Small-business owners often have trouble obtaining affordable health insurance coverage for themselves and their employees. Where SBOs are in need, dishonest predators will invariably come out of the woodwork to take unfair advantage, which is one reason why health insurance fraud is a growing problem in this country.



Illegal Health Insurance Schemes

Health insurance fraud usually involves group health plans sold to employers for their employees.

Posing as legitimate-sounding but phony unions or trade groups, or falsely claiming the backing of big insurers, fraudulent insurers prey on employers who are badly in need of health insurance by, for example, offering low-cost health care coverage—as much as 50% or more below the going rate. Some even say they'll issue coverage regardless of health conditions, and with little or no underwriting.

Companies and individuals behind these schemes are seldom licensed in the states in which they do business, and they operate by recruiting unwary local agents to sell these fraudulent products to trusting clients. By putting out false information, undercutting rates and competing unfairly with licensed carriers, unauthorized insurance scams are bilking their customers, and constitute a serious financial hazard to the general public.

Here's the set up…

Legitimate v. Illegitimate “MEWAs”

Under federal law, self-insured or fully insured “Multiple Employer Welfare Arrangements”--MEWAs—are plans created by two or more employers to furnish employee benefits, such as health insurance. However, unscrupulous entrepreneurs have found MEWAs to be a handy way to market worthless health care benefits to employers for their employees. Here's how…

While legitimate MEWAs permit individual employers to self-insure health coverage for their own employees, any plan providing coverage to more than one unrelated employer, must be licensed by the state. Yet dishonest promoters present MEWAs to employers as employee benefit plans covered by the Employee Retirement Income Security Act (ERISA), which (they say) exempts them from expensive state licensure, reserve, and other regulatory requirements and allows them to offer health care and other coverage at such low rates.

It just ain't so, and states cannot allow health care coverage to become a con game played on the unsuspecting by the unscrupulous. Yet many of these phony insurers are domiciled outside the United States, further complicating the false information illegitimate MEWA promoters give employers, and their almost inevitable failure to pay claims.

Other Causes for Concern

The primary legal issue involving unauthorized insurers is the erroneous claim that they're free from state insurance regulation, but other issues are cause for concern. These include:

• Inadequate financial backing, and the lack of a federal guaranty fund covering unpaid claims.

• Financial impact on the businesses that have fallen for this fraudulent scheme, and the future insurability of MEWA-covered employee.

• Widespread illegal activity by promoters claiming to be insurance companies, and the long-term affect this has on public confidence in state regulation of the insurance business.

Some unauthorized MEWA promoters eventually pay benefits, but usually only for small claims--and only to lure more employers into doing business with them. More often, these phony operations often shut down without notice, often leaving millions of dollars in unpaid claims behind, a trail of uninsured employees and beneficiaries, and devastated small businesses with no recourse but bankruptcy.

This practice is unfair and deceptive—a third-degree felony or first-degree misdemeanor in Florida, for one—and carries serious penalties for anyone who is caught, tried and convicted.

Too Good to Pass Up?

In spite of all that, these plans can appear to be attractive alternatives to business owners who have given up on buying traditional health insurance. And the opportunity to sell such low-cost plans can be too enticing to pass up for otherwise honest, if unsuspecting insurance agents. But unless they keep their guard up, employers and agents have no way of knowing that these too-good-to-be-true sounding plans are, indeed, bogus.

Heed the Warning Signs

Businesses having difficulty obtaining health insurance coverage need to look before leaping at offers that sound a bit too attractive. Legitimate MEWAs can be a cost-effective way to get health care, but to avoid being taken, business owners (and producers) are well advised to get references, get details, and talk to their legal advisors. Ask questions…

• Be skeptical if health insurance coverage that boast unusually low premium rates.

• Promotional materials that seem deliberately to avoid the word “insurance” or any insurance terms; or offers to waive printed underwriting guidelines to enroll employers in the plan.

• A promoter wants to set up a self-funded plan that is "reinsured" by an unlicensed insurance company; or an insurer has "Ltd." or "S.A." in its name. This usually indicates an offshore company that could spell trouble.

• A plan claims to be exempt from state regulation because of its religious orientation or some other constitutional protection; or the plan accepts people without a medical exam and those with serious health conditions that most plans would reject.

• Participating employers have to join an "association" or "union" to obtain coverage; or health care providers complain that their bills have not been paid.

Look Before You Leap

Here's how to make sure a health plan is being marketed by a licensed insurer:

• Ask for the insurer's name and check the benefits booklet to see if it names a licensed insurers.

• Verify claims that a reputable insurance company is backing the plan by contacting the company.

• Contact the insurance department to verify that the insurance company backing the MEWA is licensed in your state.

If you've been approached by someone selling what you suspect is fraudulent health care coverage by someone you think may be an unauthorized insurer--or know an SBO who bought one these plans--report it to the state insurance department that has jurisdiction.

Want More? Send questions and comments to w.willard3@knology.net.