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Health Insurance Scams: How to Spot a Bogus Health Plan Posted: March 5th, 2010

By Maryalene LaPonsie

Maryalene LaPonsie

Health insurance scams are on the rise. Learn how to spot health insurance scams that promise lots of coverage for little cash.

How to Spot a Bogus Health Insurance Policy

Today's combination of double digit unemployment and skyrocketing health care costs are creating a perfect storm of consumer anxiety and desperation. With some 46 million Americans uninsured, scam artists prey on people's vulnerabilities to sell them phony health insurance policies.

Using shady business practices and high-pressure sales tactics, unscrupulous companies sell stripped-down or outright fraudulent health insurance plans. According to James Quiggle of the Coalition Against Consumer Fraud, "Potentially tens of thousands of innocent consumers are being bilked by shady operators who are preying on people's anxieties in a down-turned economy."

Spotting Fake Health Insurance Plans

Quiggle points out that scam artists operate with a large toolbox of marketing techniques. Some may contact potential victims directly through telemarketing or fax advertisements. Others run TV ads, post signs on telephone poles about cheap health insurance, or can be found in your local classifieds. However, they all have a common theme: big coverage for little money.

If you are contacted by a health insurance seller with a policy that seems too good to be true, take the time to fully review the entire plan. Don't make any decisions without seeing the complete terms of the policy -- and don't settle for the highlights provided in a brochure or by a salesperson.

Contact your state insurance department to verify licensing -- not only of the health insurance company but also of the agent. Many state departments of insurance list licensed insurers on their Web sites.

Quiggle also suggests that you watch for these red flags:

  • Aggressive sales techniques: Be wary of any salesperson who pressures you to make an immediate decision on a plan. A legitimate health insurance company is happy to send you the details and give you time to think. Any demanding company, Quiggle notes, should be treated with caution, especially if they request your bank or credit card information over the phone.
  • Evasive answers: If the salesperson refuses to give direct answers, he could be trying to hide something. Insist that he send you the entire policy details before you provide any payment information.
  • Association or union requirements: Some companies convince consumers that they have to join an association or trade union to be eligible for a health plan. This may seem to lend legitimacy to the insurance, but the reality is that many of these groups are fake as well. The scam artists benefit not only from selling the worthless health insurance policy but also by collecting association "dues" from those convinced to join.

What to Do If You Buy a Bogus Health Insurance Policy

If you discover that your health plan is not worth more than the paper it's printed on, contact your state's department of insurance, as well as the Better Business Bureau. If your losses are substantial, consider hiring an attorney.

Unfortunately, it can be difficult to recoup any losses. That's why Quiggle and other consumer advocates advise that you take the necessary steps to verify the validity of the policy before making a purchase. Quiggle advises, "Back off and go slow if the plan seems too affordable, benefits are too generous, and sign-up is too easy, especially if you have a preexisting condition."

"Crooks are promising gold and delivering fool's gold," Quiggle says, "And that's a tragedy."

Maryalene LaPonsie