American Benefit turned out to be one of many illegal health plans (not licensed by the state) that have trapped at least half a million people so far. They’re Ponzi schemes–taking in “premiums,” covering small medical bills, but stalling on large ones so the principals can skim off cash. Seemingly honest insurance agents peddle these policies. But eventually, fake insurers close up, or the state shuts them down, leaving you with unpayable medical debts. The plans’ soulless founders may promptly start the same phony deal in another state.
There’s a second kind of scam, which sounds like insurance but isn’t. I’m talking about the many discount health cards, sold by phone, mail and Internet. For a monthly or annual fee, you’ll be promised discounts “up to 80 percent” on medical and drug bills. But your actual savings may come to little or nothing, after other fees. Often the doctors and drugstores don’t even know about the card. (The few good discount cards, for prescription drugs, include those offered by AARP, YourXPlan and Together Rx–the latter for people on Medicare.)
There are easy explanations for today’s alarming flood of phony health insurance.
First, the double-digit price increases of the past three years. Small businesses are screaming for affordable coverage, and the Ponzi schemes oblige. They’re sold by what look like honest insurance agents for 15 percent to 50 percent less than real insurance. Duped business owners don’t catch the fraud until employees start complaining that their medical bills aren’t being paid.
Second, the soaring number of the uninsured. The Census Bureau last week reported an unprecedented rise in the number of people without coverage–an increase of 2.4 million last year, most of them middle class. The uninsured now make up 15.2 percent of the population (that’s 43.6 million people), compared with 14.6 percent in 2001. Most of the uninsured are full-time workers who don’t have, or can’t afford, group health insurance. They may also be uninsurable because they’re sick.
But fake health plans aren’t insurance, they’re just a way of stealing your money. Four of the larger ones closed over the past two years, leaving nearly 100,000 people with more than $85 million in medical bills, says Mila Kofman, a professor at Georgetown University’s Health Policy Institute, who studied this problem for the Commonwealth Fund. (The four: American Benefit, shot down by Texas; TRG Marketing, closed by Nevada, and Employers Mutual and the Service and Business Workers Local 125, shut down by the Feds.) There are more to come. The last time insurance premiums soared (from 1988 to 1991), 400,000 people got stuck with $123 million in bills. To pay, some had to sell their homes or declare bankruptcy.
States maintain guaranty funds to cover your benefits if your insurer fails. But the fund backs only real insurers, not phony ones. In some states, the insurance agents who sell unlicensed policies are supposed to pick up the payments. In Colorado, for example, agents who sold American Benefit have paid $624,000 so far.
Jeanine Evans is hoping to get a payout from her agent, too. The hospital and doctors (with the exception of lab technicians) are willing to wait for payment until the case is settled, she says. In the meantime, she and her husband, David, dug into their retirement savings for immediate needs.
How to avoid health-insurance scams?
Easy–just call your state’s insurance commission or check its Web site. See if the company is licensed to do business there. If not, it’s a fraud. Walk away from the sale and the insurance agent. If your company switches insurers, check on that license, too.
Skip any cheap policy that claims to give generous benefits through a large provider network. They’re vampires and will suck you dry. Also skip policies that don’t require a health exam. They attract desperate people, but what’s the use if they don’t pay?
Don’t trust a “professional association” insurance plan or “union” plan without checking to see if it’s licensed. Sellers of fake insurance often create sham associations and unions as cover. Bad plans may work through legitimate associations, too.
Don’t buy “group health” through an individual agent. Real plans are offered through your company, an honest professional association or a real union.
Underneath all this mess lies America’s health-insurance crisis. If we had universal health coverage, fake insurance wouldn’t exist. But that’s a dream for another day.
