Is Your Health Plan Crooked?

But fake health plans aren't insurance, they're just a way of stealing your money. Four of the larger ones closed over the past two years, leaving nearly 100,000 people with more than $85 million in medical bills, says Mila Kofman, a professor at Georgetown University's Health Policy Institute, who studied this problem for the Commonwealth Fund. (The four: American Benefit, shot down by Texas; TRG Marketing, closed by Nevada, and Employers Mutual and the Service and Business Workers Local 125, shut down by the Feds.) There are more to come. The last time insurance premiums soared (from 1988 to 1991), 400,000 people got stuck with $123 million in bills. To pay, some had to sell their homes or declare bankruptcy.

States maintain guaranty funds to cover your benefits if your insurer fails. But the fund backs only real insurers, not phony ones. In some states, the insurance agents who sell unlicensed policies are supposed to pick up the payments. In Colorado, for example, agents who sold American Benefit have paid $624,000 so far.

Jeanine Evans is hoping to get a payout from her agent, too. The hospital and doctors (with the exception of lab technicians) are willing to wait for payment until the case is settled, she says. In the meantime, she and her husband, David, dug into their retirement savings for immediate needs.

How to avoid health-insurance scams?

1. Easy--just call your state's insurance commission or check its Web site. See if the company is licensed to do business there. If not, it's a fraud. Walk away from the sale and the insurance agent. If your company switches insurers, check on that license, too.

2. Skip any cheap policy that claims to give generous benefits through a large provider network. They're vampires and will suck you dry. Also skip policies that don't require a health exam. They attract desperate people, but what's the use if they don't pay?