Private Health Insurance: Employers and Individuals Are
Vulnerable to Unauthorized or Bogus Entities Selling Coverage
(27-FEB-04, GAO-04-312).
Health insurance premiums have increased at double-digit rates
over the past few years. While searching for affordable options,
some employers and individuals have purchased coverage from
certain entities that are not authorized by state insurance
departments to sell this coverage. Such unauthorized
entities--also sometimes referred to as bogus entities or
scams--may collect premiums and not pay some or all of the
legitimate medical claims filed by policyholders. GAO was asked
to identify the number of these entities that operated from 2000
through 2002, the number of employers and policyholders covered,
the amount of unpaid claims, and the methods state and federal
governments employed to identify such entities and to stop and
prevent them from operating. GAO analyzed information on these
entities obtained from the Department of Labor (DOL) and from a
survey of the 50 states and the District of Columbia. GAO also
interviewed officials at DOL headquarters, at three regional
offices, and at state insurance departments responsible for
investigating these entities in four states--Colorado, Florida,
Georgia, and Texas.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-04-312
ACCNO: A09371
TITLE: Private Health Insurance: Employers and Individuals Are
Vulnerable to Unauthorized or Bogus Entities Selling Coverage
DATE: 02/27/2004
SUBJECT: Consumer protection
Federal/state relations
Fraud
Health insurance
Insurance companies
Insurance regulation
Medical expense claims
Colorado
Florida
Georgia
Texas
******************************************************************
** This file contains an ASCII representation of the text of a **
** GAO Product. **
** **
** No attempt has been made to display graphic images, although **
** figure captions are reproduced. Tables are included, but **
** may not resemble those in the printed version. **
** **
** Please see the PDF (Portable Document Format) file, when **
** available, for a complete electronic file of the printed **
** document's contents. **
** **
******************************************************************
GAO-04-312
United States General Accounting Office
GAO Report to Congressional Requesters
February 2004
PRIVATE HEALTH INSURANCE
Employers and Individuals Are Vulnerable to Unauthorized or Bogus Entities
Selling Coverage
a
GAO-04-312
Highlights of GAO-04-312, a report to congressional requesters
Health insurance premiums have increased at double-digit rates over the
past few years. While searching for affordable options, some employers and
individuals have purchased coverage from certain entities that are not
authorized by state insurance departments to sell this coverage. Such
unauthorized entities-also sometimes referred to as bogus entities or
scams-may collect premiums and not pay some or all of the legitimate
medical claims filed by policyholders. GAO was asked to identify the
number of these entities that operated from 2000 through 2002, the number
of employers and policyholders covered, the amount of unpaid claims, and
the methods state and federal governments employed to identify such
entities and to stop and prevent them from operating.
GAO analyzed information on these entities obtained from the Department of
Labor (DOL) and from a survey of the 50 states and the District of
Columbia. GAO also interviewed officials at DOL headquarters, at three
regional offices, and at state insurance departments responsible for
investigating these entities in four states-Colorado, Florida, Georgia,
and Texas.
www.gao.gov/cgi-bin/getrpt?GAO-04-312.
To view the full product, including the scope and methodology, click on
the link above. For more information, contact Kathryn G. Allen at (202)
512-7118.
February 2004
PRIVATE HEALTH INSURANCE
Employers and Individuals Are Vulnerable to Unauthorized or Bogus Entities
Selling Coverage
DOL and the states identified 144 unique entities not authorized to sell
health benefits coverage from 2000 through 2002. The number of entities
newly identified increased each year, almost doubling from 31 in 2000 to
60 in 2002. Many of these entities targeted employers and policyholders in
multiple states, and, of the seven states with 25 or more entities, five
were located in the South.
DOL and the states reported that the 144 unique entities
o sold coverage to at least 15,000 employers, including many small
employers;
o covered more than 200,000 policyholders; and
o left at least $252 million in unpaid medical claims, only about 21
percent of which had been recovered at the time of GAO's 2003 survey.
States and DOL often identified these entities based on consumer
complaints. DOL often relied on states to stop these entities within their
borders while DOL focused its investigations on larger entities operating
in multiple states and, in three cases, obtained court orders to stop
these entities nationwide. Most of the states' prevention activities were
geared to increasing public awareness and notifying the agents who sold
this coverage, while DOL focused its efforts on alerting employer groups
and small employers.
In commenting on a draft of this report, DOL, the National Association of
Insurance Commissioners, Florida, and Texas highlighted their efforts to
increase public awareness, coordinate investigations, and take enforcement
actions regarding these entities.
Number of Unauthorized Entities That Operated in Each State, 2000-2002
Note: Some of the unauthorized entities operated in more than one state so
the total number of entities identified by DOL and the states exceeds the
total of 144 unique entities.
Contents
Letter 1
Results in Brief 3
Background 5
DOL and States Identified 144 Unique Unauthorized Entities
Operating from 2000 through 2002 7
Unauthorized Entities Covered Thousands of Employers and
Policyholders, Leaving Hundreds of Millions of Dollars in Unpaid
Claims 13
States and DOL Employed Similar Methods to Identify Unauthorized
Entities and Prevent Them from Operating, but Different Methods
to Stop Them 15
Agency and Other External Comments 23
Appendixes
Appendix I:
Appendix II:
Appendix III:
Appendix IV: Appendix V: Appendix VI:
Methodology for Identifying Unauthorized Entities 27 Survey of State
Insurance Departments 27 Federal Data on Unauthorized Entity
Investigations 28 Consolidating State and Federal Data on Unauthorized
Entities 28
Employers Mutual, LLC and Federal and State Actions 31 Employers Mutual
Created Associations, Hired Firms, and Paid Companies Established by Its
Principals 31
Employers Mutual Collected About $16 Million in Premiums but Did Not Pay
over $24 Million in Medical Claims 32
States, Then DOL, Acted against Employers Mutual 33
Discount Plans Have Been Marketed as Health Insurance in
Some States 38
Overview of Discount Plans 38
Discount Plans Misrepresented in Some States 39
Consumer Alert Developed by the National Association of
Insurance Commissioners 42
Department of Labor Memorandum and Insurance Tips for
Small Employers 44
Comments from the Department of Labor 46
Tables Table 1: Types of Unauthorized Entities Identified by DOL and
States, 2000-2002 12 Table 2: Impact of 10 Large Unauthorized Entities,
2000-2002 14
Contents
Table 3: Methods States Used to Identify Unauthorized Entities, 2000-2002
16 Table 4: TROs and Injunctions for Three Unauthorized Entities, as of
December 2003 19 Table 5: States' Experience with Discount Plans,
2000-2002 40
Figures Figure 1:
Figure 2:
Figure 3:
Figure 4:
Figure 5: Figure 6:
Number of Unauthorized Entities That Operated in Each
State, 2000-2002 9
Number of Newly Identified Unique Unauthorized
Entities, 2000-2002 10
Florida's Public Awareness Campaign against
Unauthorized Entities 22
Key Events of Employers Mutual from Establishment to
Closure 36
Consumer Alert from NAIC 43
Insurance Tips for Small Employers 45
Abbreviations
DOL Department of Labor
EBSA Employee Benefits Security Administration
ERISA Employee Retirement Income Security Act of 1974
MEWA multiple employer welfare arrangement
NAIC National Association of Insurance Commissioners
TRO temporary restraining order
This is a work of the U.S. government and is not subject to copyright
protection in the United States. It may be reproduced and distributed in
its entirety without further permission from GAO. However, because this
work may contain copyrighted images or other material, permission from the
copyright holder may be necessary if you wish to reproduce this material
separately.
A
United States General Accounting Office Washington, D.C. 20548
February 27, 2004
The Honorable Charles E. Grassley
Chairman
Committee on Finance
United States Senate
The Honorable Olympia J. Snowe
Chair
Committee on Small Business and Entrepreneurship
United States Senate
The Honorable Christopher S. Bond
United States Senate
As health insurance premiums in the private health insurance market
increased at double-digit rates over the past several years, some
employers,
particularly small employers with fewer than 50 employees, have faced
difficulty in obtaining affordable coverage. Small employers cited cost as
the major obstacle they faced in providing health care coverage to their
employees. As they looked for affordable options, some employers and
individuals have purchased health care coverage from certain entities that
have not complied with state insurance law or with federal and state
requirements for coverage provided to multiple employers. These
unauthorized entities-also sometimes referred to as bogus entities or as
scams or fraudulent insurers-may price their products below market rates
but may not meet financial and benefit protections typically associated
with health insurance products that are authorized, licensed, and
regulated
by the states. These entities collect premiums from individuals or
employers but may not pay some or all legitimate claims filed by the
policyholders or those covered by the policies.
According to several media reports during the past few years, employers
and individuals may increasingly be targeted by entities not authorized to
sell health coverage. These entities were also particularly problematic in
two earlier periods during the past 30 years-the mid-1970s to early 1980s
and the late 1980s to early 1990s. When these entities do not pay
legitimate
claims, different parties can be harmed, including individual
policyholders
who may be held responsible for their own medical bills, which can mean
owing thousands of dollars. Providers are also at increased risk of not
being paid for services already rendered. Concerned about this situation,
you asked us to determine the prevalence of these entities and their
impact
on employers, especially small employers, and policyholders. Specifically,
we examined
1. the number and types of unauthorized entities selling health benefits
that federal and state governments identified from 2000 through 2002;
2. the number of employers, including small employers, and policyholders
covered by these entities, the amount of associated unpaid claims, and the
amounts recovered from these entities; and
3. the methods federal and state governments have employed to identify
such entities and to stop or prevent them from continuing to operate.
To identify the number of unauthorized entities from 2000 through 2002, we
analyzed information we obtained from the federal and state governments.
