NCPA - National Center for Policy Analysis

Small Businesses Easy Mark

March 15, 2004

Because health insurance premiums have increased at double-digit rates over the past few years, some employers and individuals have purchased coverage from bogus entities or scam artists. These sellers are not authorized by state insurance departments to sell coverage, according to research by the U.S. General Accounting Office (GAO).

The GAO analyzed information from the Department of Labor (DOL) and from a survey of the 50 states and the District of Columbia. DOL and the states reported that between 2000 and 2002, the 144 bogus entities:

  • Sold coverage to at least 15,000 employers, including many small employers.
  • Covered more than 200,000 policyholders.
  • Left at least $252 million in unpaid medical claims, only about 21 percent of which had been recovered at the time of GAO's 2003 survey.

Many of these entities targeted employers and policyholders in multiple states, and, of the seven states with 25 or more entities, five were located in the South; while bogus entities operated in every state, the states with the highest numbers were Texas, Florida, Illinois, North Carolina, New Jersey, Alabama and Georgia.

Finally, in 78 percent of states, medical discount plans that do not assume any financial risk are inappropriately marketing themselves as health insurance plans.

Source: "Private Health Insurance: Employers and Individuals are Vulnerable to Unauthorized or Bogus Entities Selling Coverage," GAO-04-312, United States General Accounting Office, February 2004.

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