Preventing the Proliferation of Sham Health Insurance Plans

1
Preventing the Proliferation of Sham Health
Insurance Plans

• A One-Hour Producer CE Course Developed
• by the
• National Association of Health Underwriters

2
Overview of the Problem

• Health insurance premiums, particularly for small
  businesses and individuals, have been on the rise
  for the past few years, and premium increases for
  these markets show little sign of abating.
• Unfortunately, a number of criminal operators
  have responded to this problem by attempting to
  defraud American businesses and families.

3
Overview of the Problem

• These criminals sell phony health insurance
  products, collect premiums on these non-existent
  products, and then leave the consumers who buy
  these sham products with millions in unpaid
  claims, no medical coverage and no protections
  from state guaranty funds.
• These sham products often have an air of
  legitimacy because the criminals solicit licensed
  insurance producers to market their products.

4
How Do Sham Health Insurance Plans Work?

• Victims of sham health insurance plans are often
  sole proprietors, trade associations, unions, and
  small business owners.
• These consumers are targeted since they are
  groups likely to be looking for relief from high
  health insurance premium costs.
• High-profile organizations like the National
  Writers Union have been targets.

5
How Do Sham Health Insurance Plans Work?

• These plan operators are often repeat offenders
  who operate in multiple states.
• They maintain an air of legitimacy by doing the
  following
• Contracting with or mimicking the provider list
  of established PPO networks
• Soliciting licensed insurance producers to sell
  their products
• Issuing cards and providing enrollees with other
  seemingly legitimate documents, like provider
  directories and
• Paying small claims, and delaying in paying large
  ones.

6
How Do Sham Health Insurance Plans Work?

• Sham plans often claim an ERISA preemption to
  state regulation to avoid detection from the
  state insurance departments.
• After enrolling thousands of individuals and
  collecting millions in premiums, these
  operators stop paying claims, abscond with the
  money and leave consumers high and dry.

7
What Happens to Sham Plan Victims

• Many consumers and businesses who have bought
  phony coverage have been left with thousands and
  thousands of dollars in unpaid medical bills.
• Some consumers have faced bankruptcy and have
  seen their credit destroyed as a result, and many
  have been unable to pay for needed medical care.

8
What Happens to Sham Plan Victims

• State health insurance guaranty funds are unable
  to provide assistance to these consumers, since
  the products they purchased were not issued by a
  licensed health insurance entity.
• These victims are also uninsured, and many are
  subject to pre-existing condition limitations and
  higher premium costs when they do obtain
  legitimate coverage, since they have had a break
  in coverage that exceeds 63 days and have no
  legitimate creditable coverage for their new
  carrier to consider.

9
History of Health Insurance Scams

• Sham health insurance scams are not a new
  phenomenon. Scam problems are cyclical and often
  run parallel with problems in the health
  insurance economy.
• The first major wave of health insurance scams
  occurred after the enactment of the Employee
  Retirement Income Security Act of 1974 (ERISA)
  limited state authority to regulate Multiple
  Employer Welfare Arrangements (MEWAs).

10
History of Health Insurance Scams

• Scam operators developed sham MEWAs and claimed
  ERISA preemption to avoid regulation.
• Since most MEWAs are not ERISA plans, the U.S.
  Department of Labor claimed that they did not
  have authority to regulate them either.
• The result was wide-spread consumer fraud.
• In 1982, Congress amended ERISA to restore state
  authority.

11
History of Health Insurance Scams

• During the late 1980s and early 1990s another
  cycle of scams started.
• The problems coincided with a rise in health
  insurance premium rates.
• Phony operators used lingering ambiguity about
  ERISA preemption of state-regulation to
  perpetrate their scams.
• While the 1982 ERISA amendment reestablished
  state authority to regulate MEWAs, it did not
  address state authority to regulate collectively
  bargained union plans.

12
History of Health Insurance Scams

• As such, many sham health plan operators sold
  products to consumers through phony unions.
• The cycle slowed down when premiums stabilized
  during the mid 1990s.
• In 2003, the U.S. Department of Labor issued a
  regulation to help clarify what is a collectively
  bargained union plan and what jurisdiction the
  states have in terms of plan regulation.

