A Riverside, Calif., couple selling HMO and PPO products to labor union members were barred from ever doing business again in the state after allegedly collecting premiums from members, but never forwarding the money to an insurer.

The California Department of Managed Health Care announced the ban against the Contractors and Merchants Association and its operators, Raymond and Jean Palombo.

The pair were permanently barred by and administrative law judge from selling health plans under the jurisdiction of the DMHC, following a cease and desist order issued by the department earlier this year for operating an unlicensed health plan.

The DMHC alleged that CMA conspired with a purported labor union over the past two years, soliciting nearly 500 California members by offering guaranteed issue health coverage. CMA is accused of collecting premiums, but not paying them consistently to Kaiser, jeopardizing the continuation of coverage.

The department also discovered the Palombos controlled similar operations in at least six other states, leaving consumers across the country with large unpaid medical bills and without health coverage. The Palombos have faced similar bans in states including Texas, Georgia, Nebraska, Florida, Oklahoma, and North Carolina, DMHC said.

The investigation began with a consumer complaint in 2007 from an enrollee objecting to the union membership requirement to obtain health coverage. DMHC found potential enrollees were being solicited over the Internet and by licensed brokers.

The license of a Southern California insurance broker responsible for selling the union contract to Kaiser received an 18-month suspension from selling products under DMHC. Earlier this year, the DMHC worked with Kaiser to convert customers involved in the alleged scheme into individual policies at the same rate as those paid to CMA small group policies.

Kaiser also continued CMA coverage throughout the DMHC investigation, despite not receiving premium payments for months at a time, the department said.

“It is critical that we protect healthcare consumers from phony, Madoff-like scams that take their scarce dollars and leave them without insurance coverage,” said Cindy Ehnes, director of the DMHC, in a statement. “We shut down this particular operation before Californians were severely harmed, and with Kaiser’s support, got them into secure coverage. Our action sends the message that fraudulent health coverage rip-offs will not be tolerated by this administration.”