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Health Insurance Fraud on the Rise, Congress Is Told

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TIMES STAFF WRITER

Thousands of fraudulent companies are selling bogus health insurance plans to employers and collecting premiums but then refusing to pay benefits for workers’ medical and dental care, the Labor Department’s acting inspector general told Congress on Tuesday.

Raymond Maria said major companies selling health insurance have “abandoned” many small businesses, leaving a vacuum often filled by criminals.

The new wave of fraud has “only recently come to our attention in the criminal investigation area,” Maria told a special hearing of the House government operations subcommittee on legislation.

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Rising medical costs have prompted many legitimate insurance companies to raise premiums sharply for small businesses. Otherwise, the companies have found, the premiums can be insufficient to cover the costs of a major illness for one of the workers.

Recognizing an opportunity, unscrupulous operators have established insurance plans claiming to save money by pooling premiums from small companies to provide coverage for medical, dental and optical care, Maria said.

The organizations “masquerade as nonprofit, self-insured medical plans” and offer insurance premiums 20% to 50% below the rate charged by legitimate firms, he said. “The sales pitch is made with full knowledge that the trusts are insolvent from day one and cannot possibly meet their reimbursement liability.”

The crooked insurance trust plans have been able to escape prosecution by state officials because the federal government has primary authority under laws regulating pensions and corporate health and welfare plans.

Patricia Donovan Petersen, deputy insurance commissioner for Washington state, said she pleaded in vain with U.S. Labor Department officials in Seattle earlier this year for help in investigating two insurance plans that ultimately collapsed into insolvency, leaving medical bills unpaid.

“I literally begged in some of my phone conferences with them,” she said. “If I had prompt assistance, we would have had a lot more consumers having their medical bills paid.”

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Petersen said she finally obtained a court cease-and-desist order against one of the companies, which sold health coverage to small firms in several states, including Washington and South Dakota. But the head of the company, who already had his securities sales licenses revoked in Idaho and Oregon, had already left Washington, taking with him the insurance company funds.

“He also left hundreds of consumers in some six states with thousands--probably hundreds of thousands--of dollars of unpaid medical claims and with no medical coverage,” Petersen said. There is “no criminal, civil or other disciplinary action taken or planned” by any division of the Labor Department, she said.

Rep. John Conyers (D-Mich.), chairman of the Government Operations Committee, said: “It is scandalous that the Department of Labor refused to assist state of Washington officials” in an effort to stop “investment swindles which were defrauding workers of hundreds of thousands of dollars they had paid in health insurance premiums.”

Maria said top Labor Department officials are now taking an interest in the insurance frauds.

The acting inspector general has frequently been critical of the Labor Department for failing to use the weapon of criminal prosecution to combat pension and health and welfare fraud.

“I’ve got 100 trained investigators” who could help prepare criminal prosecutions against pension and insurance frauds, Maria said. But his office is limited to investigating misconduct within the Labor Department itself and in outside projects financed with Labor Department money.

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The “ultimate losers are the American workers whose health, safety and economic security are not being protected as fully as the law allows and expects,” Maria said.

Crooks involved in pension and insurance schemes consider fines as an acceptable cost of doing business and would be deterred only by the prospect of prison sentences, Maria said.

“Criminal remedies are not a panacea, but they need to be judiciously factored into this overall equation,” he said. “The Department of Labor has consistently failed to do so, to the detriment of benefit plan participants and beneficiaries.”

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