A misguided proposal to create federal oversight of certain group health plans could open wide the doors of fake health coverage, leaving consumers without urgently needed protection.
They’re called association health plans (AHPs). The Trump administration’s proposal would authorize AHPs. It’s a well-intended idea aimed at increasing insurance options for consumers. The U.S. Department of Labor (DOL) would oversee them, leaving state insurance regulators with little meaningful role. And that’s the rub.
Sole federal oversight is a dangerous gambit. AHPs have a sorry history of fraud and abuse under federal oversight. Nimble crooks realized the DOL was ill-equipped to regulate these plans 15 years ago. Burdened by too few staff and cumbersome procedures for investigating, the feds were outmatched.
Criminals set up large networks of fake health plans masquerading as AHPs. Smooth-talking pitchmen went door-to-door, peddling plans to trusting small businesses and consumers around the U.S., promising them the benefits of low-cost group health coverage. Mass emails and cold-callers in phone boiler rooms mass-marketed incessantly.
Legitimate health agents lost plenty of business when consumers were lured into buying the junk. They should stay alert to this proposal and its potential damage. More lost business could be on the line.
The plans typically paid small claims upfront to pacify policyholders, then refused to pay larger claims. Policyholders often were faced with huge medical bills they had to pay from their own pockets. People went bankrupt, lost their homes, and suffered damage when medical procedures were delayed.
One couple had a 9-year old boy with brain cancer, only to discover their health plan was worthless.
At least 200,000 policyholders were bilked during a two-year rampage in 2002-2004. The cons stole more than $250 million in premiums and unpaid medical bills.
State insurance regulators played a valuable role in stopping this wave of deceit once the full extent of AHP fraud surfaced. States knew their backyards well, and grew adept at tracking down the bad actors after a slow start. Tighter licensing and better communication among state insurance departments grew out of the mess. It’s now much harder for a crooked health plan to operate in one state without all the other state regulators sharing leads and quickly investigating in their own backyards.
Emergency restraining orders also let state insurance regulators move fast to shut down bogus health plans. This is a vital arrow in the regulatory quiver, one that the Labor Department lacks.
The DOL is well-intended, though remains burdened by staff shortfalls, slow-moving criminal procedures and arm’s-length distance from scams popping up in the states. The federal agency is ill-equipped to stop the rapid spread of AHPs that rely more on stealth than stationary brick-and-mortar operations.
States should be allowed to share oversight of AHPs with the federal government. Both sectors bring valuable enforcement tools to the mix.
The Trump administration is inviting yet another wave of fake health plans that would leave policyholders without coverage — their health and finances threatened. Instead of repeating history, let’s learn from past mistakes and erect a safety net that gives state regulators and the feds partnering oversight roles.
—Read Johnson Brings Back Association Health Plan Bill on ThinkAdvisor.
Matthew J. Smith is the director of government affairs and general counsel at the Coalition Against Insurance Fraud.