The Feds Crack Down on Sham Insurance: New Court Order to Protect Consumers from Deceptive Marketing

Last month, the Federal Trade Commission (FTC) took action against yet another entity using deceptive marketing to sell sham insurance. The FTC found Benefytt Technologies relied on deceptive websites to lure individuals shopping for comprehensive coverage and then used high-pressure sales tactics and misleading information to push consumers into enrolling in junk plans. To top it off, the FTC says Benefytt made it hard for consumers to cancel their coverage once they discovered that what they bought didn’t measure up to what they were told.

The FTC’s investigation found that consumers searching online for comprehensive coverage compliant with the Affordable Care Act (ACA) would instead be directed to deceptive websites with names like “Obamacareplans.com.” From there, agents would push plans that lacked the ACA protections, including short-term plans that can exclude coverage for pre-existing conditions and essential services like prescription drugs and fixed indemnity products that set small-dollar caps on coverage.

Same game, not so new player

Benefytt is not new to this game. The FTC complaint maps out the company’s business ties to Simple Health, the target of an FTC action in 2018 for misleading marketing of health plans, and to Health Plan Intermediary Holdings, also caught falsely marketing health plans in an investigation by California regulators.

Nor are their tactics new or unique. In fact, they follow the same high-pressure sales pitches and outright false advertising documented by numerous studies. A CHIR secret shopper study last year found that consumers shopping online for comprehensive coverage were steered nearly every time to junk plans exempt from ACA protections, even though the ACA marketplaces were open for enrollment and American Rescue Plan subsidies made possible comprehensive coverage for as little as $2 a month. That study confirmed findings from an earlier CHIR study, a year-long investigation by the House Energy and Commerce Committee, an undercover investigation by the U.S. Government Accountability Office, and a secret shopper analysis by researchers at Brookings. All had similar results: sales agents push shoppers to buy coverage over the phone without written information about the plans and misrepresent the coverage to be more comprehensive than it actually is.

Limited Relief for Consumers as Long as Junk Plans Are Available

In the FTC case against Benefytt, the company and two of its subsidiaries are required, under a court order, to pay $100 million in refunds to people who bought the sham plans under false pretenses. But that won’t cover their out-of-pocket costs for care not covered under the junk plans. Furthermore, cancelling a limited benefit plan outside of open enrollment does not qualify someone for a special enrollment opportunity for an ACA-compliant Marketplace plan, meaning that many people in these plans could experience a significant gap in coverage.

The FTC and state insurance regulators are going after fraudulent marketers, but they have limited resources and capacity and it’s like a game of whack-a-mole. Deceptive marketing and aggressive sales of junk plans are likely to continue as long as there are junk plans to sell. Commissions paid to agents for sales of junk plans are often greater than those paid for ACA plans, and the profits for plans that pay out little of the premiums they collect mean the financial incentives are too great to rely solely on FTC or state oversight of marketing tactics. At a minimum, federal regulators can put greater restrictions on short-term plans, including limiting their coverage duration and banning sales during open enrollment for ACA plans. States can also prohibit the sale of fixed indemnity products and other forms of sham insurance to individuals. As long as these types of junk plans are widely available, sales agents and companies make far too much money from unsuspecting consumers to be deterred by sporadic enforcement actions.