On Tuesday, the Federal Trade Commission (“FTC”) announced the release of checks to consumers totaling more than $1.1 million as refunds for purchasing phony health insurance policies. The proceeds are fruits of an FTC settlement with the Independent Association of Businesses (“IAB”) and its largest telemarketer, Health Service Providers, Inc. (“HSP”). According to a complaint filed by the FTC against IAB and HSP on September 18, 2012, the two corporate entities fraudulently represented to consumers that they were purchasing health insurance when, in reality, they were purchasing membership into IAB’s “obscure trade association.”

How did IAB violate the FTC Act?

FTC Distributes $1.1 Million in Proceeds from Phony Health Insurance Settlement

According to the FTC’s complaint, IAB offered to sell consumers major or traditional health insurance that provides comprehensive coverage to all consumers, including those with pre-existing health conditions. However, what consumers instead ended up purchasing was membership in IAB’s trade association. The membership purportedly offered discounts and products from third party providers, such as roadside assistance, travel services, identity-theft protection, and purported discounts on certain health services. As part of its scheme, the FTC alleged that IAB charged consumers an upfront fee “ranging from approximately $50 to several hundred dollars, and a monthly payment arrangement ranging from approximately $40 to $1000.”

Pursuant to the terms of the settlement reached with the FTC in 2013 (which was finalized and confirmed in 2014), IAB and HSP paid the FTC $11,851,070.77. Pursuant to the FTC’s recent press release, each affected consumer will receive a check in the amount of $167.63.

Protect Yourself

We have previously blogged about how the FTC has been vigilant in targeting companies or marketers offering health insurance products under the guise of the Affordable Care Act. Please note that the terms of the settlement agreement discussed herein not only required payment by the service provider, but also its largest telemarketer for its participation in the alleged scheme. Accordingly, service providers and telemarketers are advised to proceed cautiously in marketing health insurance-related products.