March 3, 2004 -- Bogus companies offering ultra-low health insurance premiums scammed more than $250 million, mostly from small businesses and individuals, between 2000 and 2002, according to the details of a federal investigation released Wednesday.
More than 200,000 policy holders and their families were sold policies in what the report described as a widespread pattern of health insurance fraud targeting persons and businesses. Officials also described a system in which complexities in insurance law make it difficult to catch criminals who offer low-cost insurance but then fail to pay most medical claims.
The General Accounting Office (GAO) told lawmakers that it had uncovered 144 entities that sold health insurance in states despite lacking authorization to do so. Most of the companies attracted customers by offering cheap premiums and by claiming to be exempt from certain state insurance laws.
"If low premiums seem to too good to be true, they probably are," Kathryn G. Allen, GAO's director of health care and Medicaid and private insurance issues, told members of the Senate Finance Committee.
Allen warned that many companies also market themselves by using legitimate insurance brokers and by taking on names similar to those of established insurance firms. One such case involved Employers Mutual LLC, a Nevada-based company that collected $16 million in premiums from 22,000 policy holders in all 50 states before being shut down in late 2001. The company left more than $24 million in unpaid medical claims after borrowing its name from Iowa-based Employers Mutual Casualty Company.
"They look real, they sound real, and there's a human being on the other end of the phone telling you that it is real," said Joan Piantadosi of Deerfield Beach, Fla., who was left with $500,000 in unpaid medical claims after Employers Mutual defaulted on coverage for her husband's liver disease in 2001.
"By using the name of a reputable company, bogus plans aim to confuse consumers, take their money, and run," said Sen. Charles E. Grassley (R-Iowa), the chairman of the Finance Committee.
Scams Target Hard-to-Insure
Investigators said fraudulent operators often target persons and business that traditionally have difficulty affording health insurance. Those include construction workers, farmers, mechanics, and food service workers. Companies frequently offer small businesses or workers the chance to join with other customers in an association designed to offer low-cost group insurance.