Employees of small firms across the country are being bilked by thousands of self-funded "health-insurance" providers who simply walk away with all their premiums when faced with payment of large claims, federal and state law enforcement officials said Tuesday.
Testifying before a Senate subcommittee, authorities identified Rubell-Helm Insurance Services Inc. of Irvine as a key example, contending that $10 million in legitimate medical claims were unpaid when the firm went out of business earlier this year.
Sen. Sam Nunn (D--Ga.), chairman of the permanent investigations subcommittee of the Senate Governmental Affairs Committee, said Rubell-Helm "has been shut down by three different states--California, Florida and Texas--for operating an illegal insurance operation."
Rubell-Helm surrendered its licenses in California last September to settle allegations of fraud brought by state officials. Neither Michael Rubell nor James Helm, its two partners, could be located for comment.
State officials said the firm is the subject of a federal criminal investigation as well as a defendant in many civil suits filed by claimants who were never paid.
Nunn, whose views were shared by three state insurance commissioners who testified at the hearing, said a growing number of firms like Rubell-Helm "are nothing more than sophisticated pyramid schemes."
In such cases, small claims are paid from the monthly premium income received from an ever-expanding list of enrolled employees, while large claims generally are ignored or delayed until the firm finally disappears or goes under.
Employees believe that they have full insurance coverage, and "by the time anyone has caught onto this scheme, the operators have usually skipped town, often moving into another state in order to avoid the reach of state insurance authorities," Nunn said.
Raymond Maria, the Labor Department's acting inspector general, said most abuses are found among firms known as "multiple-employer welfare arrangements" because the practitioners enroll employees from several small firms to obtain a larger premium base.
"It is virtually impossible to accurately determine the number of fraudulent MEWAs in operation, but many states have contacted the inspector general looking for some type of enforcement assistance," Maria said.
He said state insurance officials "simply are not equipped to effectively deal with these schemes in which racketeers and money move quickly from state to state and in some cases to offshore accounts."
But a federal law governing such health plans is murky because it gives conflicting responsibilities to state and federal authorities, according Jo Ann Howard of the Texas State Board of Insurance.
Tom Gallagher, Florida's insurance commissioner, testified that Marilyn Tabor, a former controller for Rubell-Helm, stated in an affidavit that funds routinely were taken out of accounts containing premium payments to cover operating expenses.
Before dissolving their firm, Rubell and Helm paid themselves $369,200 a year in salaries and used company funds to remodel their homes and pay $100,000 to a personal tailor and $5,000 to an exercise consultant, Gallagher said.
Among the firm's victims, officials said, was Patricia Gonzales of San Antonio, Tex., a bank employee who was left with $340,000 in unpaid medical bills when her daughter was born with multiple birth defects last year.
"The tragedy is that health insurance is not a luxury these days," James E. Long, the insurance commissioner of North Carolina, told the subcommittee. "It is an absolute necessity for all working men and women, and when firms like these fail they can be left without coverage for thousands of dollars."
Long, vice president of the National Assn. of Insurance Commissioners, said a heart transplant patient in his state had unpaid medical bills exceeding $200,000 when a fraudulent insurance provider failed.
Nunn said many small employers "are desperate to find a plan they can afford" and thus sign up with unstable firms because they offer the lowest rates, without investigating them.
In the early 1980s Rubell and Helm became partners and convinced small businesses that they could put together life and health-care insurance packages for them at affordable rates. At one time, the company had 80 employees and managed $50 million in benefits.
The California Department of Insurance alleged in March, 1989, that the company let the insurance coverage for the groups lapse on at least two occasions. In early 1988 two insurers were dropped from separate group plans, and Rubell-Helm failed to replace them, the department said.
At the time, Helm said that all the Rubell-Helm plans were self-funded--relying primarily on premiums to fund their payouts--and that there was always insurance available to cover the claims. He also denied that claims had not been paid.
"I'm not going to claim that we never had complaints or that we are perfect," Helm said in an interview in March, 1989. "No one operates perfectly, nor is every claimant always happy. But we have been acting responsibly and the claims continued to be paid."
But in a settlement of the civil action brought by the insurance department, company Chairman Rubell and President Helm in September surrendered their licenses to sell insurance last fall.
The executives did not admit to allegations that they defrauded about 10,000 members of their health plans by failing to provide adequate insurance. They agreed to pay the remaining claims, although department officials said they had no way to enforce the promise.
Times staff writer Leslie Berkman contributed to this story.