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Battling Health Insurance Fraud

For Travis Pare, the owner of the family-owned Pare grocery in Winnie, Tex., it was just what the doctor ordered: a firm offering affordable health insurance for his employees, many of whom make minimum wage.

"This is part of trying to be a good employer, I think," Travis told CBS News Correspondent Ray Brady.

His daughter, Tanya, found a California firm that seemed reputable and offered a great deal.

"Coverage for medical, dental, visionÂ…24-hour assistance....all primary care at a small co-pay..." she says, reading from a fax the company sent her.

The company also claimed it would provide coverage for store manager John Waites' wife Peggy who was being treated for cancer -- a pre-existing condition many firms won't touch.

But the deal turned out to be a bad one. Several of Pare's employees found their claims were no longer being paid, leaving them overwhelmed with debt.

The man behind the coverage that allegedly promised so much and delivered so little is John B. Hyde. He's being sued in federal court by Labor Secretary Alexis Herman.

"This is someone who's engaged in a health care rip-off, who took advantage of ordinary workers...saying that he would pay for their health benefits for their claims," Herman says. "And what happened, it was just a scheme. Take the money and run. He paid a few claims in the beginning, but then he made off with over $1 million."

"It shows you can't get sick 'cause you can get screwed anyway," Peggy Waites says.

John and Peggy Waites say they have racked up thousands in unpaid claims, and the bills keep coming. She is still under a doctor's care for cancer.

"You walk in there and they look at you like, 'Well, she don't even pay her bills. So why should she walk in here?'" Peggy says.

While employees at the Pare Market were stuck with unpaid medical bill, federal investigators say John B. Hyde was living the good life.

"He had two Porsches, he had a Jaguar, season football tickets, very high credit card bills," Herman says.

"He was taking people's premiums and spending their money on his lifestyle," she adds.

Hyde who lives in a California beach house, did not return phone calls and refused to talk to CBS News.

He's quoted as saying the "allegations are unfounded and not correct."

But, just days ago, Hyde signed an agreement that could stop him from selling medical insurance. Still, that's no help to people in Winnie, Tex.

"We're gettin' bad credit now because this happened," Peggy says.

"It's very embarrassing to face your employees and say, 'You know, I can't come and cover your medical bill just because the insurance company didn't pay, you know,'" Travis says.

So the Labor Department is trying to recover the lost money.

But, Herman says there's no guarantee.

"Sometimes you may not be able to recover all that has been lost," she says. "And unfortunaely, there are claims that don't get paid."

So, while John B. Hyde enjoys the ocean view in California, his former clients in Texas are staring at mountains of debt.

Reported By Ray Brady for CBS 'Eye on America.'

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