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Health Insurance Scams on the Rise

Federal investigators say there has been a sharp increase in the number of bogus and unlicensed health insurance companies in recent years, leaving at least 200,000 policyholders stuck with potentially worthless health coverage.

The General Accounting Office (GAO) said that every state has been affected. The GAO said it had identified more than 144 companies selling health coverage they are not licensed to sell.

"These unauthorized or bogus entities covered at least 15,000 employers and more than 200,000 policyholders," said Kathryn G. Allen, the GAO's director of health insurance studies. "They left at least $252 million in unpaid medical claims, only 21 percent of which had been recovered at the time our of 2003 survey."

"These scam artists are preying on citizens who are desperate for cheaper health care premiums," said Sen. Charles Grassley (R-IA), who requested the study. He said the scams are spreading because of the soaring costs of health care and the growing number of uninsured Americans.

In many cases, the GAO said, victims of the scams don't discover their health insurance is worthless until they file a claim for a major illness.

Many of the scams sell to small businesses, the self-employed and uninsured workers in food service, construction and other industries where health care is often not provided. Others sell to small employers unable to find an affordable group plan.

The GAO said that while every state had some bogus insurers, Texas had the most with 31. Florida had 30, Illinois and North Carolina 29, New Jersey 28, Alabama 27 and Georgia 25.

The fraudulent plans often claim that they are immune from state regulations, the investigators said. In fact, insurance is regulated largely at the state level and state insurance commissioners can provide information to any consumer who asks.

State regulators quoted by the GAO said that by the time they find the fraudulent companies, they have often hidden their assets and left the state, or are near bankruptcy.

How to Avoid Becoming a Victim of Insurance Fraud

Insurance fraud is not typically a violent crime, just a lucrative one. As consumers, there are several common-sense steps you can take to help reduce fraud and minimize its impact.

Be an Informed Consumer. Insurance premiums are a significant expense for most of us. The premiums you pay are based on your individual claims history and the degree of risk involved. Generally speaking, the greater the risk, the higher the premium. For example, the theft premium for a Honda Accord will be far higher than that of a Yugo quite simply because more Honda Accords are stolen. Similarly, a tightrope walker will pay more for life insurance than a librarian, all else being equal.

Comparison Shop. Premiums can vary significantly from insurer to insurer so it pays to shop around. To make comparison shopping a little easier, the Insurance Department publishes consumer guides for auto, homeowners, long-term care and HMO/health insurance that provide sample premiums for insurers that offer these coverages in New York State. In addition, the Insurance Department's Web site is also the home of an Interactive Guide to HMOs, which allows consumers to find information about HMOs operating within their home county. Click here to access copies of these publications.

Know Your Agent or Broker. Consumers can often be victimized by unscrupulous agents or brokers and discover only after they file a claim that they are without coverage for their home or their car. If an uninsured home is damaged by fire, the owner is solely responsible for restoring it and paying back any mortgage holders. If a driver is involved in an accident while driving an uninsured vehicle, any personal assets are subject to forfeiture if that driver is sued for damages. Deal only with licensed agents and brokers. Agents and brokers must carry proof of licensure. Ask to see it. Or call the Insurance Department's Licensing Bureau at 1-800-342-3736 for licensing information.

Where's the Proof? Never pay for a premium in cash. Pay by check or a money order made out to the insurance company directly or to the agency-not to the individual agent or broker. In addition, always request a receipt.

Where's the Policy? You should receive a copy of any type of insurance policy complete with endorsements and declarations specifically outlining your coverage and its limitations within a reasonable period after your purchase. If you do not receive it, question your agent or broker. If there is no satisfactory explanation for the delay, contact the New York Insurance Department immediately. You may not have the insurance coverage you paid for.

Are You Being Billed for Services You Have Not Received? If you have received medical or dental treatment that is covered by an HMO or an insurance company, you will receive an "Explanation of Benefits" statement listing the services for which benefits have been paid. Review it carefully to ensure that your health care provider has not "bumped up" your claim (i.e., overstated services provided in order to receive a higher payment), or charged for services you did not receive. Contact your insurer immediately if you feel there are discrepancies. Fraudulent claims payments translate into higher insurance premiums for all of us.

What If You're Involved in an Automobile Accident? Call the police to the scene and make sure that the details of the accident are documented and the identities of the occupants of the other vehicle are verified. Be suspicious if the driver of the other vehicle insists there is no need to call the police. That driver's insurance card may be fraudulent and his car uninsured.

Auto Insurance Fraud is a multi-billion-dollar problem nationwide. Watch out for these common scams:

• The staged accident - A vehicle filled with people will stop suddenly in front of you, setting you up as the cause of a rear-end collision. The "victims" will then file costly multiple medical and damage claims using doctors and lawyers who are part of the scam.
• Steerers - These individuals will solicit the injured or allegedly injured parties and direct them, for a "referral fee," to lawyers, doctors and/or medical facilities that are part of the scheme. Be on the lookout for steerers at accident scenes and don't become their victim.
• Inflated claims - If you are in an automobile accident, be sure you know the extent of the damages to your own car and the other vehicle and carefully review claims. Vehicle owners and body shops frequently inflate estimates for damages and then either perform other repairs not related to the accident or simply keep the extra money.