Fraudulent Health Insurance Plans

What You Need to Know to Protect Yourself From Fraudulent Health Insurance Plans

Background

Nationwide, the health insurance marketplace is facing rough times. The cost of health insurance is rising, and access to care is increasingly limited. This makes consumers seeking coverage vulnerable to the illegal schemes, whose perpetrators prey on those struggling to find adequate and affordable options.

Entities seeking to make a profit by selling fraudulent health insurance claim that state insurance laws don't apply to them. They recruit insurance agents to sell “ERISA plans” or “union plans” that falsely claim to be exempt from state law.

“If it seems too good to be true, it probably is.”
Here is some information to help protect yourself against illegal health insurance plans.

Legitimate ERISA Plans
A very few ERISA plans (plans governed by the federal Income Security Act of 1974) are exempt from state insurance regulation. The two kinds that are exempt include:

1. health plans offered and funded by a single employer to its employees; and
2. some union plans.

But a plan sold to a self-employed individual can never be exempt from state regulation. Even a plan provided by a union to a group of employees is not exempt from state regulation unless it is the product of the employees' collective bargaining agreement with the employer.

So, although a few specific ERISA and union plans may be exempt from state insurance regulation, such plans are not sold by insurance agents to individuals. Anyone attempting to do so should be reported to the OIC.

How Scams Work
Be aware that:

• A typical fraudulent health insurance scam attempts to recruit as many local insurance agents as possible to market the coverage.
• The company selling the health plan has not been licensed by the state Insurance Commissioner, and all the protections of insurance regulation do not apply (including the requirement that the insurers have a minimum amount of assets to ensure they can pay claims).
• Agents are told the coverage is regulated by federal law, not state law. This is not true.
• The coverage typically is offered regardless of the applicant's health condition, and at lower rates and with better benefits than can be found from licensed insurers. The scam seeks to collect a large amount of premium as rapidly as possible.
• Some claims may be paid initially, but eventually payment is delayed or refused altogether.
• Unsuspecting consumers who thought they were covered for their medical needs are left responsible for huge medical bills. Employers who sign up for these illegal plans may be liable for the medical bills of their employees as well.

Avoid Becoming a Victim
You can spot fraudulent health insurance scams if you inform yourself and ask questions. Here are some tips.

• If you don't recognize the name of the company offering the health plan, check on it first. Read all materials and scrutinize web sites carefully.
• Make sure the company is licensed. Ask the agent for the company's name, and check whether the benefit booklet names a licensed insurance company. To determine whether a company is licensed, call the Insurance Commissioner's toll-free Consumer Hotline at 1(800) 562-6900.
• Be suspicious if coverage seems unusually cheap, is issued with few questions about the applicant's health, or refers to coverage as "stop-loss insurance." Coverage that boasts excessively low rates or minimal underwriting should be a signal to look deeper.
• Deal with reputable insurance agents. If the person trying to sell you coverage says he or she doesn't need a license because the coverage isn't insurance, or is exempt from regulation, report this. To learn if an agent is licensed call the Insurance Commissioner's toll-free Consumer Hotline at 1-800-562-6900.
• Make sure the agent is selling a state-licensed product. If an insurance agent is trying to sell you an "ERISA" or "union" plan, report this to the Insurance Commissioner's toll-free Consumer Hotline at 1-800-562-6900.

If you encounter any of these situations or your suspicions are otherwise raised, contact the Office of the Insurance Commissioner's toll free Hotline 1-800- 562-6900 and note specifically that you are calling about a possible illegal health insurance plan.

Consumer Advocacy If you have insurance questions or concerns, call our Consumer Hotline at 1-800-562-6900. Our Consumer Advocacy staff includes experts in all lines of insurance (auto, homeowner, life, disability and health) and provides free assistance and education to consumers.

SHIBA HelpLine provides specialized health insurance education, assistance and advocacy, including individualized counseling by trained volunteer advisors regarding your rights and options. Call 1-800-562-6900.

The Office of the Insurance Commissioner can help you
If you have any questions or need additional information about your rights as an insurance consumer, call their Consumer Hotline at 1-800-562-6900 or visit their web site at www.insurance.wa.gov