CMS proposes rule to combat gray market health insurance scams

The Centers for Medicare & Medicaid Services (CMS) is looking to curb the rise of scammy health insurance brokers who enroll consumers in low-value plans on the Affordable Care Act (ACA) marketplace.

In a newly proposed rule, CMS is seeking the power to suspend insurance agents and companies who fraudulently or deceptively enroll individuals in a health plan, especially in cases where a patient's existing health plan is switched without informed consent. If the proposed rule is finalized, CMS could start policing the marketplace for deceptive activity beginning next year. 

The ACA requires that all Americans have health insurance or face a potential tax penalty. Consumers are often sold low-value plans by brokers that meet the legal requirement, despite offering little or expensive coverage. To sign members up, brokerages have taken advantage of lax oversight, using direct marketing to deceptively reach perspective enrollees, many of whom are already covered under an existing, often better quality plan. 

CMS has responded by finalizing a similar rule earlier this year, barring companies and brokers from making changes to enrollment without taking additional steps to prove they have a working business relationship with a client. However, that has not stopped unscrupulous actors from abusing the system, as those additional steps simply require filling out some paperwork online. 

A rising number of complaints

Over the last year, complaints from individuals enrolled in a plan without their knowledge—as well as those confused to find they switched health plans and lost access to care—have only increased. In some cases, agents sell plans with zero premiums, even to those they know are ineligible, resulting in patients receiving unexpected bills or a sudden drop in coverage. 

CMS said brokers are allowed to aid consumers in finding a health plan on the ACA marketplace; however, they have to be transparent with the terms. The proposed rule would allow CMS to ban dubious agents and brokerages who “pose unacceptable risk” to consumers from operating on the marketplace, something the agency presently has limited authority to do.

The rule would also modify how insurance agents and brokers obtain consent from consumers, adding a legal requirement to prove that a potential member has reviewed any application being submitted through the ACA marketplace. This would apply to both new coverage and a plan change.