More patients get stuck with the bills

By Julie Appleby, USA TODAY
5-1-02

It was bad enough that Terri Orr's husband, Pete, was diagnosed with cancer on Labor Day last year. Then, in the middle of his treatment, her health insurance plan abruptly halted business.

"My husband was having bone marrow biopsies and CAT scans, and I couldn't get anyone to tell me if I had insurance," says Orr of Montverde, Fla. The couple now face $250,000 in unpaid medical bills.

The Orrs are not the only victims.

Regulators say the rising cost of legitimate health care policies has created a market ripe for fraud by firms that offer lower-cost, but unlicensed, insurance.

Thousands of policyholders like the Orrs — mainly small-business owners and individuals, but also some municipalities and a freelance writer's union — have fallen victim.

"When this started, I didn't have one penny in debt to anyone," says Richard Baer, 60, of Deerfield Creek, Fla., who bought such a plan through an insurance agent he knew and trusted. "Now I sit with $50,000 worth of debt."

The scams often come across as legitimate insurance, offered by sales agents. Regulators say the plans are unlicensed.

"The insurance industry hasn't seen this level of fraud activity since the late 1980s," says Fred Nepple, general counsel of the Wisconsin Insurance Department. "It's in all 50 states but growing most rapidly in the South and Southeast."

· In the past year, the Texas insurance commissioner ordered four plans — SAI Plus, Employers Mutual LLC, American Benefit Plans and Ajax Health Benefit Plan — to stop doing business in the state. The plans had more than 20,000 policyholders.

· Florida insurance officials have put the N.A.P.T. group into receivership, ordered Well America, Employers Mutual LLC and American Benefit Plans to stop doing business, and will hold a hearing on the activities of T.R.G. Marketing Group — Orr's and Baer's insurer — later this year. Three insurance agents who sold such policies have had their licenses suspended, and felony charges were filed against two executives of Well America.

· The Department of Labor filed a lawsuit in December against Employers Mutual LLC, a Nevada-based firm. The Labor Department says the company collected more than $14 million in premiums, paid only $3 million in claims and diverted $6 million to private bank accounts of its principals. Enrollees were left with more than $4.5 million in unpaid claims. The company is in receivership.

"We're seeing the devastating fallout of America's crisis in health care," says James Quiggle of the Coalition Against Insurance Fraud, a non-profit group based in Washington that is funded in part by the insurance industry.

"These phony plans are spreading because slick salespeople are skillfully preying on people's desperation to find affordable coverage," Quiggle says.

The plans generally claim to be exempt from state law. Instead, they say they fall under federal rules that allow employers to self-insure, without having to meet fiscal and other requirements imposed by states. But that law, known by the acronym ERISA, only allows single employers or unions to offer self-funded insurance to workers — not pools of unrelated employers or associations of workers. Legitimate ERISA plans are not sold by agents.

Agents selling the questionable policies tell small employers the plans are a way to join with other employers to buy insurance at lower group rates.

Some claim to be unions. The Labor Department lawsuit names a number of allegedly sham unions used by Employers Mutual, including the Association of Automotive Dealers and Mechanics, the Communications Trade Workers Association and the American Coalition of Consumers. There are legitimate multiple-employer arrangements that purchase insurance. But they generally must be registered with the states and offer licensed insurance products. The bogus plans do neither.

Regulators say some plans fail because of mismanagement: not collecting enough money to cover medical expenses. Others may have been set up as scams in the first place.

When the plans fold, patients are stuck with the bills, and employers who offered the coverage also may be liable.

"It can cause serious problems for employers," says Gloria Della, a spokeswoman for the Labor Department.

The best way to stop the practice, some say, is for consumers to be wary and report suspected scams.

"Regulators don't know about these plans until consumer complaints start reaching critical mass," Quiggle says. "There are still a lot of these plans operating under the radar."

Baer says he suspected nothing at first. His sales agent said all he had to do was pay $100 to join an association of business owners, then pay just under $400 a month for insurance for himself and his wife.

At first, the plan paid the bills, including a nearly $50,000 tab when his wife needed cardiac surgery.

After he had double-bypass surgery in August, the bills stopped being paid. In November, T.R.G. abruptly halted business. So far, the hospitals and doctors to whom Baer owes money have not sent him to collection agencies. He's hoping the state will be able to negotiate to get the insurer to pay the bills. A woman answering the phone at T.R.G.'s offices in Greenwood, Ind., said the company would not comment.

Baer shopped around for insurance to replace the dropped policy, he but was quoted rates of about $2,400 a month. Then the agency that helped place him in the now-defunct insurance firm managed to roll the Baers and most other policyholders into a legitimate HMO for $500 a month.

Baer says that's great for him, but he worries about others who struggle to find or pay for insurance and couples like the Orrs, who were not able to enroll in the HMO because they live outside its service area.

"There are 41 million people in this country without health insurance. That's a crime," Baer says. "Our government isn't doing enough to solve this problem. This is a crisis."