Massive health insurance scheme earns inclusion in latest class of Insurance Fraud Hall of Shame

The scammers would promise consumers a "better deal" if they purchased coverage after joining an "association," a tactic that poses a significant challenge to state insurance departments.

When the purchasers of these products got sick or made a claim, they were sometimes left with thousands of dollars in unpaid medical bills. Small claims would often be paid to convince policyholders the coverage was real while larger claims would be stonewalled. Examples include a Houston man who had emergency back surgery only to discover his policy would not cover any of his $105,000 bill; an Oklahoma man who was days away from getting a pacemaker when he was contacted by the state's insurance department and told his insurance provider was a fraud; and another Oklahoma family who learned a family member's $10,000-per-week chemotherapy would not be covered.

Despite many state cease-and-desist orders in recent years, the companies (dozens of bogus company names were used) continued to market themselves over the Internet. Consumers in states without active cease-and-desist orders against ATA could still join online and enroll in one of the "guaranteed issue health plans."

Worthy, who was already serving a 7-year sentence in a South Carolina prison for embezzling insurance premiums in another case, was federally indicted in Nashville, Tenn., in 2013 for his role in this fraud scheme. He has pleaded guilty and could spend up to 20 years in federal prison when sentenced. Several co-conspirators in the scheme have also been indicted and face federal felony charges.

This case illustrates the difficulties facing state insurance regulators. The schemers would change company names and move to other states to evade scrutiny. Offering coverage through associations made the challenge even tougher because associations are not subject to all of the same rules and oversight procedures.

As health insurance premiums keep rising, scam artists will continue to have an opportunity to exploit consumers looking for a deal to keep their costs down and avoid the federal penalty for being uninsured. Honest agents should be on the lookout and ready to help clients or prospects that may be susceptible to these types of too-good-to-be-true offers.