Minn. Attorney General Swanson files lawsuits against two "health discount" companies

Feb. 10, 2010--Minnesota Attorney General Lori Swanson today filed two lawsuits against separate out-of-state companies that exploited the difficulty many Minnesotans have finding affordable health coverage by deceptively marketing and selling limited health discount plans to Minnesota consumers. The plans--which were often represented to consumers as traditional or comprehensive health insurance or the equivalent--at best offer limited discounts at select health care providers.

"With insurance premiums rising and health care reform stalled, health discount plans are filling the void. The problem is they don't provide the financial protection people need if they get sick," said Attorney General Swanson. A study released on February 5 by the Minnesota Department of Health found that the percentage of Minnesotans without health insurance rose from 7.2 percent to 9.1 percent between 2007 and 2009.

The companies against which the lawsuits were filed are Direct Medical Network Solutions, Inc. ("Direct Medical"), a for-profit Delaware corporation with its primary place of business in Southlake, Texas, and Association Healthcare Management, Inc., d/b/a Family Care ("Family Care"), a for-profit Texas corporation with its principal place of business in Houston, Texas. Both companies have been given "F" ratings by the Better Business Bureau.

The lawsuits allege that both companies deceptively marketed and sold their limited discount plans to Minnesota consumers, in part by misleading them into believing that the plans are health insurance or insurance-like products. Both companies used insurance terms like "coverage," "deductible," "co-pay" and "premium" to confuse consumers. The lawsuits allege that both companies represented to consumers that they cover 80 percent of medical expenses and have a vast network of doctors and hospitals. In fact, the companies do not provide health insurance but only offer limited discounts off the prices charged by a narrow number of providers. The companies often pushed for quick sales by claiming that the current price was only available for a limited period of time or that the company could only sell a limited number of policies. They also used a misleading verification process to further the deceit on consumers.

Direct Medical charged consumers an enrollment fee of around $135 and a monthly "premium" of up to $459.50. Family Care charged consumers an enrollment fee of around $100 and a monthly "premium" of up to $109.95 or more.

Both companies generally refused to send written materials for the consumer to review prior to a purchase. When consumers received the written materials following their purchase, they often quickly cancelled the plans. Over one-half (58%) of Direct Medical's Minnesota customers cancelled within the first month, and more than 95 percent of the 1,216 Minnesota consumers who signed up with Direct Medical since 2007 have since cancelled. Similarly, more than 90 percent of the 3,411 Minnesota consumers who signed up with Family Care since 2004 have since cancelled, with 38 percent of Family Care's enrollees cancelling in the first month and 71 percent cancelling in the first six months.

Both lawsuits were filed in Hennepin County District Court and seek injunctive relief, restitution for consumers, and civil penalties.

The Attorney General's Office has on its website at www.ag.state.mn.us a consumer flyer entitled "Beware of Unlicensed Health Plans." Among other things, the Attorney General advises consumers that:

  • A health discount plan is not an insurance policy and does not provide insurance protection; instead, at best it offers limited discounts from the retail price charged by certain doctors and clinics. A health discount plan does not pay a doctor, clinic or hospital for your bills and cannot legally insure you for health care expenses.
  • Read any plan before you buy it. Some health discount companies operate a "bait and switch" scheme in which they make oral promises about the supposed benefits of the plan, which they try to disclaim away in writing after the fact.
  • Beware of sales pitches where you are told that the current monthly fee is only available for a limited period of time or that the company may only sell a limited number of policies in Minnesota.

Citizens who wish to file a complaint may contact the Minnesota Attorney General's Office at (651) 296-3353 or (800) 657-3787.