March 04,2004

Grassley Exposes Growing Problem of Fake Health Insurance

WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, todayconvened a hearing to examine the growing problem of fake health insurance plans and pledged tofight their abuse.

“These con artists are promising health insurance to desperate people, charging them for it,and sticking them with huge, unpaid medical bills,” Grassley said. “I haven’t seen much that’s loweror crueler than this. I wonder how someone selling a fake insurance policy to a family would feelif he were on the other end. What if his wife had cancer or if he needed a transplant to survive? Aresome people so desperate to make a buck that human decency flies out the window?”

Grassley said many Americans are susceptible to the con artists’ pitches. “If you’re a smallbusiness owner or an individual, you probably have no reason to think a health insurance plan mightbe fake. All you know is you need insurance, and some reasonable-sounding people are selling it.These con artists are really good at what they do, and everyone else has to be one step ahead. Beskeptical and check out any deal that doesn’t come through a company you know and trust. In otherwords, verify before you buy.

“Each scam-related crime can have victims at all levels. First is the person paying the scamartist. Next are family members covered by the bogus policy. Third are the hospitals and the doctorswho get no payment and try to collect from the policyholder. Just for trying to get health insurance,a person can find himself being denied necessary health treatment or bankrupt from medical billsthrough no fault of his own. Either one is a horrible, scary prospect”.

Grassley said the insurance industry, the federal government, and state governments have towork together to stop and prevent these scams. “These scams have to stop before more innocentpeople fall victim to amoral con artists who play on their worst fears and rip them off without asecond thought,” Grassley said.

Following are Chairman Grassley’s opening and closing statements from today’s hearing andconsumer tips to avoid unauthorized health insurance plans.

Opening Statement of Sen. Chuck Grassley
Hearing, “Health Insurance Challenges: Buyer Beware”
Wednesday, March 3, 2004

Good morning. I thank everybody for coming. This hearing has three purposes: (1) Exposethe significant and growing problem of unauthorized and bogus health plans and their damagingeffects; (2) Educate people, including employers, about unauthorized and bogus health plans – whatthey look like; (3) Empower people with information – how not to fall prey to one and if you’vealready been scammed, what to do next. There is much to be done at the state level, at the federallevel, and by the insurance industry among others. Good faith efforts have been made, and Icommend the efforts made by DOL, NAIC and the states. But, at the same time, we can and mustdo much more to protect everyday people from becoming victims. In other words, we need to stopbogus health insurance scams. The problem is growing. The GAO reports that from 2000 through2002, more that 200,000 policyholders were taken by bogus health insurance scams.

An unauthorized health insurance and a bogus health insurance plan are entities that sellhealth insurance to individuals, unions, associations and others with the intent not to pay claims.This is not a new phenomenon but a continuously growing one. Here’s what I’m talking about.This is a pamphlet that was distributed by one of these phony health insurance plans. It’s shiny andglossy and paints a pretty picture. In addition, my staff recently received this piece of literatureadvertising health insurance at an extremely low cost. This plan is even advertising that it willaccept people with all pre-existing conditions. This came across a committee fax machine last week.To the average person these look like fabulous opportunities to get lots of health coverage and otherbenefits at low prices. Unfortunately, these items are from phony insurance companies.

The proliferation of the Internet, the increasing number of the uninsured and the everincreasingcosts of healthcare make the perfect breeding ground for these scams to be born and grow.This hearing is a wake-up call to America, and a reminder that there are unscrupulous individualswho intentionally inflict emotional and financial harm upon businesses and individuals. We mustfocus on awareness, education and aggressive oversight to prevent bogus plans from taking people’shard-earned money. Today, 43 million Americans are desperate for affordable health insurancecoverage. In addition, the number of people covered by government health insurance programs ison the rise. With more and more people being taken by these bogus health plans, the system isbeing pressured. More and more people will become uninsured and end up on federal assistanceprograms.

Let us not forget that there are also tax and other health policy implications. The predatorsare defrauding the IRS, the victims are taking deductions and when all is said and done, somevictims may very well join the ranks of Medicaid. We also need to target the scam artists, who doa disservice to all the good insurance companies out there.

On a personal note, I want to point out that no insurance company is safe from bogus healthplans. Employers Mutual LLC, a scoundrel that scammed thousands of people, took its name froma reputable Iowa insurer, Employers Mutual Casualty Company, that has been in business for morethan 90 years. The real Employers Mutual has received more than 75 complaints from peopleconfusing it with Employers Mutual the scam. By using the name of a reputable company, bogusplans aim to confuse consumers, take their money and run.

Any person taken by a bogus plan is one victim too many. It is easy to forget that there arehuman lives and untold stories behind the statistics. That is why we will hear this morning from apanel of everyday Americans, dealing with the horrible consequences of bogus health plans. Theywill tell us very troubling and all too common stories. Each has come before this Committee toremind us that no one is safe from the wrath an unauthorized health plan can leave behind.

