New Mass. Health Insurance Law Breeds Fraud

Correction March 5, 2009

The story described a 47-year-old businessman making $40,000 a year and said, "As long as he goes without insurance, the state penalizes him. At tax time he’ll get a $900 fine." According to the state of Massachusetts, someone fitting that description would be eligible for a waiver of the penalty.

When Massachusetts passed a 2006 law requiring all residents to have health insurance — or face a penalty — a new insurance market sprung up. Not all of those companies were on the up and up. Health advocates and state officials are getting complaints about unscrupulous insurance merchants.

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STEVE INSKEEP, host:

Now let's report on health insurance scams. Three years ago, Massachusetts mandated that every resident had to have health insurance. The market blew wide open for insurance companies and some, we're now told, took advantage of consumers. Reporter and Kaiser Foundation fellow Karen Brown reports.

(Soundbite of machines)

KAREN BROWN: Gary Cludier(ph) hasn't had health insurance since the 1980s. He owns an auto body repair shop in Westfield, Massachusetts and takes home amount $40,000 a year. But business is way down. He knows he's supposed to buy health coverage to comply with state law. But he doesn't know where he'll find the money.

Mr. GARY CLUDIER (Business Owner): What else can I cut? I mean I've got a truck that's a '99, that's going on 10 years old with the 160-something thousand miles on it. I can't afford another truck. You know, last week my phone got turned off. I haven't paid myself in a month and a half.

BROWN: As long as he goes without insurance, the state penalizes him. At tax time he'll get a $900 fine. And frankly, he wishes he did have health coverage. After all, he works around toxic chemicals and heavy equipment. So he started to search on the Internet for cheap deals, and that led to a barrage of enticing offers by e-mail and fax from anonymous brokers.

Mr. CLUDIER: You know, I come in the morning and, you know, affordable health insurance, you know…

(Soundbite of paper rustling)

Mr. CLUDIER: These are two of the things that, you know, they come daily.

BROWN: While I was in Cludier's office…

(Soundbite of phone ringing)

BROWN: …he got a call from one of the brokers trying to sell him a policy.

Mr. CLUDIER: Well, not to, you know, interrupt you, but I'll give you my situation. I'm a small business owner. I'm 47 years old. And what would be the bottom line that it would cost me per month to get health insurance so that I can qualify under Massachusetts's new laws? One sixty-six and three what?

BROWN: It sounded like a deal compared to the $400 premium he'd seen on the state's Web site. But that's because the affordable plan has a $10,000 hospital deductible, no drug coverage, and only six paid doctors visits a year. The benefits are so skimpy, they don't meet the minimum legal standards for Massachusetts. Had Cludier bought the plan, the state would have penalized him anyway.

Ms. MARTHA COAKLEY (Massachusetts Attorney General): We have been aware from the beginning that this is a problem that if we don't pay attention to it now could grow.

BROWN: Martha Coakley is Massachusetts's attorney general.

Ms. COAKLEY: Whenever you've a new law in effect and you have anything mandated, it's an opportunity for those who haven't sold products or services before, particularly health care, to come into a new market. There is a potential for people who are trying to cut corners or trying to make money to do that.

BROWN: Last year, 3,100 consumers called the attorney general's office complaining of health insurance fraud, including deceptive advertising and marketing of plans that don't meet Massachusetts standards. Coakley filed suit against two companies, hoping they send a message to others. Many other cases were resolved through mediation.

Mr. BRIAN ROSSMAN (Consumer Advocate): There's some really bad insurers out there from out of state.

BROWN: Consumer advocate Brian Rossman is with Boston-based Healthcare For All, which wants to see Massachusetts becomes a national model for health reform. He worries that fly-by-night insurance companies could dampen support for the insurance mandate. But he says the new law isn't to blame.

Mr. ROSSMAN: This was here before. This isn't a health reform issue. I think public education is the way to get at this problem.

BROWN: Still, with the cost of legitimate health plans soaring, consumers remain vulnerable to opportunists. Business owner Gerry Cludier is still without any health coverage. He has found cheap plans and comprehensive plans, but never both together. So he crumples up all the offers and throws them away.

For NPR News, I'm Karen Brown.

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