Health Insurance

Consumers: Beware of unlicensed health insurance plans

The health insurance marketplace is facing tough times. Across the country, the cost of health insurance is increasing and employers and consumers are coping with difficult choices. Into this climate enter shady operators seeking to take advantage of the situation by selling unlicensed health insurance plans. Calling their products "ERISA exempt," "ERISA plans," "union plans," "association plans," or some variation thereof, these entities boast low rates and minimal to no underwriting.

Remember, if it seems too good to be true, it probably is. There is a good chance these entities are not legitimately exempt from state laws, but instead are offering unlicensed health insurance.

The State Auditors Office prohibits soliciting or selling an unauthorized insurance product.

These entities claim they are not subject to state insurance regulation because of ERISA, the federal Employee Retirement Income Security Act of 1974. Legitimate ERISA and union plans may be exempt from state insurance regulation. However, legitimate ERISA or union plans are established by unions for their own members or by an employer for the employer's own employees. They are not sold by insurance agents.

Consumers and employers should ask their agents if the health coverage they are purchasing is fully insured by licensed insurers. A "union plan" sold with few questions about the applicant's health condition, or plan material that refers only to a "stop-loss" insurer, should raise red flags. If someone tries to sell you such a plan, contact the Montana Commissioner of Securities and Insurance.

A typical health insurance scam attempts to recruit as many local insurance agents as possible to market the coverage, which is not approved by state insurance regulators. The coverage is typically offered regardless of the applicant's health condition and at lower rates and with better benefits than can be found from licensed insurers.

The scam seeks to collect a large amount of premiums as rapidly as possible. While claims may be paid initially, the scam will soon begin to delay payments and offer excuses for failing to pay. Unsuspecting consumers who thought they were covered for their medical needs are left responsible for huge medical bills. Employers may be liable for the medical bills of their employees as well.

How can the average employer or consumer avoid becoming the next victim?

  • Read all materials and Web sites of these plans carefully.

  • Carefully investigate any plan that advertises unusually low premiums and/or unusually generous benefits, low (or no) minimum requirements for participation, and loose (or no) underwriting guidelines.

  • Make sure that your insurance agent is selling you a state-licensed insurance product. To find out if a company is licensed to sell insurance in Montana, call (800) 332-6148, or go to Montana Commissioner of Securities and Insurance.

  • Deal with reputable agents.

  • Be suspicious if your agent or the marketing material says that the plan is covered only by "stop loss insurance" or that the plan is an "ERISA" plan or "union" plan.