Health insurance scams expected to proliferate

Advertiser Wire Services

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Some danger signs to look for in a plan Be wary of a health insurer when: Premiums are exceptionally low. The plan readily accepts people with serious illnesses. The insurer isn't licensed in your state and the agent assures you that federal law exempts it from state licensing. The agent says you will be paying "dues," not "premiums." You have to join an "association" or "union" to obtain health coverage. Your doctor or hospital complains that your plan isn't paying your bills. — Knight Ridder News Service

The General Accounting Office said 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 healthcare analyst, said at a Senate Finance Committee hearing to discuss the findings of the GAO's new report.

After paying premiums, policyholders discovered their insurance was worthless only after they were 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 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. But it is even more troubling, the GAO said, that the problem appears to be growing. States and the U.S. Department of Labor 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.

Victims stuck with bill

When Marie Almond was diagnosed with breast cancer, she thought her life could get no worse. But after one operation and several months of chemotherapy, she learned that her health insurer was under investigation in seven states for not paying claims. "I called every other day and they kept promising me that they were going to pay my medical bills," said Almond, of Albemarle, N.C. Months later, she learned that her insurer, Employers Mutual, had closed and wouldn't pay any of her $65,000 in medical claims. A federal judge has ordered the company and its owners to make restitution. The case is in mediation.

"This is a huge scandal that is not going away anytime soon. The federal government was caught off guard," said James Quiggle of the Coalition Against Insurance Fraud, a Washington-based nonprofit that's partly financed by the insurance industry.

Howard Goldblatt, the director of governmental affairs for the coalition, said several years of depressed profit margins and increases in health premiums have created a fertile ground for phony insurers, who promise exceptionally low premiums. Many victims are self-employed or are small-business owners shopping for deals.

The plans usually offer big benefits, large provider networks and easy enrollment even if the customer has serious pre-existing health conditions. The premiums are usually 15 percent to 20 percent below the market rate. In most cases, the insurers pay small claims to avoid early detection. Then payments to healthcare providers are delayed while the insurers collect premiums. Eventually, claim payments stop completely.

Most of the companies say they don't need state licenses because they operate under the Employees Retirement Income Security Act, a federal law that exempts self-insured health plans from state regulation if they are sponsored by individual employers and unions. In many cases, the policyholders are encouraged to join sham associations or unions to be eligible.

Sen. Olympia Snowe, R-Maine, one of several senators who sought the GAO report, said she would work to close loopholes in federal law. But Mila Kofman, a Georgetown University professor who testified yesterday, said fraud will proliferate in the absence of legislation to make health insurance more affordable.

The Associated Press and Knight Ridder News Service contributed to this report.