Beware Increasing Health Insurance Scams
Paul Winn, CLU, ChFC
(Reprinted with permission)
The year 2008 saw more than its fair share of economic problems including a mortgage meltdown, severely declining home and
stock market values, the closure of many long-established businesses, massive layoffs, and the exposure of one of the largest
investment frauds ever perpetrated by an individual. That the individual was a former NASDAQ stock exchange chairman only
served to make the fraud seem more systemic.
However, a fraud that dwarfs the Bernie Madoff estimated $50 billion Ponzi scheme has been going on for years and is likely
to become more prevalent as individuals and families try to cope with reduced incomes and depleted resources in this recessionary
economy: health insurance fraud. A BusinessWeek article entitled "It's Enough To Make You Sick"1 reported that healthcare fraud
cost $54 billion in 2003 alone and was expected to grow annually by at least 3 percent. A 2008 Forbes.com article reports that
"insurance regulators have been wrestling with what looks like a new wave in health-care scams."2
One of the factors expected to increase the overall cost of health insurance fraud is the need for terminated employees and
families to find health insurance coverage to replace the coverage formerly provided under their employers' group health insurance
plans. Although identical health insurance benefits are available to terminated employees in most cases under COBRA continuation
coverage, the cost-102% of the total premium-may keep many from exercising this option. Thus, the search for affordable health
insurance intensifies and, as it does, the searchers become more vulnerable to health insurance fraud.
The BusinessWeek article previously cited relates a story about a couple scammed by a national association marketing low-cost,
guaranteed issue health insurance to self-employed individuals that left a widow with almost $500,000 in unpaid medical bills
following her husband's death. Often the insurance organizations marketing these products have not been admitted by the various
state insurance regulatory agencies and are not authorized to sell their products in those states. Obviously, however, they
find many potential customers anxious to obtain lower-cost health insurance. Typically, small employers and others with limited
resources are more likely to be attracted by these organizations that offer extremely low rates-rates that may be up to 50
percent below the legitimate competition. Far too often, the resulting coverage fails to provide the protection they needed.
Here is how many unauthorized insurers operate. Normally they try to persuade insurance agents to sell their startlingly low-cost
products through legitimate-sounding trade groups that often turn out to be bogus. Frequently, they imply they are backed by a
nationally-known respected insurer, a relationship that is usually nonexistent. Not only is the purported coverage offered at
low cost, the insurer may guarantee that anybody who applies will be covered; in other words, they agree to perform little or
no applicant-selection underwriting.
Because of the no-underwriting guarantee, individuals having medical histories that might keep them from obtaining legitimate
coverage often fall victim to these scams. In order to establish their credibility with agents and their clients, these bogus
insurers usually pay some of the earlier submitted claims often very quickly. By quickly paying these claims, they may gain
a reputation for fast and reliable claims service. In many cases, several months elapse before the realization occurs that
substantial legitimate claims remain unpaid because the bogus insurer can no longer be found.
If you are in the market for health insurance coverage, how should you protect yourself from these predatory organizations?
The answer is that, although they are not foolproof, there are several ways you can reduce the likelihood you will be the
victim of a health insurance scam. Here are some important red flags you should be aware of:
- Remember, health insurance is expensive principally because healthcare is expensive. If it is offered at a big savings, it may not cover very much. If the coverage or premium sound too good to be true, the coverage may not protect you. Be wary of premiums that are substantially below other quotes you've received.
- Be suspicious if you have been previously turned down for coverage but were able to subsequently obtain a health insurance policy easily and cheaply.
- A seller's statements that you are buying a membership or that the policy is not insurance should make the coverage immediately suspect.
- Some unadmitted insurers refer to their health insurance policies as "ERISA plans." If you are solicited for such a plan, call the state insurance department to determine if it is valid.
- Take enough time to thoroughly investigate the proposed coverage and insurer. Don't allow the agent to rush you into making a decision.
- If you are not familiar with an insurer, check its status with the state department of insurance before buying health insurance coverage.
1Brian Grow, "It's Enough To Make You Sick," BusinessWeek, September 13, 2004.
2Maureen Farrell, "Top Health-Insurance Scams," Forbes.com, January 18, 2008.
About the Author:
Paul Winn CLU ChFC is an insurance and financial writer with more than 30 years experience in the life insurance and securities industry as an
agent/registered representative, an agency head, a marketing vice president for a life insurance company and the president of a corporate registered
investment adviser. He was a long serving member of the advisory board to the New York State insurance department. He is a published book author and
creator of more than 100 insurance and securities training courses. Learn more about Paul at his website
http://insurancefinancialwriter.com.
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