Sales of “Full Coverage” Health Insurance Plans Lead to Big Bills & Lawsuits

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Jul 15, 2021

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Unscrupulous health insurance companies have taken advantage of recent changes in Obamacare regulations to market policies that provide illusory coverage of medical expenses. Misleading marketing practices encourage consumers to believe that they are purchasing all the coverage that Obamacare requires. Deceived consumers only realize the truth when companies refuse to pay hospital and doctors’ bills.

Consumers who believed they were purchasing comprehensive coverage are stunned when “junk insurers” deny claims for expensive healthcare, leaving them burdened with unexpected medical debt. Defrauded consumers who thought they were paying for full coverage often face financial ruin.

Consumers who have been victimized by health insurers are turning to the courts for a remedy. Attorneys who handle consumer fraud lawsuits help families pursue justice when their medical expenses are unpaid because of short-term health insurance fraud.

Coverage Limitations of Short-Term Health Insurance Policies

Recent amendments to Obamacare regulations have expanded the availability of health insurance policies that do not provide comprehensive coverage. While the Affordable Care Act (Obamacare) generally requires insurers to provide full healthcare coverage and to renew policies as long as premiums are paid, the law created an exception for “Short-Term Limited Duration Insurance” (STLDI).

A three-month, nonrenewable STLDI policy was meant as a low-cost stop-gap for people who are between jobs and thus between employer-provided health insurance policies. When consumers need coverage for more than three months, Obamacare made subsidies available that would make full coverage affordable for low-income consumers who do not receive employer-provided health insurance.

To reduce the costs of short-term insurance, the Affordable Care Act (ACA) did not require an STLDI policy to meet all of the mandates that Obamacare places on health insurance coverage. The ACA does not require short-term health insurance policies to cover preexisting conditions. Coverage can be denied (and is sometimes denied “retroactively” after premiums are paid) to applicants who have certain disqualifying health conditions.

STLDI policies can also limit the payment of benefits and the number of covered doctor visits. For example, one plan paid less than $12,000 toward heart surgery expenses of almost $212,000. Short-term policies typically have much higher deductibles than ACA-compliant policies.

Importantly, STLDI policies are not required to cover all essential health services. Most STLDI policies do not cover prescription drugs, mental health services, or substance abuse treatment. The policies rarely cover maternity care.

STLDI Expansion

Despite the intent of the ACA to allow STLDI only as “stop-gap” coverage, the Trump Administration recently enacted regulations that allow companies to sell STLDI policies with terms of up to one year. Companies may also provide an option to renew the policy for as long as three years. The expanded availability of short-term health insurance policies has encouraged unscrupulous insurance companies and brokers to market the policies as if they are a substitute for the full insurance coverage that Obamacare requires.

Obamacare was premised on the belief that everyone who can afford it should pay for coverage so that affordable healthcare is available to all. The Trump Administration touted STLDI policies as providing less expensive coverage for healthy people. But even healthy people face the risk of serious illness or injury at any moment.

Purchasers of STLDI policies are often shocked to learn that full benefits are unavailable when they need them. They are just as surprised when their premiums skyrocket or their policies are retroactively cancelled because they make claims for payment of expensive medical bills.

The Congressional Budget Office (CBO) warned that the expansion of STLDI policies would cause unwitting consumers to purchase insurance that does not cover high-cost medical services provided by hospitals and medical specialists. It turns out that the CBO seriously undercounted the number of consumers who, thanks to fraudulent marketing practices, would purchase STLDI policies in the belief that they were buying full insurance.

Misleading Marketing

The former CEO of Health Insurance Innovations (HIIQ) told the news media in 2014 that STLDI policies provide coverage at half the cost of Obamacare. When they emphasize low cost, companies like HIIQ create the illusion that STLDI policies provided the same coverage as ACA-compliant policies. The companies do not always explain that the cost is low because benefits will not cover all the care that a health crisis might require.

Consumers have sued HIIQ and other companies for marketing STLDI policies as if they provide full coverage. While HIIQ contends it did nothing wrong, consumers regularly complain that brokers selling policies for HIIQ and similar companies promised or implied that they would receive comprehensive coverage. Patients only learn the truth when claims for payment of expensive medical bills are denied, sometimes followed by cancellation of their coverage.

According to the Georgetown University Health Policy Institute (GUHPI), consumers who search online for plans that comply with Obamacare are usually directed to companies offering STLDI plans. Those websites typically market STLDI policies as if they Obamacare policies rather than exceptions to Obamacare. The GUHPI reports that “websites and brokers often fail to provide consumers with the detailed plan information necessary to inform their purchase.”

One of the most egregious offenders, Florida-based Simple Health Plans, engaged in deceptive marketing that the Federal Trade Commission condemned as “a classic bait-and-switch scheme designed to trick consumers into paying hundreds of dollars for substandard products under the pretense that they are actually receiving comprehensive health insurance.” The company hired telemarketers who falsely claimed to be licensed insurance agents.

A judge agreed with the FTC that Simple Health Plans and its affiliates fraudulently marketed “limited benefit plans” and membership in medical discount programs as if they were major medical coverage. The judge concluded that the companies misled consumers who believed they were buying comprehensive insurance that would cover pre-existing medical conditions, prescription drugs, and full medical care.

While the judge entered a temporary restraining order that put a halt to the operations of Simple Health Plans and its associated companies, experts are convinced that similar fraudulent insurance schemes are widespread. North Dakota’s Insurance Commissioner recently warned that there are “many bad actors that are looking to take advantage of consumers as they explore their health insurance options.”

Lawsuits Protect Consumers Who Are Victimized by Insurance Fraud

State and federal laws protect consumers from insurance fraud. Consumer protection lawyers have filed lawsuits across the nation against companies and brokers that deceptively market short-term health insurance as if they provide full coverage and then deny payment of claims.

Lawsuits have been based on the federal Racketeer Influenced and Corrupt Organizations Act, state laws that prohibit unfair and deceptive trade practices, and breach of the contractual duty of fair dealing. The lawsuits seek remedies from short-term insurers, the brokers who market their policies, and the third-party administrators that deny claims. In many cases, all of those parties work together to cheat consumers who purchase STDLI policies.

Consumers who have purchased short-term health insurance plans, medical discount plans, or other products in the belief that they were paying for comprehensive coverage should speak to a lawyer who handles consumer fraud lawsuits. Remedies may be available that will help consumers who are struggling with unpaid medical debt because their insurance claims were denied or their policies were retroactively cancelled.

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