporting obligations, heightened regulatory scrutiny, and state insurance law requirements that might not otherwise apply. By reviewing plan eligibility and confirming controlled group status before expanding coverage, employers can reduce the risk of inadvertently creating a MEWA. Employers that discover they may have established a MEWA should consult legal counsel to evaluate the arrangement, identify any applicable compliance obligations, and determine whether corrective action is needed.