The subsidiary was fined $100,000, and it agreed to repay customers who purchased the policies in Minnesota.
The Minnesota Department of Commerce has fined an insurance company owned by the troubled American International Group Inc. $100,000 for deceptive marketing and ordered it to refund money to those who bought policies.
At least 1,500 Minnesotans bought the "Essential Health" plans from the National Union Fire Insurance Co. of Pittsburgh, a unit of AIG based in New York.
The Essential Health plans included accident and sickness insurance as well as medical discounts. However, they were not approved for sale by the Minnesota Commerce Department and did not meet state requirements.
"Medical discount plans are not health insurance policies and shouldn't be marketed as such," Manny Munson-Regala, deputy commerce commissioner, said Monday.
The policies were sold after the federal government took 79 percent ownership of AIG in the 2008 bailout. AIG spokesman Mark Herr said the company had no comment on the Minnesota case.
The department's move is part of a growing national crackdown on bogus medical plans. As many Americans have lost their health insurance along with their jobs, they've become vulnerable to companies selling cheaper alternatives. When these buyers seek medical care, they discover too late that the plans don't cover much.
As of August, the Federal Trade Commission and 24 states, including Minnesota, had filed 54 lawsuits and regulatory actions to stop companies from such deceptive marketing. In Minnesota's settlement on Monday, National Union agreed to the terms without admitting wrongdoing.
Policies violated state law
Munson-Regala said the marketing of the Essential Health policies violated Minnesota law in several ways.
"No. 1, they were not approved for sale in the state. No. 2, they wouldn't have met the requirements for approval anyway. No. 3, they misled consumers as to the nature of the products, and No. 4, the folks selling the insurance in Minnesota were not licensed in Minnesota," he said.
The department has instructed the National Union Fire Insurance Co. to fully refund to all Minnesotans who bought polices the money they paid.
The policies were priced at $29.95 to $45.95 a month for a family and $19.95 to $29.95 a month for an individual. In essence, said Munson-Regala: "They were saying you can buy this Cadillac but it's actually a Chevy."
Essential Health telemarketers told consumers they could cancel the policy within 30 days and receive a full refund, according to investigators who posed as customers. However, an agreement provided to consumers after they bought the product included a non-refundable "member activation" fee.
The weak economy has made the market ripe for such scams. In Minnesota, the number of uninsured people rose to 9 percent last year from 7 percent in 2007.
Publicity over the new health reform law has also created opportunities for scams, said Munson-Regala.
"There are some unscrupulous hucksters out there who are marketing plans saying they are meeting the requirements of health reform," he said. "They're saying buy your Obama health plan today. What they don't say is the mandate doesn't occur until 2014."
Chen May Yee • 612-673-7434