The continued economic downturn, high uninsured rate and confusion over requirements in the new federal health reform law are fueling health insurance scams that can leave consumers deep in debt, according to federal and state law enforcement officials.
FTC whacks scammers
Fake discount plans targeted by feds and states
In response, the Federal Trade Commission, working with officials in 24 states, last week announced a crackdown on fake medical discount plans, which promise cut-rate medical services but fail to deliver. A total of 54 lawsuits and regulatory actions have been filed.
In California, the FTC has filed a lawsuit against Health Care One, Phoenix, and affiliates, and a federal judge appointed a receiver on Aug. 8 to assume company operations. The action follows a February cease-and-desist order from the California Managed Health Care Department, which regulates HMOs in the state.
Health Care One allegedly implied in promotional materials that it was affiliated with the federal government and claimed that enrollees would save on healthcare costs from a network of 900,000 providers. Members paid monthly fees and then had trouble disenrolling, a privilege for which they ultimately were charged a “processing fee” of $95, according to the FTC and the cease-and-desist order.
In similar cases across the country, companies allegedly engaged in deceptive marketing practices, disguising the schemes as health insurance and pitching consumers on empty promises via telemarketers. The Consumer Health Benefits Association in New York allegedly told consumers it worked closely with major insurers and would save them up to 85% on medical expenses, according to the FTC. Last month, the Minnesota attorney general won a consent judgment barring the company from doing business in that state and ordering $500,000 in fines.
“Victims don't know they've been ripped off until after they've tried to use the service and pay their bill,” said David Vladeck, director of the FTC's Bureau of Consumer Protection, in a written statement.
In a third case, a U.S. District Court in Tennessee last week froze the assets of United States Benefits and put the company in temporary receivership. The FTC and the state attorney general said the private firm sold memberships to a “benefits association” with little or no value, when consumers were led to believe they were buying health insurance.
More than 1,000 consumers in California alone have complained to the Managed Health Care Department about these scams since 2004. Most said that they thought they were purchasing health insurance but instead incurred high medical bills as claims went unpaid. In response, the state has ordered 18 unlicensed discount health plans to cease operations or become licensed. To date, only one medical and two dental discount health plans have become licensed.
“Consumers must have assurances that the discounts offered by these plans are real, and that the cards will be accepted within the medical community,” said Cindy Ehnes, director of California's managed-care department.
Providers have been calling on law enforcement officials for years to deal with the problem as they watch patients fall prey to scams. Earlier this year, the California Medical Association urged the state managed-care department to scrap regulations for discount medical plans and prohibit them from operating in the state altogether.
“Discount health plans are a nightmare for patients and doctors,” said Andrew LaMar, spokesman for the California Medical Association. “Doctors get caught in the middle, when patients discover their so-called discount plan provides no benefit or coverage and no discount. But it's not the fault of the doctor or the patient. It's the product of scam artists who don't want to play by the rules for health insurance.”
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