Health Policy Institute
Testimony before the
National Association of Insurance Commissioners Discount Cards Working Group December 2004
Mila Kofman, J.D. Assistant Research Professor Health Policy Institute, Georgetown University
2233 Wisconsin Avenue, NW Suite 525 Washington, D.C. 20007 (202) 687-0880 Fax: (202) 687-3110 facsimile www.georgetown.edu/research/ihcrp
My name is Mila Kofman and I am an assistant research professor at the Georgetown University’s Health Policy Institute (Institute). I am also one of the NAIC 2004 Designated Consumer Representatives. As a way of background, researchers at the Institute conduct a range of studies on the uninsured problem. My specific focus is private health insurance, state and federal reforms to improve access to health insurance coverage -- this research includes market failures like the proliferation of health insurance coverage scams. Before joining the faculty at Georgetown University, I was a federal regulator at the U.S. Department of Labor. I have written about health insurance issues and have presented on these topics to a wide range of audiences (including testimony before the U.S. Senate Committee on Finance and serving as an expert witness in criminal and civil cases involving insurance market failures like insolvency and fraud). I want to thank you for your leadership in investigating discount medical cards and at looking for ways to better protect consumers. First, I will describe what a discount medical card is and how it works. Then I will discuss problems that have been documented. I will also share with you results of Georgetown’s research, funded by the Commonwealth Fund, on how well some discount programs work. I will conclude by recommending regulatory and legislative action to better protect consumers. Discount Medical Cards: What They Are and How They Work? More and more working Americans are relying on discount medical cards (also called discount health plans and health savings programs). There are different types of discount cards including prescription drug cards and dental/vision cards (which have been around for over a decade). Here, I’m only focusing on discount medical cards. These are relatively new. These discount cards typically promise a discount from all types of providers, including specialists and hospitals. And they promise discounts on different types of services including doctor visits, lab work, and surgical procedures. Unlike discount drug cards or dental cards, discount medical cards are broad in terms of the providers and services they cover. Typically, a company offering a discount card negotiates discounts with provider networks. Unlike health insurance, companies offering discount cards do not pay medical claims of enrolled people. The consumer is responsible for paying the amount of the claim. A consumer pays a monthly fee ranging from $12.99/month to $129/month for a single person (plus a non-refundable administrative fee of as high as a couple of hundred dollars) in exchange for discounts negotiated by the discount card company with providers. To benefit from the negotiated discount, a discount card company typically requires the consumer to pre-pay for care and services either at the time of the visit/service or prior to it. A consumer may authorize credit card payments for monthly fees and for prepayment of medical services. If one does not have a credit card, then some companies offering discount cards actually help the consumer get a credit card. When there is no credit card
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available, a company typically requires an authorization by the consumer to allow the company to withdraw monthly payments from a checking or a savings account. To receive a discounted rate, a consumer must prepay or pay fully at the time of service. One discount health plan I looked at requires a consumer to pay for an escrow account, which it establishes, monies from which are used to pay providers at the time of service. So in addition to the monthly fee paid for the discount card, a consumer must make monthly payments to pre-fund future health care services and pay a monthly fee to maintain an escrow account.
Marketing Companies administering and managing discount cards generally use marketers to sell this product, some of whom are licensed insurance agents. Most sales is through multi-level “network marketing,” similar to pyramid marketing, according to which a marketer recruits others and receives a commission based on sales by others. This can result in significant price differences for the same program. In one case, a discount card offered by one company directly to consumers costs $54.95 per month, while the same card sold by a marketer costs $120 per month for the exact same network and benefits.1 In contrast to insurance agents, generally promoters of discount cards are not licensed or regulated. This means that there are few, if any, standards that apply to the sale of this product or the methods used to sell it. In our research we found that some promoters use high-pressure sales tactics and misleading and in some cases false information to induce consumers to enroll. Promoters solicit business in a variety of ways, including advertisements on television, radio, the internet, fax, and e-mail. Telemarketing has also been a way to sell discount cards. Some associations, retailers, and credit card companies have endorsed or have affiliated with discount card programs. Even churches are not immune. A pastor in Illinois sold discount medical cards to his parishioners. 2
Discount Medical Cards Growing Discount medical cards are growing in prevalence, due to, among other things, high prices and limited access to private health insurance coverage. Some small businesses and individuals have enrolled in discount medical cards after dropping their health insurance due to price hikes. According to Fortune Small Business Magazine, as a result of double-digit premium increases (year after year), many small business owners are dropping health insurance benefits, and instead, are buying discount cards for their workers. Consumers who are uninsurable may also enroll. In marketing material, promoters of discount cards indicate “every one is accepted regardless of past medical history,” “100% approval,” “no underwriting,” “no one can turn you down because you’re too sick or too old” and that monthly rates are no higher for people with medical conditions. Consequently, this makes it an attractive alternative for
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people denied access to private health insurance.
