Everyone wants cheap health insurance. And who hasn't been upset by the double-digit premium increases we've seen in recent years?
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Everyone wants cheap health insurance. And who hasn't been upset by the double-digit premium increases we've seen in recent years?
No wonder employers are always on the lookout for plans with lower premiums.
There's nothing wrong, of course, with shopping for a better deal—unless an employer gets sucked into an insurance scam that leaves everyone high and dry with unreimbursed medical expenses.
"Employers face huge financial risks when trying to cut costs by signing up with cut-rate health insurers," warns James Quiggle, director of communications at the Washington, D.C.-based Coalition Against Insurance Fraud. "They can end up providing themselves, their employees and families with fake coverage that literally destroys their lives by leaving them with potentially big medical bills they have to pay out of their own pockets."
That's scary stuff. And health insurance scams, unfortunately, are on the increase, according to a recent study from the General Accounting Office (GAO) (To obtain a copy of the study, see the sidebar "Do Your Homework" on page 44.) The GAO study concluded that in a recent two-year period:
• More than 140 bogus companies were in operation.
• They sold coverage to at least 15,000 employers.
• The bogus plans covered more than 200,000 policyholders.
• More than $252 million in medical claims were left unpaid.
• Employers with fewer than 50 employees were particularly vulnerable to scams since they lacked the staff to investigate insurance offerings.
Here are steps you can take to protect your business from this insurance scam nightmare.
Stop, Call, Confirm
When considering a new health insurance plan, step No. 1 should be a call to your state insurance department to make sure the carrier is licensed to do business in your state. "We like to remind everyone of the phrase 'stop, call and confirm,'" says Lee Barry, assistant commissioner of the office of consumer protection services for the New Jersey Department of Banking and Insurance.
"Your state insurance department is good at discerning information that will either vindicate a carrier or suggest something is amiss."
Experience shows that too many employers don't place that call. "It sometimes defies logic that so many businesses have failed to take such a simple and obvious step that could have saved them and their employees a world of hurt and misery," Quiggle notes. Many employers let such things fall through the cracks because of crowded schedules. Maybe another reason is wishful thinking: Who wants to look a gift horse in the mouth?
When you confirm the legitimacy of your own prospective insurance plan, keep in mind these tips:
Make sure you call the correct department. Depending on the state, the appropriate office goes by the name of "state insurance department" or "insurance regulator" or "bureau of insurance." Don't confuse that office with the "secretary of state" or other department that registers corporations. A bogus outfit might well have its corporate papers in order. (You can quickly find your state's insurance department using the Internet. See the sidebar "Do Your Homework" on page 44.)
Specify precise information about the prospective carrier. Be aware that bogus carriers often mimic the names of legitimate companies. So get your information from the materials that have been mailed to you by the carrier. Check out the precise spelling of the name, the mailing address and any other identifying characteristics.
Send samples of the marketing literature and plan being offer ed. Your state insurance department will be able to review these materials for legitimacy. "Give the department as much information as you can in as granular detail as you can provide," Quiggle suggests. Remember, too, that scams often produce highly sophisticated marketing brochures and related materials.
Confirm the legitimacy of your broker. "Learn about the person who is trying to sell you the plan," Barry cautions. Agents and brokers, referred to as "producers" in the insurance industry, must be licensed to do business in your state. Once again, your state insurance department will be able to confirm this. Provide the exact spellings of names and addresses.
Call a few of the network physicians. Does it appear that a new plan has all of the physicians your employees want? Hold on: Not everything may be as it seems. "Very often a plan will claim to have a significant network of physicians in an area," Barry notes. "But when it comes time to pay claims, the physicians disclaim any knowledge of the network." Lesson learned—call a few of the listed physicians before you sign to make sure they really are in the network. Pay particular attention to specialists.
Request references from the issuer. Ask for the names and contact information of the issuer's other clients. Call other employers to see how they have been treated by the plan.
Scrutinize group purchase plans. You are likely to be solicited more than once by organizations that peddle group health insurance plans called multiple employer welfare arrangements, or MEWAs. These organizations include more than one employer in a single plan in order to aggregate the number of covered individuals, a practice intended to reduce premiums. These outfits warrant a special level of due diligence before signing on the bottom line.
