The bureaucrats at the United States Department of Health and Human Services aren’t the only ones gearing up for the launch of President Obama’s signature health care law. Scammers and peddlers of health insurance-like products that sometimes dupe unsuspecting consumers are also in heavy preparation mode, eager to capitalize on the confusion policy experts say will accompany the Oct. 1 launch of the new insurance marketplaces that are a core feature of the Affordable Care Act.
“This is already starting and it’s only going to accelerate,” says Sabrina Corlette, a research professor at Georgetown University’s Health Policy Institute. In addition to illegal schemes to defraud consumers, “There are companies and [insurance] brokers that might take advantage of consumer confusion and some of the misinformation out there about new coverage options under the Affordable Care Act,” she says.
Elizabeth Abbott, director of administrative advocacy for the consumer group Health Access California, puts it more bluntly. “There are people licking their chops and saying, ‘A sucker is born every minute,’” she says.
Understanding the details of a standard health insurance policy is hard enough. From co-pays and co-insurance to deductibles and generic versus name-brand drug coverage, the process of insuring one’s health can be a confusing jumble of paperwork and red tape. And polls show few Americans understand how the major healthcare law will affect them. This lack of awareness, coupled with numerous Obamacare regulations — especially the requirement that most Americans have health insurance or pay federal fines — is expected to create prime opportunities for illegal scammers and legal products that consumers mistakenly confuse for legitimate health insurance.
Of particular concern to consumer advocates are so-called “discount medical plans.” These products, which are often billed as affordable alternatives to standard health coverage, are not insurance at all. For an upfront enrollment fee plus a paid monthly subscription, consumers supposedly get deep discounts on medical services from doctors, hospitals and dentists within the companies’ networks. In reality, the discounts are often no more favorable than those that individual uninsured patients could negotiate on their own. On its website, the Federal Trade Commission says that while some discount medical plans provide real discounts, “others take people’s money and offer very little in return.” Shortly after Massachusetts passed comprehensive health care reform in 2006, the state was flooded with discount medical plans marketing themselves are cheap health insurance or viable alternatives to coverage. Several were eventually sued by the state for deceptive marketing practices. Ameriplan, one of the country’s largest seller’s of discount medical plans, includes a disclaimer on its website warning that its products “are NOT health insurance.” But it lures potential customers by using language most would associate with comprehensive coverage, such as: “All ongoing medical problems are accepted…no waiting periods…no deductible.”
Barry Friedman, a communications consultant for Ameriplan, concedes that some people purchase discount medical plans not fully understanding the products’ limitations. “One of the major confusion points we hear is that some people buy it thinking it’s a full-blown health insurance plan and somebody else is willing to pay the bill for you and that’s not so,” says Friedman. Still, he says, Ameriplan’s cancellation rate is less than 10 percent and the company offers a service to uninsured patients having to pay out-of-pocket for medical care.
“These discount medical plan companies have capitalized on the high cost of health insurance to say, ‘Hey, we can offer insurance or insurance-like products at a much lower price,” says Lori Swanson, Minnesota’s attorney general. “The problem is people pay the money, buy a plan and when they get sick, they find out they don’t have the financial security they thought they had.”
Swanson has sued several discount medical providers (Ameriplan is not one) for deceptive marketing practices, ultimately forcing some companies to pay restitution to duped consumers. “We’ve seen a real disconnect between how they’ve been marketed and the reality of the coverage that they provide,” says Swanson.
Unlike comprehensive health insurance, discount medical plans operate outside the regulatory system in many states. “Individuals coming into the market who have never had or purchased health insurance before—their level of understanding and knowledge I pretty limited,” says Linda Sheppard, director of health policy analysis in the Kansas Department of Insurance. “If somebody calls you or comes to your door and says, ‘Buy this, it fulfills your Obamacare requirement,’ somebody might not know enough to understand what it is.”
Other health insurance-like products that could proliferate under Obamacare are plans that pay fixed amounts for doctor visits or hospital stays, regardless of the true cost or amount charged to patients. Known as “fixed indemnity insurance,” these plans also typically require payment of an enrollment fee and monthly charges. Added up, these fees are very often more than whatever savings consumers might see if they get sick. A 2012 memorandum by a group of consumer representatives to the National Association of Insurance Commissioners said these limited benefit plans “may lead consumers to mistakenly believe they are purchasing comprehensive coverage,” adding “In the short-term there is a substantial likelihood of fraud, or at least misunderstanding” in the sale of these plans.
Fixed indemnity plans are exempted from Obamacare’s new health insurance regulations that prohibit annual limits on coverage and require insurers to cover a basic list of medical services. Corlette, of Georgetown, noted in a recent blog post that there has already been a significant increase in policies being marketed as “fixed indemnity” to avoid Obamacare’s rules.
A similar product, known as “mini-med plans,” will be banned by the federal government beginning in October but they may not disappear. The plans are technically insurance, but that they pay only a small percentage of the holder’s incurred total medical costs. The responsibility for shutting the mini-med plans down rests with state insurance regulators and experts question if they will all follow through. “Will the states crack down on them?” asks Timothy Jost, a law professor at Washington and Lee University and an expert on insurance regulation. “Well, a number of states aren’t enforcing the Affordable Care Act at all,” meaning states led by officials politically opposed to the law may be less vigilant in shutting down companies selling products outlawed by Obamacare.
In addition to legal, but confusing, insurance-like products, consumer advocates expect Obamacare to unleash a wave of illegal scams. The Federal Trade Commission and Better Business Bureau recently posted notices warning consumers about the possibility of identity theft due to the new health care law.
“It’s a fairly common theme to see scammers and those who seek to take advantage of people exploit passage of new laws,” says Swanson, the Minnesota attorney general. She says similar schemes followed the launch of the nationwide “do not call” registry and when the federal government offered programs to help homeowners in the wake of the recent mortgage crisis. In both cases, scammers called consumers and asked for bank information.
Some dubious schemes are far less sophisticated. One health insurance broker in Pennsylvania recently set up a website posing as that state’s Obamacare insurance exchange. Using the official state seal, the title “Pennsylvania Health Exchange” and the tagline, a “hub for all your health insurance needs,” the site appeared to be an official government resource. The broker, who was hoping to generate business through the site, took it down after a warning from the state insurance department.
With or without Obamacare, the intangibility of health insurance makes it especially ripe for scams and deceptive marketing. “Insurance,” says Swanson, “is just a promise and sometimes that promise turns out to be very, very empty at the time you most need it.”