One large on-line broker, in fact, offers a discount card
to people who cannot pass medical underwriting or afford health insurance. Many consumers we have spoken with bought discount cards based on an erroneous belief that these are insurance policies. There are several reasons for this erroneous belief. One, companies selling discount cards use insurance buzz words that can mislead some consumers to believe that a discount medical card is similar to an insurance card. This coupled with a monthly fee as high as a monthly premium for some real health insurance coverage (catastrophic), can also contribute to the confusion. Lack of access to real and affordable health insurance and misleading marketing means that some people are either forced into this product or mistakenly buy it thinking it is insurance. In addition to individuals buying discount cards, as reported recently in Fortune Small Business Magazine, as a result of double-digit premium increases (year after year), many small business owners are dropping health insurance benefits, and instead, are buying discount cards for their workers. If this trend continues, it could undermine the state’s small group market – especially if the market shrinks. The insured market may become too small to sustain itself.
Demographics and data There is no data on how many people are enrolled in a medical discount card or demographic data on those enrolled. One large company reports that nearly 680,000 people have are enrolled in its physician discount program. Another large company reports covering over 81,000 enrollees and $39.3 million in revenue from a discount medical card program. This company reports that its enrollees are uninsured, underinsured, or people with high deductible or limited benefit medical insurance policies. Our Research - testing out medical discount cards sold nationally To test how well medical discount cards work, we identified, enrolled, and tested cards sold nationally. We identified nearly 30 cards, most of which we excluded from our research because a card had a disconnected telephone number, did not offer discounts in the Washington DC area, was not open for new enrollment, or turned out to be an ad for health insurance. We enrolled and tested five cards. In doing so (with few exceptions), we came across several problems such as high-pressure sales tactics, promoters making misleading or inaccurate statements about the nature of the product, exaggerated claims of savings, problems finding participating doctors, and doctors failing to give card holders a discount. One measure of the value of such cards is the amount of discount that a cardholder receives off a provider’s services compared to the amount an uninsured or a cash-paying patient would be charged. To find out how big the discounts might be, we asked providers for their regular price, for the rate if we were paying cash and did not have health insurance (we did not negotiate but merely inquired about rates for
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uninsured), and the rate for discount card members. We chose the following medical events that a person would go to the doctor for: standard annual physical from a physician; a standard annual gynecological visit (with pap test; lab fees were not included in the price) with a gynecologist, and an initial visit to an allergist with testing for allergies (skin test/scratch test) (in DC, many people suffer from allergies). In total, we contacted 43 medical providers; of these 32 providers either did not recognize the card (despite of us following instructions given to us by the card about what to say when we called a provider’s office) or did not accept the discount card. In the case of one discount card, we contacted 12 providers that the discount card company gave us to contact, and of those only one recognized and accepted the card. Only one card had a 100% record on providers giving a discount to cardholders. The level of discount varied between 4% and 36% off provider’s regular rate for the 11 of the 43 providers who gave a discount to cardholders. We were not able to find a provider who gave an 80% discount as two of the five cards promised. In several cases, discounts were available to cash patients without the card. In one case, a provider gave patients without insurance a bigger discount than for discount cardholders. We also experienced cancellation problems with one card. This company tried to persuade us to stay enrolled (offering a free month). The company gave inaccurate information about cancellation procedures and failed to refund our monthly fee (even though there was a 30-day money back cancellation policy). In summary, we found that four of the five discount medical cards we tested offered little value. High cost and low discounts coupled with significant time spent finding a participating provider detracts from any potential value. Of the twenty-seven cards we looked at initially, the price for some was as high as for health insurance policies, e.g., one card’s annual cost for single coverage would have been over $1200 and for family over $1550. Claims of savings by some card programs (80% off) and about a large network of participating providers did not materialize with four of the five cards we tested. Typical savings were minimal. The misrepresentations and in one case perhaps fraud (lack of a provider network) means that more aggressive regulatory actions are needed to better protect consumers and that some consumers may be paying for nonexistent discounts or networks. In addition to specific problems we came across, many of which can be addressed through better regulation and oversight, there are several public policy questions. For policymakers, an important question is one of suitability -- whether this product is suitable for low and moderate-income people. For example, a discount would not be available if one is unable to pay for services at the time of the office visit. This means that benefits under the card may be illusory for low and moderate-income people who could not afford to pay at the time of service. Additionally, exaggerated claims of discounts, e.g., 80% off, also may mean that low-income consumers are mislead into believing that spending money on a discount card will help them afford health care services. Based on the relatively low amount of the
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discount, the availability of cash discounts from some providers, and the requirement to pay fully for services, it is not likely that discount medical cards would help low and moderate-income people to finance basic medical care. And for some, spending limited resources on this product would be a mistake. The issue of suitability should be discussed as regulatory interventions are contemplated. Another public policy question is whether medical discount cards can give people both access to medical care and financial security. Unlike comprehensive insurance, medical discount cards should not be relied on to finance medical care or for financial security.
