Is Your Health Plan Crooked?

"We panicked," Jeanine Evans of Manitou Springs, Colo., told me over the phone. She's thinking back to a terrifying day in February 2002. She'd stopped at a hospital pharmacy to pick up some essential drugs for her daughter, Krysta, a cystic-fibrosis patient who'd just endured a double lung transplant. But the druggist said, "No dice"; her husband's group health insurance, written by American Benefit Plans, suddenly wasn't any good. She'd have to pay $500 a month for drugs Krysta needed to keep her new lungs from being rejected. "I stood in the hospital in tears," she says. "How would we get the medicine to save her life?" Worse, she learned she wasn't covered for the $460,000 transplant cost.

American Benefit turned out to be one of many illegal health plans (not licensed by the state) that have trapped at least half a million people so far. They're Ponzi schemes--taking in "premiums," covering small medical bills, but stalling on large ones so the principals can skim off cash. Seemingly honest insurance agents peddle these policies. But eventually, fake insurers close up, or the state shuts them down, leaving you with unpayable medical debts. The plans' soulless founders may promptly start the same phony deal in another state.

There's a second kind of scam, which sounds like insurance but isn't. I'm talking about the many discount health cards, sold by phone, mail and Internet. For a monthly or annual fee, you'll be promised discounts "up to 80 percent" on medical and drug bills. But your actual savings may come to little or nothing, after other fees. Often the doctors and drugstores don't even know about the card. (The few good discount cards, for prescription drugs, include those offered by AARP, YourXPlan and Together Rx--the latter for people on Medicare.)

There are easy explanations for today's alarming flood of phony health insurance.

First, the double-digit price increases of the past three years. Small businesses are screaming for affordable coverage, and the Ponzi schemes oblige. They're sold by what look like honest insurance agents for 15 percent to 50 percent less than real insurance. Duped business owners don't catch the fraud until employees start complaining that their medical bills aren't being paid.

Second, the soaring number of the uninsured. The Census Bureau last week reported an unprecedented rise in the number of people without coverage--an increase of 2.4 million last year, most of them middle class. The uninsured now make up 15.2 percent of the population (that's 43.6 million people), compared with 14.6 percent in 2001. Most of the uninsured are full-time workers who don't have, or can't afford, group health insurance. They may also be uninsurable because they're sick.