GOVERNOR PATERSON TAKES ACTION AGAINST MISLEADING SALES OF LIMITED BENEFIT HEALTH INSURANCE PLANS

Health Insurer Fined $700,000 for Misleading Sales Practices; Insurance Department Blocks Sale of Limited Benefit Health Plan

• Limited benefit health plans often pay far less than those who buy them expect
• National TV ad squashed
• Broad crackdown on misleading sales practices announced
• Another company suspends sales
• Hearings planned on usefulness

Governor David A. Paterson announced today that New York is cracking down on companies that sell limited benefit health insurance plans in ways that mislead people into believing they have full heath insurance coverage. As a result, the New York State Insurance Department has moved to protect New Yorkers by stopping one company from selling the product in New York and from advertising nationally and is examining the marketing practices of all companies selling this product.

"Many New Yorkers are desperate for affordable health insurance. More than 2.5 million have no coverage, and with tens of thousands losing their jobs, that number is growing. Unfortunately, some businesses are taking advantage of that need to sell limited health insurance in ways that mislead consumers into believing they are getting full coverage. If they get seriously ill, consumers who buy this product can find themselves with huge bills they are unable to pay. New York will not allow disreputable businesses to take advantage of consumers," Governor Paterson said.

"At Governor Paterson's direction, the Insurance Department has taken a number of steps to protect consumers," Acting New York State Insurance Superintendent Kermitt J. Brooks said. "Especially in this economic climate, we will not allow consumers to be twice victimized - first by paying for insurance that covers much less than they were told it would, then by having to pay thousands more for the health care that insurance did not cover."

Governor Paterson announced the Department fined one company, American Medical and Life Insurance Company (AMLI), $700,000 for numerous violations, and imposed new restrictions on the company. The company can no longer sell its limited benefit products in New York, and has been forced to pull its nationwide television commercial. The commercial was the company's main marketing tool.

"We are working to help AMLI customers and we urge anyone who has had a problem to call the Insurance Department so that we can help," Brooks said, noting that the company is now cooperating with the Department.

Brooks said AMLI agreed to:

• Discontinue all of its limited medical benefit group policies in New York;
• Offer to convert terminated group policies to individual policies upon request;
• Fully cooperate with the Department in resolving customer complaints;
• Retain an independent outside counsel to review its operations and make specific recommendations for changes; and
• Prepare a compliance monitoring plan to ensure compliance with applicable laws and regulations.

Limited benefit health insurance plans normally provide less than comprehensive hospital/medical coverage, but with healthcare bills being the leading cause of personal bankruptcy filings nationally, many consumers searching for affordable coverage buy limited benefit health plans as one way to insure against potential liability. Limited benefit health plans may leave consumers with large medical bills. If injury or illness occurs and an insured files a claim, they may find that they have less coverage than they thought (see Appendix A for comparisons).

A sampling of complaints received by the Insurance Department about AMLI's coverage illustrates this gap:

• A Rochester-area woman purchased health insurance from a telemarketer and agreed to have the $419 a month premiums paid by automatic charges to her credit card. She was provided no written documents spelling out details of the coverage. Soon afterward, she needed hospitalization, which cost nearly $28,000. It turned out the policy, sold by an agent unlicensed in New York, paid only $1,164 of the expenses. AMLI paid in full only after the Department intervened.
• A young man suffered a stroke at the age of 36. AMLI paid only $250 toward his medical bills. The insured had to pay a total of $29,917.04.
• A woman went to the emergency room with stomach pains and a day later received an appendectomy. AMLI paid $1,416.10, leaving the insured a balance of $19,437.59.
• After being given misleading coverage information by an agent, a man purchased a limited medical benefit plan from AMLI. He understood, and the information sent to him indicated, that the plan required a $10 co-pay for doctors/specialists (10 covered visits per family member per calendar year) and would pay $25,000 for hospital inpatient services (100 days maximum per calendar year). Therefore, he was surprised to find that AMLI only paid $39.65 toward an ENT bill for $237.42 and $250.00 toward an inpatient hospital bill for $3092.73. His total medical bills were $4197.79 and AMLI paid $807.29. With regard to the hospital stay, AMLI contended that the insured should have known that a $250 per day limit applied to the $25,000 limit for hospital inpatient services, since the maximum days were limited to 100. AMLI agreed to pay only after the Department intervened.
• A man bought a limited medical benefit plan issued by AMLI. When he bought the policy, he was told that there would be a $20 co-payment for doctor's visits and a $100 co-payment for emergency room services. He was not made aware of any other limitations on his benefits and never received a Summary Plan description from the carrier. AMLI paid less than he expected for two hospital emergency room visits. The first time, the bill was $1,720.61 and AMLI paid $150. AMLI denied the second claim for $731 saying the emergency room benefit maximum had been met because it was his third visit to the emergency room that year. Only when he complained to the company was he told that emergency room benefits were limited to a maximum of two visits per policy year and a maximum of $150.00 per visit. After the Insurance Department intervened, the company agreed to pay the remainder of his claim.

