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.

Discount health care plans
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.)

False insurance "agents" selling false policies
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 Department of Commerce website to find out if the selling agent and the company are licensed to do business in Minnesota. From the Home Page, simply click on the License Look-Up icon.

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 651-296-2488 or toll-free 800-657-3602.

Potential signs of insurance fraud include:

• The plan or policy costs far less than what other insurance companies are charging. If the offer sounds too good to be true, there's a good chance it isn't legitimate.
• An agent or company insisting on cash payments. Avoid health plans that require your credit card or bank account number -- especially over the phone or the Internet.. This gives them the opportunity to add unauthorized charges to your account and puts you at risk for identity theft.
• An agent or company that pressures you to make a quick decision -- such as, "This is a one-time deal" or, "This is your last chance for this special savings," or "You must sign up by this Friday."
• An agent or company that becomes evasive when you ask about state insurance licenses.
• An agent or company that asks for detailed personal information that is not needed to write health insurance.

When buying any type of insurance:

• Contact the Department of Commerce to make sure the insurance company and agent are licensed to conduct business in the state. Never pay for insurance until you are certain the agent and company are legitimate. You can check the licensing database from this web site by clicking on the License Look Up icon on the Home Page.
• Be wary of policies sold through direct mail solicitations or over the Internet. Fraudulent policies are often sold in these ways.
• Always pay by check or money order and write your policy number on the check.
• If you don't receive your policy within 30 days, call the insurance company to make sure you are covered.
• Find out what happens if you decide to cancel the policy or membership. Will you get a refund?
• Finally, read the policy when you receive it. If you have any questions or concerns, contact your agent, the company or the Minnesota Department of Commerce.

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) 296-2488 or statewide toll free at 800-657-3602.

April 2004