Another state is taking a hard look at companies that sell medical discount cards, which many consumers easily mistake for cheap health insurance.

Last week California regulators said they would seek new regulations for these health discount plans. This week Minnesota filed suit against two companies it says are exploiting the difficulty many Minnesotans have finding affordable health coverage by deceptively marketing and selling limited health discount plans to Minnesota consumers.

The plans -- which Minnesota Attorney General Lori Swanson says were often represented to consumers as traditional or comprehensive health insurance or the equivalent -- at best offer limited discounts at select health care providers.

"With insurance premiums rising and health care reform stalled, health discount plans are filling the void. The problem is they don't provide the financial protection people need if they get sick," Swanson said.

A study released on February 5 by the Minnesota Department of Health found that the percentage of Minnesotans without health insurance rose from 7.2 percent to 9.1 percent between 2007 and 2009.

Delaware and Texas firms sued

Swanson sued Direct Medical Network Solutions, Inc., a for-profit Delaware corporation with its primary place of business in Southlake, Texas, and Association Healthcare Management, Inc., d/b/a Family Care, a for-profit Texas corporation with its principal place of business in Houston, Texas. Both companies have been given "F" ratings by the Better Business Bureau.

The lawsuits allege that both companies deceptively marketed and sold their limited discount plans to Minnesota consumers, in part by misleading them into believing that the plans are health insurance or insurance-like products. Both companies used insurance terms like "coverage," "deductable," "co-pay" and "premium" to confuse consumers, the complaint says.

The lawsuits allege that both companies represented to consumers that they cover 80 percent of medical expenses and have a vast network of doctors and hospitals. In fact, Swanson says the companies do not provide health insurance but only offer limited discounts off the prices charged by a narrow number of providers.

The companies often pushed for quick sales by claiming that the current price was only available for a limited period of time or that the company could only sell a limited number of policies. They also used a misleading verification process to further the deceit on consumers, the suits say.

Swanson says Direct Medical charged consumers an enrollment fee of around $135 and a monthly "premium" of up to $459.50. Family Care charged consumers an enrollment fee of around $100 and a monthly "premium" of up to $109.95 or more.


Both companies, according to Swanson, generally refused to send written materials for the consumer to review prior to a purchase. When consumers received the written materials following their purchase, they often quickly cancelled the plans.

Over one-half of Direct Medical's Minnesota customers cancelled within the first month, and more than 95 percent of the 1,216 Minnesota consumers who signed up with Direct Medical since 2007 have since cancelled. Similarly, more than 90 percent of the 3,411 Minnesota consumers who signed up with Family Care since 2004 have since cancelled, with 38 percent of Family Care's enrollees cancelling in the first month and 71 percent cancelling in the first six months.

Both lawsuits were filed in Hennepin County District Court and seek injunctive relief, restitution for consumers, and civil penalties.