We obtained federal-level data from the Department of Labor's (DOL)
Employee Benefits Security Administration (EBSA). EBSA conducts civil and
criminal investigations of employer-based health benefits plans, which
include entities that did not meet federal and state requirements.1 To
obtain state-level data, we surveyed and received responses from officials
at departments of insurance or equivalent offices in all 50 states and the
District of Columbia.2 Because multiple states and EBSA provided
information on some of the same entities, we relied on several different
sources, along with our judgment regarding similar entity names, to
consolidate the federal and state information and identify the number of
unique entities. Some states did not report on entities that they were
still investigating. Therefore, the number we report likely represents the
minimum number of unauthorized entities operating from 2000 through 2002.
We also asked states to provide information on a related type of
problematic arrangement-discount arrangements that may be misrepresented
as insurance. To determine the types of entities, the number of employers
and policyholders covered, the amount of unpaid claims, and the amounts
recovered from these entities, we analyzed the data EBSA and the states
reported to us. DOL and the states could not
1EBSA regulates employer-based pension and welfare benefits plans, which
include employer-based health benefits. Specifically, the Office of
Enforcement in EBSA, among other activities, conducts investigations
through its regional offices to find and correct violations of federal law
that relate to employer-based pension and welfare benefits plans.
2Throughout this report, we include the District of Columbia in our
discussion of states; we refer to each state's insurance department,
division, or office as an insurance department.
provide comparable data on how many people in total were affected by these
entities. Therefore, we combined the data that states reported on the
number of policyholders with the data that DOL reported on the number of
participants and refer to them throughout this report as policyholders.
Most states and DOL reported to us from March through June 2003. The data
we report likely underestimate the total numbers of employers and
policyholders covered as well as the amounts of unpaid claims and amounts
recovered to pay for these claims because neither EBSA nor states could
provide this information for some entities. To identify the methods that
the federal and state governments employed to identify these entities and
to stop and prevent them from continuing to operate, we analyzed
information obtained from DOL, our state survey, state insurance
departments' Web sites, and other research, as well as through interviews
with federal and state officials; officials of several associations,
including the National Association of Insurance Commissioners (NAIC); and
experts on these entities. We interviewed federal officials at DOL
headquarters and at three EBSA regional offices-Atlanta, Dallas, and San
Francisco-and state officials at insurance departments in four
states-Colorado, Florida, Georgia, and Texas. We selected the EBSA
regional offices and states based on recommendations from federal and
state officials and others we contacted who suggested that these regions
and states had been affected by relatively more of these entities. We also
interviewed association officials and several experts who had published
research addressing unauthorized or fraudulent entities.3 We also reviewed
relevant literature. While we obtained information on the methods that
federal and state governments employed to identify these entities and to
stop and prevent them from operating, we did not evaluate the
effectiveness of these methods.
Appendix I provides more detailed information on our methodology. We
performed our work from January 2003 through February 2004 in accordance
with generally accepted government auditing standards.
Results in Brief DOL and the states identified 144 unique entities not
authorized to sell health benefits coverage from 2000 through 2002. Over
these 3 years, the number of such entities newly identified each year
almost doubled from 31
3See Mila Kofman, Kevin Lucia, and Eliza Bangit, "Health Insurance Scams:
How Government Is Responding and What Further Steps Are Needed," The
Commonwealth Fund (2003), for a recent review of related issues.
in 2000 to 60 in 2002. Many of these entities operated in more than one
state and some operated under more than one name or with more than one
affiliated entity. These entities most often marketed their products in
southern states. For example, of the seven states that had 25 or more
entities, five were located in the South. The operators of these entities
often characterized the entities in one of several ways that gave an
appearance of being exempt from state insurance regulation when they
should have been subject to regulation. The most common characterizations
were as (1) associations, in which these entities either sold their
products through associations they created or through established
associations of employers or individuals, and (2) professional employer
organizations, which contracted with employers to administer employee
benefits and perform other administrative services for contract employees.
Relatedly, 14 states also reported that at least some discount plans, in
which the purchaser receives a discount from the full cost of certain
health care services from participating providers, were misrepresented as
insurance, and 8 of these states identified small employers as a
particular target of these misrepresented discount plans.
DOL and the states reported that the 144 unauthorized entities covered at
least 15,000 employers and more than 200,000 policyholders from 2000
through 2002. The states reported that more than half of the entities they
identified frequently targeted their health benefits to small employers.
At the time of our 2003 survey, DOL and the states reported that the
identified entities did not pay at least $252 million in medical claims
and only about $52 million-about 21 percent of the total unpaid claims-had
been recovered on behalf of policyholders and those covered by the
policies. Ten of the 144 entities covered about 64 percent of the affected
employers and about 56 percent of the policyholders, and accounted for 46
percent of the unpaid claims.
States and DOL employed similar methods to identify these unauthorized
entities and to prevent them from operating, but used different methods to
stop their activities. To identify these entities, state insurance
departments and DOL often relied on consumer complaints. The primary
action states took to stop the entities' activities was to issue cease and
desist orders. State insurance departments issued these orders against 41
of the 144 unique entities identified from 2000 through 2002. Such an
order, however, only applies to the activity in the issuing state. DOL
relied on the states to issue cease and desist orders while it conducted
investigations to obtain evidence that it could use to stop these entities
in multiple states through the federal courts. DOL obtained court orders
against three entities from
2000 through 2002. Each of these three entities affected consumers in more
than 40 states; combined, the three entities affected an estimated 25,000
policyholders and accounted for about $39 million in unpaid claims.
Because most of the DOL investigations were ongoing as of August 2003,
further actions remain possible. States and DOL primarily focused their
prevention efforts on improving public awareness, including the need for
consumers, employers, and insurance agents to verify an entity's
legitimacy with insurance departments.
We provided a draft of this report to DOL, NAIC, and the four state
insurance departments whose officials we interviewed. DOL, NAIC, Florida,
and Texas provided written comments. DOL identified initiatives it has
taken to improve coordination with states and law enforcement agencies,
and also summarized its criminal enforcement actions. NAIC, Florida, and
Texas commented that the report illustrated the extent to which
unauthorized entities have harmed individuals and small employers, and
they provided additional information on how the federal and state
governments have coordinated and collaborated in their efforts and noted
other public awareness and criminal enforcement efforts they have
undertaken.
Background Generally, employers can provide health coverage in two ways.
They can purchase coverage from health insurers, such as local Blue Cross
and Blue Shield plans; other private insurance carriers; or managed care
plans, such as health maintenance organizations. Alternatively, they can
self-fund their plans-that is, they assume the risk associated with paying
directly for at least some of their employees' health care costs-and
typically contract with an insurer or other company to administer benefits
and process claims. When small employers offer health coverage, most tend
to purchase insurance rather than self-fund. Only about 12 percent of the
establishments at firms with fewer than 50 employees that offered coverage
in 2001 had a self-funded plan,4 compared with about 58 percent of the
establishments at firms with 50 or more employees. Moreover, about
4An establishment is a workplace or physical location where business is
conducted or operations are performed. A firm includes a company's
headquarters and all divisions, subsidiaries, and branches and may consist
of one or more establishments under common ownership or control.
76 percent of the establishments at the largest firms-those with 500 or
more employees-offered at least one self-funded plan.5
States regulate the insurance products that many employers purchase.6 Each
state's insurance department enforces the state's insurance statutes and
rules. Among the functions state insurance departments typically perform
are licensing insurance companies, managed care plans, and agents who sell
these products; regulating insurers' financial operations to ensure that
funds are adequate to pay policyholders' claims; reviewing premium rates;
reviewing and approving policies and marketing materials to ensure that
they are not vague and misleading; and implementing consumer protections
such as those relating to appeals of denied claims.7
The federal government regulates most private employer-sponsored pension
and welfare benefit plans (including health benefit plans) as required by
the Employee Retirement Income Security Act of 1974 (ERISA).8 These plans
include those provided by an employer, an employee organization (such as a
union), or multiple employers through a multiple employer welfare
arrangement (MEWA).9 DOL is primarily responsible for administering Title
I of ERISA. Among other requirements, ERISA establishes plan reporting and
disclosure requirements and sets
5Agency for Healthcare Research and Quality, 2001 Employer-Sponsored
Health Insurance Data. Private-Sector Data by Firm Size, Industry Group,
Ownership, Age of Firm, and Other Characteristics (Rockville, Md.: 2003),
http://www.meps.ahrq.gov/mepsdata/ic/2001/index100.htm (downloaded Sept.
3, 2003).
6The McCarran-Ferguson Act, March 9, 1945, Ch. 20, S: 2, 59 Stat. 33, 34,
establishes the primary authority of the states to regulate the business
of insurance, unless federal law provides otherwise.
7State insurance regulators established NAIC to help promote effective
insurance regulation, to encourage uniformity in approaches to regulation,
and to help coordinate states' activities. Among other things, NAIC
develops model laws and regulations to assist states in formulating their
policies to regulate insurance.
8Pub. L. No. 93-406, 88 Stat. 829.
9MEWAs, which can be insured or self-funded, are plans or other
arrangements that provide health and welfare benefits to the employees of
two or more employers. Under ERISA, MEWAs do not include certain plans
that the Secretary of Labor finds are the result of collective bargaining
agreements, or plans established or maintained by a rural electric
cooperative or a rural telephone cooperative association.
fiduciary standards for the persons who manage and administer the plans.10
These requirements generally apply to all ERISA-covered employersponsored
health plans, but certain requirements vary depending on the size of the
employer or whether the coverage is through an insurance policy or a
self-funded plan. In addition, ERISA generally preempts states from
directly regulating employer-sponsored health plans (while maintaining
states' ability to regulate insurers and insurance policies). Therefore,
under ERISA, self-funded employer group health plans generally are not
subject to the state oversight that applies to the insurance companies and
health insurance policies. Prior to 1983, a number of states attempted to
subject MEWAs to state insurance law requirements, but MEWA sponsors often
claimed ERISA-plan status and federal preemption. A 1983 amendment to
ERISA made it clear that health and welfare benefits provided through
MEWAs were subject to both federal and state oversight.11 The federal and
state governments now coordinate the regulation of MEWAs, with states
having the primary responsibility to regulate the fiscal soundness of
MEWAs and to license their operators and DOL enforcing ERISA's
requirements.
