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State Health Insurance Scams on the Rise: What Can Insurance Producers Do?

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Fake health plans that advertise comprehensive coverage at bargain prices are on the rise, according to insurance commissioners in multiple states.

In recent weeks, Missouri regulators cracked down on 13 companies, California ordered firms to stop selling unlicensed health discount cards, and Tennessee regulators seized a company they say has collected more than $14 million from consumers across the United States.

Among the 37 state insurance bureaus responding to a survey by the Coalition Against Insurance Fraud last fall, 57 percent reported increases in health plan scams. And the bad news is that the recently passed Patient Protection and Affordable Care Act (PPACA) may inspire more scams that prey on public expectations for expanded coverage and misrepresent the changes, Secretary of Health and Human Services Kathleen Sebelius warned the states in April.

Groups that are being targeted include:

  • American Trade Association. In March, Tennessee regulators seized the headquarters of the association and another firm, Smart Data Solutions. The state claims the firms enticed at least 12,400 consumers to buy “bogus health coverage,” then denied claims and diverted funds. Nader Baydoun, the firms’ attorney, said his clients were simply membership benefit administrators who also are victims of outside insurance companies. Tennessee regulators question whether the products were ever underwritten by any legitimate insurance company, according to court papers.
  • Consolidated Workers Association. Montana regulators are among those that have taken actions to stop the association and an affiliated firm, the National Alliance of Benefit Services Association (NABSA), from selling “bogus insurance.” Internet ads and unsolicited faxes advertised $10 doctor visits and “pre-existing conditions OK” at rates starting at $199, regulators said in a press release.
  • HealthcareOne. California regulators issued cease-and-desist orders in February against HealthcareOne, Elite Healthcare, and others at the same Arizona address. In the orders, the state alleges that the firms misled consumers into thinking they were purchasing insurance accepted by 900,000 providers, but consumers were then unable to locate providers that honored the discount card. Company officials did not respond to interview requests.

What can agents do?

As members of the industry, it is important for insurance agents to take a proactive role in preventing the spread of fraud and protecting the reputation of the industry. A simple way to stop fraud is to get the word out. Write an article about it for your local paper. Encourage your clients to research you so they know you’re a legitimate agent dealing with highly rated companies. If you know of any suspicious activity, report it to your state’s insurance commission office immediately. Before you start working with a new health plan or discount card, research it. Find out what other agents are saying about it, and make sure it is verified with your state regulator. The best way to help boost the credibility of the industry is by promoting your own credibility.

Heather Trese is the associate editor of the Agent’s Sales Journal. She can be reached at [email protected] or 800-933-9449 ext. 225.


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