Mega Life & Health & Midwest National Life Finally Get What They Deserve!

This is a great day in the health insurance industry! Rarely is an insurance company held liable for improper conduct. The majority of the time the "Big Guy" takes advantage of the "Little Guy." Sadly, the "Little Guy" often has no recourse. But this is not the case as of July 24, 2008.

After many years of repeated violations of insurance conduct laws the National Association of Insurance Commissioners (NAIC) helped levy one of the largest market conduct fines in insurance history against Mega Life & Health, Midwest National Life a.k.a. Health Markets, formerly U.I.C.I. and endorsed and promoted by the National Association for the Self Employed (NASE) and the Alliance for Affordable Services.

In my opinion, after warning consumers for years about these companies, the 20 Million Dollar Fine they received is not nearly enough and it has come much too late!

Health Markets is still slinging their garbage plans in many parts of the country and hundreds of innocent consumers who purchased a plan through the National Association for the Self Employed call me each week to tell me that they had no idea about the extreme limitations included in the "insurance coverage" provided by Mega Life & Midwest National Life.

Many consumers were not even aware that the plans they purchased were "schedule plans" and in many instances, only paid out $100,000 per illness. Misleading? Sure. In fact, during the sales process, the emphasis seems to be on the one million or two million lifetime maximum and NOT the $100,000 per illness maximum.

Something that many consumers also didn't understand about these plans is that many did not have a
"stop loss number."

To understand what a "stop loss number" is exactly, let's take a look at the three main parts of a health insurance plan:

1. Calendar year deductible: This is the amount the insured pays first, before the insurance company shares in any medical expenses that are not covered on a "first dollar" basis.
2. Coinsurance: This is the percentage the insured pays of a specific dollar amount of medical bills incurred throughout the course of each year, called the "stop loss number" before the insurance company pays $100 of the medical costs.
3. Stop Loss Number: This is the dollar amount of medical bills that the insurance company agrees to share with you, each year, before they will pay 100%.

The average insurance consumer is usually familiar with the deductible. Deductibles can range from $250 to $10,000. Typically, the lower the deductible, the more expensive the plan, because the insurance company is assuming a greater risk.

The same holds true for the Coinsurance. Health plans are sold with different Coinsurance percentages. Plans can be 50/50, 70/30, 80/20, 90/10 or 100% or a variation. These numbers refer to percentages. The first number (e.g. 80/20) refers to the percentage the insurance company will pay, usually for in-network charges after the insured meets his/her calendar year deductible. The second number (e.g. 80/20) refers to the percentage the insured pays.

These percentages are typically based on a specific dollar amount, known as the "stop loss number." Here's where it get's tricky. Quite often, health insurance plans have different "stop loss numbers". I have seen some plans that have a "stop loss number" as low as $2,000 and as high as $25,000 or some with none at all.

Let's figure out the insured's maximum out of pocket on an 80/20 plan that has a $1,000 deductible and an 80/20 split of the first $5,000 ("stop loss number".)

$1,000 + 20% of $5,000 ($1,000) = A Maximum Out of Pocket of $2,000.

Now, let's figure out the insured's maximum out of pocket on an 80/20 plan that has a $250 deductible and a $10,000 "stop loss number."

$250 + 20% of $10,000 ($2000) = A Maximum Out of Pocket of $2,250. (note: total does not include any separate "service deductibles" or access fees. Many low quality plans also have these.)

Again, after this brief 80/20 cost sharing with the insurance company, also know as a the coinsurance percentage split, most major medical plans will pay 100% of in-network covered charges up to the Lifetime Maximum amount that is specified in the policy.

On quality comprehensive health insurance plans, the Lifetime Maximum benefit is usually five million dollars. Typically, plans from reputable health insurance carriers do not have a "$100,000 per illness" or reduced benefits for other medical treatments, like Organ Transplants.

Unfortunately, it is only when an unsuspecting insurance consumer develops a life threatening medical condition that they find out that on the 80/20 plan they purchased, they are responsible for paying 20% of the medical expenses up to the Lifetime Maximum (e.g. 20% of One Million Dollars or $200,000.). In addition, if they have a $100,000 per illness cap, they will also be responsible for all of the medical expenses that exceed $100,000.

