How to Spot Insurance Scams

A Costly Mistake

In early July 2004, Korrie Shourds, 32, was nearly nine months pregnant and, although she and her husband were both employed, she didn't have health insurance. Shourds, a daycare operator in eastern Montana, was scheduled to have a c-section, so the couple had been scrimping to save $8,000 for the hospital bill. Then, just a few weeks before the operation was scheduled, a telemarketer from First Choice HealthCare Services, a company based in Tampa, Florida, called. Shourds was told that, thanks to the company's special discount healthcare plan, for a $199 enrollment fee plus $90 a month, she could receive a $5,000 discount off the hospital bills. The salesperson looked up Shourds's hospital and obstetrician and assured her they were part of the company's network of providers. "I felt so lucky," says Shourds.

Still, before signing up, Shourds called her hospital to verify that it accepted the plan. Assured that it did, she put the sign-up payment on her credit card and when she was admitted, she gave the hospital her health-plan card. Imagine her shock when she discovered that the company had not come through and that the hospital was holding her responsible for the full $8,000 bill. "That's when I learned that First Choice wasn't a health-insurance plan at all," says Shourds. "It was a medical discount plan. And it didn't have a single hospital or provider giving discounts in Montana." What about her call to the hospital? That turned out to be a misunderstanding: The discount plan's name was similar to that of a legitimate health-insurance plan that the hospital did accept. "I was pretty upset that the company flat out lied to me on the phone," Shourds says. "First Choice never paid for the c-section, and I had to pay for the amniocentesis, the circumcision, lab fees, and other medical expenses."

Shourds was lucky: She was able to cancel her credit card payment to First Choice and get her money back. Thousands of other consumers have not been so fortunate. They have paid hundreds, even thousands, of dollars to discount health-plan providers for coverage that turned out to be worthless.

Enticing promises are what make these health plans so attractive. For a low monthly fee, they offer discounts (which have already been negotiated) of 10 to 60 percent on bills from participating doctors and hospitals, regardless of your age or preexisting health conditions. They are similar to discount dental, vision, and prescription drug plans, which have been around for years, and by all accounts, usually work as advertised to provide good deals. But while some of these new discount health plans are legitimate, many are fly-by-night operations out to make a quick buck -- at your expense.

Rip-Offs in Disguise

Negotiating discounts with a network of healthcare providers may sound like what traditional health-insurance and HMO plans do. That confusing similarity, exacerbated by the use of phrases like "affordable healthcare" and "preexisting conditions," often leads consumers to think that these plans are health insurance. But read carefully and you'll see the critical difference: In a traditional health-insurance plan, a doctor, hospital, or dentist submits a claim and the health insurance company pays the bill. But in discount healthcare plans there are no claims. Instead, the consumer must pay the medical bill, albeit discounted, in full at the time of service.

That's an important distinction. While most patients can probably find $40 to $60 for a discounted routine office visit, coming up with $3,000 to $5,000 before a serious procedure is another matter entirely. That's especially true if you require emergency care and don't even have the option of choosing an in-network doctor or hospital.

Still, at a time when 46 million Americans have no health insurance, these plans are thriving. "When you have tens of millions of uninsured people, that creates fertile ground for fake discount plans to flourish," says John Morrison, Montana's state auditor, who oversees health insurance. (In response to cases like Shourds's, Montana became one of the first states to regulate discount health plans.) The National Association of Insurance Commissioners says far too many consumers have signed up with fast-buck artists only to learn too late that no physicians in their area participate in the plan. Frequently the realization comes after the consumer has paid hundreds of dollars in enrollment and monthly fees. In the worst cases, people with preexisting conditions have given up health-insurance coverage to switch to these plans, then found it difficult or impossible to get reinsured. Small businesses, too, may fall prey to bogus group health plans, says the U.S. General Accounting Office, leaving employees without adequate coverage.

