FTC Targets Medical Discount Plans

As part of its ongoing crackdown on scams targeting Americans without health insurance, the FTC recently halted a telemarketing operation that allegedly tricked consumers who were seeking affordable health insurance into buying worthless medical discount plans.  Health Care One LLC and three affiliated companies agreed to settlements that will bar them from any healthcare-related enterprise and from selling goods or services related to healthcare. 

Medical discount plans, also known in the industry as health benefits plans are not insurance plans.  Rather, they are similar to many other discount savings membership programs, which arrange for service providers to offer discounts to their members.  

In the case at hand, Health Care One and its affiliates allegedly marketed their program in TV and radio commercials as government-endorsed health insurance, and claimed it would deliver substantial savings on consumers’ healthcare costs.  They also stated that their program was widely accepted by healthcare providers across the country, and provided a money-back guarantee.  However, the FTC alleged that Health Care One’s discount plans were not insurance, were not widely accepted by healthcare providers, and did not provide the promised healthcare savings to consumers.  

The facts set forth in the FTC complaint are a virtual laundry list of what a health benefits marketing company should NEVER do, but the most serious among them are the following:

  • Falsely claiming an affiliation with a government agency:   As detailed in a previous post, this is just a plain stupid and easily avoidable error.   Marketers frequently think it’s acceptable to fiddle with language in order to imply  that their service is somehow endorsed or affiliated with the government.  There are few misstatements that the FTC hates more.
  • Failing to inform consumers that their program was not health insurance until after they signed up and paid hundreds of dollars in fees.  There’s only one word for this tactic: idiocy.  Sure, allowing a consumer to falsely believe they’ll get the insurance they so desperately need is going to make sales skyrocket, but did the defendants really think that they wouldn’t be inundated with a wave of complaints after the truth came out?  Simply disclosing that fact in the pitch and (most importantly) recording the consumer’s understanding before charging their card might have allowed Health Care One to continue conducting business. Obviously, disclosing this key fact would have decreased sales, which Health Care One was unwilling to do.  It’s a classic example of the Crunchy Frog argument discussed in a previous post.
  •  Failing to issue refunds.   Consumers who subsequently tried to cancel their enrollment found that the Health Care One companies made it difficult or impossible to obtain refunds.  This is especially egregious after offering a 100% satisfaction and full refund guarantee.

The settlement order requires the defendants to surrender assets including the proceeds from the sale of an Aston Martin, a Maserati, a yacht, and two motorcycles. The orders also prohibit the defendants from making misrepresentations in connection with the sale of any good or service, including falsely representing: that a program is insurance; affiliation with, or endorsement or sponsorship by, the federal government; that purchase of a good or service will result in substantial savings to consumers; any material aspect of the good or service; the total costs associated with the good or service; and any material refund and cancellation policies, including, but not limited to, the likelihood of a consumer obtaining a full or partial refund, or the circumstances in which a full or partial refund will be granted to the consumer. The orders also bar the defendants from violating the Telemarketing Sales Rule, which prohibits misrepresentations in telephone sales and the making of unsolicited automated telemarketing calls.

The bottom line is this:  If the owner of Health Care One employed a modicum of common sense, he may still be driving his Maserati and sailing his yacht.  


Author: Seth Heyman
Seth D. Heyman is a California attorney with extensive experience in advertising and marketing law, corporate law, contracts, governmental regulations, international business, and Internet law. He has counseled numerous successful companies, both public and private, and was responsible for regulatory compliance, contract management, corporate governance, and HR best practices for multiple organizations in many diverse industries, including marketing, telecommunications, energy, and technology development. He offers insight and guidance on federal and state direct mail, TV, radio, telemarketing, and Internet marketing laws, as well as online promotions, Internet privacy, data protection regulations, and similar matters.

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