Consumers Warned Against Increase in Fraudulent Health Plans

Contact: Mike Bownes, General Counsel
334-241-4120

4/2/2002

Alabama Insurance Commissioner David Parsons today warned Alabama consumers and insurance agents of an outbreak of fraudulently operated health insurance programs.

The Department has issued a bulletin spelling out the dangers of unauthorized insurers and describing the commonly used schemes they use in selling and in recruiting agents to sell their bogus healthcare plans. A bulletin was issued to all Alabama licenses insurance companies and requests have been made to them to distribute it to all their agents.

Parsons stated: “Alabama insurance agents need to be wary of solicitations by companies who are offering products which seem too good to be true. Insurance agents risk loss of their licenses, felony prosecution and actual personal financial liability if they participate in selling healthcare plans offered by unauthorized insurers.”

The Alabama Insurance Department has taken action against six unauthorized health plans in the past twelve months. Each of these plans had recruited licensed agents to market products to unsuspecting employers. The Department is presently investigating several other plans operating in the state. Parsons stated: “It is important the warning goes to insurance agents as they are the first line of defense against these unscrupulous operators.”

The Department’s bulletin to licensed agents emphasizes that not only does the selling of these unauthorized plans jeopardize and hurt Alabama consumers and employers and the health industry in Alabama as a whole, but it also subjects the individual agents to disciplinary actions, which could include suspension or revocation of their licenses. It is important to note that not only does the agent risk administrative actions, it may subject the agent to actual personal liability from unpaid claims and losses. It is the Department’s position that each agent is responsible for diligently investigating an insurance entity before agreeing to represent it for personal gain.

If an agent or producer or consumer have a question regarding the authority of an insurance company to conduct insurance activity in Alabama, said individual can call the Insurance Department at 1-800-433-3966 or go directly to the Department’s web-site at http://www.aldoi.gov/.

The Department further issued the following warning signs; (1) the product looks or operates like insurance but (a) claims it is not, or (b) claims it is an ERISA Plan and is only providing “benefits” and is not insurance. (2) Avoids the use of insurance terminology, i.e., use of the words (a) “consultant fees” or “fee” instead of “commissions”; (b) “contributions” “not premiums”; (c) the sell of the product by “labor consultants” or “business agents” who enroll or negotiate with potential members, not producers. (3) Producers have no commission schedule or fixed commission rates and the term “fees” is used. (4) Producers are asked to market and sell on “ERISA” Plan or “Union Plan”. Be advised coverage provided by legitimate, single employer ERISA Plans arise from the employer/employee relationship and is not marketed or sold by insurance producers. (5) The product claims to be “fully funded, “fully insured” or “reinsured”, with the name of the carrier insuring or underwriting the product it is never listed and if it is listed may not exist. (6) Producers are instructed to market and sell the plan to both individuals and employers who are required to join and pay dues to a trade, occupation, occupational or consumer associations solely to obtain the help of the coverage. Enrollees do not control or sponsor the activities of the association and are not to give the association bylaws or voting rights information. (7) Producers are asked to market and sell an “employee leasing” arrangement, i.e., place individuals in-groups into “a professional employee organization” or a “PEO” which provides self-funded health coverage. The PEO is not licensed by the state of Alabama as a staff leasing service company, nor does it pay the wages of the employees. (8) By this product the company accepts and covers individuals or groups with pre-existing conditions, even though these individuals and groups have no credible coverage. (9) The product advertises unusually low premiums and/or usually generous benefits, low or no minimal requirements for participation, and loose and/or no underwriting guidelines.

The bottom line is if this coverage or benefits look too good to be true it probably is. Be extremely careful with any new health insurance plan that you hear about and investigate thoroughly before you sell, solicit, or buy it.