California cracks down on discount health plans

At a time when nearly 7 million Californians are uninsured, state regulators are trying to rein in discount health and dental plans that officials say frequently overstate benefits, offer little if any savings and promise access to doctors who aren’t part of the system.

Some of the discounters fraudulently market themselves as insurance, while preying on the poor, the elderly and others who urgently need care, officials say.

“They’re basically cheating poor people,” said Dr. Dev GnanaDev, immediate past president of the California Medical Assn.

Plan executives bristle at such criticism. They say a few bad apples have tarnished an industry that offers reliable -- and relatively inexpensive -- services. Consumers, however, have lodged complaints against more than 150 unlicensed discount health and dental plans over the last four years, prompting the California Department of Managed Health Care to seek new licensing regulations .

The list of entities includes the Care Entrée discount program, which regulators say falsely promised members unrestricted access to medical providers, and another discount plan offered by the Consumer Resource Assn. It allegedly sold worthless discount cards to a South Gate couple.

To be sure, some discount plans have had success offering a wide range of benefits to large numbers of customers. At least two major health insurers with units in California, for instance, operate programs that have not been the subject of any consumer complaints to state regulators. The two -- Vital Savings, a product of Aetna, and OptumHealth Allies, an arm of UnitedHealth Group -- do not offer insurance but provide access to discount services to thousands of members.

With high unemployment and swelling ranks of the uninsured, California has provided a fertile environment for discounters -- which serve an estimated 6 million customers in the state, according to the industry trade group Consumer Health Alliance. By comparison, nearly 21 million Californians get healthcare through health maintenance organizations.

Industry leaders say discounters primarily offer “ancillary” services such as dental, vision or chiropractic care. In many cases, they say, insurance companies or employers themselves offer discounters’ programs as an extra benefit to their members or employees.

Some plans do offer discounts on doctor and hospital care. Many consumers say they rely on the plans to obtain discounted medical services at a time when they are scrambling to get affordable treatment.

The discounters say they accept members with existing medical conditions, have no limits on use and can slash healthcare costs as much as 80% by negotiating discounts with providers.

They attract customers such as Riverside County hairdresser Kathie Ide, 55, who signed up with her husband after seeing an advertisement on the rear window of a car at her gym. Self-employed and uninsured, the Ides paid a $70 monthly membership fee to join the Texas-based Care Entrée program.

The couple began depositing money in a Care Entrée account to pay providers at discounted rates. But when Ide faced surgery five years ago for a disintegrated nerve in her neck, she said Care Entrée did not apply the lower prices. Ide said she was told that she failed to transfer her own money into the company account within 30 days after her hospital visit.

“I fought with these people,” Ide said. “I cried. I pleaded. Nothing changed.”

State officials ordered Care Entrée to stop operating in California 4 1/2 years ago after determining that its promise of “unrestricted access” to providers was “illusory” and that its advertising was misleading because it suggested that it was insurance. The discounter has since agreed to get licensed.

An executive with Care Entrée’s new parent company, Oklahoma-based Access Plans Inc., said he could not comment on Ide’s case.

Bradley Denison, the parent firm’s executive vice president and general counsel, said such problems could be explained by miscommunication between patients and doctors, who may be unfamiliar with the discount programs. “We believe that taking care of the customer is good business,” Denison said.

Industry leaders say the discount health business has long sought regulations to protect consumers.

“We, as an industry, have a stake in keeping bad actors out of the marketplace,” said Los Angeles attorney Phil Recht, who represents the discount trade group. “The notion that these are fly-by-night programs, that they are not legitimate, is not borne out by any evidence we’ve ever seen.”

Discount healthcare representatives say that roughly a dozen major companies operate in California through networks of providers.

The list includes Glendale-based OptumHealth Allies, which charges its 85,000 individual customers in California as little as $9.95 a month for access to discounted vision and dental services.

OptumHealth’s website notes that it does not provide insurance but arranges lower fees that members pay directly to providers.

“I’m very proud of the fact that my customers are healthy and saving money,” said Chief Operating Officer Marcee Chmait, who added that the company supports “reasonable regulation” and will seek a license once the state Department of Managed Health Care adopts its proposed rules.

“We work hard to make sure consumers get what they are promised,” Chmait said.

Discount health plans sell their services in all 50 states. Twenty-one of the states, California among them, require licenses.

But California regulators acknowledge that they have begun only in recent years to aggressively police the industry -- the result of their own conflicting opinions about their authority over the discounters.

In 2001, the former director of the Department of Managed Health Care decided that the agency had no jurisdiction over the discount outlets because they did not arrange for the “provision” of services or assume financial risk for the care -- keys to the state’s definition of health plans.

Four years later, however, the department’s current director reversed the policy, arguing that the discount firms met the definition by arranging for services in exchange for fees.

“There is no question that essentially ceding jurisdiction . . . was in fact an invitation [for discount plans] to come to California,” said Cindy Ehnes, the department’s director. “Consumers deserve a fair product and deserve not to be ripped off.”

The department has since licensed three discount health plans. Three others are no longer in California after regulators ordered them to get licensed or stop operating in the state, officials said. The department is now weighing proposed regulations that would, among other things, require the plans to verify their discounts, file reports about grievances and indicate that they do not provide insurance.

The proposed regulations will do little to help Luis Bernal of South Gate, who signed up last year for a discount plan from the Consumer Resource Assn. for himself and his wife, only to find that doctors did not accept their membership card.

Bernal, 44, said the company continued to charge his credit card more than $1,000 even though he could not get discounts, stopping only after state officials intervened. The company did not return calls for comment.

“These people are taking advantage of me and maybe more people,” Bernal said. “They promised a lot, but it’s not true.”