Health Insurance Scams: Are Your Employees At Risk?CED Magazine, November 2006
Article Date: 11-01-2006
Copyright (C) 2006 Associated Equipment Distributors. All Rights Reserved.
Study finds employers with fewer than 50 employees were particularly vulnerable to insurance scams.
Everyone wants cheaper 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,” says James Quiggle, director of communications at the Coalition Against Insurance Fraud. “They can end up providing their employees and families with fake coverage that literally destroys lives by leaving them with 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. The study concluded that in a recent two-year period more than 140 bogus companies were in operation selling coverage to at least 15,000 employers. The bogus plans covered more than 200,000 policyholders and resulted in more than $252 million in medical claims left unpaid. Employers with under 50 employees were particularly vulnerable to scams since they lacked the staff to investigate insurance offerings.
What steps can you take to protect your own business from this nightmare?
Stop, Call And Confirm
When considering a new health insurance plan, first call 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 too many employers don’t place that call.
“It sometimes defies logic that so many businesses have failed to take a simple and obvious step that could have saved them and their employees a world of hurt and misery,” says Quiggle.
Many employers let such things fall through the cracks because of crowded schedules and perhaps some 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:
Scrutinize Group Plans
Make sure you call the correct department. Depending on the state, the appropriate office goes by the name “state insurance department” or “insurance regulator” or “bureau of insurance.” Don’t confuse that office with the “secretary of state” or other department that register corporations. A bogus outfit might well have its corporate papers in order. You can quickly find your state’s insurance department using the Internet.
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 offered. Your state insurance department will be able to review these materials for legitimacy. Remember 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, says Barry. Agents and brokers, referred to as “producers” in the insurance industry, must be licensed to do business in your state. Your state insurance department can confirm this. Provide exact spellings of names and complete addresses.
Call a few of the network physicians. Does the new plan have all of the physicians your employees want? “Very often a plan will claim to have a significant network of physicians in an area,” says Barry. “But when it comes time to pay claims, the physicians disclaim any knowledge of the network.”
Request references and call other employers to see how they have been treated by the plan.
You are likely to be solicited 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 to aggregate the number of covered individuals, a practice that is intended to reduce premiums. These groups 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," says 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."
Here, too, your state insurance department is your friend.
"MEWAs come in two broad categories: fully insured and self-funded," says Tim Ryles, an Atlanta-based consultant and an expert witness on insurance regulatory matters. In the first, an insurance carrier stands behind the plan. Ryles emphasizes the importance of making sure the carrier is licensed to do business in your state.
In the self-funded category, MEWAs are not backed by a licensed insurance carrier. If you're considering one of these carriers, be sure it has gone through the extensive registration process mandated by your state.
"I would suggest employers check out the credentials of people behind any self-funded MEWA," says Ryles.
If you must use a MEWA, most experts suggest selecting one that has the backing of an insurance carrier.
"A fully insured MEWA is your best guarantee," says Barry. "We get frequent calls from consumers about self-funded plans that do not pay claims."
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 it? How strong financially is the MEWA? If it claims backing from an insurance carrier or bank, does that financial institution guarantee payment of claims or does it simply provide so-called "stop loss" insurance that protects the issuer of the insurance but not the employer?
One special caution: Stay away from any MEWA or other insurance plan that claims it is not regulated by state law. For example, the sales person may claim an offer is "an ERISA plan" regulated by federal law.
Using 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 state insurance commissioners cannot regulate them," says Ryles.
Largely in response to this, Congress amended ERISA in 1983 to make it crystal clear that MEWAs are subject to both state and federal oversight. The state is, indeed, responsible for regulating an MEWA's fiscal soundness.
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.
"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."
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