Discount medical plans come under state scrutiny
■ Regulators report more complaints as companies target a larger uninsured population.
By Emily Berry — Posted March 8, 2010
States, including California and Massachusetts, recently have announced new rules and regulations for discount medical cards and limited benefit plans. Regulators are hoping to keep consumers from signing up for what they believe is real health insurance, but what regulators say is often far from it.
State insurance regulators say they are fighting a wave of fraudulent and misleading marketing by companies targeting a growing uninsured population.
Many of those people are anxious to have coverage but can't afford a comprehensive plan, said Kim Holland, Oklahoma's insurance commissioner and secretary-treasurer of the National Assn. of Insurance Commissioners.
"People are really desperate financially to save where they can," she said. "They can be easily misled to believe they can get something for nothing."
Holland and other commissioners have stepped up enforcement efforts, including strict enforcement of licensure requirements.
Since 2005, California's Dept. of Managed Health Care has ordered 18 companies to stop selling in California and has licensed one medical discount plan and two dental discount plans.
Citing the trouble its physician members have had dealing with some discount insurance plans, the California Medical Assn. called for the state to quit "legitimizing" the plans with licenses and instead treat them as illegal.
Andrew LaMar, CMA spokesman, said the poor economy, which has left California with a 12% unemployment rate and millions of uninsured residents, has only worsened the problem.
"Unfortunately many people are looking for any possible option they have and in large numbers turned to these plans," he said. "Doctors are put in the awkward and uncomfortable position of getting a discount card and saying, 'No, we have no agreement with them. We don't do this.' "
Holland said discount plans can take physicians and their staffs by surprise because it's sometimes hard to know which plans are legitimate just by looking at a card, she said.
The CMA wants the state to close all of these companies rather than trying to make them play by the new licensure rules.
The DMHC recently files cease-and-desist orders against Arizona-based companies HealthcareOne and Elite Healthcare, both apparently managed by the same chief executive. The department claims that both companies fraudulently sell their products as if they are insurance and make it difficult for unhappy customers to cancel or receive refunds.
Messages left for company representatives for HealthcareOne and Elite were unanswered.
New state regulations governing discount medical plans went into effect in Massachusetts on Jan. 22. State Attorney General Martha Coakley had pushed for those changes, which require discount plans to disclose that their product is not insurance.
Coakley sued four discount medical plan companies in October 2009 and reached an agreement with them in January preventing them from writing policies in Massachusetts until the lawsuits are resolved.
In other states, discount plans have gotten the attention of insurance commissioners and attorneys general, who have tried to shut down the companies using deceptive marketing laws.
Oklahoma, Washington and several other states have issued cease-and-desist orders against Springfield, Tenn.-based American Trade Assn. and affiliated companies under several names. Insurance commissioners say the unlicensed company claims to be selling a discount plan but really charges a "premium" in exchange for nothing at all. The company has an "F" rating from the Better Business Bureau.
Bart Posey, President of Smart Data Solutions, ATA's parent company, said the company was using an insurance underwriter that he believed was licensed but was not. He said SDS would not sell any more policies until it could find another company to underwrite its coverage.
"I don't think the states understand mini-medical plans as well as they should," he said. "There's a need for these type of plans in the workplace and in America. Everybody can't afford a million dollars worth of coverage ... so that's what we've tried to do, is hit the Americans that can't afford major medical."
Minnesota Attorney General Lori Swanson on Feb. 10 sued two affiliated firms, Direct Medical Network Solutions and Assn. Healthcare Management, also known as Family Care, in county district court. Neither firm has filed a response to the lawsuits.
Swanson said both Texas-based firms were selling worthless coverage using high-pressure sales tactics and promises of comprehensive coverage for care from a large network of physicians and hospitals. In reality, she said, membership was "at best" good for limited discounts from a few doctors and hospitals.
A company representative for the firms referred questions to the company's attorney, who did not respond to a voice message or e-mail message by this article's deadline.
Family Care and Direct Medical Network Solutions have an "F" rating from the Better Business Bureau.
The affiliated firms, however, were licensed by the Dept. of Managed Health Care to operate in California. Lynne Randolph, DMHC spokeswoman, said the company applied for a license as requested by the department when it issued new regulations for discount medical plans.
"We made many requirements on them, including disclosure of any past civil actions or actions in other states and we determined based on materials they submitted to us that none of the information on past actions was strong enough to warrant us not licensing them," Randolph said.