The old adage, "If it sounds too good to be true, it probably is," applies now more than ever when it comes to health insurance. That's because more people -- some unscrupulous, others just incompetent -- are selling something they call health insurance that really isn't.
The unscrupulous ones simply want to take your money. The incompetent may be well-intentioned, but lack the business sense and financial resources to cover the claims when they start rolling in.
While firm numbers are hard to come by, industry watchdogs have seen a startling increase in the number of illegal health care plans, says Janie Miller, chair of the health insurance and managed care committee of the National Association of Insurance Commissioners. In a just-released study, Georgetown University's Health Policy Institute found that health insurance scams have been rising over the past two years as insurance premiums have increased at double-digit rates.
Among the findings: Since 2001, four unauthorized plans have left nearly 100,000 people with approximately $85 million in unpaid medical debts and without health coverage. The study was commissioned by the Commonwealth Fund, a private foundation supporting independent research on health and social issues.
Typically, scam health plans proliferate when insurance premiums are rising, prompting people to look for less expensive alternatives. "These people can sell their plans, because the market is seeking cheaper forms of coverage," says Miller.
Those sellers often target individuals and small business owners who don't appreciate the possibility of fraud and don't have the resources to thoroughly investigate potential insurers. Others may be deceived by crooks who say they're affiliated with a trade group and claim to offer coverage for individuals working in a particular industry.
The plans can sound quite legitimate. Their names often include such words as "assurance" or "mutual." The company or trade association names sound similar to the names of well-known, legitimate businesses or professional organizations. They're usually promoted through flyers, radio and Internet ads; some make themselves look more credible by recruiting licensed insurance agents.
What's more, those operating the plans may actually pay the first few claims and then stop, leaving policyholders wondering what is going on. "They're like Ponzi schemes," says Jerry Goldsholle, chief executive officer with freeadvice.com, a consumer legal information site based in Mill Valley, Calif. "The operators get a lot of people to purchase the so-called insurance and pay premiums. Then, they'll shut down and leave town without paying claims."
Checking up on a
One ploy that some unscrupulous peddlers of scam health plans use is to claim that their plans are either "ERISA" or "union" plans and thus are exempt from regulation by the states. They're usually twisting the truth.
To be sure, "ERISA" -- which refers to the
federal Employee Retirement Income Security Act -- plans are
regulated by the U.S. Department of Labor rather than state
insurance departments. However, ERISA plans are sponsored by
employers for their employees. They are not sold by insurance
agents and Miller says, "I'm not aware of any way that an
ERISA plan could be sold to an individual."
Similarly, some plans legitimately can be called "union" health insurance plans. They also are regulated by the Department of Labor and each year must file what's known as a Form 5500 with the government. But there has to be a true union behind it. They are sold to union members through the union, not insurance agents. To check whether a union plan is on the up-and-up, ask how long the association has been around and what its mission is, says Evans. "It should be a legitimate trade association," he adds.
After the fact
If you do have to file claims and the insurance company doesn't pay, you'll be responsible for the charges. No governmental safety net exists, as it does for those covered under licensed plans. If a legitimate plan goes bankrupt, all states have "guaranty funds" that will pay individuals' claims, up to varying limits. These funds aren't available if you've purchased insurance from an unlicensed provider.
When an insurance commissioner learns of an
illegal plan operating within the state, he or she typically
will try to obtain a restraining order and shut it down as
quickly as possible. The goal is stop the plan from operating,
so that others aren't deceived into purchasing phony
Unfortunately, bringing the peddlers of illegal health care plans to justice -- and forcing them to pay up, face jail time or both -- is difficult. Many plan operators move from state to state and use a variety of names. They may file bankruptcy to avoid paying claims or fines. Insurance regulators often operate with small staffs, making it difficult for them to allocate resources to take illegitimate operators to court.
Your health care coverage is too important not to spend a few minutes checking it out. Doing so can help ensure that if you need medical attention, you can concentrate on getting well, rather than worrying about whether your bills will be paid.
For more information, read the Consumer Alert on the Web site of the National Association of Insurance Commissioners.
Karen Kroll, is a freelance writer based in Minnesota.
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