June 24, 2002: Division Of Insurance Warns Of Unauthorized Health Plans

( BOSTON, MA) With health insurance premiums on the rise and employers searching for ways to provide employee benefits at a manageable cost, the Massachusetts Division of Insurance is warning the public to be wary of health plans that appear too good to be true. In the last year, more than fifty unauthorized health plans have been found to be operating throughout the United States, including five here in Massachusetts.

In addition to notifying at risk populations, the Division is issuing a bulletin this week to all licensees authorized to sell health insurance reminding them of their obligation to only sell health products that are underwritten by properly licensed companies. The bulletin further reminds licensees that they will be held accountable for the marketing and/or selling of unauthorized health plans. Penalties for such actions could include fines, license suspension or revocation.

In December 2001, the Division issued cease and desist orders to all Massachusetts representatives of Employers Mutual, LLC of Carson City, Nevada. A federal court judge has since frozen the assets of this unlicensed entity, but not before company officials allegedly diverted more than $6 million in health plan assets to personal accounts. More than 22,000 beneficiaries, including over 1,200 in Massachusetts, believed they had purchased an approved and regulated product. The presiding federal court judge shielded Employers Mutual's plan members from responsibility for unpaid claims to health care providers and collection agencies that total over $4.5 million nationwide and more than $500 thousand in Massachusetts.

In January, the Division also issued cease and desist orders to associates of American Benefit Plans operating in Texas. While only 29 plan members have been identified in Massachusetts, this unauthorized health plan scammed approximately 30,000 people in 41 states, collecting premium from employers and employees and never paying any claims. The Division is currently investigating three other plans that sold unauthorized coverage in Massachusetts. They are: National Guild of Medical Professionals Health and Welfare Benefit Trust; Vanguarde Asset Group; and CompuPlan.

Recognizing the Employers Mutual case as one with textbook characteristics, the Division of Insurance is reminding consumers and its licensees that there are warning signs they should look for and resources they can use to determine whether the health plan they are considering is authorized in Massachusetts.

In the case of Employers Mutual and other national health insurance scams, insurance agents or brokers are often recruited to market the coverage and collect premium. Unauthorized health plans are not usually backed by a licensed insurer and therefore, not approved by any state insurance regulator. Claims are often paid at the outset in order to gain plan member confidence, but excuses for delayed claim payments eventually begin and then the payments cease altogether, often while premium continues to be collected.

"These products and consumers who purchase them are not protected by state insurance laws. It's extremely important for consumers to pay attention to the warning signs and contact the Division if they have any doubts," said Commissioner Julie Bowler.

Consumers, especially self-employed individuals and members of professional associations, who are approached with an offer to enroll in a low-cost health plan should:

1. Contact the Division of Insurance Agent and Broker Licensing Section at 617-521-7428 to find out if the broker/agent offering the product is licensed and in good standing in the Commonwealth.
2. Check the Division's Licensed Company List/Health Insurers at www.mass.gov/doi/companies/companies_lists.html to determine if an entity is licensed to sell life, accident and health products in Massachusetts or contact the Division at (617) 521-7392 or 7396.
3. The Division's website also provides lists of all approved non-group and small group health insurance products currently available in Massachusetts at http://www.mass.gov/ocabr/consumer/insurance/health-insurance/health-care-access-bureau/.

RED FLAGS: WHAT TO BE WARY OF

• Plans that offer unusually low rates and require very little or no medical underwriting.
• Plans with names that closely approximate those of legitimate insurance companies.
• Plans that are offered exclusively through professional associations, guilds, trusts, unions or Multiple Employer Welfare Arrangements (MEWAs).
• Plans that require the payment of dues prior to obtaining health coverage.
• Claims that coverage is employer-sponsored and exempt from state licensing and regulation under the federal Employee Retirement Income Security Act of 1974 (ERISA). Legitimate ERISA plans are not usually sold by agents or brokers.
• Sales and marketing materials that avoid the use of the word "insurance" or claims by agents or brokers that a health plan is exempt from regulation because it is not insurance.