Insurance is supposed to give you peace of mind. If your home is destroyed or you get in an accident, you count on your insurance provider to supply the money that will enable you to get back on your feet again. But for hundreds of thousands of Americans, health insurance coverage has become a nightmare thanks to low-life scam artists.
There has literally been an explosion in phony health insurance policies in the past few years. The General Accounting Office (GAO) says the number of cases doubled during the period from January 2000 through the end of last year. Usually these policies are sold to those most vulnerable: small business owners struggling to find affordable coverage for their employees and those who are unemployed.
Typically, you don't discover that the coverage you thought you had doesn't exist until you need it. That is, after you've run up significant medical bills. That's when you find out your "insurance company" has filed for bankruptcy or disappeared.
According to the GAO, in the past three years, phony health insurance policies, covering some 200,000 individuals, were sold by 144 fraudulent companies. In a number of cases, these firms were owned and run by the same individuals. The insurance agents/crooks who peddled these bogus policies left at least $252 million in unpaid claims in their wake.
But the consequences are not just financial. A Florida man was reportedly dropped from a list of liver transplant patients when the hospital learned he had no way to pay for the operation. AARP documented the case of another individual who died of cancer because the health insurance he had counted on to cover his chemotherapy didn't exist and treatment was delayed.
The crooks behind these schemes are cashing in by following a tried-and-true principle of marketing: Find a niche and fill it. In this case, it's the need to contain skyrocketing healthcare costs. Assistant Secretary of Labor Ann Combs, says "as costs have gone up, the situation has become dire. Employers are desperate to find and keep insurance for their workers."
And as the larger, legitimate insurance providers pull of out the small business market, the con artists are only too happy to fill the void. In fact, they're practically hailed as saviors because their "policies" are usually 25 to 30 percent less than the cost of comparable coverage from a larger company. That ought to be a tip-off that something's amiss. As Combs says, "If it sounds too good to be true, it probably is."
Basically, says Combs, these health insurance scams are operated as Ponzi schemes. "They collect premiums and pay claims in the beginning. But when a big claim hits or a series of claims come in, they fold up or disappear." And because state insurance departments operate independently, the crooks don't have to move far: just across the state line will do.
Unfortunately, federal and state authorities usually learn about these scams after the damage has been done. In the case of a company called Employers Mutual, its operations had spread to all 50 states, affecting 23,000 individuals. Last fall, the federal government, in conjunction with state insurance officials, shut Employers Mutual down. But by then there were $27 million in unpaid claims.
The scammers were found guilty of charging "excessive fees" -- a violation of federal law, but not something that results in jail time. They were ordered to pay $7.3 million in restitution, a drop in the bucket. To put these unconscionable crooks behind bars, you have to build a criminal case. Comb says this is tough. "You have to prove there's been embezzlement or criminal intent, which requires a higher standard of proof."
That's why the DOL's Employee Benefits Security Administration is enlisting public support and educating people to be on the lookout for fraudulent insurance sellers. According to Combs, the agency will move aggressively against these operations. But for that to happen, DOL and state insurance departments have got to know about them.
Often a policy is sold as a "multiple employer welfare arrangement," or MEWA. A MEWA enables unrelated small businesses to pool their employees and essentially buy less expensive "group" coverage. Not all MEWAs are fraudulent, but every MEWA has to be licensed by the insurance department of the state in which the policy is being sold.
Naturally, if you call your state insurance department to check out a company you won't find any phony insurers listed. But these scam artists are slick. They have an explanation to cover that. "They claim they're under [federal jurisdiction of] ERISA, " says Combs, "and that because of that, individual states can't regulate them. That's flat-out misrepresentation." And it's illegal.
How do you know if your health insurance provider is legit? Well, you should start to get suspicious if, among other things:
- A claim is taking longer to process than usual.
-No one answers the phone when you call or you're put on hold for ridiculous lengths of time.
-Your claim for a procedure which should be covered gets rejected.
It's critical that you act quickly. Notify your state insurance regulators as well as the Department of Labor. You should also tell your employer, which can starts its own inquiry. More information for small business owners and employees can be found on EBSA's website: http://www.dol.gov/ebsa . You can also call toll-free: 1-866-444-3272.
The Bush Administration has proposed a new type of group health insurance policy for small businesses called "Association Health Plans." Insurance companies who want to offer AHPs would be required to register with the federal government instead of the individual states, which would provide for strict, uniform licensing and solvency standards, instead of a hodge-podge of state regulations.
In addition, federal authorities could shut down a company nationwide buy pulling its federal license, rather than fighting multiple legal battles on a state-by-state basis. A bill creating AHPs has passed the House of Representatives. The Senate has yet to act.
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