Study - Insurance fraud thriving

Larger businesses are now being targeted by bogus health insurers.
Susan Lundine
Associate Managing Editor
Orlando Business Journal

ORLANDO -- Florida is among those states leading the nation in health insurance scams, according to a newly released report compiled by a Washington, D.C., think tank.

As a result, in the past two years, almost 30,000 Floridians have been stuck with $6 million in unpaid medical bills.

And it's going to get worse, predicts Mila Kofman, assistant research professor at Georgetown University's Health Policy Institute. Kofman was the principal investigator of "Health Insurance Scams: How Government is Responding and What Further Steps are Needed." The report was commissioned by The Commonwealth Fund, a foundation supporting research on health and social issues.

"It could get really bad," Kofman says. "This time around, phony plans have a greater reach -- they are national plans. Now, by the time we find one, it's too late. They've already defrauded consumers in every state."

Few states, though, are as vulnerable as Florida.

Since February 2001, Florida has ordered more than 16 companies and 80 insurance agents to stop selling unlicensed insurance.

The state's large population and high concentration of small businesses make it a favorite target for unauthorized companies which sell phony insurance, collect premiums from people and then skip town without paying medical bills.

"You can get lots of people to sign up in more urban and suburban environments," says Kofman.

The appeal of dubious policies also has increased right along with the rising cost of health insurance premiums, which has made insurance increasingly difficult to get.

In addition, "we don't have an insurer of last resort for folks who can't get health insurance anywhere else," says Tami Torres, spokeswoman for Tom Gallagher, the state's chief financial officer. "We did, but it closed a few years back."

A growing problem

The last wave of health insurance scams occurred between 1988 and 1991. In that three-year period, 400,000 Americans got stuck with $123 million in unpaid medical bills.

In the past two years, at least another 100,000 have been defrauded. Deerfield Beach resident Richard Baer, who bought health insurance from TRG Marketing Group LLC, is among them.

When Baer had heart surgery in 2001, he found out TRG Marketing was an unlicensed company. And he was left holding the bag for $50,000 in unpaid medical bills.

"Being victimized by a phony health insurance scam is worse than being uninsured," says Kofman. "At least when you are uninsured, you have no expectation of someone else paying your medical bills.

"Here, not only are you stuck with huge medical bills, you've also been defrauded thousands of dollars in premiums."

Most victims have been small businesses and self-employed people -- but even larger, more sophisticated customers aren't safe. Take the city of Leesburg.

When a salesperson for the Well America Group Inc. health insurance plan came calling in late 2000, it looked like an opportunity to save money.

"They provided some health services such as health screenings that would help keep costs down," says Leesburg lawyer Stephen Johnson, who represented the city of Leesburg then. "They offered a premium that was a considerable savings over any other plan we could get."

The red flags went up only after a third party, which administered claims on behalf of city workers, told Well America that it wasn't giving money fast enough to reimburse claims. So the administrator was going to keep the premiums to pay the medical bills.

"Quickly after that we found out there was a real problem," says Johnson. "It was a situation that went from bad to worse."

The city didn't find out until March 2001 that the state insurance department had issued a cease and desist order against Well America in December 2000 after determining that the company wasn't licensed to do business in Florida.

In the aftermath, Leesburg decided to take responsibility for paying the medical bills.

"The city didn't want to leave the employees out on a limb," says Johnson.

All told, the city was out $701,000.

Leesburg had company. Before Well America folded, it left behind some $3.7 million in unpaid medical claims for employees of such companies as restaurant chain Pollo Tropical, Central Florida Electric Cooperative, schools and car dealerships.

Targeting those larger companies are part of a trend. "They're definitely branching out from small business operators to bigger fish," says Torres.

Facade of legitimacy

What allows these plans to spread and thrive, says the report, is the fact that they have a facade of legitimacy. Some name themselves after existing companies or recruit licensed insurance agents to sell their bogus health plans. In Leesburg's case, Well America told the city that it had a letter of credit for a significant amount of money that could be used to pay any claims.

Phony insurers also sell coverage through real and fake professional and trade associations, unions and professional employee organizations. In addition, some of the phony insurers disguise themselves as discount health plans -- a type of entity that is not regulated by federal or state governments.

Legitimate discount plans aren't regulated because they don't pay claims; they charge a monthly fee in exchange for negotiating discounts with doctors and hospitals. Phony discount health plans collect the monthly fees without negotiating any discounts.

Most of these unauthorized plans pay small claims, says the report, but delay paying large medical bills. For example, one fake plan collected $15 million in premiums and paid only $3 million in claims, says the report.

And claims payment delays have become so commonplace that most doctors and patients don't realize there's a problem with the insurance until it's too late.

Even people who haven't been duped by the scams will feel it in their pocketbooks, says Kofman. That's because these scams target people who already have insurance by offering them cheaper health plans.

When those victims' medical bills are not paid by the phony insurance companies, the doctors and hospitals left holding the bag raise their rates. And that, in turn, causes real insurance companies to raise their rates -- meaning everyone pays.

Florida already has adopted one key recommendation from the Commonwealth report: tougher penalties. This year, state lawmakers passed the Pete Orr Insurance Anti-Fraud Act which provides a sliding scale of felony charges that can be filed against principals of an unlicensed insurance company, based on how much money they collect in insurance premiums.

The law is named after Charles Pete Orr, the late NASCAR-circuit driver from Montverde, who died of cancer at age 46 last November with more than $250,000 in unpaid medical bills.

He had paid his health care insurance premiums on time every month, but the company he bought his policy from, TRG Marketing Group, was an unlicensed Indiana-based company which refused to pay his medical bills.

Florida's high-profile susceptibility to such scams also has prompted Gallagher and Lt. Gov. Toni Jennings to co-chair the Blue Ribbon Task Force on Access to Affordable Health Insurance, says Torres.

That task force will hold its first meeting Sept. 22 in Miami. It also is scheduled to meet in Tallahassee on Oct. 13; Tampa on Nov. 17; Jacksonville on Dec. 3; and Orlando on Jan. 9.

But don't look for the problem to go away any time soon, says Kofman: "There will be lots more victims."