Some health plans violate coverage rules

posted 05/12/02
By LAUREN MAYK
Sarasota Herald-Tribune

The Local 16 National Health Fund was not licensed by Florida. Instead, it operated under a set of federal guidelines called ERISA, or the Employee Retirement Income Security Act of 1974.

Under ERISA, entities can offer health benefits to employees of a single employer or members of a union or association. But over the years, some plans have violated the ERISA guidelines by offering coverage to unrelated groups and individuals.

The Florida Department of Insurance has forced five entities similar to Local 16 to cease operations in the past year, but the department didn't become aware of Local 16 until it declared bankruptcy last fall, said department spokeswoman Nina Bottcher.

Agents should not sell ERISA plans because they are designed to serve employees of just one company. In recent years, however, entities calling themselves ERISAs have surfaced for the sole purpose of providing benefits to numerous employers.

Some agents are not aware that they are selling an unlicensed plan, but others knowingly become involved. These plans can offer large commissions or low premiums, which make it easy to attract new clients, Bottcher said.

"The more they sell, the more they can make," she said.

Because the plans are not licensed by individual states, the individuals and companies they cover have no protection if the provider goes under.

Licensed insurance companies are required to have as much cash on hand as they have in outstanding liabilities. Also, licensed insurance companies pay into and then have access to special guarantee funds to cover outstanding claims in an emergency.

The lack of a safety net makes the ERISA providers risky because a few large claims can strain their resources to the breaking point, said Matt Swezey, vice president of Staff Market Services, a Bradenton company that matches businesses with PEOs.

It might be worthwhile for a large company or union with many employees to set up a plan under ERISA, but it's harder for small companies to keep their plans afloat with fewer people paying into the system, he said.

"They're not very good for small companies," said Swezey. "If you're self-insuring yourself, a couple bad claims and you're upside down quickly."

But to the average consumer, and to small business owners looking for affordable alternatives to expensive insurance premiums, cost can be the determining factor in choosing a carrier like Local 16. The alternative plans can be less expensive.

Bottcher said the appearance of these entities tends to be cyclical and usually follows an economic downturn.

"These kind of entities would spring into action and pretty much prey on people looking for insurance," she said.