DOL and States Identified 144 Unique Unauthorized Entities Operating from
2000 through 2002
DOL and the states identified 144 unauthorized entities from 2000 through
2002. Many of these entities marketed their products in more than one
state, and some operated under more than one name or with more than one
affiliated entity. These entities operated most often in southern states.
The number of such entities newly identified each year grew from 31 in
2000 to 60 in 2002. About 80 percent of these entities characterized
themselves as one of four arrangements or some combination of the four. In
addition, some states reported that discount plans misrepresented their
products as health insurance.
10Under ERISA, a fiduciary generally is any person who exercises
discretionary authority or control respecting the management or
administration of an employee benefit plan or the management or
disposition of the plan's assets.
11Pub. L. No. 97-473, S: 302, 96 Stat. 2605, 2612.
Unauthorized Entities Were Concentrated in the South and the Number
Identified Grew Rapidly from 2000 through 2002
DOL and 42 states12 identified 144 unique unauthorized entities from 2000
through 2002. Many of these entities marketed their products in more than
one state, and some operated under more than one name or with more than
one affiliated entity. This likely represents the minimum number of
unauthorized entities operating from 2000 through 2002 because some states
did not report on entities that they were still investigating. Of the 144
unique entities, the states identified 77 entities that DOL did not, DOL
identified 40 that the states did not, and both the states and DOL
identified another 27.
Unauthorized entities identified by DOL and the states from 2000 through
2002 operated in every state, ranging from 5 entities in Delaware and
Vermont to 31 in Texas. (See fig. 1.) Some of the unauthorized entities
operated in more than one state so the total number of entities identified
by DOL and the states exceeds the total of 144 unique entities.
Unauthorized entities were concentrated in certain states and regions.
Seven states had 25 or more entities that operated during this period; 5
of these states were located in the South. In addition to the 31 entities
in Texas, there were 30 in Florida, 29 each in Illinois and North
Carolina, 28 in New Jersey, 27 in Alabama, and 25 in Georgia.
12Nine of the 51 states responding to our survey did not report
identifying any unauthorized entities from 2000 through 2002. However,
entities identified by DOL through its multistate investigations operated
in these states.
Figure 1: Number of Unauthorized Entities That Operated in Each State,
2000-2002
Source: GAO analysis of DOL and state data.
Note: Some of the unauthorized entities operated in more than one state so
the total number of entities identified by DOL and the states exceeds the
total of 144 unique entities.
The number of unauthorized entities newly identified by DOL and the states
each year almost doubled from 2000 through 2002. The number increased
significantly from 2000 to 2001, and it continued to increase from 2001 to
2002. (See fig. 2.)
Figure 2: Number of Newly Identified Unique Unauthorized Entities, 2000-2002
Number of entities identified 70 60
60
2000 2001 2002
Source: GAO analysis of DOL and state data.
Note: The total excludes three unauthorized entities because one state did
not provide the year it identified them.
Several DOL officials, state officials, and experts pointed to rapidly
increasing health care costs and the weak economy as two factors
contributing to the recent growth in the number of identified unauthorized
entities. They suggested that the pressure of rising premiums and
decreasing revenues may have increased employers' demand for more
affordable employee health benefits, particularly among small employers,
and thereby created an environment where unauthorized entities could
spread. From 2000 through 2002, firms with fewer than 50 workers
experienced an average annual increase in their workers' health benefits
of about 13.3 percent, whereas firms with 50 or more workers experienced
an average annual increase of 10.9 percent.13 The United States economy
also showed signs of weakness in the third quarter of 2000 when it
experienced growth of 0.6 percent, and suffered a recession in 2001. The
economy's subsequent recovery in 2002 was marked by moderate economic
growth but rising unemployment. Negative or weak growth in employers'
revenues,
13We based our calculation on data reported in Kaiser Family Foundation
and Health Research and Educational Trust, Employer Health Benefits 2000
Annual Survey, Employer Health Benefits 2001 Annual Survey, and Employer
Health Benefits 2002 Annual Survey (Menlo Park, Calif. and Chicago: 2000,
2001, and 2002).
compounded by rising premiums particularly for small employers, created an
attractive environment for unauthorized entities, as small employers and
others sought cheaper employee health benefit options.
Entities Characterized Themselves as One of Several Common Types of
Arrangements
About 80 percent of the unauthorized entities identified by DOL and the
states characterized themselves as associations, professional employer
organizations, unions, single-employer ERISA plans, or some combination of
these arrangements. The operators of these entities often characterized
the entities as one of these common types to give the appearance of being
exempt from state regulation, but often states found that they actually
were subject to state regulation as insurance arrangements or MEWAs. Under
ERISA, both states and the federal government regulate MEWAs, with states
focusing on regulating the fiscal soundness of MEWAs and licensing their
operators and DOL enforcing ERISA's requirements.
Specifically, as shown in table 1, 27 percent of the entities identified
by the states and DOL characterized themselves as associations in which
employers or individuals bought health benefits through existing
associations, or through newly created associations established by the
unauthorized entities. For example, Employers Mutual, LLC, an entity that
operated in 2001, sold coverage through an existing association. Employers
Mutual also created 16 associations as vehicles for selling its products.
(See app. II for a more detailed discussion of Employers Mutual, LLC.) In
addition, 26 percent of the entities identified were professional employer
organizations, also known as employee leasing firms, which contracted with
employers to administer employee benefits and perform other administrative
services for contract employees. Another 9 percent of the entities
identified claimed to be union arrangements that would be exempt from
state regulation. However, they lacked legitimate collective bargaining
agreements and were therefore subject to state oversight. Eight percent of
the entities identified characterized themselves as singleemployer ERISA
plans and claimed to be administering a self-funded plan for a single
employer. Such plans, when administered with funds from one employer for
the benefit of that employer's workers, are exempt from state insurance
regulation under ERISA. However, assets for several employers were
commingled in these entities, making them MEWAs subject to state
regulation.
Table 1: Types of Unauthorized Entities Identified by DOL and States,
2000-2002
Entity type Number Percentage
Association 39
Professional employer organization 37
Union 13
Single-employer ERISA 11
Combinationa 14
Otherb/unknown 30
Total 144 100c
Source: GAO survey of states and DOL data.
a"Combination" is any combination of two or more unauthorized entity
types, for example, "association" and "professional employer
organization."
bSome examples of "other" include individual and small group insurance and
third-party administrators for single-employer ERISA plans that states
identified as unauthorized.
cPercentages do not add to 100 percent due to rounding.
Some States Reported That Discount Plans Misrepresented Themselves as
Health Insurance
Some discount plans, in which the purchaser receives a discount from the
full cost of certain health care services from participating providers,
were misrepresented as insurance. Unlike legitimate insurance, discount
plans do not assume any financial risk nor do they pay any health care
claims. Instead, for a fee they provide a list of health care providers
that have agreed to provide their services at a discounted rate to
participants. In response to our survey, 40 states reported that they were
aware that discount plans were marketed in their state, and 14 states
reported that some discount plans were inappropriately marketed as health
insurance products in some manner. Among these 14 states, 8 reported that
the inappropriately marketed discount plans targeted small employers.
While discount plans are not problematic as long as purchasers clearly
understand the plans, these 14 states reported that some discount plans
were marketed as health insurance with terms or phrases such as "medical
plan," "health benefits," or "pre-existing conditions immediately
accepted." (See app. III for more information on discount plans.)
Unauthorized Entities Covered Thousands of Employers and Policyholders,
Leaving Hundreds of Millions of Dollars in Unpaid Claims
At least 15,000 employers, including many small employers, purchased
coverage from unauthorized entities, affecting more than 200,000
policyholders from 2000 through 2002. The states reported that more than
half of the organizations they identified frequently targeted their health
benefits to small employers. At the time of our 2003 survey, DOL and
states reported that the 144 entities had not paid at least $252 million
in medical claims, and only about 21 percent of these claims, about $52
million, had been recovered on behalf of those covered by these entities.
Ten of the 144 entities covered the majority of employers and
policyholders and accounted for almost one half of unpaid claims.
Based on our survey of states and information from DOL, we estimate that
unauthorized entities sold coverage to at least 15,158 employers. The
states reported that more than half of the entities they identified
targeted their health benefits to small employers.14 Furthermore,
unauthorized entities covered at least 201,949 policyholders across the
United States from 2000 through 2002. The number of individuals covered by
unauthorized entities was even greater than the number of policyholders
covered because a policyholder could be an employer or an individual with
dependents. Therefore, any one policyholder could represent more than one
individual.
At the time of our 2003 survey, DOL and state officials reported that
unauthorized entities had not paid at least $252 million in medical
claims. This represents the minimum amount of unpaid claims associated
with these entities identified from 2000 through 2002 because in some
cases DOL and the states did not have complete information on unpaid
claims for the entities they reported to us.
Federal and state governments reported that about 21 percent of unpaid
claims had been recovered from entities identified from 2000 through
2002-$52 million of $252 million.15 These recoveries could include assets
seized from unauthorized entities that had been shut down or frozen from
other uses. Licensed insurance agents have also settled unpaid claims
voluntarily or through state or court action. However, the amount of
unpaid claims recovered could grow over time as ongoing investigations are
resolved. Investigations of unauthorized entities are complex and require
14DOL could not quantify the share of employers purchasing from
unauthorized entities that were small employers.
15Most states and DOL reported to us from March through June 2003.
significant resources and time to thoroughly probe because operators often
maintain poor records and hide assets, sometimes offshore. DOL and state
officials explained that by the time they become aware of an unauthorized
entity-often when medical claims are not being paid-the entity is
sometimes on the verge of bankruptcy and may have few remaining assets
with which to pay claims. Thus, while some additional assets may be
recovered from the entities identified from 2000 through 2002, it is
likely that many of the assets will remain unrecovered.
Ten large entities identified by DOL and the states covered a majority of
employers and policyholders and accounted for nearly half of unpaid
claims. Of the 144 unique entities, 10 covered about 64 percent of the
employers and about 56 percent of the policyholders. They also accounted
for 46 percent of the unpaid claims. (See table 2.) Some of these large
entities grew rapidly and existed for short periods. For example, from
January through October 2001, Employers Mutual enrolled over 22,000
policyholders; covered about 1,100 employers; and amassed over $24 million
in unpaid claims, none of which have been paid.
