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Hoping to Prevent Scams, State May Require Licensing of Discount Health Plans

Cheryl Clark, for HealthLeaders Media, June 9, 2009

California regulators hope to soon become one of the first states to mandate that discount health card plans be licensed as managed care organizations in an effort to prevent consumers from buying into fraudulent schemes.

"We've been investigating these companies for about four years, and we've received thousands of complaints," says Lynne Randolph, spokeswoman for the state Department of Managed Health Care, who estimates that there have been 300 discount card companies operating, with 150 at any point in time throughout the state. Many of them are legitimate, she says, but far too many of them are not.

The companies entice patients to sign contracts that require them to pay monthly sums similar to health plan premiums. In exchange, the companies promise that physician office visit charges or prescription drug purchases will be heavily discounted, sometimes as much as 80%. But in far too many instances, the physician or pharmacy has no contract with the plan and has never heard of the company, although the patient's bank accounts continue to be debited each month.

Not only do the patients get angry when they learn they aren't getting a discount after all, but the conflict hurts the physician-patient relationship, and is disruptive to the practice or pharmacy.

Now the department, which has regulatory oversight of health plans with 21 million members statewide, has had enough, and wants to stop the fraudulent practices for good.

Those companies that are licensed will have their discounts verified by the department, and will have to show legitimate contracts with doctors and other health providers, and show evidence that their advertising is truthful and that they have a process for consumers to resolve disputes. 

"Discount health plans must ensure that contracted providers agree to charge no more than the discounted rates.  Plans must prominently disclose that they are not offering insurance, but rather a discount product in which members pay providers a discounted fee, usually at the time of service," the DMHC said in a statement.

 

By requiring that such companies must receive a department-issued health plan license, Randolph says, the state hopes to pare down the amount of deception. After the proposed regulations are published, there will be a required public hearing. But Randolph says they could go into effect as early as the end of the year.

With the escalating rate of unemployment leaving many without health insurance, complaints are on the rise, she says. In recent weeks, "we've started hearing of companies that are targeting employees at firms that are going out of business," she says. Many of the victims are in low-income brackets, or speak only Spanish.

Kevin Haynes, MD, a San Diego gastroenterologist, says that just recently, a patient came to his office for an appointment with his partner, Robert Epsten, MD. She had documents "that said he was part of this ‘plan.' But he was not. He was never contacted by the plan, asked to fill out credentialing forms, or sign a contract."

They had to tell the patient they couldn't see her unless she paid the full rate. "These ads that you see all around sound too good to be true. They're calling it health insurance, but that's not what it is," Haynes says.

The state has issued about eight cease-and-desist orders, but the companies drop out, and then drop in again after changing their names, Randolph says. "They do business as other entities, or merge, and contract with each other."

Part of the problem is that the deceptive companies lead their would-be members to believe that their monthly fees are the same as premiums, and that their healthcare would then be free.

In February, state records show the department sent a "Letter of Admonishment" to the Contractors and Merchants Association Inc., in Riverside, saying it "purports to offer health plan benefits to its members in exchange for a monthly fee. CMA solicits and accepts members for participation in a Kaiser Foundation Health (Kaiser) plan. CMA has no contract with Kaiser to provide any such benefits."

Additionally, the letter continued, "CMA in fact compels its members to join the International Union of Industrial and Independent Workers (IUIIW) in order to gain any health plan benefits," concluding that "both CMA and the IUIIW were operating an unlicensed health plan in violation of" the law.

Randolph says buying a fraudulent card plan "is like buying a newspaper and clipping a coupon promising a 30% discount on a doctor's fee, but when you arrive, the coupon turns out to be invalid."

California has already begun licensing some health plans that applied for licensure.
"On Tuesday, the DMHC for the first time licensed a medical discount health plan, Association Health Care Management, Inc., which offers "Family Care," previously known as "California Choice," in 14 California counties.  The Association's California Choice program is not related to CaliforniaChoice, or CalChoice, which is a group health purchasing alliance."

The enrollment fee of $99 and a monthly charge of $99.95, entitles a family to five to 40% discounts on physician services, pharmacy, outpatient services (such as physical therapy and mental health), laboratory, radiology and imaging, dental, chiropractic, vision, and hearing care.  A membership will be offered to an entire household for a $99 enrollment fee and monthly charge of $99.95.

"Now, more than ever, during this time when people are losing health insurance due to the severe economic problems facing our government and employers, it is in the best interest of consumers to regulate and license legitimate discount health plans,"  the department’s director, Cindy Ehnes said in a statement.  "Licensure will also ensure that consumers will get the promised discounts and fully understand that these products are not health insurance."

In 2006, it approved San Diego-based First Dental Health to offer discount health cards to those who sign up.  At the time, the department said members pay $8 to $10 per month for membership to receive discounts of 25-50% on various dental procedures.

"By requiring that discount health card plans meet licensing requirements, we can provide strong consumer protections," said Ehnes. "Providers will also benefit as consumers learn that they can rely on licensed discount health card plans to deliver what they advertise."

The Department's Web site warns consumers to be wary of companies that:

  • Offer "exaggerated discounts," saying its investigators "found at least one plan offering a discount of up to 80%"
  • Don't actually contract with its providers
  • Requires payment prior to sending written information about the plan
  • Don't spell out cancellation or refund practices. "Some plans continue charging fees after cancellation, and won't refund any money."

Cheryl Clark is senior quality editor and California correspondent for HealthLeaders Media. She is a member of the Association of Health Care Journalists.
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