Would you buy a policy like that if it was fully explained to you? Most definitely not, and the NAIC apparently agrees. This is one of the reasons why after a 3 year, 29 state investigation, Mega Life & Health, Midwest National Life a.k.a. Health Markets, formerly U.I.C.I., endorsed and promoted by the National Association for the Self Employed (NASE) and the Alliance for Affordable Services finally got what they deserved!

For more information, you can also read a scathing Market Conduct Report, which was included in the fine to warn future innocent consumers.

If you or a loved one have fallen "victim" to any of this organizations or have been approached by an agent selling one of these "insurance products" please feel free to contact me for help and advice.

About the author: C. Steven Tucker, is the President of Small Business Insurance Services, Inc. He is a multi-state licensed insurance broker who has been serving the Small Business community and Self-Employed for 15 years. C. Steven has served as a Subject matter expert for the Wall Street Journal and Fortune Small Business Magazine and hosts his own internet radio show, entitled, "Health Insurance 101." He is also touted for being a consumer watchdog against greedy insurance companies, insurance scams and unscrupulous agents on Twitter.

Don’t Fall Victim To A Health Insurance Scam: 10 “Red Flags” You Should Look For

In today's fast paced world, business owners don't often have the time to thoroughly check out the companies they rely on to provide goods and services. In many cases, a determination of product/service quality can be made at the time goods are delivered or services are rendered. If goods or services do not meet expectations, there is often an immediate remedy available. For example, poor quality goods can be shipped back to the supplier and/or payment for services can be withheld until services are satisfactorily rendered.

Unfortunately, business owners do not always purchase items that are tangible items, in the sense that they can immediately determine the quality of the goods and/or services at the time of purchase. One example of such a purchase is health insurance. Since health insurance is not usually used immediately after purchase, the quality of care or the legitimacy of the policy may not even come into play until the business owner, or a family member, actually needs to have medical treatment. This is one of the primary reasons that many companies, often appearing legitimate, can get away with selling bogus health insurance coverage to unsuspecting business owners.

In most cases, fraudulent health insurance policies are sold to business owners by telemarketers or "agents" through bogus Associations and Unions. In that, the buyer must join a professional and/or trade association or become a union member to qualify for health insurance. In fact, in a study published by the U.S. General Accountability Office (GAO) in 2004, the GAO found that association schemes ranked at the top of the marketing methods followed by bogus health insurers. According to the report, "Employers and Individuals Are Vulnerable to Unauthorized or Bogus Entities Selling Coverage, between 2000 and 2002, the U.S. Department of Labor and state insurance regulators identified 144 unauthorized entities selling health insurance unlawfully. These entities defrauded 15,000 employers and more than 200,000 policyholders out of $252 million."

However, it is important to mention that many individual and group health insurance products are endorsed by reputable Associations, such as the ARRP and the American Bar Association and, many reputable Unions, such as the AFLCIO and the Teamsters. These organizations have long been recognized for bringing a common class of professionals or citizens together for other purposes that have very little to do with health insurance. Membership commonly includes a wide range of other benefits in addition to discounted health insurance. Typically, the organizations have a governing organization, a constitution and bylaws, a set of officers, voting rights, regular membership meetings and a professional code of conduct.

Unfortunately, most individuals do not find out that they were making hefty monthly payments or premiums to fraudulent Associations or Unions until they have a severe condition that requires medical treatment. Usually, it isn't until after they receive treatment that they receive notice from their medical provider that the claim that was submitted to the insurance company was denied and that all the medical charges that were incurred are now their responsibility.

Often, the scheme starts when business owners are contacted by telephone or approached by someone who claims to represent a certain, official sounding, Association or Union. The business owner is then informed that if s/he becomes a member of the Association or joins the Union, s/he could qualify for a low cost group or individual health insurance plan. Typically the Association or Union is promoted to represent self-employed individuals and small business owners. The low cost health insurance is usually presented as one of the many "perks" that the business owner can qualify for, in addition to many other "member" benefits, like discounts on other services, such as dental, eyeglasses, office supplies, hotels, rental cars, etc.