At my request, along with the requests of Senators Bond and Snowe, the General AccountingOffice has issued a “fact” report assessing the effects of unauthorized health plans. I welcome Ms.Kathryn Allen who will testify about the latest GAO report. The GAO report is a fact report. It isthe first step at looking at this complex problem. Also, GAO’s Office of Special Investigations willdiscuss its investigation of Employers Mutual LLC’s operations. DOL Assistant Secretary AnnCombs is with us, too. DOL’s responsibility of enforcing the federal requirements for insurance andgroup health plans found in ERISA and implementing initiatives to combat this growing problemis of paramount importance. We welcome testimony from the National Association of InsuranceCommissioners. Also, the Texas Department of Insurance will discuss efforts to educate consumersand aggressively pursue bogus plans. Finally, we will hear testimony from Mila Kofman about herwork in this very important area.

Now, I would like to say what this hearing is not about. This hearing is not about“association health plans,” as some have asked me and members of my staff. Legislation creatingthese types of plans is not before this committee, and we have no jurisdiction over theirimplementation. Instead, this hearing is about predators – predators who are feeding on everydaycitizens across the nation. I want to close by saying that it is extremely important and valuable tomaintain a dialogue among the insurance industry, regulatory agencies, Congress and consumersabout the problems that persist. I hope this hearing will help continue and expand that dialogue andprovide a road map for what still needs to be done. We need to “stop the bleeding” now.


Closing Statement of Sen. Chuck Grassley
“Health Insurance Challenges: Buyer Beware”
Wednesday, March 3, 2004

 That brings us to the end of our hearing today. First of all, I thank all of the witnesses fortaking the time out of your busy schedules to come and help us do this important work here today.We owe a special word of thanks to Ms. Almond and Ms. Piantadosi, who were willing to share thetragedy they are still living. Once again I think it is important, first and foremost, to make sure thatthere is a continued and sustained federal and state effort to follow through and address the problemswe have heard about today. It is time to stop being reactive. We must be more proactive at shuttingdown these bogus plans before more citizens are financially and emotionally harmed.

Coming out of this hearing, I see that we have the federal government, the states and theNAIC working together cooperatively and in good faith to attack this behemoth. At the same time,I see that: (1) not everyone who should be active is; (2) those working together do not share thesame overall authority; and (3) there is no consistent, national comprehensive strategy for a systemicnationwide problem. So here is what I propose: At the conclusion of this hearing, I intend to contactthe American Medical Association and the American Hospital Association, which are also on thefront lines of the damages that bogus health insurance scams can cause. They, too, with the smallbusiness community, including the National Federation of Independent Business and WomenImpacting Public Policy, can get the word out and help identify a problem early and equip theirmembership with the tools to avoid the problem or the payer avenues to take if they’ve beenvictimized.

I am also going to formally request that the GAO evaluate the effectiveness of currentcoordination efforts among and between the states, NAIC and the federal government. Also, I amgoing to ask that the GAO assess the effectiveness of DOL oversight of employer-sponsored healthbenefits in general, or problematic/scam plans in particular, including the consistency andeffectiveness of efforts across DOL regions. In addition and perhaps most importantly because thereis “no silver bullet” to this problem, I am directing my staff to work with DOL and other relevantcommittee staff to see if we can tighten up ERISA and to examine the civil, criminal andadministrative remedies available to the DOL to see if some improvements can be made to addressthis problem once and for all.

Early detection, aggressive oversight and effective communication are the keys to successin addressing bogus health insurance scams. Getting valuable information to the citizens across thisnation, along with continued communication between state and federal governments, can only leadto the downfall of more and more of these scam artists, and that is my goal.
Senator Grassley’s Seven Tips to Avoid Being a Victim of a Health Insurance Scam

1. Before You Buy, Verify. Contact your state insurance department and the Department of Laborto verify that the plan is licensed in your state and if it has a complaint history. Don’t forget to findout if the agent is licensed. Ask your agent to check out the insurance, too.

2. Compare, Compare, Compare. When looking for health insurance, do your homework, get thefacts and compare plans. If two plans are similar or identical in benefits but differ a lot in price, it’stime to start asking questions. Don’t sign on the dotted line.

3. Be Alert. Many bogus plans are posting fliers on telephone poles, sending materials across faxes,and advertising on the Internet. If you are looking at enrolling in one of these plans, make sure youask plenty of questions and get the facts. If it looks too good to be true, it probably is.

4. Pre-Existing Conditions. Many insurance companies will not write a policy for a person with apre-existing condition. If your health plan will and the rate is not substantially higher, start askingquestions and researching.

5. It’s All In A Name. Many bogus plans are using names similar to those of well-known andreputable insurance companies. Check and make sure the plan you think you are enrolling in is, infact, that plan.

6. No One Is Safe. Don’t think that it can’t happen to you – hundreds of thousands of people likeyou have fallen victim to bogus plans.

7. Act FAST. Typically, phony health plans will not pay medical bills or may only pay small ones.If you find that your health insurance is not paying your medical bills in a timely fashion, call yourstate insurance department and the Department of Labor through its toll-free number at 1-866-444-3272 or at You need to call FAST and report what is happening to you.Remember, it is better to be safe than sorry.