Health Insurance Scams Run Rampant

Two weeks before Lisa Huffstutler gave birth to little Addie, she learned her health insurance was a fraud.

"I would call the insurance company every day," she told CBS News Correspondent Mark Strassmann. "We started realizing that the bills weren't getting paid."

They actually had no coverage.

Their certificate of insurance turned out to be bogus.

Strassmann asked: "There you are, nine months pregnant, no insurance. What goes through your mind?"

"How are we gonna have this baby?" replied Dennis Huffstutler.

"Where am I going to deliver this baby? I was a wreck. The OB hadn't been paid. I knew his bill was over $5,000," Lisa said. "It was really scary."

Dennis Huffstutler is a freelance photographer. A trade group he belongs to recommended the insurance plan.

That's typical of these scams, which market discount coverage, and sucker small businesses and professional groups.

The phony plans even have names that mimic a legitimate carrier's. But they're unlicensed by any state -- and illegal. They pay out small claims, but never big ones -- and pocket millions in premiums, just like a pyramid scheme.

"The proliferation of unauthorized health plans is just incredible. They're everywhere, they're in every state," said Mila Kofman, a health issues expert with Georgetown's Health Policy Institute.

"Many of these arrangements are just ponzi schemes for criminals. Criminals establish them, they collect premiums for phony health insurance. They sometimes pay small claims, they never pay large claims,'' said Kofman. "And they continue collecting premiums and that's how they get wealthy."

North Carolina alone has open cases into 60 bogus companies.

"They just keep selling a product at half the standard price. And people are so desperate for health insurance, they'll bite on it every time. That's the sad part," said North Carolina Insurance Commissioner Jim Long.

"Part of the problem is that people don't do their homework,'' said Long. "You need to buy it from that company that's going to be here six months or six years from now to pay those claims. You need to check with state that company is licensed."

These white collar crimes seldom end up in criminal court. These are complicated cases. The scammers are highly mobile. And in many states, selling insurance without a license is still only a misdemeanor.

"We don't hear about these bogus plans, until they stop paying claims. and that's too late,'' said Long.

For protection, experts say make the call. Your state's insurance commissioner knows which carriers are licensed.

The Huffstutlers now face a mountain of medical debt.

"We have to pay back 22 providers. About $32,000," said Lisa Huffstetler.

It's fake insurance, and false comfort, for Americans whose need for coverage is real.