As a result of the cost of health insurance, small employers and individual consumers are seeking ways of finding health care coverage that is within their budget. Unfortunately, this environment creates a setting for scams in which criminals market various low-cost fraudulent health plans, often claiming that state insurance laws don't apply. These individuals and their associated companies recruit unlicensed persons and insurance agents to sell so-called "ERISA plans," "union plans” or other purported “legitimate insurance." Claims may be initially paid by these fraudulent plans, however, in many cases people are left with no valid insurance coverage and thousands of dollars of unpaid medical bills, as the scam operators strip premium dollars and leave these fraudulent enterprises bankrupt. Additionally, there has been a proliferation of non-insurance products that are marketed as alternatives to traditional health insurance. While such plans may look like regular insurance, many come with significantly greater risks and fail to provide any savings in healthcare costs.  Some plans may fail to pay any claims and do not in fact provide any insurance coverage at all but are only discount plans.

Traditional Health Insurance - These insurance products are protected by what is called a "guarantee fund" which provides reimbursement for covered services in the event an insurer becomes insolvent. The State has substantial oversight over the financial solvency of insurance carriers. This is one way in which New Jersey State law protects you. If you are looking to buy an insurance or HMO product, you need to make sure the entity is licensed to sell business in New Jersey.

• For a list of carriers licensed to sell individual and small employer (2-50 employees) health insurance coverage

Self-funded Plans - An alternative to an insurance product is a self-funded (or sometimes called a self-insured) plan. A self-funded benefit plan is one in which an individual, employer or union retains a substantial portion of the risk of loss from medical expenses rather than transferring the risk, for a fee, to an insurance company or HMO.

Single Employer Plans - These are benefit plans set up by a single employer, usually a large employer, for its employees. True single employer plans are regulated solely by the federal government. However, fraudulent plan operators often attempt to avoid state regulation by misrepresenting that an arrangement is a "single employer plan," particularly when marketing to small employers. If you have any doubts, contact the NJ Department of Banking and Insurance.

Multiple Employer Plans - In many cases a group of employers may be covered under a self-funded plan. For a group of employers, these arrangements are known as multiple employer welfare arrangements or "MEWAs." These self-funded arrangements are often referred to as "ERISA" plans, named after the federal Employee Retirement Income Security Act, a law that regulates these plans. MEWAs are regulated jointly by the Federal Department of Labor and State insurance departments.

There is no state guarantee fund applicable either to self-funded single employer plans or a self-funded MEWAs. If a MEWA refuses to pay a claim or goes bankrupt, the NJ Department of Banking and Insurance will not be able to provide assistance to ensure that valid claims are paid. A significant number of MEWAs nationally have been unable to pay claims as a result of insufficient funding, inadequate reserves or because of individuals who have drained the MEWA's assets through excessive administrative fees and outright embezzlement.

• More information: MEWAs and the U.S. Department of Labor's enforcement efforts

MEWAs operating in New Jersey - All MEWAs are required file an "M-1" with the U.S. Department of Labor. If you are offered coverage that is not from a licensed insurance company, you should check whether the entity has submitted an M-1 filing.

• Search all MEWAs doing in business in New Jersey that have filed an M-1 (If an entity has not filed an M-1 or if the M-1 contains questionable information you should not purchase coverage)

Further, even if a MEWA has filed an M-1, the filing does not ensure that the entity is operating lawfully and has complied with all federal and state laws. Moreover, an M-1 filing does not ensure that the entity is financially sound. There are many instances of entities filing false, misleading or inaccurate M-1 information. The Department of Banking and Insurance registers all self-funded MEWAs that are permitted to operate in the New Jersey.

• Registered Self-funded MEWAs

A Discount Program is a program under which a subscriber is able to access medical services or supplies at a discounted rate from participating providers, such as doctors and hospitals. While these products are sometimes marketed to look like insurance, they are not insurance programs. If you are not sure whether the product is insurance, you should ask whether a licensed insurance carrier is offering the product and verify this information with the insurance company.

If you do not have health insurance coverage in addition to a discount program, you can be left with a substantial liability for payment to providers. For example, a 10% discount applied to what generally would be $100,000 bill for medical services would still leave a person with a $90,000 liability. While some reputable entities offer discount programs, fraudulent operators are also marketing such services.

Before Purchasing a Discount Program:

• Ask for a list of participating providers
• Contact each provider that you intend to visit
• Find out what the provider normally charges for the services you are interested in receiving.
• Make sure the provider offers the promised reduction in fees.