Soft Job Market Gives Rise To Fake Health Insurance

Tampa Tribune
Published: Jun 23, 2002

Usually when health insurance companies complain about fraud, they're talking about cases in which patients or health care workers have scammed the system out of reimbursements for care not actually rendered or needed.

But another kind of health insurance fraud is reappearing. It should worry consumers and small businesses because it drives up everyone's insurance premiums the same way shoplifting losses drive up the prices of retail goods.

Beware of bogus health care plans. Scamsters are selling pseudo policies to people who otherwise lack insurance. They may be willing to cover expenses immediately for pre-existing conditions - illnesses you have had or know about - without making you wait several months for coverage, as is common with legitimate plans.

But the out-of-the-ordinary terms are a come-on, says the Florida Department of Insurance, which has shut down six such operations since February 2001.

Insurance commissioners in Georgia, Texas and Arkansas have taken similar actions, says American Medical News, the weekly news publication of the American Medical Association. The closed plans lacked the required state licenses.

States grant licenses only to companies that prove they have the necessary cash - reserves - set aside to pay claims.

Customers of a licensed company have access to a guaranty fund that will pay claims if the company goes out of business. The system works much like deposit insurance in banks. Customers of unlicensed companies lack that protection.

Unlicensed plans may pay some of your bills for awhile. But sooner or later, regulators warn, the plans likely will start rejecting claims, whether the bill is submitted by you, a doctor's office or a clinic. By then, the plan has shut down and the operators have left with the money you paid in premiums.

Long-Term Damage What happens to unsuspecting policyholders?

``It can give you credit problems and all sorts of financial damage, aside from the money out of pocket,'' said Randy Clerihue, spokesman for the Health Insurance Association of America, a major Washington, D.C.-based insurance trade group.

In the Sunshine State, more than 30,000 policyholders were stuck with at least $6 million in unpaid claims from the six unlicensed plans that were shut down. This is a scam that tends to follow widespread layoffs or recessions, said Nina Bottcher, spokeswoman for the Florida Department of Insurance. The last time the state saw a problem of this magnitude was in the early 1990s.

People who lost their jobs in the latest recession - and haven't found others - are at risk. So are recent college graduates who can't find a job and are no longer covered by their parents' insurance. Another vulnerable group is workers at small companies that don't offer health insurance.

The state regulators can ask prosecutors to charge unlicensed plan operators with fraud, and one such trial starts soon in Dade County.

But, by then, many people have been hurt.

Prevention Is Good Medicine

If you buy health insurance coverage for you and your family, steer clear of trouble by watching for some red flags, Bottcher said.

When listening to a pitch, ask who is responsible for paying the claims. Beware of an operation that says it wants you to send premium payments to a third-party administrator. Don't hesitate to contact the insurance department to make sure the plan has a license in the state. Call the consumer help line at 1-800-342-2762, or dial 1-850-413-3100 if you are outside the state. The line is staffed weekdays from 8 a.m. to 7 p.m.

Call the same numbers to make sure any insurance agent you're considering doing business with has a license.

Watch out for agents who try to explain the lack of a state license by claiming they don't need one, since it is a self-funded plan allowed by the federal Employee Retirement Income Security Act (ERISA). The ERISA law permits, in some cases, an employer to operate its own plan - with its own money - for employees.

However, an agent wouldn't be selling a legitimate ERISA plan, Bottcher said. You wouldn't be hearing about it from a company you don't work for, and you wouldn't be told about it by a third party.

If you hear those words from somebody selling a plan you have found to be unlicensed, walk away, Bottcher advised.

It's scary enough to go without health insurance and even more frightening when there is illness in your family. It could be catastrophic to have paid even ``bargain'' rates for coverage that doesn't exist.