Table 2: Impact of 10 Large Unauthorized Entities, 2000-2002
Dollars in millions
Employers Policyholders Unpaid claimsa
Number Percentage Number Percentage Amount Percentage
Ten entities 9,676 63.8 112,429 55.7 $116.0
All others 5,482 36.2 89,520 44.3 $136.2
Total 15,158 100.0 201,949 100.0 $252.2 100.0
Source: GAO analysis of DOL and state data.
Note: Neither DOL nor states were able to report the number of employers
or policyholders or the amount of unpaid claims for some unauthorized
entities.
aDOL data were as of June 2003 and most state data were reported from
March through June 2003.
States and DOL Employed Similar Methods to Identify Unauthorized Entities
and Prevent Them from Operating, but Different Methods to Stop Them
States and DOL took generally similar actions to identify unauthorized
entities and prevent them from operating, but they followed different
approaches to stop these entities' activities. States and DOL often relied
on the same method to learn of the entities' operations-through consumer
complaints. In addition, NAIC played an important role in the
identification process by helping to coordinate and distribute state and
federal information on these entities. To stop the operations of these
entities, state agencies issued cease and desist orders, while DOL took
action through the federal courts. Both state and DOL officials said that
increased public awareness was important to help prevent such entities
from continuing to operate.
States and DOL Relied on Similar Methods to Identify Unauthorized Entities
States Identified Entities Primarily through Consumer Complaints, as Well
as through Other Methods
States and DOL identified unauthorized entities through similar methods.
While states reported that most often they became aware of the entities'
operations from consumers' complaints, they also received complaints about
these entities from several other sources, such as agents, employers, and
providers. DOL also often learned of these entities through consumer
complaints. In addition to information obtained through NAIC, state
insurance departments and EBSA regional offices relied on each other to
learn of the entities' activities.
States identified entities operating within their borders through several
different methods, including complaints from consumers, information
coordinated by NAIC, information from DOL, and a combination of these and
other methods. States most often identified unauthorized entities
operating within their borders through consumer complaints. (See table 3.)
Table 3: Methods States Used to Identify Unauthorized Entities, 2000-2002
Number of entities identified through the method Identification method
alone or combined with other methods
Consumer complaints
NAIC information
DOL information
Insurance agent complaints
Othera
Employer complaints
Provider complaints
Source: GAO analysis of state survey responses.
Note: In total, states reported 288 unauthorized entities operating within
their borders. We determined that, after accounting for duplicate
identifications among states and DOL, 144 unique entities operated from
2000 through 2002.
a"Other" includes identification through an insurance company, contact
with another state, and other methods.
In addition to consumer complaints, states relied on other sources to help
identify the unauthorized entities, with NAIC being the second most
frequent source of information. In December 2000, NAIC started to share
information from state and federal investigators on these entities with
all states and DOL. In about 71 percent of the 98 cases where states
reported using the NAIC information to identify unauthorized entities,
they also reported using information from one or more other sources-most
often consumer complaints. In addition, DOL and insurance agents, either
alone or in combination with other identification methods, helped states
identify the entities. For example, DOL submitted quarterly reports to
NAIC that identified all open civil investigations, the individuals being
investigated, and the EBSA office conducting the investigations. NAIC
shared this and other information from EBSA regional offices with state
investigators throughout the country.
DOL Identified Entities through Federal investigators also often
identified unauthorized entities through
Consumer and State Contacts consumers' complaints. According to EBSA
officials, consumers call DOL's customer service lines when they have
complaints or questions and speak with benefits advisers about the
employer-based health benefits plans in which they are enrolled. Regional
directors in EBSA's Atlanta, Dallas, and San Francisco offices said they
open investigations when benefit advisers cannot resolve the complaints.
Federal investigators also relied on states to help identify unauthorized
entities. An EBSA headquarters official told us that states usually
alerted federal investigators to the entities operating within their
regions. The directors of the three EBSA regional offices we interviewed
said they had received referrals from state insurance department officials
within their regions.
State Insurance Departments Issued Cease and Desist Orders to Stop
Unauthorized Entities, While DOL Took Action through the Federal Courts
States Issued Cease and Desist Orders to Stop Activities of Unauthorized
Entities
States generally issued cease and desist orders to stop the activities of
unauthorized entities. In contrast, DOL obtained injunctive relief through
the federal courts by obtaining temporary restraining orders (TRO) or
preliminary or permanent injunctions to stop unauthorized entities'
activities. DOL often relied on states to stop unauthorized entities
through cease and desist orders while it conducted investigations, usually
in multiple states, to obtain the evidence needed to stop these entities'
activities nationwide through the courts.
After identifying the unauthorized entities, the primary mechanism states
used to stop them from continuing to operate was the issuance of cease and
desist orders. Generally, these cease and desist orders told the operators
of the entities, and affiliated parties, to stop marketing and selling
health insurance in that state and in some cases explicitly established
their continuing responsibility for the payment of claims and other
obligations previously incurred. About 71 percent of the states (30 of 42
states) that reported unauthorized entities operating within their borders
from 2000 through 2002 issued at least one cease and desist order to stop
an entity's activities during that time. The number of cease and desist
orders issued by each of the 30 states ranged from 1 to 11, averaging
about 4 per state. Alabama, Illinois, and Texas, three states in which
more than 25 unauthorized entities operated, reported issuing the most
cease and desist orders. A cease and desist order applies to activities
only within the state that issues the order. Therefore, in several cases,
more than one state issued a cease and desist order against the same
entity. For example, 14 states reported that they each issued a cease and
desist order to stop Employers Mutual's operations within their borders.
States issued a total of 108 cease and desist orders that affected 41 of
the 144 unique entities nationwide. About 58 percent of policyholders and
nearly half of unpaid claims were associated with these 41 entities.
State insurance departments generally had the authority to issue cease and
desist orders. The insurance department officials we interviewed in
Colorado, Florida, Georgia, and Texas said that the insurance
DOL Stopped Unauthorized Entities' Activities through Federal Courts
commissioner or holder of an equivalent position could issue a cease and
desist order when there was enough evidence to support the need. From 2000
through 2002, these four states told us that they issued 25 cease and
desist orders against about 58 percent of the entities they identified.
According to these insurance department officials, the time needed to
obtain a cease and desist order varied depending on such factors as the
complexity of the entity to be stopped, a state's resources for conducting
investigations, and whether others had already conducted investigations.
States typically shared information on the cease and desist orders they
issued with NAIC. NAIC has developed a system to capture information on
various state insurance regulatory actions, including cease and desist
orders issued. States have access to the information reported through this
system.
States took other actions against the entities, sometimes in conjunction
with issuing cease and desist orders. For example, in 48 instances states
responding to our survey reported that they took actions against or sought
relief from the agents who sold the entities' products, including fining
them, revoking their licenses, or ordering them to pay outstanding
claims.16 States also reported that they took actions against the entity
operators in 25 instances and filed cases in court in 14 instances.
DOL can take enforcement action to stop an unauthorized entity's
activities through the federal courts-that is, by seeking injunctive
relief and, in some cases, pursuing civil and criminal penalties. An
injunction is an order of a court requiring one to do or refrain from
doing specified acts. Injunctive relief sought by DOL against unauthorized
entities includes TROs, which may be issued without notice to the affected
party and are effective for up to 10 days; preliminary injunctions, which
may be issued only with notice to the affected party and the opportunity
for a hearing; and permanent injunctions, which are granted after a final
determination of the
16The four states whose officials we interviewed had laws that specified
the consequences that unauthorized entities, or the agents and others who
represented them, would face. For example, Florida enacted a statute to
increase the penalty for certain agents and others representing
unauthorized insurers from a second-degree misdemeanor to a third-degree
felony, punishable by up to 5 years in prison and up to a $5,000 fine,
effective October 1, 2002. Fla. Stat. ch. 626.902(1)(a), (b) (2003) (as
amended by 2002 Laws, ch. 2002-206). An existing Florida statute already
required certain persons representing unauthorized insurers in the state
to be held financially responsible for unpaid claims. Fla. Stat. ch.
626.901(2) (2003). Some agents purchase professional liability
insurance-called errors and omissions coverage-that in some cases may pay
outstanding medical claims.
facts. DOL's enforcement actions apply to all states affected by the
entity. To obtain a TRO, DOL must offer sufficient evidence to support its
claim that an ERISA violation has occurred and that the government will
likely prevail on the merits of the case. Documenting that a fiduciary
breach took place can be difficult, time-consuming, and labor-intensive
because DOL investigators often must work with poor or nonexistent
records, uncooperative parties, and multiple trusts and third-party
administrators.
As of December 2003, DOL had obtained TROs against three entities for
which investigations were opened from 2000 through 2002. In two of these
cases, DOL also obtained preliminary injunctions and in one case a
permanent injunction. (See table 4.) Each of these actions affected people
in at least 41 states. These three entities combined affected an estimated
25,000 policyholders and accounted for about $39 million in unpaid claims.
Table 4: TROs and Injunctions for Three Unauthorized Entities, as of
December 2003
Number of Preliminary Permanent
states injunction injunction
Unauthorized affected TRO obtained obtained Other results
entity issueda
In September
Employers 51 December February 2003, a federal
Mutual 2002b September court
ordered the
2001 2003 principals to
pay about
$7.3 million
OTR Truckers In September
Health and 44 June 2002 None None 2002, one
defendant
agreed to pay
Welfare Fund an amount that
was less
than 1 percent
of the unpaid
claims
Service and 41 October October None None
Business 2002 2002c
Workers of
America Local
125 Benefit
Fund
Source: EBSA.
aGenerally, these TROs froze the unauthorized entity's assets; removed the
operators; prevented the operators from managing the entity; and appointed
an independent fiduciary to manage the entity, account for assets, and pay
claims.
bPreliminary injunction extended appointment of fiduciary and prevented
health care providers from taking action against participants to collect
unpaid bills.
cPreliminary injunction ordered termination of the entity and prevented
health care providers from taking action against participants to collect
unpaid bills or other actions.
