As of August, the Federal Trade Commission (FTC) and law enforcement in 24 states had filed 54 lawsuits and regulatory actions to crackdown on the fraudulent marketing of "medical discount plans" as health insurance. This crackdown has now reached a local level.

The Minnesota Department of Commerce recently issued a consent order and levied a $100,000 fine against New York-based National Union Fire Insurance Co. of Pittsburgh, PA (NUFIC) for allegedly using deceptive advertising to sell unapproved insurance policies to Minnesota consumers. The company is an American International Group Inc. subsidiary, according to A.M. Best. This action comes on the heels of news last month that the FTC had brought law suits against three companies that sold questionable health discount plans.

After an investigation, the department alleges that NUFIC violated Minnesota law by selling at least 1,500 "Essential Health" plans to Minnesota residents. The plans included an accident and sickness insurance policy and a discount medical component. The policies were not approved by the department, and did not meet the requirements for such policies sold in the state, according to the department.

"Medical discount plans are not health insurance policies and shouldn't be marketed as such," says Manny Munson-Regala, deputy commissioner at the Minnesota Department of Commerce.

The department found that NUFIC, directly and through its contractors, may have led consumers to wrongly believe that the discount portion of the Essential Health Plan was the equivalent of health insurance or a major medical plan. The company and/or its contractors also allegedly violated state law by accepting business from agents who were not licensed to sell insurance in Minnesota. In addition, NUFIC allegedly failed to review whether policies sold to Minnesota residents were indeed suitable for those residents.

In addition to paying the fine, the department ordered NUFIC to refund all Minnesota residents who purchased an Essential Health policy. The company must also ensure its policies comply with Minnesota suitability requirements, review all advertising and representations made in Minnesota by the company's Accident and Health Division, and ensure that all insurance producers who sell NUFIC's policies are aware of the benefits and limitations of each product they sell.

The Minnesota Department of Commerce is the state agency charged with licensing and regulating the insurance industry in Minnesota. In fiscal year 2010, the department took 130 insurance-related actions and assessed $3.6 million in penalties.

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