The Sale of Bogus Health Plans

DATE: April 5, 2002 RE: The Sale of Bogus Health Plans TO: All Life and Health Agents in the State of Alabama Producers (agents) of health insurance policies risk license revocation, felony prosecution and personal financial liability if the producer sells health care plans offered by unauthorized and/or illegal insurers. Alabama producers of health insurance must be extremely careful in falling for and being recruited by unauthorized and/or illegal insurers. There are many subterfuges used to recruit Alabama producers. In the past twelve (12) months, the Alabama Department of Insurance has taken action against six (6) unauthorized and/or illegal health plans either for recruiting Alabama producers and/or selling products to consumers. These unauthorized and/or illegal health plans recruited licensed producers to market its product to unsuspecting employers, consumers and others. Additionally, the Department of Insurance is continuing to investigate other questionable health plans. Producers who sell unauthorized and/or illegal health insurance jeopardize the security and health of Alabama consumers, and subject themselves to disciplinary action, which could include suspension and/or revocation of their licenses, monetary restitution and penalties. Sections 27-10-1 and 2, Code of Alabama, 1975, are the controlling statutes. The solicitation and/or sale of unauthorized and/or illegal health insurance may subject a producer to personal liability for unpaid claims and losses. A producer may also be subject to criminal prosecution. Each health insurance producer in the State of Alabama is responsible for diligently investigating any insurance entity before agreeing to represent same. If a producer has a question about any insurance company, said producer may call the Insurance Department at 1-800-433-3966 or go to the Department Website @ www.aldoi.gov Each producer must review very carefully the health plan, company and product as follows: A product looks or operates like insurance but (a) claims it is not, or (b) claims it is ERISA and only providing "benefits" and not insurance. Avoidance in the use of insurance terminology, i.e., use of the words (a) "consultant fees" or "fees" instead of "commissions"; (b) "contributions," not "premiums"; (c) the sale of a product by "labor consultants" or "business agents" who enroll or negotiate with potential members, not producers. Producers have no commission schedule or fixed commission rates and the term "fees" is used. Producers are asked to market and sell an "ERISA" Plan or "union" plan. COVERAGE PROVIDED BY LEGIMATE, SINGLE EMPLOYER ERISA PLANS "ARISES FROM THE EMPLOYER/EMPLOYEE RELATIONSHIP" AND IS NOT MARKETED OR SOLD BY INSURANCE PRODUCERS. The product claims to be "fully-funded," "fully insured" or "reinsured," but the name of the carrier insuring or underwriting the product is not listed. The health insurance company must be licensed in the State of Alabama. Producers are instructed to market and sell the plan to both individuals and employers who are required to join and pay dues to a trade, occupation, occupational or consumer association solely to obtain health coverage. Enrollees do not control or sponsor the activities of the association and are not given the association by-laws or voting rights information. Producers are asked to market and sell an "employee leasing" arrangement, i.e., place individuals and groups into a "professional employee organization" ("PEO") which provides self-funded health coverage. The PEO is not licensed by the State of Alabama as a staff leasing services company, nor does it pay the wages of the enrollees. By this product the company accepts and covers individuals or groups with pre-existing conditions, even though those individuals and groups have no credible coverage. The product advertises unusually low premiums and/or unusually generous benefits, low (or no) minimum requirements for participation, and loose (or no) underwriting guidelines. IF IT LOOKS TOO GOOD TO BE TRUE, IT PROBABLY IS. Be extremely careful with any new health insurance plan that you hear about and investigate thoroughly before you sell or solicit it.