Health insurance scams: how government is responding and what further steps are needed.

T he United States is experiencing an unprecedented influx of unauthorized insurers selling phony health insurance.The last time this occurred, more than a decade ago, nearly 400,000 people were left with $123 million in unpaid medical bills. Unauthorized health insurance companies intentionally fail to comply with state and federal law regarding insurance regulation; they collect premiums for nonexistent health insurance; they do not pay claims, and, ultimately, they leave patients with millions of dollars in medical bills. Since 2001, four of some of the largest unauthorized plans have left nearly 100,000 people with approximately $85 million in unpaid medical bills and without health coverage. Most victims have been small businesses and self-employed people. Regulators believe this problem will only grow as premiums continue to increase at double-digit rates and people continue to look for affordable alternatives. It is illegal in every state to operate an insurance company without a license. By not obtaining a license, unauthorized insurers are able to avoid compliance with important consumer protections, including solvency standards that ensure a company will be able to pay claims of enrolled individuals, safeguards for vulnerable populations (e.g., children with disabilities), states’ health coverage continuation and conversion laws, and other consumer protections.When an unauthorized company becomes insolvent, there is no safety net, such as a state guaranty fund, to pay medical claims. Having paid insurance premiums in the belief that their medical care would be covered, victims are left to deal with often huge medical bills. Some lose their homes and life’s savings.With collection agencies aggressively pursuing victims to pay outstanding medical bills, a number of patients are saddled with bad credit or forced into bankruptcy. The Commonwealth Fund is a private foundation supporting independent research on health and social issues.The views presented here are those of the authors and should not be attributed to The Commonwealth Fund or its directors, officers, or staff, or to members of the Task Force on the Future of Health Insurance.