State Cracks Down on Web Health Care Discounts

The Internet ads for health care discounts seemed too good to be true.

“If you could save up to 80% on your family’s health care needs and get paid for doing it . . . would you?” asked Care Entree, a Texas-based service.

Some appeared to be insurance companies. “They essentially look, act and smell and walk like an insurance company,” said Troy Becker, president of the California Assn. of Dental Plans.

Others came on more like pyramid schemes, promising great riches to potential sales agents. “The most difficult thing about becoming a millionaire is believing you can do it,” said the Web site of the Houston-based National Assn. of Preferred Providers.

To the state of California, however, all were unlicensed health care service companies using the Internet to illegally tap the huge California market and avoid strict state regulation.

The state Department of Corporations, which oversees the managed health care industry, announced last week that it sent letters to 46 Internet discount health plans demanding that they cease doing business in the state or face civil penalties. Most of the companies, also known as referral plans, charge monthly or annual fees in exchange for plastic membership cards that purportedly give members discounts on medical, dental or prescription drug services.

So far, said acting Corporations Commissioner William Kenefick, 15 of the firms have voluntarily suspended operations in California. Several have already put California disclaimers on their Web sites.

“Sorry, ACCESS is no longer available in the state of California,” announced the home page of ACCESS Health Networks, a Massachusetts company that for $39 a year promised to cut health care costs by as much as 80%. Like many of the plans, ACCESS presents itself as a health care insurance alternative for those “who don’t have insurance and cannot afford the monthly premiums for health insurance.”

Kenefick said: “These plans tend to target the elderly and the uninsured, low-income individuals. Moreover, there are serious questions whether these benefits are real or illusory.” Kenefick said that in many cases, the discounts offered by the plans offer “no better value than what is already available in the marketplace without payment of a membership fee.”

In reality, Kenefick said, many are multilevel marketing--or pyramid--operations.

For example, the Web site for Care Entree, one of two discount card plans based in Arlington, Texas, outlines an elaborate sales incentive scheme in which “independent marketing representatives” can advance up the ladder from “star representative” to “diamond star executive” running their own network of sales agents. The company charges a $59.95 initial fee to become a representative and a $29.95 annual fee after that. Sales agents are also required to be members of the discount plan, which costs $20 a month for the basic program.

“For less than you would pay to take the family out for a great evening,” gushes a recorded promotion at Care Entree’s toll-free number, “you can become a Care Entree independent marketing representative and start to receive these fantastic savings and embark on a lucrative new business.”

According to Corporations Department spokeswoman Julie Stewart, Care Entree has contested the state ban on its activities in a letter.

However, the Care Entree Web site recently added an announcement that sales in “California and Washington have been suspended until further notice, pending resolution of regulatory issues.” Repeated attempts to reach Care Entree Chief Executive Judith Henkels, Vice President John Luther and Chief Financial Officer Mary Kelly by phone and fax were unsuccessful.

Kenefick, who said the card plans have multiplied dramatically in recent months, had no estimate of how much money the plans were getting from California customers.

Jamie Court, a Los Angeles consumer advocate who has been a critic of the Department of Corporations’ enforcement record, said the Internet plans are part of “a huge proliferation of niche businesses that play on patients’ fears that they will not be able to access the health system when they are sick.” The crackdown has been praised by health care associations in California, which have long clamored for action against what they say is unfair competition from the Internet and other unlicensed medical and dental programs, some offered through direct mail or in brochures.

“It got to the point,” said Dental Plan association President Becker, “where many thought the best way to enter the California market was to come in unlicensed.”

But critics of the Department of Corporations, which next year will lose its health care responsibilities when it is absorbed by a new state agency, the Department of Managed Care, contend that the action is too little, too late. The Department of Corporations, which also oversees securities firms, has had regulatory and licensing power over health plans since 1975, when the Legislature passed what is known as the Knox-Keene Act.

But until a separate Health Plan Enforcement Division was created last year, the department only rarely acted against unlicensed health plans operating in California. In 1997, for example, Becker presented the state with a list, supported by extensive documentation, of 17 unlicensed dental plans doing business in California. No action was taken, Becker said.

In fact, the Corporations Department crackdown on Internet plans has been dismissed by some as an bid for survival by a threatened institution.

“This is a department where there has been no cop on the beat for a very long time,” said Court, health care consumer rights advocate. “It is a very small gesture.”