TAKES ACTION AGAINST MISLEADING SALES OF LIMITED BENEFIT HEALTH INSURANCE PLANS
Health Insurer Fined $700,000 for Misleading Sales Practices; Insurance
Department Blocks Sale of Limited Benefit Health Plan
Governor David A. Paterson announced
today that New York is cracking down on companies that sell limited benefit health
insurance plans in ways that mislead people into believing they have full heath
insurance coverage. As a result, the New York State Insurance Department has moved
to protect New Yorkers by stopping one company from selling the product in New
York and from advertising nationally and is examining the marketing practices
of all companies selling this product.
"Many New Yorkers are desperate
for affordable health insurance. More than 2.5 million have no coverage, and with
tens of thousands losing their jobs, that number is growing. Unfortunately, some
businesses are taking advantage of that need to sell limited health insurance
in ways that mislead consumers into believing they are getting full coverage.
If they get seriously ill, consumers who buy this product can find themselves
with huge bills they are unable to pay. New York will not allow disreputable businesses
to take advantage of consumers," Governor Paterson said.
"At Governor Paterson's
direction, the Insurance Department has taken a number of steps to protect consumers,"
Acting New York State Insurance Superintendent Kermitt J. Brooks said. "Especially
in this economic climate, we will not allow consumers to be twice victimized -
first by paying for insurance that covers much less than they were told it would,
then by having to pay thousands more for the health care that insurance did not
Governor Paterson announced the Department fined
one company, American Medical and Life Insurance Company (AMLI), $700,000 for
numerous violations, and imposed new restrictions on the company. The company
can no longer sell its limited benefit products in New York, and has been forced
to pull its nationwide television commercial.
The commercial was the company's main marketing tool.
"We are working to help
AMLI customers and we urge anyone who has had a problem to call the Insurance
Department so that we can help," Brooks said, noting that the company is now cooperating
with the Department.
Brooks said AMLI agreed to:
- Discontinue all
of its limited medical benefit group policies in New York;
- Offer to
convert terminated group policies to individual policies upon request;
Fully cooperate with the Department in resolving customer complaints;
Retain an independent outside counsel to review its operations and make specific
recommendations for changes; and
- Prepare a compliance monitoring plan
to ensure compliance with applicable laws and regulations.
benefit health insurance plans normally provide less than comprehensive hospital/medical
coverage, but with healthcare bills being the leading cause of personal bankruptcy
filings nationally, many consumers searching for affordable coverage buy limited
benefit health plans as one way to insure against potential liability. Limited
benefit health plans may leave consumers with large medical bills. If injury or
illness occurs and an insured files a claim, they may find that they have less
coverage than they thought (see Appendix A for comparisons).
of complaints received by the Insurance Department about AMLI's coverage illustrates
- A Rochester-area woman purchased health insurance from
a telemarketer and agreed to have the $419 a month premiums paid by automatic
charges to her credit card. She was provided no written documents spelling out
details of the coverage. Soon afterward, she needed hospitalization, which cost
nearly $28,000. It turned out the policy, sold by an agent unlicensed in New York,
paid only $1,164 of the expenses. AMLI paid in full only after the Department
- A young man suffered a stroke at the age of 36. AMLI paid only $250 toward his medical
bills. The insured had to pay a total of $29,917.04.
- A woman went
to the emergency room with stomach pains and a day later received an appendectomy.
AMLI paid $1,416.10, leaving the insured a balance of $19,437.59.
being given misleading coverage information by an agent, a man purchased a limited
medical benefit plan from AMLI. He understood, and the information sent to him
indicated, that the plan required a $10 co-pay for doctors/specialists (10 covered
visits per family member per calendar year) and would pay $25,000 for hospital
inpatient services (100 days maximum per calendar year). Therefore, he was surprised
to find that AMLI only paid $39.65 toward an ENT bill for $237.42 and $250.00
toward an inpatient hospital bill for $3092.73. His total medical bills were $4197.79
and AMLI paid $807.29. With regard to the hospital stay, AMLI contended that the
insured should have known that a $250 per day limit applied to the $25,000 limit
for hospital inpatient services, since the maximum days were limited to 100. AMLI
agreed to pay only after the Department intervened.