"MEWAs have long been characterized by a lot of fraud in the workplace," warns Mila Kofman, a researcher with the Health Policy Institute at Georgetown University. "Some are completely phony; others are legitimate but are themselves taken in by scams. Businesses considering purchasing insurance through group purchase arrangements should be extra cautious making sure they are legitimate."
How to do so? Once again, your state insurance department is your friend. "MEWAs come in two broad categories: 'fully insured' and 'self-funded,'" notes Tim Ryles, an Atlanta-based consultant and an expert witness on insurance regulatory matters. In the first category an insurance carrier stands behind the plan. Ryles emphasizes the importance of making sure the carrier is licensed to do business in your state.
As for the "self-funded" category, these MEWAs are not backed by a licensed insurance carrier. Make sure any such organization has gone through the extensive registration process mandated by your state. "I would suggest that employers check out the credentials of people behind any self-funded MEWA," Ryles says.
In any case, you will want to have a MEWA's documentation scrutinized carefully by an expert on insurance matters. If the organization claims to be fully insured, do the documents confirm that? How strong financially is the MEWA? If it claims backing from an insurance carrier or a bank, does that financial institution guarantee the payment of claims, or does it simply provide so-called "stop loss" insurance that protects the issuer of the insurance but not the employer?
Run away from any MEWA or other insurance plan that claims it is not regulated by state law. For example, the salesperson may claim an offering is "an ERISA plan," which is regulated by federal law. Appealing to the federal Employee Retirement Income Security Act (ERISA) of 1974 is an old ruse. "Fraud perpetrators often insist they are selling ERISA plans, and that therefore the state insurance commissioners cannot regulate them," Ryles warns. All insurance plans are subject to regulation by your state's insurance department.
Reduce Risk
The risk of getting stuck with a bogus health insurance plan is very real, and the current situation in which employers are squeezed between escalating costs and increasing competition makes the hazard all the greater. "When you have a market where people are desperate for affordable health insurance, there will always be opportunities for criminals," Kofman cautions. "To the extent we have demand and insufficient supply, there will always be criminal activity."
Any business wanting to avoid crippling financial loss must stay vigilant. "An employer institutes a health plan to attract and retain good employees," says Barry. "Getting stuck with a bad plan and the nightmare of unpaid bills means a lot of angry employees, which is exactly what the employer wanted to avoid in the first place."
Red Flags
While bogus health insurance plans do their best to look legitimate, you will often see these red flags that suggest the necessity of additional investigation:
• The premium seems well below the market norms for what you and other businesses of your size normally pay.
• The agent seems too eager to sell the policy and too vague in details.
• It is too easy to sign up without standard medical tests.
• The agent claims that the plan does not need to be licensed in your state. The proffered reason might be that federal ERISA already regulates the program.
This is a common dodge that indicates a bogus program.
• The plan requires your business to join a shell association in order to validate the concept of group coverage. The rule of thumb to remember here is that any association for which a policy is designed should exist for reasons other than simply buying insurance.
• In a variation, a bogus plan may attempt to achieve an air of legitimacy by asking a prospect to join a "trust," which may carry the name of a legitimate bank as sponsor. In reality, this bank simply holds the policy in a vault and has nothing to do with managing it.
Trusted Source
One way to avoid potential health care scams is to go through a trusted source, such as the NWFA. For more information on the N WFA's group health insurance plans, contact Membership Services by phone at 800/422-4556 (U.S.), 800/848-8824 (Canada) or 636/519-9663 (local and international), by e-mail at [email protected] or on the Web at www.nwfa.org.
Do Your Homework
Confirm the legitimacy of any insurance company or agent with your state's insurance department. To quickly find the relevant office, go to the National Association of Insurance Commissioners Web site at www.naic.org/state_web_map.htm. To find the specialist in your state on MEWAs, click on "Multiple Employer Welfare Arrangement Contacts.
" An excellent description of health insurance scams and how to avoid them is contained in the document "Private Health Insurance: Employers and Individuals are Vulnerable," from the Federal General Accounting Office (GAO). Go to the GAO Web site at www.gao.gov. In the search box at the top right corner, enter the document number: GAO-04-312. You can download the PDF file free of charge.
A detailed discussion of M EWAs is available at the U.S. Department of Labor Web site. Go to www.dol.gov, click on "Search DOL/A to Z Index" and select "M." Then click on "MEWAs-Multiple Employer Welfare Arrangements."