News release

Coalition: Association Health Plans Invite Widespread Scams Of Small Businesses, Consumers


WASHINGTON, D.C., Feb. 13, 2018 — Small businesses and consumers could be victimized by a wave of fake health coverage if Association Health Plans are authorized under a federal agency that is stretched too thin to properly oversee them, the Coalition Against Insurance Fraud warns.

“On their surface, Association Health Plans are well-intended efforts to help small businesses obtain affordable health coverage. But small businesses and their workers will face a large and intolerable risk of fraud,” the Coalition says in a letter to the U.S. Department of Labor.

The Trump Administration is considering authorizing AHPs, and is seeking comments. AHPs would fall under the Labor Department’s purview, and be largely exempt from state insurance regulation. State and federal oversight working in tandem offers the best safety net against fake health plans, the Coalition says.

The Labor Department is overstretched and would have to oversee potentially thousands of AHPs. “This will create a serious oversight vacuum — thus permitting fraud to spread rapidly. Without local state oversight, shady operators will be emboldened to sell bogus health coverage to vulnerable small businesses around the U.S.,” the Coalition writes.

An effective, well-developed system of state insurance regulation already is in place. State insurance departments can shut down fake health plans in just days with emergency orders, while the Labor Department can take years.

A wave of fake AHP operators swept through the U.S. in 2002-2004. They sold fake health plans to more than 200,000 policyholders. The cons exploited a federal oversight vacuum. A crime wave also could exploit the oversight gap under the current AHP proposal.

Many victims were small businesses and consumers desperate for affordable health coverage. The cons stole at least $250 million in premiums and unpaid medical claims. Many victims were forced to pay large hospital bills from their own pockets when fake plans refused to pay up.

“Since that time, states have reinforced their efforts to detect, stop and prosecute these criminal enterprises. The federal government — not so much,” the Coalition noted.

Shared state-federal oversight offers the tightest protection against bogus health plans. “States and the federal government should share oversight as currently exists under the ERISA regulations now in place,” the Coalition urged.

The Coalition Against Insurance Fraud is a nonprofit alliance of consumer groups, insurers and government agencies combatting all forms of insurance fraud.

Matthew J. Smith, Esq., director of government affairs

James Quiggle, director of communications