Hundreds of Thousands Scammed by Bogus Health Insurers

As health insurance premiums have risen at double-digit rates, more and more consumers are falling prey to health insurance scams in which unauthorized entities collect premiums but do not pay claims, according to a new report by the General Accounting Office (GAO).

The report, Private Health Insurance: Employers and Individuals Are Vulnerable to Unauthorized or Bogus Entities Selling Coverage (GAO-04-312, Feb. 27, 2004), found that between 2000 and 2002, 144 unauthorized "insurers" sold health insurance to 15,000 employers, which translated to more than 200,000 bilked policyholders. The number of such bogus insurers newly identified by federal and state officials increased from 31 in 2000 to 60 in 2002.

The GAO notes that such firms often adopt names that are familiar to consumers or similar to legitimate firms, market their products through licensed agents, set premiums below market rates, and pay initial claims while collecting additional premiums before ceasing claims payments.

Employers Mutual adopted many of these characteristics as it collected approximately $16 million in premiums from more than 22,000 people in 2001, leaving more than $24 million in medical claims unpaid, the GAO says.

Senate Finance Committee Chair Chuck Grassley (R-Iowa), who commissioned the GAO report, said that the number of such unauthorized entities has increased because of "the soaring costs of health care" and the rise in the number of uninsured U.S. residents.

Last week the Finance Committee held hearings on the problem. Mila Kofman, an assistant research professor at Georgetown University, testified that the Justice Department needed to increase its health insurance fraud prosecutions.

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