BE CAUTIOUS ABOUT
ASSOCIATION HEALTH PLANS:
SOME ARE NOT ON THE “UP AND UP”

- by Antony Stuart and Glenn Anaiscourt

Are you in the market for health insurance?

Perhaps your employer can no longer afford to provide coverage, and has informed you that you will have to find a policy on your own. Perhaps you lost coverage, or are dissatisfied with the coverage you have now.

If you are older or have a pre-existing health condition, you may have experienced difficulty getting any health coverage, let alone affordable coverage. Maybe you are in school, or have recently graduated. You may be between jobs, working in part-time jobs with no benefits, or working for yourself, or working for a small company.

If so, there are unethical companies waiting to take advantage of you.

A Growing Market

Increasingly, on the radio, on television, and in print, advertisements appear for “affordable health insurance” obtainable through an ostensibly independent association. For example, Mary Lou Retton now appears as a spokesperson for the National Association for the Self-Employed, or NASE, which purports to be a business organization providing a voice for small business and microbusiness.

In 2003, the Wall Street Journal reported that some non-profit associations are really just marketing arms for insurance companies. Lawsuits filed across the country have charged that the primary purpose of the NASE has been to sell the stripped-down “health insurance policies” of the Mega Life and Health Insurance Company, or Mega.

Policies That Protect the Insurance Company

The Mega policy that the NASE recommends is an example of a policy so riddled with exceptions and exclusions that if the policyholder becomes sick and must file a claim, the insurer will not actually pay more than a small percentage of the bills.

Reputable plans provide protection in the event of a serious illness by capping the total amount you will have to pay out of pocket for major health problems. For example, if your total expenses come to $150,000, your personal responsibility may “cap out” at, say, $8,000, depending upon your deductible and copayment. The insurance company covers the rest.

The Mega plan that NASE “enrollers” pitch, however, provides for no such upper limit. The way the policy is written, if your bills total $150,000, you could be personally responsible for $120,000.

Even if you read the policy, you probably won’t understand all of its limitations. Even a lawyer who carefully reads the plan may not immediately understand what it does. In the final analysis, the Mega plan is not really insurance at all, but a discount plan that defrays a small portion of your total medical bills.

So, though there are many legitimate association health plans on the market, be careful if you are thinking of purchasing association health coverage. The wrong choice could cost you everything you own — at a time when you are most vulnerable.

Dana and Doug Christensen

Such was the case of Dana and Doug Christensen, who purchased a Mega policy through the NASE when Doug’s bone cancer was in remission. The Christensens specifically asked their NASE enroller if the plan would protect Doug if his cancer should recur. The enroller assured them it would.

When Doug’s cancer did recur, though, the couple discovered most of their hospital expenses were not covered.

In Doug’s last months, when he should have been focusing on battling cancer, making final arrangements, and living the rest of his life as fully as he could, he was dealing with an insurance company that would not pay his medical providers.

Doug begged Dana to divorce him so she would not be left with all of his medical debt, but she steadfastly refused. After Doug passed away, Dana was forced to move out of her house and into the couple’s boat.

Doug ultimately was barred from further hospital treatment at the medical center where he received his chemotherapy and pain medication. Dana was left with over $450,000 in uncovered expenses when he passed away.

It took a lawsuit to make Mega accountable. Had it not been for action through our civil justice system, Dana would still be paying Doug’s bills today.

Darlene and David Henderson

Darlene and David Henderson found themselves in similar circumstances. In April 2000 they met with an NASE enroller who presented the Mega plan. To the Hendersons the plan appeared to be a group PPO, similar to others they had seen.

After Mega approved the Hendersons ’ application and the couple began to pay premiums, David Henderson required surgery for a life-threatening aneurysm and a subsequent colostomy at a total cost of over $190,000.

Only then did the Hendersons learn the policy was not really a group policy. Its maximum benefits were very low in relation to typical medical expenses. Mega paid about 16% of David’s medical expenses. David complained to the NASE enroller-cum-Mega insurance agent.

The Christensens and the Hendersons are just two of the families the Stuart Law Firm has undertaken to represent of late in cases involving fraud in the sale of health insurance.

