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Companies Use Obamacare Confusion To Sell 'Junk Insurance'

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AP Photo / Charles Dharapak

"She started to basically tell me how bad the exchanges are, and that the exchanges are only for the very sick people," Mortimer told TPM in an interview last week. "And she said, 'Have you had cancer, heart attack, you or your husband?' And I said no. And she said, 'Good, because if you said yes, I would have had to recommend the exchanges.'"

The agent then proceeded to offer Mortimer a product that she touted as not meeting the minimum coverage requirements set by the Affordable Care Act (ACA). The agent strongly recommended that Mortimer sign up before Jan. 1, and said that she could lock her premiums in for three years.

"I said, I thought that non-compliant ACA policies can't be sold," Mortimer said. "She said, 'we can still sell ACA non-compliant plans, but we can't compete on the exchange.' And I didn't know -- I didn't think that was possible."

The Affordable Care Act was designed to make sure all Americans had a certain level of insurance. But TPM has learned that USHealth Group is actively telling consumers that they don't need that minimum level. In fact, company representatives are telling people they'd be better off without it. And the company may be just one player in a larger industry trend, where companies see non-ACA compliant plans, like the so-called fixed benefit coverage marketed by USHealth Group, as a business opportunity.

Health care industry analysts have long derided the kinds of non-insurance health care coverage products the company is selling as "junk insurance."

"They were not intended to be health insurance," Sabrina Corlette, a research professor at the Health Policy Institute at Georgetown University, told TPM, speaking about fixed benefit plans. "They were intended to be what are called income replacement policies. ... But over the years, these things have kind of morphed. And for many people, unfortunately, mainly because they come with a cheaper sticker price, they are marketed as and treated as health insurance. Even though the coverage is really crappy."

USHealth Group's pitch is three-fold, according to accounts provided to TPM by Mortimer and another prospective customer. First, it says, it is a misconception that everyone needs ACA-compliant insurance. Second, USHealth Group plans are cheaper than ACA-compliant policies, even after customers pay the tax penalty for failing to comply with the ACA's individual mandate. Third, Obamacare is scary.

The company's argument can resonate with some people, and seems at least partially geared toward attracting people who oppose the ACA for political reasons.

On a recent weekday morning, Joe T.'s real estate office in Louisiana held its monthly company meeting. A representative from US Health Advisors, USHealth Group's distribution arm, was there. The agent handed out a pamphlet titled "PPACA & You," a scan of which Joe T. provided to TPM, and spoke to a group of 20 or so real estate agents.

"I would say about 80 percent of his talk was spent on some sort of explanation or attack against Obamacare, and maybe 20 percent was about what his company could do," Joe T. -- who asked that his last name be withheld so as not to be identified by potential future clients -- told TPM. "Which, the thing he mainly repeated over and over was that it would be cheaper to pay the penalty and get a plan through him."

According to Joe T., the agent opened by telling his audience that anyone who was insured would not be able to keep their existing plans, and even if they were already insured they would have to pay the tax penalty. When asked about subsidies, the agent said that almost no one in the room would qualify. And he raised the prospect of a nightmarish future under Obamacare: six-month waits for doctors' appointments, spouses dropped from employer plans, employers dropping plans entirely.

"He also said that the entire tax penalty was just a way to make the government rich and that the Healthcare.gov website was just a way to give kickbacks to Obamacare supporters by paying them to develop a website that doesn't work," Joe T. said.

The pamphlet the agent handed out argues that the ACA's insurance mandates have "made an already unpopular healthcare system even more confusing and expensive." In comparison, the pamphlet says, USHealth Group's "portfolio is exempt from PPACA mandates, giving you the flexibility to choose the coverage options that work best for you, your family ... and your budget!"

One kind of non-compliant plan sold by US Health Group is known as fixed indemnity or fixed benefit coverage. Under this kind of plan, companies reimburses customers a fixed amount of money for medical services. The ACA doesn't prohibit the sale of this kind of coverage, but fixed benefit coverage does not satisfy the law's individual mandate, and people with fixed benefit plans would either have to buy other, compliant coverage or pay the tax penalty.

Karen Pollitz, a senior fellow at the Kaiser Family Foundation, told TPM that a fixed benefit plan is "not health insurance, in the sense its going to protect you in any way from going broke."

"People do need to be careful," Pollitz said. "Not just because they won't be satisfying the mandate but because they will be uninsured and that never works out well for people."

Laura Etherton, a health care policy analyst with U.S. Public Interest Research Group, echoed Pollitz's words.

"Consumers had good reason to be wary of these plans before now, and that hasn't changed," Etherton said in an email to TPM. "What's changing as the ACA takes full effect in 2014 is that many consumers have decent options for actual health insurance, so products like this look even worse."

USHealth Group is not some an upstart operation. Based in Texas, the company is a subsidiary of Credit Suisse, one of the world's largest banks, and claims to have served over 15 million customers over the years. It specializes in health care coverage products for the individual market. And while the company did not respond to multiple requests for comment for this story from TPM, it has not been shy in the past about its plans to offer alternatives to the level of insurance required by the ACA.

"Now that we know health care reform is here to stay, many individuals -- especially those who are self-employed or own a small business, are seeking alternatives to the predicted rise in health premiums that are associated with mandated benefits set forth by the law," the company said in a press release issued in November 2012. "Fortunately, for many of the nation's self-employed, small business owners and individuals, there may be some relief. Savvy healthcare shoppers may find an attractive alternative in the 'fixed-rate' products being offered by USHEALTH Group through its wholly-owned distribution arm, USHEALTH Advisors... USHEALTH Group offers a variety of coverage options for customers including fixed indemnity plans with unique escalating benefit options and available comprehensive coverage that is more flexible than traditional major medical plans."

Many other insurance companies currently offer fixed benefit policies. TPM asked a few if they saw non-ACA compliant plans as a growth area for the industry. Assurant, a New York-based company that offers both ACA-compliant and non-compliant medical plans, said in an email that though it does not disclose sales trend information, "we expect that as more individuals purchase plans for 2014 coverage, we will see an increase across our product portfolio."

Corlette, the Georgetown research professor, anticipates many companies will try to sell non-ACA compliant coverage to consumers in the ACA era.

"That's going to be a common thing," Corlette said. "I think there are going to be a lot of companies out there trying to sell that kind of stuff... it's not just fixed indemnity we're seeing, we're seeing really wacky kinds of policies out there."

Additional reporting by Dylan Scott.