DOL and state officials told us that they coordinate their investigations
and other efforts. For example, one EBSA regional director said his office
has met with the states in the region and, when needed, provides
information to help states obtain cease and desist orders to stop
unauthorized entities. Furthermore, DOL officials said that they rely on
the states to obtain cease
and desist orders to stop these entities' activities in individual states
while conducting the federal investigations. For example, DOL and states
coordinated and cooperated extensively during the investigation of
Employers Mutual and provided mutual support in obtaining cease and desist
orders and the TRO. Several states issued cease and desist orders against
this entity before DOL obtained the TRO. In addition, DOL officials said
DOL does not take enforcement action in some cases where (1) states have
successfully issued cease and desist orders to protect consumers because
no more action is needed to prevent additional harm, (2) the entity was
expected to pay claims, or (3) the entity ceased operations.
From 2000 through 2002, EBSA opened investigations of 69 entities.17 These
investigations involved 13 entities in 2000, 31 in 2001, and 25 in 2002.18
Overall, EBSA reported 67 civil and 17 criminal investigations opened from
2000 through 2002 involving the 69 entities. Civil investigations of these
entities focused on ERISA violations, particularly breaches of ERISA's
fiduciary requirements,19 while criminal investigations focused on such
crimes as theft and embezzlement. In some cases, unauthorized entities can
face simultaneous civil and criminal investigations. As of August 2003,
EBSA was continuing to investigate 51 of these entities. As a result,
further federal actions remain possible. For example, in addition to the
three investigations that had yielded TROs or injunctions, EBSA had
referred four other case investigations to the DOL Solicitor's Office for
potential enforcement action and obtained subpoenas in five cases.
States and DOL Alerted the To help prevent unauthorized entities from
continuing to operate, officials Public and Used Other in the insurance
departments we interviewed in four states-Colorado, Methods to Help
Prevent Florida, Georgia, and Texas-took various actions to alert the
public and to
inform insurance agents about these entities. NAIC developed
modelUnauthorized Entities from consumer and agent alerts to help states
increase public awareness. DOL Continuing to Operate primarily targeted
its prevention efforts to employer groups and small
employers. The states and DOL emphasized the need for consumers and
17The states also identified 27 of these 69 entities.
18Based on the percentage of total investigative staff days spent on
unauthorized entities, EBSA estimated that its field office costs for
these investigations totaled about $4.2 million for fiscal years 2000,
2001, and 2002 and the first 10 months of fiscal year 2003.
19For example, a fiduciary's failure to operate the plan prudently and for
the exclusive benefit of the plan participants would be a fiduciary
violation.
employers to check the legitimacy of health insurers before purchasing
coverage, thus helping to prevent unauthorized entities from continuing to
operate.
States Alerted Consumers and Insurance department officials we interviewed
in four states took various
Agents and Benefited from NAIC actions to prevent unauthorized entities
from continuing to operate. Each
Efforts of these states issued news releases to alert the public about
these entities in general and to publicize the enforcement actions they
took against specific entities. To help states increase public awareness,
NAIC developed a model consumer alert in the fall of 2001, which it
distributed to all the states and has available on its Web site. (See app.
IV.) The four states' insurance departments also maintained Web sites that
allow the public to search for those companies authorized to conduct
insurance business within their borders. These states have also taken
other actions to increase public awareness. For example, in April 2002,
Florida released a public service announcement to television news markets
throughout the state to warn about these entities. In addition, in the
spring of 2003, Florida placed billboards throughout the state to warn the
public through its "Verify Before You Buy" campaign. (See fig. 3.)
Figure 3: Florida's Public Awareness Campaign against Unauthorized Entities
Source: Florida Department of Financial Services.
In addition to increasing public awareness, the four state insurance
departments alerted insurance agents about unauthorized entities. Using
bulletins, newsletters, and other methods, these states warned agents
about these entities, the implications associated with selling their
products, and the need to verify the legitimacy of all entities. Georgia,
for example, sent a warning to insurance agents in May 2002, which
highlighted the characteristics of these entities, reminded agents that
they could lose their licenses and be held liable for paying claims when
the entities do not pay, and noted that the state insurance department Web
site contained a list of all licensed entities. NAIC also developed a
model agent alert to help agents identify these entities. A national
association representing agents and brokers and many state insurance
departments distributed this alert. The Web sites for the four states'
insurance departments contained information on the enforcement actions
they took against agents. The Texas insurance department's Web site, for
example, provided the disciplinary actions that the state took as of
August 2003 against individuals who acted as agents for unauthorized
insurers. These agents were fined, ordered to make
restitution, lost their licenses, or faced a combination of some or all of
these actions.
DOL Alerted Employer Groups DOL primarily focused its efforts to prevent
unauthorized entities from
and Provided Guidance and continuing to operate on employer groups, small
employers, and the states.
Assistance to States and Others To help increase public awareness about
these entities, on August 6, 2002, the Secretary of Labor notified over 70
business leaders and associations, including the U.S. Chamber of Commerce
and the National Federation of Independent Business, about insurance tips
that the department had developed and asked them to distribute the tips to
small employers. Consistent with the advice states provided, among other
things, the tips advised small employers to verify with a state insurance
department whether any unfamiliar companies or agents were licensed to
sell health benefits coverage. (See app. V.) Also, the three EBSA regional
offices we reviewed had initiated various activities within the states in
their regions. For example, EBSA's Atlanta regional office sponsored
conferences that representatives from 10 states and NAIC attended. Federal
and state representatives discussed ERISA-related issues and their
investigations at these conferences. Furthermore, since 2000, DOL
initiated several technical assistance efforts to help states and others
better understand ERISA-related issues. These efforts are intended to help
prevent unauthorized entities from avoiding state regulation.20
Agency and Other External Comments
We provided a draft of this report to DOL, NAIC, and the four state
insurance departments (Colorado, Florida, Georgia, and Texas) whose
officials we interviewed. DOL, NAIC, Florida, and Texas provided written
comments on the draft. Colorado and Georgia did not provide comments on
the draft.
20For example, DOL updated and rereleased its publication, Multiple
Employer Welfare Arrangements Under the Employee Retirement Income
Security Act (ERISA): A Guide to Federal and State Regulation (Washington,
D.C.: 2003), which is intended to facilitate state regulatory and
enforcement efforts regarding MEWAs as well as federal and state
coordination. DOL distributed the publication to states and provided
copies to others who made requests through DOL's toll-free hotline. Also,
from January 2000 through October 15, 2003, DOL issued 13 advisory opinion
and information letters regarding ERISA preemption and state insurance
regulation of MEWAs to assist state regulators and prosecutors in
enforcing state insurance laws against unauthorized entities. DOL has
issued over 100 letters on MEWAs or similar types of arrangements since
ERISA was enacted in 1974.
DOL identified initiatives it has taken to improve coordination with
states and law enforcement agencies and highlighted its criminal
enforcement actions. We modified the report to include additional examples
of this coordination, such as the Atlanta EBSA regional office's meetings
with states and coordination on investigation and enforcement actions. We
recognize other activities are underway, such as making available
electronic information that MEWAs are required to report to EBSA and
sharing information with law enforcement agencies, but it was not the
purpose of this report to identify the full range of DOL activities
related to MEWAs and coordination with states on employer benefit and
insurance issues. Although DOL also provided additional information on its
criminal enforcement actions, we did not include these data in the report
because these enforcement actions did not all relate to the investigations
of the 69 entities DOL opened from 2000 through 2002 that were the focus
of our analysis. DOL's comments are reprinted in appendix VI.
NAIC's written comments provided additional information on efforts it has
taken to increase awareness of unauthorized insurance and acknowledged the
difficulties associated with determining the number of unique unauthorized
entities. NAIC noted that it began a national media campaign on
unauthorized insurance that will run from January through June 2004 and,
as part of the campaign, it developed a new brochure for consumers
entitled "Make Sure Before You Insure." In addition, NAIC is updating its
ERISA Handbook, which contains basic information about ERISA and its
interaction with state law, to highlight different types of unauthorized
entities and to provide guidance to state regulators on recognizing and
shutting down these entities. Because NAIC recently initiated its media
campaign and its scope was continuing to develop at the time we completed
our work, we did not incorporate this information in the body of the
report. In addition to the report's description of consumer and agent
alerts that NAIC had distributed, NAIC also noted that in June 2003 it
distributed a model regulatory alert to all its members that emphasized
the need for third-party administrators and others to ensure that they do
not become unwitting supporters of these entities. NAIC also suggested
that the report include a more comprehensive list of state insurance
regulation and laws. While the draft report included key functions that
state insurance departments perform in regulating health insurance, it was
beyond the scope of this report to comprehensively address the extent and
variety of state insurance requirements affecting health insurance. We
did, however, add a reference in the final report to consumer protection
laws that states are responsible for enforcing. Finally, NAIC commented
that many entities may be operating under multiple names, which makes it
difficult to
precisely count the number of such entities. As discussed in the draft
report, our estimates of the number of unique unauthorized entities
attempted to account for this complexity by consolidating information from
multiple states or DOL where there was information to link entities. We
added additional information to the report's methodology to highlight the
steps we took to determine the number of these entities.
Written comments from the Florida Department of Financial Services noted
that there has been cooperation among the federal and state governments in
addressing the problems associated with unauthorized entities, stating
that no state or federal agency effort could succeed without regulators
sharing information. In addition, Florida stressed how unauthorized
entities rely on associated entities and persons to succeed and
proliferate. For example, unauthorized entities used licensed and
unlicensed reinsurers, third-party administrators, and agents to help
defraud the public. Florida indicated that these structures made it
difficult for states to detect the entities.