From 2000 through 2002, the most recent years for which figures are available, at least 114 companies were selling health benefits coverage illegally. More than 15,000 employers and 200,000 policyholders were left holding the bag for more than $250 million in unpaid medical claims. How did they get away with it? Many of these firms, like the one that scammed Shourds, adopt names that are similar to those of legitimate health-insurance companies and benefit from the real insurers' good names. The scammers also don't hesitate to out-and-out lie. They may even tout a network of participating physicians that simply doesn't exist, says Mila Kofman, an associate research professor at the Health Policy Institute of Georgetown University, in Washington, D.C. For her research, Kofman joined five of the nearly 30 discount health-card plans offered in the Washington, D.C., area. Four of the five companies gave her faulty information, including misstatements about the size of the discount and participating providers. Some also insisted that they were providing health insurance -- which they were not. And in all four instances, Kofman had difficulty finding physicians who honored the plans.

Though every provider contacted promised a discount ranging from 4 to 36 percent, only one card did lead to real discounts. "If the operations were better regulated and they offered discounts that consumers couldn't get on their own, the plans might be a good deal," Kofman concludes. "But right now, I don't see the value."

Righting the Industry's Wrongs

Barbara Flood, chairwoman of the Consumer Health Alliance (CHA), a national trade association formed in 2002 to represent the discount health-plan industry, takes another view. She doesn't dispute the accuracy of Kofman's findings, but she feels it is unfair to suggest that five plans can be representative of an entire industry.

That said, no one disputes that the scam artists have given the industry a black eye, which is why CHA was founded. "We were created in part to educate consumers so there's no confusion about what they're purchasing," says Flood. The industry is working to make sure purchasers of discount health plans understand they aren't buying health insurance. "However, now the same discounts that have been offered to large insurers are being made available, through discount medical cards, directly to the consumer," Flood says. "And if you have a serious medical problem, you will be better off with a discount program than with no insurance." CHA's Web site also identifies companies that have agreed to conform to its code of conduct.

And while discount health plans have previously been largely unregulated -- because they are not insurance, they fall outside the domain of state insurance commissioners -- that's also changing.

In addition to Montana, nearly a dozen states, including Florida, Illinois, and South Dakota, now have regulations that force discount healthcare companies to obtain a license or register before marketing the plans.

In order to operate in states such as these, plan providers have to show proof that doctors and medical centers have contracted with them. They must also post performance bonds that are forfeited if they violate the rules. In Montana, eight companies have registered. The others have moved on rather than face fines of up to $25,000 a day for failing to do so. In Florida, the number of complaints about these plans has dropped 70 percent since 2004, says Rich Robleto, deputy commissioner for Florida's Office of Insurance Regulation.

Another development may do even more to redeem discount health plans: Well-known health insurers that really do have networks of physicians in place are entering the game. Aetna recently launched "Vital Savings on Health," a new discount health program that, using a prepaid debit card, offers employees at participating companies savings on certain medical, pharmacy, and other health-related services through Aetna's networks of doctors and pharmacies. United-Health Group and credit card giant Citi Cards are also offering plans to consumers. Even discount retailer Costco, which offers individual and group insurance, has entered the field by offering discount health plans in Southern California. "I think you'll find that the overall market is changing as the industry becomes more regulated," says Gina Doynow, an executive vice president with Citi Cards, headquartered in Long Island City, New York. As large players that have experience with medical services and an interest in maintaining their image start offering legitimate plans, they may transform the discount health plan field for the better.

How to Protect Yourself

If you feel a discount health plan might be right for you, the National Association of Insurance Commissioners recommends the following:

• Beware salespeople or ads that mimic terms used in insurance, such as "copayments" or "premiums," to make you think you're buying insurance.
• Avoid companies that insist on hefty application fees, demand debit or credit card information, or pressure you to make a quick decision.
• Make the salesperson tell you in writing whether the product is insurance or a discount plan. Beware anyone who suggests that you drop your current coverage.
• Check with the company to make sure that there is a provider in its network that meets your needs and double-check with the provider that the plan is accepted. Be on the lookout for soundalike names. Do not sign up with a company that will not give you a list of providers until after you purchase the discount card.
• Verify that the plan has a working toll-free phone number for customer service, a reasonable complaint procedure, and a clear refund policy.
• Check with your state attorney general and Better Business Bureau for complaints against the company.
• For more information, read the guide to discount health plans at the CHA Web site, www.consumerhealthalliance.org/guide.html.

Originally published in Ladies' Home Journal, October 2006.