Other Problems: Fraud and Scams Regulatory loopholes have created an opportunity for criminal behavior. Because discount medical cards are not insurance policies, such products are not regulated like insurance products and the companies who sell discount cards are not subject to the same level of scrutiny as insurers are subject to. There are no comparable federal laws setting standards for discount medical cards. A regulatory vacuum coupled with an expectation by consumers that just like other health insurance, discount medical cards would be regulated, has created virtually unlimited opportunities for criminals. In earlier research on the proliferation of phony insurance companies – a problem that has left over 200,000 policyholders with over $252 million in unpaid medical bills3, there is evidence that some of the same promoters and operators of health insurance scams were getting into the business of selling discount cards.4 They use discount cards as a subterfuge in one of two ways. One, they establish a product they call a “discount plan” that actually pays medical claims (and is not merely providing a discount for services for which a consumer is responsible for paying) and therefore is subject to state insurance law but operates without a license. Or two, promoters collect monthly fees but do not negotiate discounts with providers. In both cases, consumers become victims. In addition, there are various opportunities for marketing scams. The federal government and local law enforcement agencies have become concerned over telemarketing scams associated with discount medical cards. Telemarketers purporting to sell discount medical cards get personal information from unsuspecting consumers, and then inappropriately bill credit cards or make bank account withdrawals. The Federal Trade Commission (FTC) issued a consumer alert warning people against buying a discount card through a telemarketer. Additionally, there have been cases where a company selling discount cards has billed people’s credit card or made withdrawals from a person’s bank account after the consumer had cancelled the discount card. State attorney generals and many insurance commissioners have issued consumer warnings and alerts on discount medical cards. 5
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CONCLUSION It is likely that as the cost of health insurance continues to rise, the numbers of underinsured and uninsured people will continue to grow. Interest in and the prevalence of medical discount cards will also continue to increase. The extent of the impact of medical discount cards on consumers is difficult to see as of yet given the limited information regarding demographics of enrollees and data on savings. Based on our experience, we found no value with four of the five cards we enrolled in. In light of the significant types and number of problems with many cards -- as reported to state investigators and as our research team experienced, encouraging consumers to buy such cards as a way to finance medical care may be premature. Furthermore, given the numerous problems consumers have experienced with medical discount cards, e.g., misleading information, lack of networks, exaggerated savings, or in some cases out right fraud, it is necessary to enact laws to better protect consumers in an unregulated marketplace. Recommendations As medical discount cards become more prevalent, the most important legislative action would be one that gives authority and resources to the state insurance departments to have direct oversight of the medical discount cards and companies that sell such cards. Up-front oversight by insurance regulators – similar to regulation of insurers and their products -- and specific standards applicable to discount medical cards would help prevent many of the reported problems consumers have experienced. I suggest the following types of standards for this product. States should establish minimum standards for medical discount card companies and programs. Companies should be required to be licensed with the insurance department, to post a bond in case of problems and to undergo a background check to ensure that convicted felons are not operating the company. Additionally, laws should require companies providing discount cards to have contracts with providers directly not just with their network. Companies that allow their discount programs to be resold or to be marketed by promoters must have control over advertisement and be held accountable for misleading, deceptive, and fraudulent information that promoters or agents give to consumers. In addition, there must better consumer disclosure, marketing, and other requirements for medical discount card programs. For example, states should require disclosures to consumers that include a clear statement that this is not insurance and that the consumer is responsible for the entire bill (at the time of service or pre-paid). This disclosure should also explain that, different from health insurance, the discount card does not count toward reducing a preexisting condition when an individual buys health insurance and that once the individual has a medical condition or needs medical care, the individual may not be able to buy health insurance (may be uninsurable). The disclosure also must have an accurate description of benefits such as the amount of the median discount (not the highest ever achieved) and the
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number of participating providers in zip code area where the consumer lives. Similar to insurance products, consumers must have an opportunity to have a free-look period and cards should have clear refund policies. Additionally, there must be standards for rates (just like insurer’s rates must be reasonable in relation to the benefits provided). This would help address the problem of multi-level marketing that results in consumers paying drastically different rates for the same program. Additionally, perhaps there should be suitability standards. For low-income people who cannot afford to pay for a provider visit at the time of service (and discounts would not apply unless one pays at the time of service), savings with a discount card are illusory. In such cases, promoters of discount medical cards, arguably, should not target low-income people. These types of legislative and regulatory interventions are necessary to protect consumers. Even with these changes and better regulation to protect consumers, it is unlikely that medical discount cards will be the answer for the uninsured and underinsured problem in the United States. Unlike comprehensive health insurance, medical discount cards alone do not and could not provide health security or even access to needed medical care. Thank you for the opportunity to share this information.
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See In the Matter of US Capital Healthcard Bft, Inc., Attorney General of the State of New York, Assurance of Discontinuance, June 2002, p. 9. 2 Kaiser, R., “Health Cards Fuel Mix-ups,” Chicago Tribune 8 August 2004. 3 U.S. General Accounting Office, Private Health Insurance: Employers and Individuals are Vulnerable to Unauthorized or Bogus Entities Selling Coverage, February 2004, GAO-04-312. 4 Mila Kofman, Kevin Lucia, and Eliza Bangit, Proliferation of Phony Health Insurance: States and the Federal Government Respond, BNA Plus (2003). 5 Gerard Britton, Discount Medical Plans and the Consumer: Health Care in a Regulatory Blindspot, 16 Loyola Consumer Law Review 97, 99 (2004).
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