13
Current Cycle of Health Insurance Scams

• Health insurance scams started increasing in
  frequency again in 2000, as health insurance
  premiums began to sky-rocket.
• Four major scam rings have been uncovered since
  2000, impacting approximately 85,000 consumers.
• States, the NAIC, health insurance trade
  associations, and the federal government have all
  responded to the current crisis by attempting to
  improve public education about this problem.

14
What Can Health Insurance Producers Do to Stop
this Problem?

• One of the most common ways victims are tricked
  into buying these products is that they are often
  sold by licensed health insurance agents.
• Perpetrators pitch these products to agents, and
  thousands of agents in every state have sold
  them.
• Agents that sell these products, even if they are
  unaware that they are fraudulent, can be subject
  to loss of license, fines, and even criminal
  penalties.
• Therefore, it is imperative that all agents do
  their due diligence and verify that all products
  that they sell are offered by legitimate,
  licensed carriers.

15
Red Flags

• Red flags producers should look for when being
  approached to sell a new product
• Dramatically lower premiums than for similar
  products on the market.
• Extremely high rates of commission.
• Offers to provide coverage for all, regardless of
  pre-existing conditions.
• Carriers that claim that they do not need a
  license or a certificate of authority since they
  are exempt under ERISA.
• A health insurance plan that does not use the
  word insurance anywhere in its materials or
  documents.

16
Due Diligence

• Due diligence steps agents should always take
  before offering a health insurance product to
  clients
• Contact the state DOI to verify that the entity
  is legitimate and licensed to do business in your
  state.
• Ask for a copy of the carriers certificate of
  authority.
• Seek out the financial rating of the carrier in
  question.
• If the carrier claims and ERISA preemption, check
  again with the DOI, contact the US Department of
  Labor for verification of their ERISA preemption
  status and ask the carrier for their
  authorization to operate in the state as a TPA if
  TPAs need to register or be licensed.
• Remember, if a plan offering looks too good to be
  true, then it probably is!

17
Other Steps Agents Need to Take

• Scam perpetrators often solicit agents that are
  not very active in the health insurance business
  or mostly sell other lines of coverage, on the
  assumption that those that dont specialize in
  health insurance will not detect the fraud.
• Many NAHU members say that they have never been
  approached to sell these products, but they have
  run across them in competition.
• If you come across a plan that looks suspicious
  to you, it is imperative that you contact the
  state DOI as soon as possible.

18
Other Steps Agents Need to Take

• Many state and federal regulators report that
  responsible agents are usually their first line
  of defense in detecting these scams.
• NAHUs Sham Health Plan website,
  http//www.nahu.org//government/Sham_Plans.htm
  contains a contact list for individuals at each
  state Department of Insurance who are responsible
  for this particular issue.
• If you cannot reach the appropriate person at the
  state DOPI to report a suspected sham product,
  please contact the NAHU office at [phone]
  or legislative_at_nahu.org, and we will do our best
  to assist you.

19
Educating Consumers

• Another important step all agents should take to
  help stop this fraud is to educate all of their
  clients about potential health insurance scams.
• Current clients may be pitched these products by
  the competition, and responsible agents need to
  get the word out as to how consumers can protect
  themselves.
• Urge all of your clients to verify before you
  buy, and encourage them to contact the state
  Department of Insurance to determine if the
  insurance carrier with which they are dealing
  with is both legitimate and licensed to do
  business in your state.

20
Federal Activity to Prevent the Proliferation of
Sham Plans

• The recent explosion in sham plan activity has
  not gone unnoticed by the federal government.
• In 2003, the US Department of Labor issued a
  clarifying regulation about collectively
  bargained union plans in an attempt to stop phony
  health plan operators.
• The DOL also has a website http//www.dol.gov/ebsa
  /hlthcarefraud.html dedicated to educating
  consumers about this issue.

