When insurance isn’t really insurance

While many companies sell genuine insurance products, there are many more that don’t. In fact, according to a 2004 congressional investigation, over 140 insurance scams were reported in the two year period from 2000 to 2002. The result? Over 200,000 policyholders were left with over $250 million in medical bills that they were told would be covered. Many of these fraudulent schemes involve selling discount, or mini-medical, plans instead of traditional insurance products.

As legitimate insurance premiums skyrocket due to the worsening economy, many businesses and individuals seek less expensive plans. Anticipating the problem, the NAIC recently released a consumer warning explaining the types of plans of which consumers should be aware. According to the warning:

Legitimate companies that are not licensed by the state to sell insurance might lead consumers to think they are selling “insurance” while evading state insurance regulations. A company selling a health discount plan might call the plan insurance when it is really an unregulated, non-insurance product. If you question whether a product you are offered is insurance, contact your state insurance department. To view the warning, go to www.naic.org/documents/consumer_alert_beware_insurance_fraud.htm.

Are fines enough?

One of the most notorious companies to sell these plans to consumers while making them think they’re getting a “major medical” plan has been HealthMarkets, Inc. The company and its subsidiaries – MEGA Life and Health Insurance Company, Mid-West National Life Insurance Company of Tennessee and the Chesapeake Life Insurance Company – have been fined repeatedly over the past few years and recently agreed to a $20 million settlement that encompasses at least 29 states in a multi-state insurance investigation for shady sales and claims handling practices. As part of the settlement, the companies must clean up their act by instituting consumer-friendly practices and providing sales agents with better training – or face another $10 million fine.

But, are fines really enough? Some industry experts don’t think so, considering the huge amount of premiums these companies take in every year. HealthMarkets reported over $2 billion in revenue in 2006. If you’ve been the victim of bad faith insurance practices, contact your state’s insurance department and an attorney whose practice focuses in this area of law. For a free consultation, please click here.