Minnesota’s attorney general has filed lawsuits against two Texas-based companies she said exploited thousands of residents who have difficulty finding affordable health insurance by selling them “health discount” plans.

Lori Swanson

Lori Swanson announced the suits against Direct Medical Network Solutions, which operates out of Southlake, Texas, and Association Healthcare Management, doing business as Family Care, operating out of Houston. The suits seek injunctive relief, restitution for consumers and civil penalties.

Swanson said both companies deceptively marketed and sold limited health discount plans to Minnesota consumers, often representing their product as traditional or comprehensive health insurance, but offering limited discounts at select health care providers.

“With insurance premiums rising and health care reform stalled, health discount plans are filling the void,” Swanson said in a statement. “The problem is they don’t provide the financial protection people need if they get sick.”

Both Direct Medical and Family Care are for-profit companies that were given an “F” rating by the Better Business Bureau, according to Swanson’s office.

The suits allege that both companies used terms including “coverage,” “deductable,” “co-pay” and “premium” to confuse consumers into believing they were purchasing health insurance. The companies also represented to consumers coverage of 80% of medical expenses and a vast network of doctors and hospitals, the suit said, when they simply offer discounts for a narrow number of providers.

Swanson claims both companies used “limited time” offers to persuade customers to purchase their products or that there were a limited number of policies.

Both companies generally refused to send written materials for consumer review prior o purchase and when the materials arrived, consumers often quickly cancelled the plans, officials said.

Within the first month, 58% of Direct Medical’s Minnesota customers cancelled their plans and more than 95% of the 1,216 state consumers who signed up since 2007 have also cancelled. More than 90% of the 3,411 Minnesota customers of Family Care have also cancelled since 2004, with 38% canceling in the first month.