Lack of regulation

Published April 06. 2003 9:05AM
CAIN BURDEAU
Associated Press Writer

SPRINGFIELD, La. - Charles Boyce says his faith in the American health care system was stolen when an allegedly bogus group insurance plan failed to pay $80,000 in medical claims from his lung surgery.

"If I had just gotten my hands on them," says the 58-year-old carpenter, the rage in his voice accented by the rain splattering on his upcountry Louisiana bungalow. "I know what I'd like to do and I dare anyone to think differently."

In a worrisome trend, tens of thousands of Americans like Boyce — small-business owners and the self-employed — are finding themselves victims of a recession-choked health care market bleeding with bankruptcies and rising premiums.

Entrepreneurs — some honest, some not — are flocking to this market with new ideas on how to provide affordable health care.

The problem is, experts say, the plans they cook up are often botched. And sometimes they are criminal schemes targeting hardworking people.

"We've seen a significant expansion of illegal health insurance plans in the past few years and we see them operating in all 50 states," said Fred Nepple, general counsel for the Wisconsin Department of Insurance.

"They target people where affordability is the issue and they significantly underprice the product to attract people so it's an easy sale," Nepple said. "The objective is to build premium volume quickly and obviously use that money for whatever purposes they wish and often without paying all the claims."

One out of every three businesses with fewer than 10 workers relies on group purchasing arrangements for coverage, according to Mila Kofman, a researcher at the Institute for Health Care and Research Policy at Georgetown University.

These arrangements, called "association health plans," cover people who can't get insurance through other means, such as an employer.

Instead, independent workers and small businesspeople — such as wedding videographers, orchestra members, car dealers, innkeepers and freelance writers — can get good deals by banding together in associations.

Federal laws exempt these plans from costly state licensing requirements, which lets them keep costs down.

On the flip side, critics say, exemption from state licensing dilutes consumer protection measures, such as solvency requirements and premium limitations.

Now, a push is under way in Congress, with the backing of President Bush, to make it even easier for association health plans to be exempted from state laws.

Doing that would open a Pandora's Box, said Kris Haltmeyer, a senior policy analyst with Blue Cross/Blue Shield Association.

"We think this legislation would be a disaster for the state-regulated insurance market and the majority of small employers. What it would do is allow associations to engage in egregious practices that have been banned for years," Haltmeyer said.

Officials point to the rise in bogus and failed health plans claiming state exemption as proof that more association plans will do more harm than good to a health system laboring with 41 million uninsured people.

Critics point to some spectacular examples.

Employers Mutual LLC, American Benefits Plans and TRG collected more than $50 million in premiums from more than 65,000 people, according to the Coalition Against Insurance Fraud.

The U.S. Department of Labor, which oversees association health plans, says its investigators are pursuing 90 civil and 17 criminal investigations. Since 1990, more than 1.8 million people have been affected by bogus plans, involving more than $121 million.

Meanwhile, states are pursuing their own cases.

Oklahoma reportedly has 60 investigations under way, Colorado has shut down at least 43 companies in the last 20 months, and many states have reported a jump in complaints of unpaid claims.

"This is one of the largest insurance swindles in the last decade," said Jim Quiggle, a senior official with the Coalition Against Insurance Fraud.

Are there really so many swindlers out there?

According to John C. Goodman, president of the National Center for Policy Analysis, big insurance companies are playing up the bogus plans to scare the public and stop legislation from opening up the market.

"They're exaggerating a point to win a political argument," he said. "Mainly this is not an argument about fly-by-night firms but an argument over competition from associations which will have substantial market power."

The businessmen who run the alleged bogus schemes claim they're falsely accused.

For example, TRG argues that financial troubles caused the plan to go belly up.

"It's like saying AOL is bogus because they had a big loss," said Jed Berman, a TRG lawyer. The plan was shut down in Florida in 2001.

With murky guidelines coming from state offices on what is and what is not a legal plan, doing business in the health market is risky, said Jerry D. Crook, a former independent health insurance agent in Orlando.

Crook said he got his license yanked because he sold TRG's health plan.

"TRG came to us and said it was legitimate; we met with several of their top officials, they said it was legitimate; and so we sold it," Crook said.

"It's hard for an agent to figure out which ones are legal when the state can't even figure out which ones are legal," he said. "Little guys like me get stuck in the middle. I'm a victim just like everyone else."

Authorities say nailing swindlers isn't easy because it's hard to show that a plan set out to rob people.

That's what worries Boyce, one of at least 1,700 people — including more than 360 in Louisiana — who signed up for an allegedly bogus health plan offered through a trade union.

"I'm paying now for what they did to me," he said. "I'm paying twice. Who's going to insure me? I'm 58, who had cancer surgery. Who's going to insure me now except the state?"

Boyce has insurance with the state, but it's costing him about $19,000 a year.

"It's taking everything I've got to pay insurance," he says. "It's taken the fun out of life.

"I went to an agent who sold me my health insurance! This wasn't born out of a popcorn box. If they want to know why people are sue crazy," he points at himself as the answer. "I'm suing everybody . . . I'm going all the way down the line — Amen!"