On March 3, the Senate Finance Committee held a hearing to examine health insurance scams. In his opening statement, Committee Chair Charles Grassley (R-IA) said the hearing had “three purposes: (1) Expose the significant and growing problem of unauthorized and bogus health plans and their damaging effects; (2) Educate people, including employers, about unauthorized and bogus health plans—what they look like; and (3) Empower people with information—how not to fall prey to one and if you’ve already been scammed, what to do next.”
The committee heard first from Marie Almond, who discovered she was the victim of a health insurance scam after being diagnosed with breast cancer in July 2001. The owner of a small medical consulting firm, Ms. Almond had purchased a small business health insurance plan from Employers Mutual earlier that year. “I underwent surgery, chemotherapy, and radiation treatments. As expected, these were costly procedures, totaling over $65,000,” she said. “I instinctively felt that something was wrong when I learned that the medical bills had still not been paid during the next three months.” After contacting both the Tennessee and Nevada Insurance Commissioner’s Offices, Ms. Almond learned that Employers Mutual was a “sham.”
Confirming that Ms. Almond was not alone in her experience, Kathryn Allen of the General Accounting Office released findings from a report examining the prevalence of unauthorized entities selling health insurance and the impact on employers and policyholders. According to the report, the Department of Labor (DOL) and the states identified 144 unauthorized entities operating from 2000 through 2002. “At the time of our 2003 survey, DOL and states reported that the 144 entities had not paid at least $252 million in medical claims,” she said.
In describing the characteristics of these scams, Ms. Allen said that the majority portrayed themselves as associations, professional employer organizations, unions, or single-employer ERISA plans. In order to enhance their appearance of legitimacy and to make their products more attractive, Ms. Allen said that many of these entities adopted names that were familiar to consumers, marketed their products through licensed agents, established relationships with networks of health care providers, set premiums below market rates, marketed to employers or individuals who were seeking affordable insurance, and paid initial claims.
Assistant Secretary for Employee Benefits Security Ann Combs described the DOL’s efforts to combat these scams, saying that the department is focusing on prevention by educating employers and consumers and is taking an “aggressive stance” on criminal and civil enforcement. “The Bush Administration is proposing Association Health Plans (AHPs) as part of the solution to health scams because AHPs have strong protections against abuse, including a mandatory federal certification process, more uniform oversight, and strong federal solvency standards for self-funded arrangements,” she said.
Ms. Combs pointed out that small businesses are particularly vulnerable to insurance scams because of the high costs associated with health insurance, low coverage of their workers, lack of options available to them, instability in their coverage, and problems with comparison shopping. “In this environment it is no wonder that health insurance scam artists can find small employers who are willing to jump at what looks like a great deal—but which turns out to be, quite literally, too good to be true,” she said.
