Local watchdogs have been making moves against what one official calls “junk insurance”–limited health care plans that allegedly claim to provide comprehensive coverage.
In Los Angeles, the City Attorney’s Office announced Oct. 20 it had filed charges against a group of health insurance companies for allegedly defrauding consumers by marketing health care coverage as comprehensive when it actually included “hidden and obscure exclusions and limitations” that left policyholders stranded when they needed medical care.
On October 15, the Florida Office of Insurance Regulation (FOIR) announced it had issued an order to American Medical and Life Insurance Co. (AMLI), New York, asking the company to show why it should not be banned from selling its limited benefit plans in the state. The order alleged five counts of illegal activity by the company.
FOIR said its investigators concluded that AMLI misrepresented to consumers the benefits and terms of the insurance policies that it underwrites through a discount medical plan agency, Cinergy Health Inc., which at the time of the complaint issued AMLI policies. (Cinergy Health, Sunrise, Fla does not list AMLI as a company it currently represents, a recent search of its Web site found. As of press time, Cinergy had not replied to requests for comment.)
Cinergy agents implied AMLI’s limited health plan was comprehensive, FOIR charged.
The agency also said it had received “numerous” complaints from consumers about managing general agents (MGAs) hired by AMLI to market its policies in the state and that AMLI had not provided enough oversight of the MGAs and their agents. The company had also hired a third party administrator not licensed to do business in Florida, officials charged.
In addition, AMLI failed to provide complete records to FOIR, despite a number of meetings its representatives had with AMLI executives to discuss the matter. For instance, in May 2009, AMLI at first told FOIR it had no agreement with Cinergy, then later acknowledged such an agreement did exist.
“Companies licensed to sell insurance products of any kind in Florida agree to follow the laws of our state,” said FOIR’s General Counsel Steve Parton. “Our office has the authority to revoke a company’s license if we believe it is breaking those laws.”
FOIR says it could revoke AMLI’s certification to sell insurance in the state and order it to cease operations in Florida. AMLI had 21 days from receipt of the order to respond.
In a statement on Oct. 27, John Ollis, president and CEO of AMLI, noted that FOIR’s order is amended from an original directive the agency issued in 2009.
“During this time AMLI and the Department have worked in open cooperation to address the issues in an appropriate and satisfactory manner,” Ollis stated.
Ollis said his company would resolve its issues with FOIR “shortly.”
Also last year, New York State fined AMLI $700,000 for allegedly misleading consumers in selling a limited-benefit health plan.
The state also banned the company from selling the plan and told it to stop broadcasting a national TV commercial for the plan.
AMLI agreed to discontinue selling limited benefit group medical policies in New York, convert terminated group policies to individual policies upon request and to resolve customer complaints.
Ollis, the company’s top executive, stated at the time that AMLI had brought deceptive marketing practices to the attention of the state’s Insurance Department on its own initiative.
AMLI “has been fully cooperating with [the department] since 2008, when we became aware of the unapproved marketing actions of a marketing entity with whom we no longer do business,” Ollis stated.
In the Los Angeles case, the criminal branch of the City Attorney’s Office announced that it had filed charges against Mega Life and Health Insurance Company, Mid-West National Life Insurance Company of Tennessee, and their parent company, HealthMarkets Inc., North Richland Hills, Texas.
Officials said the companies had “engaged in a long-running scheme to defraud consumers involving the sale of ‘junk insurance.’”
The companies sold health insurance coverage that they represented as comprehensive but actually included “hidden and obscure exclusions and limitations that leave policyholders without coverage,” according to a statement from the office.
The office is charging the companies with violating state laws against unfair competition and false advertising.
As of press time, HealthMarkets had not responded to requests for comment.
In Massachusetts in 2009, HealthMarkets announced it would discontinue selling health insurance coverage in that state, except for some secondary plans, after regulators questioned whether it had made clear to consumers the limitations of the coverage.
The company agreed at the time to pay $15 million in penalties to the state and to reconsider some health claims it had denied.
These developments follow an August announcement by the Federal Trade Commission (FTC) that officials in 24 states were joining it in a crackdown on “bogus medical discount plans.”
The FTC along with state officials had filed a total of 54 lawsuits and regulatory actions to stop what it called deceptive practices in the selling of such policies, the agency said.