The costs associated with health insurance plans have soared over the past several years and so have the number of consumers bilked by insurance scams. Dishonest operators selling phony insurance policies have collected premiums from enrollees, but failed to pay medical providers. The consumer is often left with huge medical bills and no coverage. Individuals and small-business owners, who can't negotiate better rates with legitimate insurers, are often targets.
How does this scam work? According to the National Association of Insurance Commissioners (NAIC), a typical fraudulent health insurance scam attempts to recruit as many local insurance agents as possible to market the coverage. Agents are told the coverage is regulated by federal law, not state law. In fact, this is illegal. The coverage is typically offered regardless of the applicant’s health condition and at lower rates and with better benefits than can be found from licensed insurers. The scam seeks to collect a large amount of premium as rapidly as possible.
While claims may be paid initially, the scam operation will soon begin to delay payment and offer excuses for its failure to pay. Unsuspecting consumers who thought they were covered for their medical needs are left responsible for huge medical bills. Employers who sign up for these illegal plans may be liable for the medical bills of their employees as well.
The best way to avoid becoming a victim of insurance fraud is to know the facts, ask questions and do some research. The Better Business Bureau, along with the NAIC, offer the following tips:
- If you are not familiar with the company offering the health plan, check them out with your state insurance department and the BBB. Carefully read all materials and scrutinize web sites.
- Make sure your insurance agent is selling a state-licensed insurance product. If an insurance agent is trying to sell you an “ERISA” (plans governed by the federal Employee Retirement Income Security Act of 1974) or “union” plan, report them to your state insurance department. Legitimate ERISA and union plans may be exempt from state insurance regulations, which is why criminals try to fool people by making these claims. However, legitimate ERISA or union plans are established by a union for its own members or by an employer for its employees. They are not sold by insurance agents.
- Be suspicious if coverage seems unusually cheap, is issued with few questions about the applicant’s health, or refers to coverage as “stop-loss insurance.” Coverage that boasts excessively low rates or minimal underwriting should be a signal to look deeper.
- Deal with reputable agents. If the person trying to sell you coverage says he or she does not need a license because the coverage is not insurance or is exempt from regulation, be cautious. Report this to your state insurance department.
- Ask your agent for the name of the insurer and check the benefit booklet you receive to see whether it names a licensed insurer that is fully insuring the coverage.
For more information or to report suspected fraud, contact the Office of the Insurance Commission at 800.562.6900, your state insurance department or the BBB (www.bbb.org).