New York officials are examining the marketing practices of companies selling limited benefit health insurance plans in the state, after fining one company $700,000 for violations of state insurance law.

David Paterson

Gov. David A. Paterson said the crackdown has begun because people buying these plans are often misled into believing the plans are comprehensive health plans.

The New York State Insurance Department plans to hold public hearings in September to determine if tighter regulations are needed or if the products should be banned in the state. The insurance department already directed insurance companies selling limited benefit plans in New York to provide information about those plans and sales.

The case against American Medical and Life Insurance Co. began after New York officials began receiving complaints about treatments going uncovered, they said.

In addition to paying a fine, AMLI was prohibited from selling its limited benefit products in New York. The insurer also was forced to pull its nationwide television commercial, which state officials said was its main marketing tool.

AMLI is licensed to sell limited benefit plans, along with life and health policies, in 38 states and the District of Columbia, New York officials said.

‘Taking advantage’

In at least one case, an insurance agent provided misleading information to a client about what AMLI’s limited benefit plan would cover, officials said. In another instance, officials said, the agent selling the policy was not licensed to sell policies in New York.

Paterson said the concern over limited benefit plans has increased as the number of state residents without health insurance – an estimated 2.5 million – rises as a result of employers eliminating the jobs of workers whose coverage they provided.

“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,” Paterson said in a statement. “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.”

Limited benefit health insurance plans normally provide less than comprehensive hospital/medical coverage, but become attractive to consumers searching for affordable coverage, officials said. The coverage often leaves consumers with large medical bills.

Kermitt J. Brooks, acting insurance superintendent in New York, said the governor directed his office to investigate the situation.

Brooks said New York “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 cover.”

Company’s consent

In the AMLI case, the company agreed to discontinue all of its limited medical benefit group policies in New York; convert terminated group policies to individual policies upon request; work with state officials to resolve consumer complaints; retain an independent outside counsel to review its operation and make specific recommendations for changes; and prepare a compliance monitoring plan to ensure compliance with applicable laws and regulations.

AMLI sold thousands of limited benefit plans to New York residents using unlicensed agents employed by telemarketing firms located in New York and Florida, authorities said. The company used a written policy application form containing disclosures about limitations of coverage, but conducted many New York sales over the Internet and phone, where staff failed to use the approved application form.

The company sold many of its policies as group coverage through an association known as the National Congress of Employers, which state regulators say violated New York law because the association was not formed and maintained for a primary purpose other than selling insurance.

It also conducted a nationwide marketing campaign through an intermediary called Cinergy Health Inc., that violated state law by creating the misleading impression that the limited benefit plan offered major medical or comprehensive coverage, officials said. That campaign continued nationally, even after New York officials prohibited from being used in the state, officials added.

Various complaints

In one complaint about AMLI officials said 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 was forced to pay in full after the insurance department intervened.

In another case, a young man suffered a stroke at the age of 36. After AMLI paid only $250 toward his medical bills, the insured had to pay a total of $29,917.04. New York officials got AMLI to pay in full.

In a third case, New York officials said a man received misleading coverage information from an insurance agent, then 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. Regulators got AMLI to pay in full.

Another unnamed company has halted sales of its limited benefit plans while regulators investigate its practices, Brooks said.