- A man bought a limited
medical benefit plan issued by AMLI. When he bought the policy, he was told that
there would be a $20 co-payment for doctor's visits and a $100 co-payment for
emergency room services. He was not made aware of any other limitations on his
benefits and never received a Summary Plan description from the carrier. AMLI
paid less than he expected for two hospital emergency room visits. The first time,
the bill was $1,720.61 and AMLI paid $150. AMLI denied the second claim for $731
saying the emergency room benefit maximum had been met because it was his third
visit to the emergency room that year. Only when he complained to the company
was he told that emergency room benefits were limited to a maximum of two visits
per policy year and a maximum of $150.00 per visit. After the Insurance Department
intervened, the company agreed to pay the remainder of his claim.
actions against AMLI were triggered by an Insurance Department investigation begun
after consumers complained to the Department, Brooks said:
- The Department
investigated American Medical and Life Insurance Company after receiving consumer
complaints about a limited medical benefit plan sold by the company. The company
is licensed to sell this product and other life and health products in 38 states
and the District of Columbia.
- The company describes itself as a "virtual"
insurance carrier, outsourced all underwriting, sales and marketing and claims
handling functions to third parties, and exercised little or no oversight of such
- The investigation revealed that AMLI violated numerous New
York insurance law provisions in its sales and marketing of the limited medical
benefit plan from the fall of 2006 through the fall of 2008:
thousands of limited benefit plans to New York residents using unlicensed agents
employed by telemarketing firms located in New York and Florida.
approval in New York to use a written policy application form that contained important
disclosures about limitations in the coverage, but then conducted its New York
sales via Internet and phone without using the approved application form.
Sold many of its policies as group coverage through an association known as the
National Congress of Employers, which the Department determined violated New York
law because the association was not formed and maintained for a primary purpose
other than selling insurance.
- Conducted a nationwide
marketing campaign through an intermediary called Cinergy Health, Inc. that,
in violation of New York Insurance Law, created the misleading impression that
the limited benefit plan offered major medical or comprehensive coverage.
The company continued to use the misleading advertising as part of its national
marketing campaign, even after the Department had the company stop such marketing
in New York.
Governor Paterson announced further Insurance
- Another insurer has agreed to suspend sales of
a similar product nationally while the Insurance Department investigates its marketing
- The Department will consider whether to propose new regulations
to guarantee consumers are properly informed about just how restricted limited
benefit health insurance plans may be.
- The Department directed insurance
companies to provide information to the Department about any limited benefit health
plans they sell in New York.
- The State will hold public
hearings to determine if the proper course is tighter regulation or banning
the product completely.
In addition to the limitations inherent in
these policies, marketing and sales practices surrounding them may add to the
confusion, Brooks said. Many limited benefit plans are solicited via the Internet
and through television commercials. Some of these advertisements imply the policies
provide comprehensive or major medical coverage. Exclusions and policy limits
are not completely revealed. The sales are completed via the Internet or telephone
without the benefit of a written application, circumventing specific disclosures
that are required by New York Law. The mandatory disclosures are either not provided,
are not prominently displayed or are lost during the sales pitch and thus are
ineffective. Investigations have also revealed that some policies are sold through
telemarketing firms using unlicensed agents, which is in violation of New York
"We will hold hearings
to look at the larger issues surrounding limited benefit health plans," Brooks
said. "Are they being sold properly? Should they be sold at all? What else can
we do to protect New Yorkers? We want to hear what the public thinks about these
Hearings are scheduled for September 21 in New York City, September
24 in Newburgh and September 30 in Rochester. More information on the hearings,
including how to testify, is available at the Insurance Department's website at
Consumers with insurance questions or concerns can call the Insurance Department's
consumer hotline at 1-800-342-3736. The hotline is open from 9 a.m. to 4:30 p.m.
Monday through Friday. Consumers may also ask questions or file complaints at
the Insurance Department's website, www.ins.state.ny.us.
AVERAGE SERVICE COST/AMLI COVERAGE COMPARISON
|Services||New York State Average Cost||American Medical
and Life Insurance: National Congress of Employers Group Plan Coverage|
Hospital Room & Board
$5,516- average daily charge
(*Includes insured & self insured data & excludes Medicare and Medicaid)
(max. 30 days)
Diagnostic Tests-High tech
(MRI, PET, CT, etc.)
$500-$1250 (CT Scan)
$850-$4200 (PET Scan)
(max. 3 test days/yr)
tech (x-ray, lab, etc.)
$83-$1,100 per test
Doctor’s Office Visit
$84-$185 (low to moderate severity)
to high severity)
$200-$355 (moderate to high severity, more complex)
$373-$550 (moderate to high severity, highly complex)
(* Taken from The
Attorney General’s Report “The Consumer Reimbursement System is Code
$100 per visit (max. 5 visits/yr)