Health care scams target small business
Copyright © 2002
United Press International

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By T.K. MALOY, UPI Deputy Business Editor

WASHINGTON (July 26, 2002 8:15 p.m. EDT) - Prompted in part by the shaky economy and the rising cost of health insurance premiums, a wave of fraudulent group health plans have been targeting small businesses throughout the United States.
According to James Quiggle, director of communications for the Coalition Against Insurance Fraud, state regulators are rushing to combat this increasing wave of fraud, which has left thousands of workers effectively without insurance. These defrauded workers face the potential of seeking treatment for serious medical conditions - heart attack, cancer, or traumatic injury - and finding themselves unexpectedly informed at the hospital that they are uninsured.

The Coalition Against Insurance Fraud is, in part, funded by the insurance industry.

"The scams are so widespread that alarmed regulators have launched investigations in every state," Quiggle said. "Thousands have suddenly found themselves without health coverage when the often Ponzi-like schemes collapse or regulators shut them down. People requiring serious and sometimes life-saving medical treatments suddenly must pay thousands in medical bills themselves."

Quiggle cited such examples as a fake health plan in Texas, American Benefit Plans, which left over 8,000 workers without coverage, along with a national-level fraudster, Employers Mutual, which, he said "may have bilked (up to) 29,000 in 49 states."

According to the Coalition Against Insurance Fraud, these phony plans are often marketed as employer-sponsored or union-backed group health plans exempt from state oversight under the federal 1974 Employee Retirement Income Security Act, known as ERISA

"This is the pretext for evading suspicious state regulators, and for selling without a state license or enough state-required reserves," Quiggle said.

Quiggle added that to build consumer trust, the con artists create front companies with official sounding names, which often closely resemble the names of reputable health insurance plans.

"The shell companies then sell worthless health coverage packaged as valid ERISA plans through phony associations or unions with legitimate-sounding names," Quiggle said.

Fraud experts say that these health-care scammers generally prey upon small businesses and consumers who can't afford costly health coverage, with these phony plans often making promises of both superior coverage and unusually low prices, along with providing an extensive provider network of health care services.

The unauthorized and unlicensed health insurance company will often contract for access to a provider network - in order to seem more legitimate - and then not pay the network.

Debra Collette, a spokeswoman for the Colorado Division of Insurance, Department of Regulatory Agencies, said the deceptive health plan companies "offer a price that's too good to be true, and it is."

"Small employers think they are doing the right thing for their employees when they purchase these policies, but that is not the case," she said. "The unauthorized entities have paid small claims to continue the appearance of being a fully-licensed plan, but they have not paid large claims.

"Small employers and individual consumers are being hurt by unauthorized entities. They are all paying premiums for a service that they think they have and they are not getting what they should," Collette added.

According to Collette, the issue of deceptive health-care plan companies is a "serious problem" that many state regulators are working to defeat.

Nina Bottchet, a spokesperson for the Florida Department of Insurance said that more than 30,000 Floridians are known to be affected for a total of about $6 million worth of unpaid claims in the recent bust of various fraud health insurance operations.

The state has geared up with public education in order to begin combating this fraud at the small business level.

"We have a campaign called 'verify before you buy', we've got PSAs (public service announcement) running on cable stations in Florida, and we're working on other items so that people can track the (fraudulent) companies we're aware of," Bottchet said.

Bottchet gave the following tips for small business:

"The most important thing is when they're (small business) being offered something - (such as) health insurance - they should identify the entity responsible for paying the claim, and make sure that the entity is licensed. If they are not, there are no protections, such as a guaranteed fund, or a background check on the operator, or assurances that they have enough money to pay the claims."

A classic instance of this type of fraud was the case of the NY-based National Writers Union, which represents thousands of freelance writers. In June 2001, after its previous carrier Aetna announced that it was raising rates, the Writers Union switched its eligible members to Employers Mutual, a Nevada start-up which had been selling policies nationwide.

By July of last year, the house of cards that was Employers Mutual began to fall when Florida ordered the company to stop selling health insurance policies in the state, because the company was unlicensed. By October, Nevada, Texas, Colorado and Oklahoma all had issued cease-and-desist order against Employers Mutual, and then in December, the U.S. Department of Labor froze the company's assets.

According to the Coalition Against Insurance Fraud, the rogues gallery of organizations that state regulators are in the process of shutting down includes: Ajax Health Benefit Plan; American Benefit Plans; American Heartland; Employers Mutual, LLC; ERISA Advantage; First Access Health Plans; N.A.P.T.; O.T.R. Trucking; Professional Benefit Managers; SAI Plus; SAI Med Health Plan; United Employers Voluntary Employee Beneficiary Association; Universal International Insurance Co. Ltd.; TRG Marketing; Welfare Benefit Trust Plan; Well America, Inc.

The insurance fraud coalition gives the following top 10 tips on warning signs that an insurance plan might be nothing by a con game. Watch for these signs of a possible swindle:

1. The coverage costs 25 percent or more below the norm, yet promises generous benefits and a large provider network.

2. The plan readily accepts people with serious illnesses and other medical conditions that other plans normally reject.

3. The insurance has few or no underwriting guidelines - the agent or rep appears almost too eager to sign you up.

4. You're approached by an insurance agent, phone or direct mail. Honest group plans normally are sponsored by your employer - and aren't sold directly to individuals.

5. The plan isn't licensed in your state, and the agent (falsely) assures you the federal ERISA law exempts the plan from state licensing.

6. The plan seems like insurance, but the agent or rep avoids calling it "insurance," and instead uses evasive terms such as "benefits."

7. The agent or rep doesn't have clear answers to your questions, seems ill-informed, or avoids sharing information.

8. You've never heard of that health insurance company - and nobody else has, either.

9. You have to join an "association" or "union" to obtain the health coverage. But you get no voting rights, receive no bylaws or other material, and aren't involved in the group's activities.

10. Your hospital keeps calling you to complain that your health plan isn't paying your medical bills. Often the plan's reps keep making flimsy excuses, or stop returning phone calls altogether.