In its written comments, the Texas Department of Insurance suggested that
we further elaborate on legal actions states have taken against
unauthorized entities. In addition to issuing cease and desist orders,
Texas stressed that states have (1) used restraining orders and
injunctions, similar to DOL, to stop unauthorized entities, (2) assessed
penalties against operators of these entities, and (3) taken actions
against agents who sold unauthorized products. For example, in 2002, Texas
placed a major entity into receivership, seized its assets, and initiated
actions to recover more assets. In 2003, Texas finalized penalties against
the operators of Employers Mutual. In addition, Texas explained that
states have devoted significant resources to penalizing agents who have
accepted commissions from unauthorized entities. In addition to actions we
reported, the Texas Department of Insurance indicated that it has taken
other steps to increase consumer awareness of these entities. For example,
Texas said that it had issued a bulletin to all health insurance companies
and claims administrators warning about unauthorized entities and provided
public information to various news organizations, assisting them with
their reporting on these entities. Texas also highlighted the criminal
investigations the state has conducted and wrote that its insurance fraud
division has referred cases to DOL and others. While the report includes
illustrative examples of key legal actions, including actions against
agents involved with unauthorized entities, and public awareness efforts
taken by the states, we primarily focused on the more common actions taken
by states as reported in response to our survey.
DOL and the other reviewers also provided technical comments that we
incorporated as appropriate.
As agreed with your offices, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
after its date. We will then send copies to the Secretary of Labor,
appropriate congressional committees, and other interested parties. We
will also make copies available to others upon request. In addition, this
report will be available at no charge on GAO's Web site at
http://www.gao.gov.
Please call me at (202) 512-7118 or John E. Dicken at (202) 512-7043 if
you have additional questions. Joseph A. Petko, Matthew L. Puglisi, Rashmi
Agarwal, George Bogart, and Paul Desaulniers were major contributors to
this report.
Kathryn G. Allen Director, Health Care-Medicaid
and Private Health Insurance Issues
Appendix I
Methodology for Identifying Unauthorized Entities
To identify the number of unique unauthorized entities nationwide from
2000 through 2002 and to obtain information, such as the number of
employers covered and unpaid claims, pertaining to each of these entities,
we obtained and analyzed data from state and federal sources. We obtained
state-level data through a survey we sent to officials located in
insurance departments or equivalent offices in all 50 states and the
District of Columbia and federal-level data from the Department of Labor's
(DOL) Employee Benefits Security Administration (EBSA). We also obtained
information from the states on a related type of problematic arrangement-
discount plans that sometimes are misrepresented as health insurance.
Survey of State Insurance Departments
To obtain data on unauthorized entities and other types of problematic
plans in each state, we e-mailed a survey to individuals identified by the
National Association of Insurance Commissioners (NAIC) as each state
insurance department's multiple employer welfare arrangement (MEWA)
contact. A NAIC official indicated that these individuals would be the
most knowledgeable in the states on the issue of unauthorized entities.
All the states responded to our survey.
Part I of the survey asked for selected data elements on the entities. We
asked the states to use the following definition: "an unauthorized health
benefits plan is defined as an entity that sold health benefits, collected
premiums, and did not pay or was likely not to pay some or all covered
claims. These entities are also known as health insurance scams." First,
we asked officials in each state to tell us how many of these entities
covering individuals in the state they identified during each of 3
calendar years- 2000, 2001, and 2002. For each entity the state identified
during the 3-year period, we requested information such as the (1) number
of employers covered, (2) number of policyholders covered, (3) total
amount of unpaid claims in the state, and (4) amount of unpaid claims
recovered. We also obtained information on the type of the entity, how the
state identified the entity, and what actions the state took regarding the
entity. Part II of the survey collected information on other types of
problematic plans- including discount plans-and whether these other types
of plans targeted small employers.
To determine the number of entities states identified in each calendar
year, we relied on states to determine at what stage of their
investigative process they would deem an entity to be unauthorized.
Therefore, states could have reported both those entities they determined
were unauthorized after completing an investigation and against which they
took formal action and
Appendix I
Methodology for Identifying Unauthorized
Entities
those entities still being investigated and for which no formal action had
been taken.
Federal Data on Unauthorized Entity Investigations
To obtain federal-level data on unauthorized entities, we asked EBSA to
provide data from the civil and criminal case investigations it opened
from 2000 through 2002 involving these entities. To identify which of its
civil and criminal investigations of employer-based health benefits plans
fell within the scope of our research, we asked EBSA to use a similar
definition of unauthorized entities as included on our state survey. For
each of the civil and criminal investigations of these entities EBSA
opened during the 3-year period, we asked EBSA to provide the same type of
data about unauthorized entities that we requested on the survey we sent
to all the states.1 In addition, we asked EBSA to identify all the states
that were affected by each entity it was investigating-information that
states could not easily provide. Furthermore, where EBSA was conducting
both civil and criminal investigations of an entity, we asked it to report
that entity only one time.
Because EBSA and states provided the names of entities that were still
under investigation at the time of our survey, we agreed not to report the
names of any of these entities unless the investigation had already been
made public. Therefore, we report only the names of three unauthorized
entities for which DOL had issued media releases when it obtained
temporary restraining orders (TRO) or injunctions to stop their
activities.
Consolidating State and Federal Data on Unauthorized Entities
To determine the number of unauthorized entities that operated from 2000
through 2002, we analyzed information on the entities identified by the
states and investigated by EBSA. Specifically, we analyzed the names of
288 entities that states identified and 69 entities that EBSA
investigated.2 In many cases, two or more states or EBSA reported the name
of the same entity. We compared the entity names and, using several data
sources-for
1EBSA provided the data that it collected on the number of participants in
these entities, whereas states reported on the number of policyholders. We
consolidated the data reported by DOL and states and refer to these data
as policyholders.
2Nine of the 51 states responding to our survey did not identify any
unauthorized entities from 2000 through 2002. EBSA conducted three
separate investigations that we determined related to different components
of one large entity identified by several states.
Appendix I
Methodology for Identifying Unauthorized
Entities
example, copies of the cease and desist orders states provided to NAIC,
interviews of state officials, survey responses that included multiple
names for the same entity, and media reports-and our judgment regarding
similar names, consolidated them into a count of unique entities. Based on
this analysis, we consolidated the 357 entity names identified or
investigated by the states and EBSA to 144 unique unauthorized entities
nationwide, including 77 entities identified only by the states; 40
entities investigated only by EBSA; and 27 entities identified by one or
more states and also investigated by EBSA.
To identify the total number of employers covered, policyholders covered,
amount of unpaid claims, and recoveries on the claims for the 144 unique
unauthorized entities identified nationwide from 2000 through 2002, we
consolidated the data provided by the states and EBSA. To develop
unduplicated counts for each of the data elements, we developed a data
protocol. We matched the names of the states that reported each of these
27 entities to the names of the states in which EBSA reported that these
entities operated. Because the EBSA data generally were more consistent
and comprehensive-particularly since not all states reported on some of
the multistate entities reported by EBSA-we used the EBSA-reported data
rather than the state-reported data for each element. However, if a state
reported an entity to us and EBSA did not report that it was aware that
the entity operated in that state, we included that state's data. Also,
where EBSA data were missing for a data element, we included
state-reported data in our totals when provided.3
To identify the year that each of the 144 unauthorized entities was
identified, we used the earliest year either EBSA or a state reported for
when each of the 144 entities was identified. To determine how many
entities operated in each state, we combined the EBSA data and the data
reported by the states. Because some of the entities EBSA investigated
were nationwide or were in multiple states, the number of entities we
report as operating in each state is greater than the number of entities
states directly identified on our survey. For example, while nine states
reported to us that they did not identify any entities from 2000 through
3For example, for one of the 27 entities that both EBSA and states
identified, EBSA reported that it operated in 13 states, 7 of which also
reported this entity to us. In addition, 1 other state, not identified by
EBSA, reported this entity to us and we included this state's data. Also,
because EBSA did not provide any data on the number of employers and
policyholders for this entity, we used the data reported by the 8 states.
Appendix I
Methodology for Identifying Unauthorized
Entities
2002, EBSA indicated that several of the entities it was investigating
operated in these states.
The data we report for each of the elements-the number of employers
covered, policyholders covered, amount of unpaid claims, and recoveries on
the claims-may be underestimated. EBSA and some states reported that some
of the data were unknown for each of these elements. In addition, while
the states provided most of the requested data, they did not provide some
of the data for some entities. Furthermore, in several cases, EBSA and the
states provided a range in response to our request for data. When they did
this, we used the lowest number in the range. For example, whereas EBSA
reported unpaid claims for one of these entities from $13 million to $20
million, we reported unpaid claims as $13 million. In some cases, EBSA and
the states reported that the data they provided were estimated.
Appendix II
Employers Mutual, LLC and Federal and State Actions
Employers Mutual, LLC was one of the most widespread unauthorized entities
operating in recent years, covering a significant number of employers and
policyholders and accounting for millions of dollars in unpaid claims
during a 10-month period in 2001. According to court documents and DOL,
four of the entity's principals were associated with the collection of
approximately $16 million in premiums from over 22,000 people and with the
entity's nonpayment of more than $24 million in medical claims. DOL and
states took actions to terminate Employers Mutual's operations and an
independent fiduciary was appointed by a U.S. district court in December
2001 to administer the entity and, if necessary, implement its orderly
termination. In September 2003, the court ordered the principals to pay
$7.3 million for their breach of fiduciary responsibilities.
Employers Mutual Created Associations, Hired Firms, and Paid Companies
Established by Its Principals
Employers Mutual was established in Nevada in July 2000 and began
operations in January 2001.1 The name Employers Mutual is similar to
Employers Mutual Casualty Company, a long-established Iowa-based insurance
company marketed throughout the United States, which had no affiliation
with Employers Mutual. By February 2001, Employers Mutual had established
16 associations covering a wide array of industries and professions, such
as the American Coalition of Consumers and the National Association of
Transportation Workers, that created employee health benefit plans for
association members to join.2 Employers Mutual was responsible for
managing the plans offered through these 16 associations, which claimed to
be fully funded and were created to cover certain medical expenses of
enrolled participants. Employers Mutual ultimately claimed that its
association structure did not require it to register or to seek licensure
from states, and that it also precluded the entity from DOL
1Prior to Employers Mutual's creation, one of its principals was
associated with other unauthorized entities.
