06/ 29/ 2006
by Glenn Townes
Every year thousands of consumers, including many small-business owners, suffer devastating financial losses when they discover that the health-insurance policies they purchased are worthless.
Generally, here's how the scam works: An unsuspecting business owner shops for health-insurance coverage for himself and his employees by using a multitude of shopping options, such as the Internet, advertisements in local newspapers and word of mouth. The business owner locates an insurance broker. As with many start-up and existing businesses, containing costs is the paramount concern—so any insurance broker that offers extremely reasonable rates will usually attract the budget-conscious entrepreneur.
When you finally locate an insurance broker offering reasonable health-care insurance coverage for a small business with less than 10 employees, you quickly purchase a policy, bowled over by the sales pitch, proposed amenities and, of course, the super price. Eventually, you or one of your employees becomes ill and files a medical claim—it's a substantial claim, and the insurance company denies it. The insurance broker suddenly vanishes, and you are left to pay thousands of dollars in medical costs for yourself or your employees.
According to statistics from the National Association of Insurance Commissioners, even the sharpest consumers are routinely scammed by insurance con artists.
For example, between 2000 and 2002, more than 144 unlicensed or bogus insurers across the country sold fake health-insurance policies to more than 200,000 unsuspecting policyholders, resulting in about $252 million in unpaid claims. In the past several years, unscrupulous insurers have set up shop under the cogent names of "Employers Mutual," "TRG Insurance" and "Local 16 Insurance." Also, some brokers have claimed to be affiliated with legitimate insurers and have sold policies to consumers and small-business owners—relying on name recognition—only to disappear after the premiums are paid, and a claim is filed.
Unfortunately, no one is immune to the problem of fake health-insurance policies or the equally deceptive "discount health plans." These discount health plans have duped thousands of consumers by promoting often misleading and confusing information. In some cases, the plans masquerade as actual health-insurance coverage.
Discount health plans are touted as an alternative to legitimate health-insurance coverage, when in fact, the plans are virtually worthless and do not pay for medical services. Many of these problematic plans offer only a modest, if any, savings on various medical procedures and are often based on inflated cost of the procedure. For example, a discount plan will advertise that it will save a consumer 50 percent on a medical procedure, such as an X-ray. If the procedure on average costs about $300, the discount plan will list the procedure as costing about $600 and offer a 50-percent discount, meaning that you would still have to pay $300 to the doctor or facility that performs the service, in addition to the monthly service charge/fee that you pay. Ultimately, the consumer doesn't save anything.
Typically, a company intent on bilking policyholders will draw in new customers with attractive discounted premium rates, often too good to be true and substantially lower than competitors. In some cases, the fly-by-night firms will even establish a short-term credible track record and actually pay some small claims. They eventually rake in enough premiums and then fold—or simply vanish with the money, paying only a few, if any, claims.
Insurance industry officials advise all consumers, particularly small-business owners, to be leery of obscure insurance brokers offering cut-rate discounted rates on health-insurance coverage. The NAIC is encouraging consumers to "Stop. Call and Confirm." The message is clear: If you locate an insurance broker and are unsure about the reputability of the broker, you should:
- Stop before signing anything or writing a check.
- Call the Office of the Commissioner of Insurance in your state.
- Confirm the broker is legitimate and licensed to do business in the state.
- Work with an organization like NFIB that researches insurance offers before making them available to members.
By following these simple steps, entrepreneurs can avoid becoming victims of the growing problem of bogus insurance.
