Consumer Alert from the NAIC
Protect Yourself Against Illegal Health Plans
If it seems too good to be true, it probably is. Nationwide, the
health insurance marketplace is facing tough times. The cost of health
insurance is rising. Those seeking to make a profit by selling fraudulent
health insurance claim that state insurance laws don't apply. These
entities recruit insurance agents to sell "ERISA plans" or "union plans" that
falsely claim to be exempt from state law. Here are some tips from
the National Association of Insurance Commissioners (NAIC) to help
you protect yourself against illegal health insurance plans.
- Legitimate ERISA Plans
Legitimate ERISA plans (plans governed by the federal Employee
Retirement Income Security Act of 1974) and union plans may be
exempt from state insurance regulation, which is why criminals
try to fool people by making these claims. However, legitimate
ERISA or union plans are established by a union for its own members
or by an employer for the employer's own employees. They are
not sold by insurance agents.
- Get the Facts
Consumers and employers should take care to ask their agents whether
the health coverage they are purchasing is fully insured by licensed
insurers. A "union plan" sold by an agent, health coverage that
seems unusually "cheap," health coverage that is issued with
few questions about the applicant's health condition or plan
material that refers only to a "stop-loss" insurer should alert
a consumer to question the selling agent or contact the state
- How the Scam Works
A typical fraudulent health insurance scam attempts to recruit
as many local insurance agents as possible to market the coverage.
The health coverage is not approved by the state insurance department.
Agents are told it is regulated by federal, not state law. In
fact, it is totally illegal. The coverage is typically offered
regardless of the applicant's health condition and at lower rates
and with better benefits than can be found from licensed insurers.
The scam seeks to collect a large amount of premium as rapidly
While claims may be paid initially, the scam will soon begin
to delay payment and offer excuses for failure to pay. Unsuspecting
consumers who thought they were covered for their medical needs
are left responsible for huge medical bills. Employers may be
liable for the medical bills of their employees as well.
- Avoid Becoming the Next Victim
How can the average consumer avoid becoming the next victim? Ask
hard questions and do your homework. Read all materials and scrutinize
Web sites carefully. Here are some circumstances and product
characteristics that should prompt consumers to question a health
plan before purchasing it. These include:
- Coverage that boasts low rates and minimal or no underwriting
should be a signal to look deeper.
- Make sure your insurance agent is selling a state-licensed
insurance product. If an insurance agent is trying to sell
you a union plan, report them to your state insurance department.
- Deal with reputable agents. If the person trying to sell
you coverage says he or she doesn't need a license because
the coverage isn't insurance or is exempt from regulation,
watch out. Contact your state insurance department if you have
- Ask your agent for the name of the insurer and check the
benefit booklet you receive to see whether it names a licensed
insurer that is fully insuring the coverage.
- If your agent or the marketing material says that the plan
is covered only by "stop-loss insurance" or that the plan is
an "ERISA" or "union" plan, contact your state insurance department.
- Get More Information
Your state insurance department is your best source for information
on company and agent licensing requirements, as well as available
products. For a list of state health contacts, visit www.naic.org and
click on HIPAA Contacts. You can also link to your insurance
department's Web site by clicking on "State Insurance Regulators
Web Sites," then click on your state.
The National Association of Insurance Commissioners is a voluntary
organization of the chief insurance regulatory officials of the
50 states, the District of Columbia and four U.S. territories.
The overriding objectives of state regulators are to protect consumers
and help maintain the financial stability of the insurance industry.