The  number of such entities newly identified each year grew from 31 in 2000 to  60 in 2002. Of the 144  unique entities, the states identified 77 entities that DOL did not, DOL  identified 40 that the states did not, and both the states and DOL identified  another 27. 1.) Seven states had  25 or more entities that operated during this period; 5 of these states were  located in the South. 2.) Unauthorized Entities Covered Thousands of Employers and Policyholders, Leaving Hundreds of Millions of Dollars in Unpaid Claims

At least 15,000 employers, including many small employers, purchased  coverage from unauthorized entities, affecting more than 200,000  policyholders from 2000 through 2002. At the time of our 2003 survey, DOL and states  reported that the 144 entities had not paid at least $252 million in medical  claims, and only about 21 percent of these claims, about $52 million, had  been recovered on behalf of those covered by these entities. States most often identified unauthorized entities  operating within their borders through consumer complaints. DOL often relied on states to stop unauthorized entities through  cease and desist orders while it conducted investigations, usually in  multiple states, to obtain the evidence needed to stop these entities’  activities nationwide through the courts. States and DOL Alerted the Public and Used Other Methods to Help Prevent Unauthorized Entities from Continuing to Operate

To help prevent unauthorized entities from continuing to operate, officials  in the insurance departments we interviewed in four states—Colorado,  Florida, Georgia, and Texas—took various actions to alert the public and to  inform insurance agents about these entities. These states have also taken other actions to increase  public awareness. 3.) A national association representing agents and  brokers and many state insurance departments distributed this alert. DOL Alerted Employer Groups and Provided Guidance and Assistance to States and Others

DOL primarily focused its efforts to prevent unauthorized entities from  continuing to operate on employer groups, small employers, and the states. DOL, NAIC, Florida, and Texas provided written  comments on the draft. Methodology for Identifying Unauthorized Entities

To identify the number of unique unauthorized entities nationwide from  2000 through 2002 and to obtain information, such as the number of  employers covered and unpaid claims, pertaining to each of these entities,  we obtained and analyzed data from state and federal sources. We obtained  state-level data through a survey we sent to officials located in insurance  departments or equivalent offices in all 50 states and the District of  Columbia and federal-level data from the Department of Labor’s (DOL)  Employee Benefits Security Administration (EBSA).
Why GAO Did This Study

Health insurance premiums have increased at double-digit rates over the past few years. While searching for affordable options, some employers and individuals have purchased coverage from certain entities that are not authorized by state insurance departments to sell this coverage. Such unauthorized entities--also sometimes referred to as bogus entities or scams--may collect premiums and not pay some or all of the legitimate medical claims filed by policyholders. GAO was asked to identify the number of these entities that operated from 2000 through 2002, the number of employers and policyholders covered, the amount of unpaid claims, and the methods state and federal governments employed to identify such entities and to stop and prevent them from operating. GAO analyzed information on these entities obtained from the Department of Labor (DOL) and from a survey of the 50 states and the District of Columbia. GAO also interviewed officials at DOL headquarters, at three regional offices, and at state insurance departments responsible for investigating these entities in four states--Colorado, Florida, Georgia, and Texas.

What GAO Found

DOL and the states identified 144 unique entities not authorized to sell health benefits coverage from 2000 through 2002. The number of entities newly identified increased each year, almost doubling from 31 in 2000 to 60 in 2002. Many of these entities targeted employers and policyholders in multiple states, and, of the seven states with 25 or more entities, five were located in the South. DOL and the states reported that the 144 unique entities (1) sold coverage to at least 15,000 employers, including many small employers; (2) covered more than 200,000 policyholders; and (3) left at least $252 million in unpaid medical claims, only about 21 percent of which had been recovered at the time of GAO's 2003 survey. States and DOL often identified these entities based on consumer complaints. DOL often relied on states to stop these entities within their borders while DOL focused its investigations on larger entities operating in multiple states and, in three cases, obtained court orders to stop these entities nationwide. Most of the states' prevention activities were geared to increasing public awareness and notifying the agents who sold this coverage, while DOL focused its efforts on alerting employer groups and small employers. In commenting on a draft of this report, DOL, the National Association of Insurance Commissioners, Florida, and Texas highlighted their efforts to increase public awareness, coordinate investigations, and take enforcement actions regarding these entities.