With more consumers and small businesses looking for affordable health insurance, there has been a corresponding increase in tempting offers for low cost health care benefits. Being aware of the scams and how to avoid them will help you make better choices when looking for health insurance.
Often appearing on the Internet and in unsolicited mailings and faxes, these discount plans promise a wide range of health benefits for as little as $20 per month for the whole family, regardless of age or health problems. The problem is, consumers may believe these plans offer the same type of coverage as a health insurance policy -- but they don't.
Many discount health plans provide some minimal money-saving benefits; but these plans are not insurance policies and do not provide the kind of protection you might expect. With the discount plans, you pay the medical bills yourself. They simply offer lower prices from a specific list of providers who have agreed to accept discounted medical fees; although, in some cases, the "participating" providers are not even aware of the discount plan.
Most of these discount benefit network plans use insurance terms (i.e. health coverage, guaranteed benefits, enrollment) in their advertisements to lure customers into a false sense of security. They also tend to exaggerate the savings potential and promise discounts that might not even exist. The plans also may include hidden administrative costs that reduce your actual savings. Some of these health plans are fraudulent and will just disappear with your money.
Because these types of discount plans are not government regulated, there are no built-in consumer protections. This leaves unsatisfied consumers with little or no recourse. Both state and federal regulators are aware of these offers and are taking action against the offending companies when they are able to get enough information. (See Department of Commerce Consumer Alert: Advertised "health plans" do not provide coverage.)
Another scam involves unlicensed insurance agents selling unauthorized low cost "insurance policies.". These agents will offer a lower price for what appears to be an insurance policy, but often the policies do not provide what they promise. As a rule of thumb, just remember that the lower the price, the less benefits you will receive. These fraudulent companies may pay a few claims initially, but before long they stop paying claims and disappear with your premium dollars. If the company is unlicensed and the products are unauthorized, no financial safety net exists to protect consumers. Consumers can visit the license look-up tool at the Department of Commerce website to find out if the selling agent and the company are licensed to do business in Minnesota.
In other cases, unauthorized entities will recruit licensed independent insurance agents to market fraudulent products. Licensed agents who sell fraudulent policies can lose their license and possibly face felony prosecution.
Scams targeted to small businesses
Some insurance scams target small businesses who are looking for lower cost insurance coverage for their employees. Currently there are fraudulent companies which falsely state that they are "multiple employer welfare arrangements" (MEWAs) that do not need a state license, since they claim they are monitored by the federal government under the Employee Retirement Security Act (ERISA). This is not true. All legitimate MEWAs are licensed and regulated by the state. Currently there are no licensed MEWAs in Minnesota. The groups that existed in the past all had financial problems and went bankrupt. State insurance regulators across the country are sharing information about fraudulent MEWAs and are working together to shut them down. If you are offered a health care plan by a company claiming to be part of a "multiple employer welfare arrangement," contact the Department of Commerce to see if it is properly licensed.
A similar scam, also targeted to small businesses, may be used by associations claiming to be "Employee Leasing Associations," "professional employer organizations," or "Association Health Plans." These associations offer administrative services to employers, such as filing workers compensations forms, payroll, etc., plus a type of group insurance with self-insured health benefits -- meaning they pay claims out of their own fund. While many "self-funded employee plans" are legitimate, the fraudulent associations eventually quit paying claims and disappear with your premium dollars. Be aware that with all self-insured Employee Leasing Associations there are no "guaranty funds" to help settle claims if the Association goes bankrupt. Before purchasing such a plan, contact the Department of Commerce, Consumer Response Team at 651-539-1600 or toll-free 800-657-3602.
The Minnesota Department of Commerce insurance Consumer Response Team (CRT) has a team of investigators who respond to consumer phone calls about insurance. The CRT provides information, answers questions and attempts to resolve disputes between consumers and the insurance industry informally. In the Twin Cities metro area call 651-539-1600 or statewide toll free at 800-657-3602.