2The other associations were the American Association of Agriculture, the
Association of Automotive Dealers and Mechanics, the Association of
Barristers and Legal Aids, the Communications Trade Workers Association,
the Construction Trade Workers Association, the Association of
Cosmetologists, the Culinary and Food Services Workers Association, the
Association of Educators, the Association of Health Care Workers, the
National Alliance of Hospitality and Innkeepers, the Association of
Manufacturers and Wholesalers, the Association of Real Estate Agents, the
Association of Retail Sellers, and the National Coalition of Independent
Truckers. Employers Mutual also sold coverage through existing
associations such as the National Writers Union, an association
representing approximately 7,000 freelance writers.
Appendix II
Employers Mutual, LLC and Federal and
State Actions
regulation under the Employee Retirement Income Security Act of 1974
(ERISA).
Employers Mutual's principals contracted with legitimate firms to market
the plans and process the claims, and with their own companies purportedly
to provide health care and investment services. Licensed insurance agents
marketed the 16 plans nationwide. Employers Mutual hired a firm to process
the claims from members of its associations' employee health benefits
plans and to handle other administrative tasks from January 2001 until the
firm terminated its services in October 2001 for, among other reasons,
nonpayment of a bill. According to court filings, Employers Mutual also
contracted with four firms, purportedly health care provider networks and
investment firms, established and owned by Employers Mutual principals. A
district court later cited evidence that the provider networks were paid
despite the fact that one of them had no employees and provided no
services to plan members.3 Furthermore, the district court noted that no
contracts between the investment firms and Employers Mutual were presented
into evidence and no information was introduced concerning the services
these firms performed for this entity.
Employers Mutual Collected About $16 Million in Premiums but Did Not Pay
over $24 Million in Medical Claims
From the time Employers Mutual commenced operations in January 2001
through October 2001, more than 22,000 policyholders in all 50 states and
the District of Columbia paid approximately $16.1 million in premiums.
According to court documents and the independent fiduciary appointed to
administer Employers Mutual, one of this entity's principals allegedly set
the premiums for the 16 plans after he calculated the average of sample
rates posted by other insurance companies on the Internet and reduced them
to ensure that Employers Mutual would offer competitive prices.
DOL has determined that of the $16.1 million collected in premiums,
Employers Mutual paid about $4.8 million in medical claims. According to
DOL, the principals made payments for other purposes besides the payment
of claims, including about $2.1 million in marketing, about $0.6 million
in claims processing, and about $1.9 million to themselves or their
companies. Approximately $1.9 million in Employers Mutual's assets had
been recovered by the independent fiduciary since his appointment in
3Chao v. Graf, No. 01-0698, 2002 WL 1311122 (D. Nev. Feb. 1, 2002) (order
granting preliminary injunction).
Appendix II
Employers Mutual, LLC and Federal and
State Actions
December 2001 through February 2004.4 The independent fiduciary and DOL
reported that they were prevented from fully accounting for the money
collected and paid out by Employers Mutual, its principals, and contracted
companies due to the scope of its operations and the disarray and
incompleteness of the records they were able to recover.
The independent fiduciary reported that insurance claims totaling over $24
million remain unpaid as of February 2004. He paid $134,000 to a
prescription service provider immediately after his appointment, and no
additional medical claims have been paid. In March 2003, the fiduciary
filed suit in federal court to recover the unpaid claims from the
insurance agents who marketed Employers Mutual plans.
States, Then DOL, Acted against Employers Mutual
When Nevada insurance regulators became aware of Employers Mutual, they
found that it was transacting insurance business without a certificate of
authority as required by Nevada law.5 Nevada therefore issued a cease and
desist order against Employers Mutual in June 2001.6 In August 2001,
Florida insurance regulators found that Employers Mutual was engaged in
the business of insurance, including operating as a MEWA, without a
certificate of authority7 as required by Florida law.8 Florida ordered
Employers Mutual to stop selling insurance within Florida's borders
pending an appeal by the entity, although at the time the state did not
find evidence of delays or failures to pay medical claims. Other states,
including Alabama, Colorado, Oklahoma, Texas, and Washington, filed cease
and desist orders against Employers Mutual by December 2001.
4The independent fiduciary has spent about $1.6 million of the $1.9
million seized, primarily for the administrative cost of processing
approximately 100,000 claims that had not been adjudicated and for legal
and other costs, with approximately $0.3 million remaining as of February
2004. The U.S. District Court in Nevada ordered the independent fiduciary
to process all unadjudicated claims in its February 1, 2002 order granting
a preliminary injunction.
5Nev. Rev. Stat. S:S: 685B.030, 685B.035 (2003).
6Cease and Desist Order: Employers Mutual, L.L.C., Nevada Department of
Business and Industry Division of Insurance case no. 01.658 (June 14,
2001).
7Immediate Final Order in the matter of Employers Mutual, L.L.C., Florida
Department of Insurance case no. 42659-01-CO (Aug. 14, 2001).
8Fla. Stat. ch. 624.401, 624.437 (2003).
Appendix II
Employers Mutual, LLC and Federal and
State Actions
On November 21, 2001, the Nevada Commissioner of Insurance signed an Order
of Seizure and Supervision seizing and taking possession of Employers
Mutual funds held in Nevada bank accounts and granting the Nevada
Commissioner supervision over the assets of Employers Mutual in Nevada.9
Nevada also reported that it engaged in a discussion involving 26 state
insurance departments that led to an agreement with Employers Mutual to
facilitate payments of claims nationwide. On December 13, 2001, the U.S.
District Court for the District of Nevada granted a TRO against Employers
Mutual and its four principals,10 and on December 20, 2001, the Nevada
Commissioner surrendered all of Employers Mutual's assets that she had
recently seized to the independent fiduciary. In the TRO, DOL alleged that
the principals
o used plan assets to benefit themselves;
o failed to discharge their obligations as fiduciaries with the loyalty,
care, skill, and prudence required by ERISA; and
o paid excessive compensation for services provided to Employers Mutual.
The TRO temporarily froze the assets of all the principals involved in
this entity and prohibited them from conducting further activities related
to the business. It also appointed an independent fiduciary to administer
Employers Mutual and associated entities and, if necessary, implement
their orderly termination.
After a subsequent hearing, the U.S. District Court for the District of
Nevada issued a preliminary injunction on February 1, 2002, leading to the
interim shutdown of Employers Mutual nationwide.11 On April 30, 2002, the
same court issued a quasi-bankruptcy order establishing a procedure for
the orderly dissolution of the plans and payment of claims with assets
9Employers Mutual, L.L.C., Nevada Department of Business and Industry
Division of Insurance case no. 01.658 (Nov. 21, 2001).
10Chao v. Graf, No. 01-0698, (D. Nev. Dec. 13, 2001) (order granting
temporary restraining order).
11Chao v. Graf, No. 01-0698, 2002 WL 1311122 (D. Nev. Feb. 1, 2002) (order
granting preliminary injunction).
Appendix II
Employers Mutual, LLC and Federal and
State Actions
recovered by DOL and the independent fiduciary.12 On September 10, 2003,
the court issued a default judgment granting a permanent injunction
against the principals and ordered them to pay $7.3 million in losses
suffered as a result of their breach of fiduciary obligations to
beneficiaries.13
In March 2003, the independent fiduciary filed suit in Nevada on behalf of
the participants against Employers Mutual's principals alleging, among
other things, that they participated in racketeering, fraud, and
conspiracy. The independent fiduciary also sued the insurance agents, who
either marketed or sold the plans, for malpractice as part of that action.
The fiduciary has requested damages and relief for unpaid or unreimbursed
claims. In October 2003, the court ordered the suit to mediation in
February 2004. The fiduciary and some agents, before the beginning of
mediation, reached a proposed settlement that was before the court for
approval as of February 2004.
Figure 4 contains a chronology of events from Employers Mutual's
establishment to state and federal actions to shut it down.
12Chao v. Graf, No. 01-0698 (D. Nev. Apr. 30, 2002) (order establishing a
quasi-bankruptcy).
13Chao v. Graf, No. 01-0698 (D. Nev. Sept. 10, 2003) (order granting
permanent injunction).
Appendix II
Employers Mutual, LLC and Federal and
State Actions
Figure 4: Key Events of Employers Mutual from Establishment to Closure
July 28, 2000 January - October 2001 January 2002 March 3, 2003
Employers Mutual is Employers Mutual collects U.S. District Court holds
Independent fiduciary files civil
established in Nevada. approximately $16 million in hearing. complaint
against Employers premiums from over 22,000 Mutual's principals and
December 27, 2000 February 1, 2002 insurance agents and brokers
Principals begin to establish policyholders. U.S. District Court issues
that marketed the 16 plans.
associations that had trust January - October 2001 preliminary injunction.
ag
principals' April 30, 2002 U.S. U.S. District Court
Mutual. investment firms. District Court issues issues a default
judgment granting a
quasi-bankruptcy order. permanent injuction
May 2001 against
Principals Employers Mutual.
establish two Principals
provider
networks. ordered to pay $7.3
million.
June 14, 2001 October 20, 2003
reements with Employers Employers Mutual pays September 10, 2003
Nevada issues cease U.S. District Court orders the and desist order
against civil suit to mediation in Employers Mutual. February 2004.
August - December 2001
Alabama, Colorado, Florida,
Oklahoma, Texas, and
Washington take action against
Employers Mutual.
October 3, 2001
Claims processing firm
terminates contract with
Employers Mutual.
November 21, 2001
Nevada seizes Employers
Mutual's assets held in Nevada
banks.
December 13, 2001
U.S. District Court for the District
of Nevadaa grants a temporary
restraining order against
Employers Mutual and appoints
an independent fiduciary.
December 20, 2001
Nevada surrenders to
independent fiduciary the
Employers Mutual assets
it seized.
Source: U.S. District Court, independent fiduciary, and seven states.
