When Almond and three partners started a Memphis consulting business to design and implement hospital contracts, they bought health insurance -- or so they thought -- from Employers Mutual LLC in Carson City, Nev. Six months later, Almond was diagnosed with breast cancer. She had paid all her premiums, but Employers Mutual failed to pay any of her claims, including those for chemotherapy, radiation, and surgery.
Today, Almond is in good health -- but burdened with $70,000 in unpaid medical bills. She says she won't file for personal bankruptcy, but doesn't know when -- if ever -- she'll be able to pay off the bills. Almond recently had to abandon her startup for a large company in North Carolina so she could get health benefits. "It makes me sick that the whole thing was a scam, that someone would intentionally do this," Almond says.A GROWING PLAGUE
In 10 months, Employers Mutual collected $16 million in premiums, mostly from small businesses, leaving more than $24 million in unpaid claims, according to the U.S. Labor Dept. A federal court awarded the Labor Dept. a default judgment of $7.3 million against Employers Mutual in October, 2003. The principals were arrested May 10, after a federal grand jury charged them with 10 counts of misappropriation of funds. They are represented by Los Angeles attorneys Larry Bakman and Charles Pereyra-Suarez. Bakman did not return repeated calls. Pereyra-Suarez had no comment.
Employers Mutual is just one of many bogus health insurance companies that have bilked small-business owners. And the problem is getting worse. "There has been a spike in the number of [fraudulent health insurers] in the past three years," says Mila Kofman, a Georgetown University researcher.
The increase in scams correlates with the rising cost of health insurance premiums -- up almost 50% since 2001, according to the Henry J. Kaiser Family Foundation. "Fraudsters target small-business owners because they are so desperate to provide benefits for their employees," says Dennis Pompa, director of the fraud unit of the Texas Dept. of Insurance, which last year issued over 100 cease-and-desist orders to questionable insurers. "We don't see any end in sight."
With budgets shrinking, federal and state authorities don't have the resources to pursue criminal prosecutions, except for the most egregious offenders. Civil rulings are often mere hand-slaps. Indeed, many operators have been hit by repeated civil actions. "They pay a fine, promise to shut down, and then run out and open another bogus business under a different name," says James Quiggle, spokesperson for the Coalition Against Insurance Fraud, an advocacy group based in Washington, D.C.
That means businesses seeking health insurance need to tread carefully, at the very least. Above all, you must thoroughly research any plan before you sign on. Even a financial disclosure statement signed by a partner at a big-name accounting firm isn't a guarantee -- the signature may be forged, or the accountants may have been duped.
Drug cards and purported relationships with doctor networks may not be what they appear, either. Some fraudulent operators have actually signed contracts with benefit and health-care providers. The crooks pay up on small claims until they have collected enough premiums to pad their offshore bank accounts. "These are incredibly elaborate frauds with sophisticated money-laundering operations," says Mark A. Mason, an attorney in Mount Pleasant, S.C. He filed a class action against the operators of North American Indemnity, based in Brussels, Belgium, which he alleges collected $15 million in premiums from 409 small businesses in 2001, then left them with $10 million in unpaid claims. The fraud took in about $45 million before it ended in 2003, according to a federal indictment unsealed Mar. 26. Kevin Marchese, a Sacramento attorney representing a director of North American Indemnity, says his client's company did not pay the claims because the small businesses were improperly underwritten.FLAT-OUT LIES
Many bogus insurers claim they are not subject to state regulation because their plans are instead in compliance with a federal law known as ERISA (an acronym for the 1974 Employees Retirement Income Security Act) or are union-negotiated. They say this enables them to offer cheaper rates. "This is usually a flat-out lie," says Quiggle. It's illegal for anyone other than an employer or a union representative to sell plans under ERISA.
If you have to join an association or union to participate in an attractive health insurance plan, be very wary. Fake insurance outfits have even been known to create sham professional organizations so they can collect membership dues as well as premiums.
And be sure to ask a lot of questions if your professional association or union switches health plans. Fake insurers have conned several legitimate groups into selling their bogus plans to members. "It's sad to say, but my advice is not to trust anybody," says Almond. "Make calls, get on the Internet, and check everything out yourself." When it comes to health insurance fraud, skepticism is the best preventive medicine. By Kate Murphy