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COMMISSIONER'S BULLETIN # B-0008-06
March 10, 2006
TO: THE TEXAS PUBLIC GENERALLY AND ALL PERSONS ENGAGED IN THE BUSINESS OF INSURANCE IN TEXAS
RE: UNAUTHORIZED HEALTH INSURANCE
The Department continues to learn of unauthorized health insurance plans operating in and from Texas and of claims going unpaid by such plans. The Department seeks the help of the public and the insurance industry in combating this problem. The U.S. General Accountability Office has found that more than 200,000 policyholders nationwide over a three-year period have been affected by unauthorized health insurance plans, leaving at least $252 million in unpaid medical claims.
To the public in general, and to small employers particularly, the Department urges caution in purchasing health coverage from any individuals or entities who do not appear as eligible, authorized or licensed on the Department's website, www.tdi.state.tx.us. While federal law has exempted certain employer- and union- sponsored health plans from state regulation, such exemptions do not apply to either individual or bogus "association" health insurance or to alleged "union" health insurance when marketed by companies or agents. Scams are often able to fly under the radar for a period of time by falsely claiming to be legitimate "association" or "union" plans that are exempt from state regulation. The scams usually collect premiums and then shut down when the claims are due.
Accordingly, if you are in the market for health insurance, please beware of red flags such as:
- Advertisements or sales pitches boasting of low rates and minimal concern for health histories,
- Being asked to pay union or association dues solely to obtain health insurance,
- Being required to become an "employee" of an unrelated company solely to obtain health insurance that is not through a licensed carrier,
- A discount plan being marketed as insurance,
- A mass marketed insurance plan that is alleged to not be regulated by the state.
To those in the insurance industry, exercise the utmost due diligence before getting involved with any new health plan. Remember that, if you assist "directly or indirectly" in the procurement of unauthorized insurance, Texas law makes you liable for any unpaid claims. Further, "directly or indirectly" doing the unauthorized business of insurance may be prosecuted as a third degree felony and may also subject you to civil action by the Texas Attorney General or administrative action by the Texas Department of Insurance. In fiscal years 2004 and 2005, the Department's Enforcement Section collected more than $1 million in fines and obtained more than $13 million in restitution in cases involving unauthorized insurance.
Insurance agents are in a unique position to protect Texas consumers and must confirm that health insurance companies are licensed and have actually issued the insurance coverage. Reliance upon the representations of others will not be a defense if the plan is unauthorized. You may be held liable for the unpaid claims. Remember also that federal regulations provide that union health plans are not marketed by insurance agents.
Insurance companies must not issue "stop loss" coverage to associations or to unauthorized multiple employer welfare arrangements (including self-funded staff leasing company health plans). Remember also that any stop loss coverage issued to a plan which covers a Texas-based employer group, regardless of where the employer's "trust" is alleged to have been located, must be through a licensed carrier, and such coverage is not considered "reinsurance."
Third party claims administrators, whether licensed by TDI or not, must also verify the insurance coverage, but are also in a unique position to verify that funds from multiple employers are not being co-mingled (thus creating an unauthorized multiple employer welfare arrangement). In the context of an alleged union, the claims administrator must verify that the health benefit plan is established or maintained under a collective bargaining agreement under the criteria provided under Title 29, Part 2510.3-40 of the Code of Federal Regulations. Note that all health insurance claims administrators operating in Texas are required to either be licensed or to have filed a Notification of Exemption form (if they are only administering federally exempt health plans).
Preferred provider organizations must verify that association, staff leasing, and other unlicensed multiple employer health plans are fully insured with licensed carriers and must verify that alleged "union" self-funded plans meet the criteria of 29 CFR 2510.3-40.
The Department asks that you promptly report any potentially illegal operations described in this Bulletin. Note that it is a violation of the Insurance Code to fail to report suspected fraudulent or unauthorized insurance to the Department.
Questions about licensure may be directed to the Department's Consumer Protection Division at 1-800-252-3439. Suspected fraud may be reported to the Department's Fraud Unit at 1-888-327-8818.
The Department has, in previous years, provided notice on these issues through prior bulletins. More detailed discussion of these issues may also be found in Commissioner's Bulletin's B-0009-02 and B-0032-03, available on the TDI website, www.tdi.state.tx.us.
Sara Shiplet Waitt
Senior Associate Commissioner
Legal & Compliance