Appendix II
Employers Mutual, LLC and Federal and
State Actions
Note: Includes information from the preliminary injunction, the permanent
injunction, and cease and desist orders from, Alabama, Colorado, Florida,
Nevada, Oklahoma, Texas, and Washington.
aAll subsequent references to the U.S. District Court in this figure refer
to the U.S. District Court for the District of Nevada.
Appendix III
Discount Plans Have Been Marketed as Health Insurance in Some States
Plans that provide reduced rates for selected medical services rather than
comprehensive health insurance benefits are known as discount plans. These
plans are not health insurance as they do not assume any financial risk.
Discount plans were marketed in most states. However, in some states,
discount plans were inappropriately marketed by using health insurance
terms and these misrepresented plans were targeted to small employers.
Overview of Discount Plans
Discount plans charge consumers a monthly membership fee in exchange for a
list of health care professionals and others who will provide their
services at a discounted rate. Because they do not assume any financial
risk or pay any health care claims, discount plans are not health
insurance. Most often, these plans provide discounts for such services as
physicians, dental care, vision care, or pharmacy. Some may also provide
discounts for services provided by hospitals, ambulances, chiropractors,
and other types of specialty medical care. The discounts offered and
monthly fees vary by plan. For example, a consumer may pay $10 per month
to a discount plan for access to lower cost dental services. A dentist
participating in the discount plan may charge plan members 20 percent less
than nonmembers. Therefore, if the fee is typically $60 for a dentist to
perform certain procedures that help prevent disease-for example, removing
plaque and tartar deposits from teeth-the plan member will pay a
discounted fee of $48 to the dentist.
Most state insurance departments do not regulate discount plans because
they are not considered to be health insurance. None of the insurance
departments in the states that we reviewed-Colorado, Florida, Georgia, and
Texas-regulated discount plans. Thus, according to a state official, while
state insurance departments might be aware that discount plans operated
within their borders, they would not necessarily be able to quantify the
extent to which they exist. When consumers complain about discount plans
in Colorado, for example, the insurance department refers the complaints
to the Attorney General.1
1To alert consumers to discount plans, the Colorado insurance department,
along with the Colorado Attorney General, issued a joint publication
highlighting purchasing tips and potential problems-Colorado Division of
Insurance and the Colorado Attorney General, "Discount Health Plans, What
Consumers Should Know About Discount Health Plans," October 2002.
Appendix III Discount Plans Have Been Marketed as Health Insurance in Some
States
State officials indicated that discount plans are not problematic as long
as companies market and advertise these plans accurately and consumers
understand that these products are not health insurance. Advertisements
for discount plans can be found on the Internet, through infomercials on
television, on the radio, in local newspapers, on signs posted along
roadways, in unsolicited "spam" e-mails or faxes, and in direct marketing
and mailings. According to state officials, discount plans have positive
and negative aspects. They said that discount plans can save some money
for people who do not have health insurance and who know they will be
using health care services. In addition, they said consumers can use these
plans to augment health insurance policies providing only catastrophic
coverage. However, they said that consumers needed to understand that
using discount plans can result in higher out-of-pocket costs than typical
health insurance. For example, getting a 20 percent discount on
heart-bypass surgery at the average U.S. charge could still cost an
individual about $40,000 out-of-pocket. Furthermore, it can be difficult
for consumers to determine if providers are actually giving them a
discount, as most providers do not list their charges.
Discount Plans Discount plans were sold in most states. About 78 percent
of the states
responding to our survey (40 of 51 states) reported that discount
plansMisrepresented in were sold within their borders from 2000 through
2002. (See table 5.) Most Some States states that reported discount plans
were sold within their borders also
reported that these plans were not marketed as health insurance. Most of
the states that reported discount plans from 2000 through 2002 did not
indicate any problems with how they were advertised.
Appendix III Discount Plans Have Been Marketed as Health Insurance in Some
States
Table 5: States' Experience with Discount Plans, 2000-2002
Number States' experience with discount plans of states
Discount plans were sold
o Plans were not marketed as health insurance
o Plans were sometimes marketed as health insurance
o Plans were sold but states did not know if the plans were marketed as
health insurance or states did not provide information
Subtotal
Discount plans were not sold
States either did not know if discount plans were sold or did not provide
information
Total
Source: GAO analysis of data reported by states.
Fourteen states reported that discount plans were misrepresented as health
insurance to some degree.2 For example, the Texas insurance department
reported that it reviewed discount plans' advertising materials that
consumers and insurance agents brought to its attention. According to a
state insurance department official, one issue that repeatedly arose with
the marketing materials that the state reviewed was that some discount
plans were inappropriately advertised as "health plans," as "health
benefits," or with some other phrase similar to insurance. Furthermore,
this official said that many discount plans had been marketed in Texas.
Connecticut officials, however, were aware of only one discount plan, an
out-of-state entity, which inappropriately advertised in the state as a
"medical plan" providing affordable health care to families and
individuals. The state officials reported that they did not know whether
any Connecticut residents had subscribed. Utah officials reported that
insurance terms were inappropriately used-for example, all preexisting
conditions were immediately accepted and everyone was accepted regardless
of medical history. According to Utah officials, advertisements did not
usually state that they were discount plans and not health insurance, but
when they did, the print was small and was hard to read.
2The 14 states were Alabama, Arkansas, Connecticut, Indiana, Maine,
Missouri, Nebraska, Oklahoma, South Carolina, Tennessee, Texas, Utah,
Washington, and Wyoming.
Appendix III Discount Plans Have Been Marketed as Health Insurance in Some
States
As with unauthorized entities, small employers may be particularly
vulnerable to discount plans that are misrepresented as insurance.
Officials in 8 of the 14 states that reported discount plans were
misrepresented as insurance also reported that the discount plans were
marketed to small employers. These eight states were Maine, Nebraska,
Oklahoma, Tennessee, Texas, Utah, Washington, and Wyoming.
Appendix IV
Consumer Alert Developed by the National Association of Insurance Commissioners
In the fall of 2001, NAIC developed a consumer alert to help prevent
unauthorized entities from operating. This alert is intended to be a model
states can use to help inform the public about these entities. NAIC
distributed the consumer alert to all the states and also made it
available on its Web site. The alert provides tips that consumers can
follow to help protect themselves from the entities and sources to contact
for additional information about these entities. (See fig. 5.)
Appendix IV
Consumer Alert Developed by the National
Association of Insurance Commissioners
Figure 5: Consumer Alert from NAIC
Source: Reprinted with permission from NAIC. Further reprint or
redistribution is strictly prohibited.
Appendix V
Department of Labor Memorandum and Insurance Tips for Small Employers
On August 6, 2002, the Secretary of Labor sent a memorandum to over 70
business leaders and associations asking them to distribute insurance tips
for small employers to follow when they purchased health insurance for
their employees.1 Because, according to the Secretary, "scam artists" were
aggressively targeting small employers and their employees, the Secretary
advised small employers to take extra precautions when obtaining health
care coverage. The tips, entitled "How to Protect Your Employees When
Purchasing Health Insurance," informed small employers that, among other
things, they should verify with a state insurance department whether any
unfamiliar companies or agents were licensed to sell health benefits
coverage. DOL has updated these tips and makes them available on its Web
site. Figure 6 includes the current version of DOL's tips.
1DOL sent the memorandum to such groups as the Independent Insurance
Agents of America, National Association for the Self-Employed, National
Federation of Independent Business, National Restaurant Association,
Society of Professional Benefit Administrators, and the U.S. Chamber of
Commerce.
Appendix V Department of Labor Memorandum and Insurance Tips for Small
Employers
Figure 6: Insurance Tips for Small Employers
Source: DOL.
Appendix VI
Comments from the Department of Labor
Appendix VI
Comments from the Department of Labor
Appendix VI
Comments from the Department of Labor
GAO's Mission The General Accounting Office, the audit, evaluation and
investigative arm of Congress, exists to support Congress in meeting its
constitutional responsibilities and to help improve the performance and
accountability of the federal government for the American people. GAO
examines the use of public funds; evaluates federal programs and policies;
and provides analyses, recommendations, and other assistance to help
Congress make informed oversight, policy, and funding decisions. GAO's
commitment to good government is reflected in its core values of
accountability, integrity, and reliability.
Obtaining Copies of GAO Reports and Testimony
The fastest and easiest way to obtain copies of GAO documents at no cost
is through the Internet. GAO's Web site (www.gao.gov) contains abstracts
and fulltext files of current reports and testimony and an expanding
archive of older products. The Web site features a search engine to help
you locate documents using key words and phrases. You can print these
documents in their entirety, including charts and other graphics.
Each day, GAO issues a list of newly released reports, testimony, and
correspondence. GAO posts this list, known as "Today's Reports," on its
Web site daily. The list contains links to the full-text document files.
To have GAO e-mail this list to you every afternoon, go to www.gao.gov and
select "Subscribe to e-mail alerts" under the "Order GAO Products"
heading.
Order by Mail or Phone The first copy of each printed report is free.
Additional copies are $2 each. A check or money order should be made out
to the Superintendent of Documents. GAO also accepts VISA and Mastercard.
Orders for 100 or more copies mailed to a single address are discounted 25
percent. Orders should be sent to:
U.S. General Accounting Office 441 G Street NW, Room LM Washington, D.C.
20548
To order by Phone: Voice: (202) 512-6000 TDD: (202) 512-2537 Fax: (202)
512-6061
To Report Fraud, Contact:
Web site: www.gao.gov/fraudnet/fraudnet.htmWaste, and Abuse in E-mail:
fraudnet@gao.gov Federal Programs Automated answering system: (800)
424-5454 or (202) 512-7470
Public Affairs Jeff Nelligan, Managing Director, NelliganJ@gao.gov (202)
512-4800 U.S. General Accounting Office, 441 G Street NW, Room 7149
Washington, D.C. 20548
Presorted Standard
Postage & Fees Paid
GAO
Permit No. GI00
United States
General Accounting Office
Washington, D.C. 20548-0001
Official Business
Penalty for Private Use $300
Address Service Requested
*** End of document. ***