The impact has been felt the most in Florida and Texas where these scams have affected 30,000 and 20,000 people respectively. In fact, the Lone Star State has shut down 129 unauthorized insurance companies in the last two years , according to a report from The Commonwealth Fund.
The rising tide of counterfeit health insurance plans is due to a combination of continued health-care cost increases and a swell in the number of uninsured Americans. The scam works with companies that sell spurious insurance policies collecting premiums from enrollees but failing to pay health-care providers. With no safety net, such as a state guaranty fund, to pay medical claims when these plans become insolvent, victims are often left with huge medical debts.
Even though every state has laws making it illegal to operate an insurance company without a license, this does little to stem the tide of phony plans that simply ignore state and federal insurance regulations. This includes skirting solvency standards that ensure a company will be able to pay the claims of enrolled individuals.
To prevent even more people being sucked into the fray, the report – Health Insurance Scams: How Government Is Responding and What Further Steps Are Needed, conducted by Mila Kofman, Kevin Lucia, and Eliza Bangit of Georgetown University’s Health Policy Institute – offers some corrective measure to be taken:
- Alert small businesses and consumers about the existence of phony health plans through well-funded state and federal consumer education campaigns.
- Investigate consumer complaints and work with insurance agents to detect unauthorized health plans early on.
- Institute mandatory training for insurance agents about phony health plans.
- Ensure that state and federal investigators share information about open cases and coordinate their investigations.
- Clarify the federal ERISA statute, which governs regulation of employee benefits, to help states shut down phony operators that hide behind ERISA exemptions to insurance laws.
- Give the Department of Labor (DoL) greater authority to shut down unauthorized plans and seize assets to pay medical claims and protect victims.
- Strengthen state and federal criminal penalties against perpetrators of health insurance scams.
- Expand access to health insurance coverage to reduce the need for affordable insurance that allows phony plans to thrive.
“Being victimized by a phony health insurance scam is worse than being uninsured. At least when you are uninsured, you have no expectation of someone else paying your medical bills,” said Kofman, assistant research professor at Georgetown. “Here, not only are you stuck with huge medical bills, you’ve also been defrauded thousands of dollars in premiums.”
The full report will be available on August 28 at http://www.cmwf.org .