Posted on: Friday, July 23, 2004
State warns against fake health insurance policies
By Deborah Adamson
Advertiser Staff Writer
Hawai'i consumers are urged to watch out for con artists selling fake health insurance policies or misrepresenting the benefits of medical discount cards, the state's insurance commissioner said yesterday.
"It has been cropping up as a problem in various states across the nation," said Commissioner J.P. Schmidt. "We want to let people know ahead of time; we're trying to be proactive."
As healthcare premiums have risen sharply in recent years, people have become more susceptible to sales pitches from unlicensed insurers who sell phony health plans at a low cost.
Some firms also peddle medical discount cards, but have misled consumers into thinking they were health insurance, Schmidt said. Consumers who were aware that they were discount cards, would sometimes find that doctors and other providers listed as participating in the discount program didn't know about it.
According to a report released earlier this year by the General Accounting Office, from 2000 to 2002 there were 144 bogus health insurers nationwide that sold policies to 200,000 people. Unpaid claims from these fraudulent activities have topped $252 million.
Compared with other states, Hawai'i has had five to 14 unauthorized insurers in operation during those years while some states, such as Texas, had as many as 25 to 31, according to the GAO report.
Seniors, small businesses and those with low incomes tend to be the targets of these scams, according to the National Association of Insurance Commissioners. Unlicensed health insurers have been known to use licensed insurance agents to sell their products.
This is how a typical scam works: The fake insurer enters a city and attempts to recruit as many insurance agents as possible to sell its policies, which have not been approved by the state.
Agents are told that the insurance policies are regulated by federal, not state law. The plans are cheaper than legitimate policies and offered by an unknown company or one with a name similar to a major insurer. Moreover, the coverage is usually offered without considering the subscriber's health.
Claims may be paid at first, but after a while payments are delayed or not made. Consumers who thought they had insurance can be left with huge medical bills they have to pay themselves, the NAIC said. If a small business purchased the fake insurance they may be liable for the unpaid medical bills of their workers.
"In Hawai'i, if it's not Kaiser, HMSA (Hawaii Medical Service Association), HMAA (Hawaii Management Alliance Association), UHA (University Health Alliance) or Summerlin, a question should arise in your mind and you should check it out," Schmidt said. "We have, in Hawai'i, just five companies that are licensed."
On occasion, some Mainland companies with operations in the state might use an out-of-state health insurer because that's the insurer they use in other states, the commissioner said. But these insurers usually are well known, such as Aetna or Cigna.
Red flags to watch for include premiums that are 15 percent or more cheaper than the competition, pressure to sign up immediately to lock in a good deal and few restrictions on coverage.
To check whether an insurance company is legitimate and licensed to do business here, call the Insurance Division at 586-2790.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
