Tell-Tale Signs of a Questionable Health Insurance Plan

There are three kinds of health care plans that provide incomplete coverage in the event of a catastrophe such as a car accident, heart attack or a major disease diagnosis.

Health discount cards are one. Limited-benefit plans are another. A third are fraudulent plans in which a company collects as much money as possible up-front from people, then disappears.

In some cases, the company may even pay out small claims in the beginning, so it can continue to collect big premiums before the owners make their exit.

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Here are several tell-tale signs that you could be dealing with a health plan that fits one of these scenarios:

If the plan's costs are far lower than other providers' costs, it is unlikely to be a full-benefits plan. Most mainstream insurance company rates cluster around the same price.

If you're told pre-existing conditions are no problem and the company will "not ask questions," that's suspicious. Same thing if you are told you are "guaranteed" coverage. How good can the coverage be if they don't vet the customers at all?

If the company tells you that it is exempt from state insurance licensing requirements, proceed with extreme caution. There are a handful of companies that are allowed to provide insurance under an agreement with the U.S. Department of Labor, but it is unusual and usually unavailable to individuals.

If you hear about the health plan via spam e-mail, unsolicited fax, telemarketing, a cheap-looking TV commercial or a flier on a telephone pole, run. Reputable insurance companies rarely use such marketing methods.

More Signs to Consider

If you are told you can get a union health insurance plan, even though you are not in the union, that's a bad sign. Many phony unions and associations are set up for the purpose of hawking health care coverage. That practice is not even legal in some states.

If a salesperson tries to get you to commit by phone or e-mail without your reading the policy paperwork, that's also bad.

Many phony or questionable health care plans avoid the word "insurance" because often they are not offering an insurance product, and they are trying to avoid the wrath of state insurance commissioners.

If the salesperson won't tell you the providers up-front, be skeptical. If he or she will, call those providers to verify.

If you are still unsure whether a health care plan provider is legitimate, contact your state insurance commissioner. The National Association of Insurance Commissioners has links to every state agency. Check to see if the company is licensed in your state, and ask whether it has a long or ugly complaint record.