News

Don't get scammed by phony insurance companies

Tuesday August 8, 2006
Steve Vuckovich, COO

Unlicensed, bogus insurance companies are scamming patients and physicians out of millions of dollars in unpaid claims.  Physicians are having a though time collecting from real insurance carriers, just imagine the nightmare of trying to collect from an insurance carrier that doesn’t exist.

Phony insurance carriers have been found operating in all 50 states.  Many operate in more than one state, use more than one name, or operate using more than one affiliated entity.  They often pose as unions, ERISA plans, or association health plans.

They often look legitimate, sometime even using names similar to those of real insurers.  For example, one phony insurer called itself Employers Mutual, LLC, which sounds just like the legitimate Employers Mutual Insurance Company.  The ‘members” who have been dutifully paying their premiums, typically don’t even know that their insurer is bogus.

Recipe for disaster:  A member (a patient) of a bogus insurer goes to physician for a treatment.  He/she presents their membership card, which looks legitimate.  Physician office provides service, and submits the claim for payment.  After months of trying to collect from the insurer, physician’s office discovers that the insurer has stopped returning calls, disconnected its phone, and left town without a trace.  And since so much time has elapsed, physicians must turn to the patient, who also has been swindled.  At best patient will take months or years to pay what insurer has promised to pay.

These phony insurance companies burn other insurance companies as well.  Some of them access physicians by affiliating themselves with a legitimate PPO, so that the “member” is issued an identification card from a genuine entity.  It’s only after physician’s office tries to collect payment for the services, that they and often the PPO discover that insurer is bogus.

A few bogus insurers will pay small claims for the patients, and then leave the town when they start getting claims for large amounts.  They would advertise reasonable looking premiums to the prospective individuals without telling them that no physician in their right mind would accept it, or that the life-time limit small that it would not cover even a short time in the hospital.

Even if a phony insurance company is caught, it typically doesn’t have enough money to cover all of the claims, and never paid any reserves required by states of genuine, licensed insurance companies.

This problem is so pervasive that the Government Accountability Office (GAO) even issued a report in 2004 called “Private Health Insurance: Employers and Individuals Vulnerable to Unauthorized or Bogus Entities Selling Coverage.”  According to the report, in two years alone (2000 - 2002), investigators found 144 different phony insurance payers, covering more than 200,000 policyholders and leaving at least $252 million in unpaid medical claims.

A few of the biggest scammers have been caught and put out of business.  For example, the principal operator of Employers Mutual LLC was tried in Los Angeles and convicted in 2005 on more that 20 counts.  But this success doesn’t mean that others aren’t out there.  Often an insurer disappears once an investigation has commenced, and crops up in another state with another name.

It was originally hoped that the 2005 convictions of some of the national phony insurers would cause a downturn in the number and magnitude of this type of scamming.  Not so, there’s a new problem on the horizon - the push to relax the law regarding association health plans (AHPs).  Congress is currently considering legislation that would help small businesses provide health insurance to their employees by loosening licensing rules for AHPs.  The Bush administration and the National Federation of Independent Businesses are very much in favor of passing this law.  They would take oversight of the AHPs away from the states and put it in the hands of the Labor Dept.  The department has testified that “it is so stressed it could only review one health plan every 300 years,”  “There will be no safety net.  It’s opening the door to fraud by these swindlers.”

It is essential that all of us should be on the look out for the phony insurance companies, and please do not be surprised when you go to your doctor and the office staff tells you they can not accept your insurance for your medical problem.  Physicians cannot absorb the medical costs for the phony and bogus insurance companies, or from the insurance companies paying pennies on the dollar for the services rendered.

It is important for your body and mind's health to have the right insurance coverage and to know what is or is not covered.