21
Federal Activity to Prevent the Proliferation of
Sham Plans

• In February of 2004, the U.S. General Accounting
  Office, at the request of several U.S. Senators,
  issued a report identifying how many of such
  scams were operating during 2000-2002, the number
  of employer and individual victims, the amount of
  unpaid claims and methods states and the federal
  government were undertaking to stop these sham
  plans.
• In March of 2004, the U.S. Senate Finance
  Committee held a hearing to further investigate
  what can be done to stop phony health plans.

22
State-Level Activity

• State Legislatures and Departments of Insurance
  are also working very aggressively on this issue.
• In addition to prosecuting and shutting down
  known scam operators, many state departments of
  insurance are engaging in public information
  campaigns to educate the public and insurance
  agents about phony health insurance products and
  the warning signs to look for.
• Georgia, Florida, Nevada and Texas are among
  states that took aggressive action in this area
  in 2003-2004.

23
State-Level Activity

• State legislatures have also addressed this issue
  in recent years.
• Seventeen states have enacted legislation
  requiring agents to report fraudulent insurance
  entities, or face legal and financial
  consequences.
• In addition, several states have made it a felony
  for anyone to offer or sell a fraudulent
  insurance products to consumers, including
  licensed health insurance producers who knowingly
  sell such a product.

24
State-Level Activity

• State Insurance Commissioners are also taking
  aggressive action in this area through their
  professional association, the National
  Association of Insurance Commissioners.
• The NAIC currently has three working groups
  addressing this issue The ERISA Working Group,
  the Antifraud Task Force and the Consumer
  Protection Working Group.
• The NAIC is in the process of drafting model
  legislation for the states to make the sale of
  fraudulent insurance products a felony.

25
State-Level Activity

• The NAIC has also commissioned a national
  consumer awareness advertising campaign to help
  bring attention to this problem.
• The public service announcement campaign will
  feature Frank Abagnale of Catch Me If You Can
  fame, and will feature the message, Fight Fake
  Insurance Stop, Call, Confirm in order to
  encourage consumers to call the state department
  of insurance prior to purchasing a health
  insurance product.

26
NAHU Activity

• NAHU is committed to making our members and
  consumer aware of the phony health insurance plan
  problem.
• Our association knows that our members are
  experts in their field, and that NAHU members can
  play a vital role in identifying potential scams
  for state departments of insurance and protecting
  insurance consumers from buying these fraudulent
  products.
• On our own, NAHU has dedicated both Board of
  Trustees and staff efforts to this issue, and has
  created an informational website,
  http//www.nahu.org//government/Sham_Plans.htm,
  as well as this program to help educate our
  members about this issue.

27
NAHU Activity

• NAHU and many of our state chapters have been
  cited by the NAIC, the US DOL, and a number of
  state DOIs for our leadership in this area.
• NAHU has provided comments and public testimony
  on proposed NAIC model legislation to help curb
  the sale of sham plans.
• NAHU worked with the NAIC to develop the list of
  state MEWA contacts for each DOI, so that member
  agents would always be able to reach an expert on
  this issue in their respective states.

28
Coalition Activity

• NAHU is a founding member of the Coalition
  Against Bogus Health Plans.
• Members include Americas Health Insurance
  Plans, Blue Cross Blue Shield Association,
  Coalition Against Insurance Fraud, National
  Association of Insurance Professional Advisors,
  NAHU, the Professional Insurance Agents of
  America, and Mila Kofman of Georgetown University
  Health Policy Institute (the leading national
  researcher on sham plans).
• Our goals are to establish and national website
  where consumers and agents can go to verify the
  legitimacy of health plans, and to educate both
  consumers and agents about this growing problem.

29
For More Information or Assistance

• Contact the NAHU State Government Relations
  Department and we would be happy to provide you
  with any needed assistance on this topic. We can
  be reached at
• NAHU
• 2000 North 14th Street, Suite 450
• Arlington, VA 22201
• 703-276-0220
• 703-841-7797 FAX
• legislative_at_nahu.org
• www.nahu.org