Here are some tips to avoid suffering a similar fate.

What to Ask

When you meet with the association representative, ask questions such as these to separate the wheat from the chaff:

* What is the total amount for which we could be personally responsible (our “maximum out-of-pocket”) under this plan if someone in our family experiences a serious illness?

* Does the plan provide catastrophic coverage? (A catastrophic plan protects you when your medical costs are so high that without insurance, you would suffer financial ruin.)

* How does this plan’s coverage correlate with actual, average medical costs in my area? (NASE enrollers frequently recommend coverage for chemotherapy of up to $1,200 a day, when chemotherapy can easily top $10,000 a day.)

* What is your background, and how much experience do you have with selling health insurance?

* Are you selling for just one company, or can you sell me a plan from any of several different companies?

Warning Signs

* Be suspicious of enrollers who want to fill out your application themselves, and only want you to sign.

* Be wary if the enroller tears pages out of a document before using it to explain the policy to you.

* Be suspicious if, at the end of the presentation, the enroller only leaves you with general information about the association, and not specific information about the health insurance plan.

* Be suspicious if you see anything labeled “health plan” or “health program,” but you don’t see the word “insurance.”

Be Careful Before You Sign

If you sign, it may be difficult to replace a bad plan with one from a reputable insurer that will truly protect you when you do get sick.

If you only discover how the plan operates after you are diagnosed with cancer or suffer a heart attack, you will be dealt a heavy double blow: serious illness combined with inadequate coverage.

After your care provider realizes the insurer will not pay, you may be cut off from receiving additional care if you need it. If you have personal assets, you will have to deplete them until either all of your bills are paid, or you go into bankruptcy and become dependent upon the charity of medical providers.

Most people cannot imagine themselves in such circumstances, but millions of us hold such inadequate policies. Some regulators have expressed concern and may step in to curb abuses.

Meanwhile, before you sign, try to obtain independent information about the insurance company the association recommends. Check online to see what insurance agents and others are saying about the company. See if there are newspaper articles that can tell you the truth about the company, as opposed to what the enroller and the association’s advertisements tell you.

Preying Upon the Vulnerable

At this time of crisis for our national health care system, millions of hardworking Americans have no protection at all against the financial consequences of a serious illness. Companies selling “affordable health plans” know this.

Their business models prey upon the fear that vulnerability engenders. Their agents, masquerading as enrollers for nonprofit associations, remind prospects how serious it is to go without health coverage in order to create a sense of urgency to purchase now, and cultivate a false sense of security in being part of a large, independent group that looks out for the interests of its members.

Times are perilous for individual consumers seeking health coverage. Do the best you can to know what you are getting into when you purchase. Do not buy an association plan you do not fully understand from a company you do not know.

Additional Sources of Information

• Chad Terhune, States Probe Health-Policy Sales Promoted Through Associations, Wall Street Journal, Feb. 25, 2003, at A3.
• Chad Terhune, Nonprofit Groups That Tout Insurance Have Hidden Links, Wall Street Journal, Nov. 21, 2002, at A1.
• Matthai Chakko Kuruvila, Cheap Insurance Can Cost You Everything: Policies Sold Through Associations Often Aren't Comprehensive, Leaving Consumers Who Thought They Were Covered With Big Bills, San Jose Mercury News, July 31, 2005, at 1D.
• Brian Grow, It’s Enough to Make You Sick, Business Week, Sept. 13, 2004 .
• Debora Vrana, Associations' Policies Under Scrutiny, Los Angeles Times, July 5, 2005, at C1.
• Andrew McIntosh, Medical Insurance Left Them Hanging, Sacramento Bee, Aug. 29, 2005, at D1.

Antony Stuart

Antony Stuart is the principal of Stuart Law Firm, a past president of the Consumer Attorneys’ Association of Los Angeles, and has specialized in consumer protection law for over twenty-five years.

Glenn Anaiscourt

Glenn Anaiscourt is an Associate with Stuart Law Firm. He holds a J.D. degree from Loyola Law School, Los Angeles and an M.B.A. degree from the UCLA Anderson School of Management.

* © 2005 by Antony Stuart and Glenn Anaiscourt. All rights reserved.