States Move to Restrict Medical Discount Cards

Published April 1, 2005

At least a dozen states are considering legislation to restrict the sale of medical discount cards, which many uninsured persons or those with large-deductible health insurance policies use to reduce their out-of-pocket expenses.

The bills are aimed at stopping unscrupulous medical discount card providers, according to Marianne Eterno, assistant vice president of government affairs at Guarantee Trust Life Insurance Company in Glenview, Illinois. A subsidiary of Guarantee Trust sells medical discount cards.

“There have been some bad players that have perpetrated frauds and scams on consumers,” Eterno said. “These bills are in response to those bad players, most of whom operate from offshore. It’s difficult for legislators to tell the good players from the bad ones.”

Discount Card Industry Concerned

On February 24, Eterno was among more than two dozen people representing medical discount card companies, insurers, and industry trade associations who met in Glenview as the Discount Medical Card Coalition. They came together to discuss ways to educate lawmakers about the industry and respond to the proposed legislation.

Medical discount cards that include benefits for physician and hospital charges are a relatively new product. They appeared only a few years ago, largely as a way to help persons who have no health insurance or have only catastrophic coverage that requires them to pay large deductibles before insurance kicks in.

Discount card providers work through existing networks of medical providers who agree to give cardholders the same discounts they offer to insurance companies.

Cards Are Not Insurance

The discount cards, though, are not insurance. Cardholders must pay for medical services themselves. However, because they receive network discounts, cardholders pay less than they otherwise would.

The cards also provide discounts on medical services not covered by insurance, such as elective cosmetic surgery or laser eye surgery. Some buyers purchase medical discount services for that reason.

There is no underwriting for the issuance of a medical discount card. Anyone who agrees to pay an enrollment fee and monthly charge may receive one. Those charges vary depending on the card issuer.

Laws Called Too Broad

Florida last year passed a law restricting discount card sales after thousands of state residents were scammed by offshore operators, Eterno said. She said the bill was an overreaction that makes doing business in the state extremely difficult for legitimate discount card providers.

“Florida was flooded by these unscrupulous companies, and the law was in response to that,” Eterno said. “The Florida law and all of the laws they’re trying to put on the books in other states aren’t going to address offshore, fly-by-night companies.

“Vantage America [the Guarantee Life subsidiary that sells medical discount cards] was considering pulling out of Florida. Our filing to become licensed was close to two inches thick. It’s amazing what we go through for a state that really needs this product.”

“The discount card industry was a minor player in years past,” said Dr. Merrill Matthews, director of the Council for Affordable Health Insurance. “That’s changing. With the growth of consumer-directed health plans, which rely on higher deductibles and incentives that encourage consumers to get value for their dollars, discount cards will likely play a big role in the future. This is no time to hammer the industry with regulations that could stifle it.”

Discounters Support Disclosure, Registration

Coalition members agreed on the need for full disclosure to consumers. The Consumer Health Alliance, a national trade association of the discount health care industry, already requires full disclosure in its code of conduct.

“We totally support disclosure,” Eterno said. “Consumers should be educated about what they’re buying. They should know this is not insurance. They should know we’re not going to pay anything, but they will have access to a PPO network and get a discount when they pay their bill.”

The group also supports registration for insurers selling medical discount cards. They opposed licensing for these insurers, though, because they are already licensed to conduct business. Licensing insurers to sell medical discount cards would be a redundant requirement, Eterno said.

The group also objected to provisions in various bills that would require medical discount cards to be sold only by licensed insurance agents or brokers; market conduct reviews; rate approval; disclosure of contracts with medical networks; and other matters that would treat them like insurers or require them to divulge proprietary information.

Alaska Bill Lauded

Among the states with pending legislation regarding medical discount providers, Alaska has the best bill, according to the group. That bill requires full product disclosure, but does not have many of the regulatory provisions the legitimate discount card providers say could hobble their industry.

“Unfortunately,” Eterno said, “the Florida law is an overreaction and other states have picked it up. A lot of the Florida language is in a draft model bill that the NAIC [National Association of Insurance Commissioners] is working on.”

States with pending legislation include Alaska, Arkansas, California, Connecticut, Illinois, Maryland, Montana, North Dakota, Oklahoma, South Dakota, and Utah.

Steve Stanek ([email protected]) is managing editor of Budget & Tax News and a contributor to Health Care News.