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Employee Benefits Security Administration

Health Benefits Education for Small Businesses

Memorandum for Small Business Leaders
From: Elaine L. Chao
Subject: Health Insurance Tips

I know how difficult it is for you to find affordable health care coverage for your employees. However, I am very concerned that we are seeing an increase in individuals marketing fraudulent health insurance plans. With the cost of health care rising, promoters of health insurance scams are aggressively targeting small businesses and their employees. Insurance scam artists frequently masquerade as a federally regulated employer trust, labor union, or a religious organization and claim to offer low premiums because they are exempt from state insurance regulation. Promoters of these scams also may induce insurance agents to market their products to small businesses as an alternative to traditional insurance coverage.

President Bush strongly supports legislation to strengthen and expand Association Health Plans to allow small business to enjoy the bargaining power, administrative efficiencies, benefit design, and risk pooling advantages currently available only to large employers and union-sponsored plans. Until federal legislative changes are enacted, employers can help ensure that employees have the health care coverage they need by following the attached tips. The U.S. Department of Labor and your state insurance department are working to protect you and your employees, but you also can help by taking extra precautions.

I hope the tips below provide you with measures to avoid being taken advantage of and other problems. I look forward to working with you to ensure that access to affordable health care coverage becomes a reality for small business.

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How to Protect Your Employees When Purchasing Health Insurance

  • Compare insurance coverage and costs. Always compare the benefits and costs of multiple insurance products. If one product appears to offer similar benefits at a dramatically lower cost, ask questions.

  • Confirm that the person offering the product is a licensed insurance agent with a proven record of reliability. Promoters of insurance scams often engage unlicensed insurance agents to market their product as a cheaper alternative to traditional insurance. Check out unknown agents with your state insurance department.

  • Verify that any unfamiliar company, organization or product is approved by your state insurance department.

  • Examine the policy to determine the actual coverage and whether the promised benefits are fully insured by a licensed insurance company. Do not confuse representations about stop-loss coverage with a guarantee of group health benefits. Stop-loss coverage often protects only the issuer, not the insured individuals.

  • Request references of employers enrolled with the provider and get information from employers about benefit payment history and claim turn around time.

  • Ask about the allocation of premiums charged for commissions, fees and administrative expenses. Allocation of a high percentage of the premiums to commissions, fees and administrative expenses may indicate a problem with the product or insurer.

  • Contact your Regional Office of the Employee Benefits Security Administration (U. S. Department of Labor) through its toll-free number at 1.866.444.EBSA (3272) or at to report problems.