In the current economic downturn, the number of companies offering fraudulent or spurious health insurance policies is rapidly increasing in the United States. Typically, these unlicensed companies prey on small businesses and self employed people, who are desperate for affordable coverage. Patients and doctors are therefore stuck with unpaid bills and, in the case of patients, possibly damaged credit ratings.
The fraudulent health insurance companies, which should be licensed in the state they operate in, falsely claim that they do not need licensing because they are regulated by the US Department of Labor.
Because these fraudulent companies are not authorised to sell health insurance, consumers are not protected by state guarantee funds that would cover unpaid bills if an insurer flees or files for bankruptcy.
"[The operators] are the most despicable people around," said the US Labor secretary, Elaine Chao.
Fraudulent companies collect premiums, pay few—if any—claims, then leave town. One such example was a company, called Vanguarde. Dwayne Samuels, Vanguarde's president, pleaded guilty in Brooklyn federal court in 2000 to healthcare fraud and was barred for life by the US Department of Labor from having any dealings with employee benefit plans. Yet in 2002 Mr Samuels was apparently back in business, because he was named by the Florida Department of Financial Services in the "cease and desist" order that shut down Vanguarde in that state.
The scams multiply in recessions as more and more people lose jobs and their insurance coverage. The magnitude of the problem forced state and Labor Department officials to form a joint task force in spring 2001 to share data and alert small businesses.
In October 2002, the Florida legislature made the sale of fraudulent insurance a third degree felony punishable by up to five years in jail.
A typical victim of fraudulent insurance was Romulus Voitcu, aged 64, a Florida resident, who had a stroke in 2001. He was in hospital for a week and was then readmitted a month later with complications and remained there for five more weeks. Mr Voitcu started receiving bills and couldn't understand why they weren't being paid, because he thought he had insurance. He had been sold a policy by the Vanguarde company.
He and his wife learned later that Vanguarde wasn't licensed to sell health insurance in Florida and that the state had recently shut the company down. They were victims of a fraud, and worse, are now responsible for $250 000 (£148 000; €212 000) in unpaid medical bills.
"I don't know how this could happen," said Mrs Voitcu, now a widow. "When we first went to the doctors and the hospital, they checked with the insurance company and said they'd cover us. They didn't say the insurance was no good."
"We're very serious about this," said Tom Gallagher, chief financial officer for the Department of Financial Services. "We've shut down 16 entities and taken action against nearly 80 agents. We've gotten more than $110m in restitution from the entities and the agents. We want the word to go out that Florida is not the place to be."