WASHINGTON – Small businesses and individuals seeking relief from rising health insurance costs are increasingly falling prey to scams that resulted in $252 million in unpaid medical claims over three years, congressional auditors say.
The General Accounting Office (search) said Wednesday that federal and state investigators have identified 144 unlicensed companies that sold more than 200,000 health insurance policies, mostly to small businesses.
"Lower-priced policies that appear to provide comprehensive coverage can be very attractive," Kathryn Allen, a GAO health care analyst, said at a Senate Finance Committee hearing to discuss the findings of the GAO's new report.
After paying their premiums, policyholders discovered their insurance was worthless only after they were they treated for serious, costly health problems, said the GAO, Congress' investigative office.
Ten companies sold more than half the policies, the report said. One company singled out by GAO — Employers Mutual LLC (search) of Nevada — sold more than 22,000 policies nationwide, collecting $16 million in premiums but refusing to pay more than $24 million in claims.
Every state has at least five phony insurers, the report said. Seven states — Alabama, Florida, Georgia, Illinois, New Jersey, North Carolina and Texas — have 25 or more, auditors said.
More troubling, the GAO said the problem appears to be growing. States and the U.S. Department of Labor (search) found 60 new unlicensed insurers in 2002, up from 30 in 2000.
State regulators have taken action against 41 of the 144 companies, and the Labor Department has won court orders against Employers Mutual and two other companies that account for $39 million in unpaid claims.
Sen. Olympia Snowe, R-Maine, one of several senators who sought the report, said she would work to close loopholes in federal law that enable insurance fraud to thrive.
But Mila Kofman, a Georgetown University professor who testified Wednesday, said fraud schemes would continue to proliferate in the absence of legislation to make health insurance more affordable.
"Take away the demand and there will be a drop in the supply of illegal health plans," Kofman said.