More Fake Insurance

Individuals seeking relief from high health insurance premiums will often look for alternatives that are nothing more than a sham.

If someone offered you filet mignon for $0.99 per pound you would be suspect. But for some reason when a similar "deal" is presented in health insurance some see nothing wrong.

Gerald Rising Jr., 59, owner of Centennial-based Rural Health Plans Initiative, will be arrested on appearance today and faces up to 20 years' imprisonment and potentially millions in fines, according to U.S. Attorney John Walsh.

Rising sold himself and his company as a third-party administrator for small nonprofits and private companies that had trouble finding affordable health insurance for employees. He signed up a number of school districts, small-town administrations, nursing companies and others, and promised to handle their claims and provide backup insurance for catastrophic illnesses.

Last summer and fall, many of those businesses began hearing that their claims with hospitals and doctors had never been paid.

Self funded plans are not subject to state regulation or typical safeguards usually associated with fully insured plans. This is not a bad thing, as there are significant legitimate cost savings from self funding. But with little direct oversight there is always a potential for dishonesty.

The indictment, from a federal grand jury late Monday, says Rising mixed self-funded premiums from many clients into central accounts, contrary to trust agreements. It says Rising promised that the self-funded plans had backup insurance he bought from companies such as Lloyd's of London that would begin at a $25,000 claim, but his reinsurance started at $125,000.

The only thing uncommon in a scam like this is that they had any reinsurance. Many times reinsurance is never purchased leaving claims to be paid out of any fund assets. The reinsurance should cover claims excess of the self insured retention level.

Of course that doesn't help those with claims below the threshold.

Here is a warning to agents and brokers who offer self funded plans. You can expect to be named as a party in interest to any legal action.

Ouch.

Some cases, like the AIM Health Plan, are obvious scams. Others, like this, are run in such a way that brokers would have no way of knowing there was something wrong until they get complaints about claims not being paid.

There are no winners when these things come crashing down.