Discount medical plans face crackdown in Delaware

A new Delaware law places tight restrictions on the discount medical plan industry. It is an attempt to prevent fraudulent and deceptive marketing practices that, according to the state's insurance commissioner, have grown at an alarming rate.

Delaware is among a handful of states taking legislative or legal action against companies selling discount medical plan cards that consumers have purchased, often with the belief that they were buying into insurance plans.

Instead, the plans qualify members for discounts with contracted health care organizations. The Dept. of Health and Human Services' healthcare.gov consumer website lists discount plans in a section titled, "What's Not Health Insurance?" (link)

Under the Delaware legislation, companies selling discount cards must be licensed. The license is contingent on the companies submitting a marketing plan that prohibits the use of the terms "health plan," "coverage," "co-pay," "co-payment," "deductible," "preexisting condition," "guaranteed issue," "premium," "PPO" and "preferred provider organization."

Prospective and new members must be told in writing that the plan is not insurance and does not make payments to physicians for services, and that members are responsible for all payments for medical services.

After the Delaware law went into effect, Karen Weldin Stewart, the state's insurance commissioner, said in a statement: "Delaware is one of a handful of states in the nation that has passed this type of legislation to prevent the sale of 'fake insurance' being offered by scammers who want nothing more than to collect premiums, fail to pay legitimate claims while leaving citizens with a myriad of headaches dealing with the medical providers who serviced them."

As of August, 54 lawsuits and regulatory actions have been filed in 24 states against discount plans, according to the Federal Trade Commission. The agency has filed three lawsuits against companies selling the plans in multiple states under different company names.

California began regulating the plans in 2009. The California Medical Assn. has advocated for the elimination of all discount medical plans, saying regulation is legitimizing an illegal product. The California Dept. of Managed Care has received more than 1,000 complaints about the plans since 2004. Since 2005, the department has ordered 18 companies to stop selling the plans and has licensed at least one medical discount plan and two dental discount plans.

Minnesota, Oklahoma, Washington and other states have taken legal action against companies selling the discount plans.