In many instances, these bogus companies involve licensed health insurance agents to sell their fraudulent health insurance products. Sometimes the "agents" know the products are fraudulent, other times, the "agent" also falls prey to the scheme.

Often, the schemes prey upon consumers who have been previously declined insurance coverage or suffer from a pre-existing condition. Since these consumers have very limited options to purchase private health insurance coverage, the benefits of an Association or Union membership that offers health insurance coverage for a "membership fee" or "union due" is enticing. To the unsuspecting consumer that has a pre-existing medical condition or is paying high premiums for coverage, the "membership fee" or "union due" is a small price to pay for what they believe will be a quality health plan that provides "guaranteed" coverage with no "pre-existing condition exclusions" and no "waiting periods."

In many circumstances, the print materials that are left with the consumer are very well designed, however, the majority of the time, the language in the "health plan brochure," if there is one, is very unclear. The literature may name the entity that is authorized to act as the health plan administrator of the plan, but neglect to name the actual insurance company that is providing the health insurance coverage. Unfortunately, it is often difficult for the consumer to separate the illegitimate companies selling official sounding health plans from the legitimate ones. Typically fraudulent health plans have many commonalities.

Here are 10 "Red Flags" that may indicate health insurance fraud:

1. The "agent" is not a licensed insurance agent but an "enrollment" or "membership" coordinator.
2. The term "discount plan" is written in the product literature, but the term health plan, health insurance or policy is frequently used by the plan promoter. Discount plans often provide nothing more than a discount for medical services, such as prescription medications, eyeglasses, dental, etc. These plans are not designed to offer major medical health insurance coverage.
3. The official sounding "Association or Union" is one that you have never heard of before.
4. The plan is referred to as an ERISA plan. The Employee Retirement Income Security Act of 1974 (ERISA) is a federal law that allows employers to set up employee benefit plans for employees and their dependents. ERISA plans are not subject to state regulation and are not regulated by the state insurance commissioner. ERISA plans are normally not sold as health insurance, but are instead, established by employers, unions or groups acting on behalf of employers. Therefore, unsuspecting buyers believe these plans actually offer health insurance coverage, when if fact, they do not.
5. The buyer is told that the "membership fee or union dues" includes the health insurance premium, but there is no mention of the word "premium" in any of the plan literature.
6. The plan offers "guaranteed" insurance coverage with no exclusions for "pre-existing conditions" and no "waiting periods."
7. The plan is significantly cheaper in price than other health insurance plans.
8. The term "reinsured" is used in regards to the plan. Reinsurance is something insurance companies buy to protect themselves against their own risks. It is insurance for insurance companies. Licensed insurers rarely have their agents mention any of their reinsurance arrangements during a sales presentation.
9. The Association or Union is comprised of members from all walks of life and/or requires its members to state that they belong to a certain trade, class or group of professionals that they have no affiliation with, for example, the Association or Union is said to be comprised of "Food and Beverage" workers, but "Florists" and "Machinists" are allowed to enroll as members.
10. If the Association or Union is said to have a special arrangement with a health insurance company, a plan administrator or another third party that has designed the plan using a legal "loophole" that allows members to purchase health insurance at a discounted rate or to purchase a individual or group health insurance policy.

So how can you protect yourself from falling victim to a fraudulent insurance scam? Make sure you contact your state's department of Insurance to determine if the health insurance company and the third-party administrator are licensed to do business in your state and make sure that the "agent" selling the plan is a "licensed health insurance agent." Additionally, make sure that health insurance company has been approved to sell the particular policy that is being offered. Since it may be difficult to tell if fraud is involved, always put off buying your health insurance policy until you have had the opportunity to perform your own due diligence.

About the author: C. Steven Tucker, is the President of Small Business Insurance Services, Inc. He is a multi-state licensed insurance broker who has been serving the Small Business community and Self-Employed for 15 years. C. Steven has served as a Subject matter expert for the Wall Street Journal and Fortune Small Business Magazine and hosts his own internet radio show, entitled, "Health Insurance 101." He is also touted for being a consumer watchdog against greedy insurance companies, insurance scams and unscrupulous agents on Twitter.