New York regulators have become the latest to crack down on bogus health insurers that have proliferated in the past two years to prey on uninsured individuals and small businesses desperate to find affordable coverage.
According to a new report by the New York-based Commonwealth Fund, the U.S. is facing an unprecedented influx of unlicensed health plans posing as legitimate insurers. These fly-by-night companies, which tend to crop up when insurance prices are high, typically entice new members with rock-bottom rates, collect premiums and then disappear when bills come due, sticking consumers and providers with heaps of unpaid medical bills.
Since 2001, just four of the largest coverage scams have left 100,000 people with $85 million in unpaid claims, and more casualties are expected as premium increases continue to climb at double-digit rates, the report states.
Others argue that the problem could be exacerbated by likely passage of federal legislation allowing small employers to buy group coverage through association health plans that are exempt from state laws.
"This is an extremely serious national epidemic," said Mila Kofman, assistant research professor at Georgetown University's Health Policy Institute, Washington, and the study's lead author. "No state has been immune."
According to the report, the U.S. Department of Labor reported in December 2002 that it had 107 civil and 19 criminal investigations under way into allegedly fraudulent insurers. The Texas Insurance Department alone has shut down 129 unauthorized health plans and their affiliates during the past two years.
Traditionally, health insurance schemes have come in waves. The current one comes at a time when even legitimate insurers are increasingly targeting the growing ranks of the uninsured (Feb. 24, p. 8). The last spike in illegal plans, which occurred from 1988 to 1991, left more than 398,000 people with $123 million in unpaid claims.
But the toll could be much worse this time, because the con artists involved are much more savvy and because the crooked plans are now operating on a national rather than regional scale, said James Quiggle, a senior executive at the Coalition Against Insurance Fraud, a Washington-based consumer advocacy group.
Quiggle points to Employers Mutual, an unlicensed insurer based in Carson City, Nev., which operated in every state for 10 months before it was shut down in February 2002. In that time, the company collected $15 million in premiums, paid out $3 million in claims and left some 22,000 people with $50 million in unpaid medical bills.
"The current generation of swindlers have perfected their business model," Quiggle said. "They've learned how to market their products better and to reach more people faster, robbing them of more money in a shorter time."
The consequences for providers could be dire. By the time a bogus plan is shut down, it usually has little or no assets on which to place a lien, Kofman said. And patients can rarely gather enough money to cover the outstanding bills themselves.
"Even after taking out second mortgages and using their credit cards, there's usually no way consumers can pay the entire bill" for medical procedures that can cost as much as $300,000, Kofman said. "More times than not, providers are stuck with all these claims that are never paid and have to be written off."
Rural hospitals could be hit the hardest, because they often operate on tight budgets and have less means to shift costs. "One cancer patient (who can't pay his bill) can force a small, rural hospital out of business," Kofman said.
Fortunately, officials in many states are taking swift action against the latest crime wave.
In New York, a recent flurry of consumer complaints prompted the state attorney general, the state insurance superintendent and the state health commissioner to jointly sue a family of health plans for operating without a license and engaging in widespread fraud and deception.
"This is an excellent example of state agencies moving together against a real threat," New York Health Commissioner Antonia Novello said in a statement.
The lawsuit, filed in New York Supreme Court on Aug. 22, alleges that the plans-known as Metro Managed Care, Metro Health Plan, Metro Health Care Plan, MHMC and Metro Health Care Services-falsely represented themselves as not-for-profit and charitable organizations, touted a fictitious network of providers, failed to pay claims, discouraged members from using benefits and terminated policies to avoid payment.
In one case, Metro Health declined to cover a member's prescription for Fosamax, claiming the popular and federally approved osteoporosis drug was still "experimental." Consequently, the member spent $860 in premiums and $296 on Fosamax before dropping the plan and enrolling in Medicaid, which covers the drug.
How many members the plans had and how much money they illegally collected and withheld before being shut down isn't known, said Brad Maione, spokesman for state Attorney General Eliot Spitzer. "Because (the plans) were unlicensed, the extent of their actions is hard to determine, but we're still investigating," he said.
Florida, where 30,000 people have reported being bilked by bogus insurers since 2001, has gone even further.
On July 1, the state enacted a law that allows anyone who operates an unlicensed health plan to be charged with a first-, second- or third-degree felony depending on the amount of premiums collected. The law also makes it a third-degree felony for anyone who has been banned from the industry to take part in any insurance transaction.
Because the courts are swamped with so many criminal cases, "in order for us to prosecute (illegal insurers), it really has to be a felony," said Tami Torres, spokeswoman for the Florida Department of Financial Services.
Over the past two years, the department has shut down 16 unlicensed insurers and filed criminal charges against six.
The latest scam operator to be prosecuted is TRG Marketing Group, a Greenwood, Ind.-based plan said to have allegedly swindled 7,200 Floridians. If convicted, TRG's two owners could each face up to 60 years in prison, Torres said.