How to Spot Insurance Scams

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."