Howard Schwartz, Communications Director, Better Business Bureau of Connecticut | Health care fraud alert

Q. Health care insurance fraud is up 57 percent largely because of unauthorized entities selling “fake” coverage. What is “fake” coverage and how prevalent is it?

A. Fake coverage is defined as either a worthless piece of paper or a “policy” that is fraudulently marketed with claims that it offers full medical expense coverage but in fact, delivers significantly less: a stripped-down policy, and in other cases a medical discount card that the seller claims is widely accepted but in fact is honored by very few or no medical care providers or pharmacies.  According to the Coalition Against Insurance Fraud, the statistics are anecdotal, especially with regards to small businesses, but it is clear that they have been targeted by people peddling these policies.

Q. How badly does “fake” coverage affect businesses? It seems as if small business owners could easily get caught up in these scams.

A. Small businesses are extremely vulnerable to con artists peddling fraudulent insurance policies for a number of reasons.  Employers are trying to find affordable coverage for themselves and their employees.  Small businesses also have been a traditional target over the years because they are vulnerable to slick sales pitches and don’t necessarily have access to legitimate medical insurance at the kind of prices available to large companies that benefit from the economic advantages of large group policies.  Small companies also don’t have human resources departments with the time and expertise to shop around for medical coverage.

These insurance scams cause significant damage to small businesses and their employees, because the lack of coverage may not become apparent until large claims are made, for example, in the case of an employee diagnosed with cancer or a protracted hospital stay.  The companies that sell stripped-down coverage will balk at large claims and in many cases offer dozens of reasons why these claims don’t qualify.  In the end, the small companies and their employees lay out money for the scam coverage and will have to pay for medication and other medical expenses out-of-pocket and/or spend even more money for legitimate medical insurance.

Q. What are some precautions business owners can take to avoid getting scammed?

A. Business owners, like consumers, always should check the reputation of insurance companies at bbb.org to see whether they have complaints filed against them and whether they are or have been the subject of government actions. Other precautions include:

• Confirming the seller is licensed with the Connecticut Insurance Department.  This information is available from the Connecticut Licensing Information Center at: http://www.catalog.state.ct.us/cid/License/licweb1.asp.

• Making sure they are not purchasing insurance from copycat companies that use a name similar to trusted companies.

• Understanding the difference between medical insurance and discount medical cards.  A medical discount card is a plan that may only be used to obtain reduced rates at the physicians’ offices and pharmacies.  In many cases however, these cards are not widely accepted if they are honored at all.  Small business owners should ensure the product they are buying is medical insurance and not just a discount card.

• Reading fine print carefully.  In many cases, when a pattern of rejected claims emerges, the seller will refer to exclusions in the fine print.  They often bully buyers into making a quick decision to put down money for a “limited time offer,” before the employer even gets an opportunity to read the contract.  Representatives may be vague when making their sales pitch. These people may not have received any formal training and are not even licensed to sell insurance.  If a sales representative balks at letting you see the policy before buying the insurance and exerts pressure to make a quick decision, these are red flags. 

Q. Your website lists a lot of insurance companies with F ratings for the volume of complaints to government actions, lack of information on these companies, lack of licensing and overall complaint history with BBB. Do these companies with low ratings simply go out of business and then set up as new entities?

A. Many of the companies selling fake insurance or making false representations about the extent of coverage are “boiler room” operations.  It is not unknown for them to simply disappear when they are slapped with a cease and desist order or when buyers realize they have been scammed.  They simply set up shop somewhere else, change their telephone number and put a new name on old marketing material.

Q. What can a business do once it discovers it has been victimized? Where does it turn for assistance?

A. If a company has been cheated, it should file a complaint with BBB so that others can avoid becoming victims. They also should contact the Office of the Attorney General.

Q. The BBB also warns about discount medical cards. Are these subject to the same levels of fraud?

A. Medical discount cards are often part of the scam.  Sellers may overstate the benefits of these devices. In these kinds of operations, business owners may later discover they have purchased medical discount cards rather than medical insurance coverage.  These cards are of limited value and in some cases, totally worthless.

There is much at stake. The loss of money certainly is an important element but an entire business may find out that neither owners nor employees are covered for medical care, and the out-of-pocket expenses to pay for these costs are significant.  As is the case with health care, a little planning and prevention up front can prevent significant problems down the road.