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Warning bells went off in Gary Sween's head when a firm named Direct Medical Network Solutions called offering cheap health insurance -- if he signed up immediately, with nothing in writing until later.
Still, wowed by the low premium of $200 a month, Sween signed up. Then he discovered that what he bought was not insurance but a discount card for a limited number of providers. He immediately canceled but lost his $150 application fee.
"When you're desperate for insurance, sometimes you do things you wouldn't do normally," said Sween, 63, of Owatonna, Minn.
More than 4,600 Minnesotans lost millions of dollars when they enrolled in Direct Medical or another firm, Family Care, both based in Texas, said Minnesota Attorney General Lori Swanson, who sued both on Wednesday alleging deceptive marketing.
The number of such scams has been growing as more people lose medical coverage through layoffs or cuts in employee benefits, she said, noting that 9.1 percent of Minnesotans are uninsured, up from 7.2 percent in 2007.
Swanson sued two other companies last year for similar practices involving more than 2,000 Minnesotans. Dozens more are operating in Minnesota, and Swanson said she is investigating another 12 or so of them.
"With insurance premiums rising and health reform stalled, health discount plans are filling the void," she said. "The problem is [the discount plans] don't provide the financial protection people need if they get sick."
Some lost thousands
Most Minnesotans harmed by the two companies in Wednesday's suit lost their application fees and several months' premiums before they canceled, Swanson said. But some ran up thousands of dollars in hospital bills thinking they were covered only to discover they weren't.
A lawyer for Family Care said the allegations were untrue. "We deny the allegations and will vigorously defend the lawsuit," said Rhonda Payne, general counsel for Family Care in Houston.
Gregg Trautmann, a lawyer for Direct Medical, said the company contracts out marketing to third-party vendors. "We don't know if the call center deviated from the accepted script in order to increase their own sales," he said.
The lawsuits, filed in Hennepin County District Court, seek to stop the companies from signing up new customers and get the victims' money back, as well as civil penalties.
Sween had retired recently from a sales and marketing job. Because he had had major spinal surgery, he was turned down for an individual policy by HealthPartners, the company his old employer had used for group coverage.
Sween then got the call from Direct Medical.
Though he canceled within a few hours, after receiving the coverage details, he didn't get his application fee back.
'I felt like a fool'
Keith and Betty Romann of Garfield, Minn., lost more -- about $400.
Keith Romann said he asked the Family Care representative several times: "'Is it insurance or is it a discount card?' Time and time again, he said: 'It's insurance.'" Afterward, Romann tried to call half a dozen times to get his money back, but "every time I said my name, I got cut off."
"I felt like a fool," said Romann, a retired tool-and-die operator who's had five heart attacks and quadruple bypass surgery. "At 60 years old, you shouldn't be getting conned."
The lawsuits say both companies told consumers the plans cover 80 percent of medical expenses and have a large network of doctors and hospitals. Representatives used insurance terms like "coverage," "deductible," "co-pay" and "premium." Only later did people who signed up get written materials showing it was not health insurance.
People who have lost their jobs in the recession, young people just starting out and those who are retired but not yet old enough for Medicare are particularly vulnerable, Swanson said.
"This is a problem that's generating national scrutiny," she said.
Chen May Yee • 612-673-7434