Health Insurance Scams

Bogus plans can expose employees to huge bills

Like most springmakers, Scherdel Sales & Technology is always looking for health insurance at reasonable rates. That’s why the Muskegon, MI, company decided to switch to another provider five years ago after experiencing double-digit premium increases from Blue Cross Blue Shield.

There’s nothing wrong, of course, with shopping for a better deal. But too often in recent years, businesses have been victimized by fly-by-night insurance companies that pocket their premium money and disappear, leaving employees with expensive unpaid medical bills.

Red Flags of Warning While bogus health insurance plans do their best to look legitimate, you will often see the following “red flags” that suggest the necessity of additional due diligence: • The premium seems well below the market norms for what you and other businesses of your size normally pay. • The agent seems too eager to sell the policy and too vague in details. • It is too easy to sign up without standard medical tests. • The agent claims that the plan does not need to be licensed in your state. The proffered reason might be that federal ERISA already regulates the program. This is a common dodge that indicates a bogus program.

It was to avoid just such a nightmare that Scherdel made certain to check out the quality of its prospective carrier before signing on the bottom line. “It’s really important to do your homework,” says Margaret Alexander, the company’s human resources manager. “I networked with other employers to find out what carriers they were using and what their experiences were.” An important resource, adds Alexander, was a local employers association where human resources executives meet to share war stories.

Still one more vital step was a talk with the company’s trusted insurance broker. “It’s important to have a good agent who really knows the insurance business and has accessibility to different lines,” suggests Alexander. “That’s a lot safer than trying to do the work yourself online.”

The result was worth the time invested: “We found a new carrier that had a very good reputation for taking care of claims and offered excellent customer service.”

Due Diligence Pays

Insurance experts agree that smart employers will take care to assess the legitimacy and quality of any prospective insurer. “Employers face huge financial risks when trying to cut costs by signing up with cut-rate health insurers,” warns James Quiggle, director of communications at the Washington, D.C.-based Coalition Against Insurance Fraud. “They can end up providing themselves, their employees and families with fake coverage that literally destroys their lives by leaving them with potentially big medical bills they have to pay out of their own pockets.”

When considering a new health insurance plan, step No. 1 should be a call to your state insurance department to make sure the carrier is licensed to do business in your state. “We like to remind everyone of the phrase ‘stop, call and confirm,’” says Lee Barry, assistant commissioner of the office of consumer protection services for the New Jersey Department of Banking and Insurance, Trenton. “Your state insurance department is good at discerning information that will either vindicate a carrier or suggest something is amiss.”

When you confirm the legitimacy of your own prospective insurance plan, keep in mind these tips:

• Make sure you call the correct department. Depending on the state, the appropriate office goes by the name of “state insurance department” or “insurance regulator” or “bureau of insurance.” Don’t confuse that office with the “secretary of state” or other department that registers corporations. A bogus outfit might well have its corporate papers in order. (You can quickly find your state’s insurance department on the Internet. See the sidebar, “Get More Information,” page 41.)

• Specify precise information about the prospective carrier. Be aware that bogus carriers often mimic the names of legitimate companies. So get your information from the materials that have been mailed to you by the carrier. Check out the precise spelling of the name, the mailing address and any other identifying characteristics.

• Send samples of the marketing literature and plan being offered. Your state insurance department will be able to review these materials for legitimacy. “Give the department as much information as you can in as granular detail as you can provide,” suggests Quiggle. Remember, too, that scam artists often produce highly sophisticated marketing brochures and related materials.

• Confirm the legitimacy of your broker. “Learn about the person who is trying to sell you the plan,” cautions Barry. Agents and brokers, referred to as “producers” in the insurance industry, must be licensed to do business in your state. Once again, your state insurance department will be able to confirm this. Provide the exact spelling of name and address.

• Call a few of the network physicians. Does it appear that a great new plan has all of the physicians your employees want? Hold on; not everything may be as it seems: “We very often see a situation where a plan will claim to have a significant network of physicians in an area,” notes Barry. “But when it comes time to pay claims, the physicians disclaim any knowledge of the network.” Lesson learned: Call a few of the listed physicians before you sign to make sure they really are in the network. Give particular attention to specialists.

• Request references from the issuer. Call other employers to see how they have been treated by the plan.

• Be especially wary of group health insurance plans called “multiple employer welfare arrangements,” or MEWAs. These plans solicit participation by multiple employers in order to aggregate the number of covered individuals, a practice intended to reduce premiums.

“MEWAs have long been characterized by a lot of fraud in the workplace,” warns Mila Kofman, a researcher with the Health Policy Institute at Georgetown University. “Some are completely phony; others are legitimate but are taken in by scams. Businesses considering purchasing insurance through group purchase arrangements should just be extra cautious making sure they are legitimate.” Run away from any MEWA or other insurance plan that claims it is not regulated by state law. All insurance plans are subject to regulation by your state’s insurance department.

Reduce Risk

Maybe it’s one more aggravation to add to the day’s list of chores, but checking out a prospective health insurance carrier is just good business. “Employees need to know that they and their families will have good solid health insurance coverage,” says Alexander. “Selecting a quality provider tells employees you value them.”

Conversely, adds Alexander, selecting a fraudulent health insurance carrier can destroy the morale of everyone. “Employees lose faith in a company and its management when they do not do their job in procuring the best insurance.”

Get More Information

Confirm the legitimacy of any insurance company or agent with your state’s insurance department. To quickly find the relevant office, go to the Web site of the National Association of Insurance Commissioners at www.naic.org/state_web_map.htm. Click on the name of your state to be transported to the appropriate Web site. Or, to find the specialist in your state on MEWAs, click on “Multiple Employer Welfare Arrangement Contacts.”

An excellent description of health insurance scams and how to avoid them is contained in the document “Private Health Insurance: Employers and Individuals Are Vulnerable,” from the federal General Accounting Office (GAO). Go to the GAO Web site at www.gao.gov. In the search box at the top right corner enter the document number: GAO-04-312. You can download the PDF file free of charge.

A helpful and detailed discussion of MEWAs is available at the U.S. Department of Labor Web site. Go to www.dol.gov and click on “Search DOL / A to Z Index” and then select “M.” Then click on “MEWAs Multiple Employer Welfare Arrangements.” v

Red Flags of Warning

While bogus health insurance plans do their best to look legitimate, you will often see the following “red flags” that suggest the necessity of additional due diligence:

• The premium seems well below the market norms for what you and other businesses of your size normally pay.

• The agent seems too eager to sell the policy and too vague in details.

• It is too easy to sign up without standard medical tests.

• The agent claims that the plan does not need to be licensed in your state. The proffered reason might be that federal ERISA already regulates the program. This is a common dodge that indicates a bogus program.