States issue alerts concerning Discount Medical Programs

They work more like savings coupons than bona fide insurance programs, but whatever they are, discount health, dental and vision programs are cause for concern among some industry and consumer groups, who feel they should be better regulated.
The California Department of Managed Health Care (DMHC) recently lifted a cease and desist order on "discount health plans" following a review of that action by the former California Department of Corporations. Legislation to address the DMHC's stated lack of jurisdiction may soon emerge in the California State Legislature, but in the meantime, discount health companies are active once again in California marketplace.
"We are not convinced discount plans offer real and substantial benefits to consumers," said Earl Lui, senior attorney for Consumers Union. "The lack of adequate regulation only heightens our concerns. We believe the Department of Managed Health Care should regulate the industry and conduct random audits to ensure consumers get true discounts."
Simply put, discount health plans market annual memberships for a low monthly or annual fee, claiming to entitle users to reduced prices from participating providers and suppliers. Medical, dental and vision care, as well as chiropractics, cosmetic and even nutritional supplements are among the most common discount plan offerings. Advertisements — often found on the Internet or delivered as "spam" e-mail — boast that consumers can save up to 30 percent or more on the cost for such services.
Some industry observers and consumer advocates, however, warn that it's difficult to know just how much of a real discount members receive over the usual costs charged by participating providers. They are also concerned that discount program subscribers are not adequately informed that they only purchase access to a provider list — not actual coverage or insurance. The providers on these lists collect their payment in full from discount subscribers, receiving no reimbursement for any portion of their services from those who market the discount program.
"We are not convinced discount plans offer real and substantial benefits to consumers," said Earl Lui, senior attorney for Consumers Union. " The lack of adequate regulation only heightens our concerns. We believe the Department of Managed Health Care should regulate the industry and conduct random audits to ensure consumers get true discounts."
In a recently published opinion, DMHC Director Daniel Zingale determined that without new legislation, his department lacks the legal jurisdiction necessary to exercise any regulatory authority over discount health plans, which the DMHC does not regard as true healthcare service plans because they don't assume any risk or pay claims. Draft guidelines issued by the DMHC do, however, effectively prevent Knox-Keene licensed health plans in California from offering similar discount programs to compete with those from unlicensed companies. These guidelines are currently under review.
Knox-Keene licensed health plans like those that belong to the California Association of Dental Plans (CADP) are required to implement a quality assurance program, audit participating providers, maintain solvency standards and obtain plan design approvals from the DMHC. Licensed health plans must also fully inform and disclose to subscribers the provisions of their plan coverage, all limitations and exclusions, and advise subscribers of their right to complain or challenge a health plan's determination of coverage by calling the DMHC's patient complaint hotline.
The popularity and acceptance of discount programs by consumers remains unproven in California, but regulators in other states where discount plans are offered are taking action to head off trouble.
The Kentucky Department of Insurance, for instance, recently put out a consumer alert to make consumers understand that they are not buying actual insurance with these products, and to require adequate disclosure regarding how advertised discounts are calculated and administered.
Another alert will soon be put out by the Georgia Consumer's Insurance Advocate, Cathey Steinberg, who has reportedly fielded a spate of complaints from dissatisfied discount plan customers.
CADP — California's dental plan trade group — recently adopted the position that a more level playing field should be established between discount health plans and licensed healthcare service plans in California. And like the Consumers Union, the organization is on record advocating that appropriate regulation of discount plans should be adopted for the protection of California consumers.
The California Association of Health Plans has embraced a similar position, and new draft legislation that puts forward these principles is anticipated sometime during the 2002 legislative session.