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By Kenan Loomis

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Government Cracks Down On Lead Cards And Advertisements Used To Sell Senior Products

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Policies devoted to the senior market are valuable products to many agents and brokers. These include Medicare supplement insurance, nursing home coverage and small face amount life insurance policies (often used for final expenses).

To market these products, insurance agents and companies often use “lead cards” or other advertisements that explain what Medicare and Social Security provide and that invite recipients to request more information. The returned cards can be door openers for agents to meet with a potential insured to explain how a particular product can supplement Medicare or Social Security benefits.

The federal government, however, is taking a dim view of this practice.

Section 1140 of the Social Security Act prohibits the “use, in connection with any items constituting an advertisement, solicitationor other communication” of the words “Social Security” or “Medicare” “in a manner which reasonably could be interpreted or construed as conveying the false impression that such item is approved, endorsed or authorized by the Social Security Administration…or the Department of Health and Human Services…or that such person has some connection with, or authorization from [these entities].”

What insurance marketers need to know is that such solicitations violate the Act even if they contain disclaimers.

In at least one instance, the government has taken the position that lead cards and advertisements used to explain government benefits have misled consumers into believing the mailings are approved, endorsed or authorized by Social Security.

The penalty is severe$5,000 per violation. That arguably means the penalty could end up being $5,000 per lead card or advertisement.

Is the government taking action in this area? Yes. Recently, for example, it brought a Section 1140 claim against a “lead-card house.” The cards at issue provided a “Social Security Benefits Update” and asked recipients whether they would like to receive more information about available Social Security benefits. The solicitation at issue stated: “Did you know that Social Security may help you pay your funeral expenses? For further information on this and other interesting facts about Social Security, just mail the accompanying postage-free card.”

According to the government, the mailing was misleading in that it used such statements as “Social Security,” “Social Security Benefits Update” and “Social Security Funeral Benefits.” The government successfully obtained a restraining order prohibiting the dissemination of these cards and freezing the lead-card houses assets in anticipation of assessing severe monetary penalties.

The lesson learned is that any medium used to advertise a senior productwhether it is a lead card, brochure or other advertisementshould be modified to prevent a violation of Section 1140. Therefore, when developing marketing materials for seniors, consider following the suggestions in the box on this page.

The governments modus operandi thus far has been to issue a cease-and-desist letter before seeking court intervention. Should your firm receive one of these, immediately discontinue using the subject card or advertisement and seek legal counsel.

, Esq., is an attorney with Smith Moore LLP in Atlanta, Ga. His e-mail address is [email protected].

Reproduced from National Underwriter Edition, April 16, 2004. Copyright 2004 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.