The actions against AMLI were triggered by an Insurance Department investigation begun after consumers complained to the Department, Brooks said:

• The Department investigated American Medical and Life Insurance Company after receiving consumer complaints about a limited medical benefit plan sold by the company. The company is licensed to sell this product and other life and health products in 38 states and the District of Columbia.
• The company describes itself as a "virtual" insurance carrier, outsourced all underwriting, sales and marketing and claims handling functions to third parties, and exercised little or no oversight of such functions.
• The investigation revealed that AMLI violated numerous New York insurance law provisions in its sales and marketing of the limited medical benefit plan from the fall of 2006 through the fall of 2008:
  
  
  • Sold thousands of limited benefit plans to New York residents using unlicensed agents employed by telemarketing firms located in New York and Florida.
  • Received approval in New York to use a written policy application form that contained important disclosures about limitations in the coverage, but then conducted its New York sales via Internet and phone without using the approved application form.
  • Sold many of its policies as group coverage through an association known as the National Congress of Employers, which the Department determined violated New York law because the association was not formed and maintained for a primary purpose other than selling insurance.
  • Conducted a nationwide marketing campaign through an intermediary called Cinergy Health, Inc. that, in violation of New York Insurance Law, created the misleading impression that the limited benefit plan offered major medical or comprehensive coverage.
  • The company continued to use the misleading advertising as part of its national marketing campaign, even after the Department had the company stop such marketing in New York.

Governor Paterson announced further Insurance Department action:

• Another insurer has agreed to suspend sales of a similar product nationally while the Insurance Department investigates its marketing practices.
• The Department will consider whether to propose new regulations to guarantee consumers are properly informed about just how restricted limited benefit health insurance plans may be.
• The Department directed insurance companies to provide information to the Department about any limited benefit health plans they sell in New York.
• The State will hold public hearings to determine if the proper course is tighter regulation or banning the product completely.

In addition to the limitations inherent in these policies, marketing and sales practices surrounding them may add to the confusion, Brooks said. Many limited benefit plans are solicited via the Internet and through television commercials. Some of these advertisements imply the policies provide comprehensive or major medical coverage. Exclusions and policy limits are not completely revealed. The sales are completed via the Internet or telephone without the benefit of a written application, circumventing specific disclosures that are required by New York Law. The mandatory disclosures are either not provided, are not prominently displayed or are lost during the sales pitch and thus are ineffective. Investigations have also revealed that some policies are sold through telemarketing firms using unlicensed agents, which is in violation of New York Insurance Law.

"We will hold hearings to look at the larger issues surrounding limited benefit health plans," Brooks said. "Are they being sold properly? Should they be sold at all? What else can we do to protect New Yorkers? We want to hear what the public thinks about these plans."

Hearings are scheduled for September 21 in New York City, September 24 in Newburgh and September 30 in Rochester. More information on the hearings, including how to testify, is available at the Insurance Department's website at www.ins.state.ny.us.

Consumers with insurance questions or concerns can call the Insurance Department's consumer hotline at 1-800-342-3736. The hotline is open from 9 a.m. to 4:30 p.m. Monday through Friday. Consumers may also ask questions or file complaints at the Insurance Department's website, www.ins.state.ny.us.

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APPENDIX A

AVERAGE SERVICE COST/AMLI COVERAGE COMPARISON

Services	New York State Average Cost	American Medical and Life Insurance: National Congress of Employers Group Plan Coverage
Hospital Room & Board	$5,516- average daily charge (*Includes insured & self insured data & excludes Medicare and Medicaid)	$1,000 / day (max. 30 days)
Diagnostic Tests-High tech (MRI, PET, CT, etc.)	$1150-$2500 (MRI) $500-$1250 (CT Scan) $850-$4200 (PET Scan) (*www.comparemricost.com and www.americanwellnessandimaging.com)	$100 per day (max. 3 test days/yr)
Diagnostic Tests-Low tech (x-ray, lab, etc.)	$83-$1,100 per test	Included in above
Doctor’s Office Visit	$45-$150 (minor problems) $84-$185 (low to moderate severity) $130-$250 (moderate to high severity) $200-$355 (moderate to high severity, more complex) $373-$550 (moderate to high severity, highly complex) (* Taken from The Attorney General’s Report “The Consumer Reimbursement System is Code Blue” (2009))	$100 per visit (max. 5 visits/yr)

 

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