Private Health Insurance: Unauthorized or Bogus Entities Have Exploited Employers and Individuals Seeking Affordable Coverage Page: 2 of 22
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Accountability- Integrity- Reliability
Highlights of GAO-04-512T, a testimony
before the Committee on Finance, U.S.
Why GAO Did This Study
As health insurance premiums have
risen at double-digit rates in recent
years, employers and individuals
who have sought to purchase more
affordable coverage have fallen
prey to certain entities that may
offer attractively priced premiums
but do not fulfill the expectations
of those buying health insurance.
These unauthorized entities-also
known as bogus entities or
scams-may not meet the financial
and benefit requirements typically
associated with health insurance
products or other arrangements
that are authorized, licensed, and
regulated by the states.
This testimony is based on GAO's
recent report Private Health
Insurance: Employers and
Individuals Are Vulnerable to
Unauthorized or Bogus Entities
Selling Coverage, GAO-04-312
(Feb. 27, 2004). In this testimony,
GAO was asked to identify the
number of entities that operated
from 2000 through 2002 and the
number of employers and
policyholders affected, approaches
and characteristics of these
entities' operations, and the actions
federal and state governments took
against these entities. GAO
analyzed information obtained
from the Department of Labor
(DOL) and from a survey of
insurance departments in the
states; interviewed officials at DOL
and at insurance departments in
Colorado, Florida, Georgia, and
Texas; and examined the
operations of one of the largest
entities-Employers Mutual, LLC.
To view the full product, including the scope
and methodology, click on the link above.
For more information, contact Kathryn G.
Allen at (202) 512-7118 or Robert J. Cramer
at (202) 512-7455.
PRIVATE HEALTH INSURANCE
Unauthorized or Bogus Entities Have
Exploited Employers and Individuals
Seeking Affordable Coverage
What GAO Found
DOL and the states identified 144 unique entities not authorized to sell health
benefits coverage from 2000 through 2002. Although every state was
affected by at least 5 of these entities, these entities were most often
identified in southern states. These unauthorized entities covered at least
15,000 employers and more than 200,000 policyholders. The entities also 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.
In most cases, the operators characterized their entities as one of several
types to give the appearance of being exempt from state regulation, but
states found that they actually were subject to state regulation. Other
characteristics that were common among at least some of these entities
* adopting names that were familiar to consumers or similar to legitimate
* marketing their products through licensed agents and with other health
care or administrative service companies,
* setting premiums below market rates,
* marketing to employers or individuals that were particularly likely to be
seeking affordable insurance alternatives, and
* paying initial claims while collecting additional premiums before ceasing
Employers Mutual adopted many of these characteristics as it collected
approximately $16 million in premiums from over 22,000 people in 2001,
leaving more than $24 million in medical claims unpaid.
Both federal and state governments-individually and collaboratively-took
action against these entities and sought to increase public awareness. For
example, state insurance departments issued cease and desist orders against
41 of the 144 entities, and DOL obtained court orders against three large
entities from 2000 through 2002. States also took other actions against some
entities' operators and agents that received commissions for marketing these
entities. Further state or federal actions remain possible as many
investigations remain ongoing. States and DOL primarily focused their
prevention efforts on improving public awareness, including the need for
consumers, employers, and insurance agents to verify an entity's legitimacy
with insurance departments.
United States General Accounting Office
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United States. General Accounting Office. Private Health Insurance: Unauthorized or Bogus Entities Have Exploited Employers and Individuals Seeking Affordable Coverage, text, March 3, 2004; Washington D.C.. (digital.library.unt.edu/ark:/67531/metadc294100/m1/2/: accessed January 16, 2019), University of North Texas Libraries, Digital Library, digital.library.unt.edu; crediting UNT Libraries Government Documents Department.