Phony health insurance

John Morrison, Montana’s Insurance Commissioner, heads a nationwide effort to crack down on fraudulent health plans.Dozens of companies selling bogus health insurance plans have left tens of thousands of people without coverage and with millions in unpaid medical bills. They target the self-employed and small-business owners desperate for affordable coverage.

Typically promoted as "union plans" or "association plans," these fake programs generally promise very low rates and say they do not need a state license because they are regulated by the U.S. Department of Labor under the pension law known as ERISA. Not so.

The plans often use a small portion of premium dollars to pay some of the least expensive claims. Patients and doctors are stuck with the unpaid bills and, possibly, a damaged credit rating.

For example, last year Employers Mutual LLC and the National Association for Working Americans sold nonexistent health insurance to more than 50,000 workers and family members, according to John Morrison, the Montana Insurance Commissioner. The workers and their families were left without health insurance and with an estimated $65 million in unpaid medical bills. Employers Mutual LLC operated in every state; the National Association for Working Americans, in 48.

"Last year 16 states shut down 48 health plans that had been operating illegally," says Morrison, chairman of a regulators’ organization trying to coordinate states’ efforts to shut down scammers.

A federal bill expected to be voted on this summer, the Small Business Health Fairness Act of 2003 (H.R. 660), may make it hard for states to crack down on phonies. In general, the law would limit the states’ ability to regulate new plans.

WHAT YOU CAN DO

If you have signed up for an association plan on your own or through your employer, or are thinking about doing so, follow these tips:

• Call your state department of insurance to see whether a plan you’re considering and the agent selling it are licensed. If they aren’t, don’t sign up.

• Be skeptical if premiums seem low or if the plan offers coverage without concern for pre-existing conditions. Also beware of pitches that avoid the word "insurance" or the use of insurance terms.

from Consumer Reports magazine, July 2003 issue.