CareFirst accuses Maryland insurance brokers of overseeing $50M fraud

A Maryland insurance broker and his associates are accused of orchestrating a years-long international fraud scheme “of breathtaking scale and audacity” that cost a nonprofit health insurer more than $50 million.

Carefirst of Maryland filed a civil lawsuit last week in U.S. District Court for the District of Maryland.

The insurer alleges that Olney, Md.-based insurance broker Avraham Rappaport and his brother, Eliezer Rappaport, enrolled hundreds of ineligible individuals in health insurance plans reserved for Maryland residents.

“Utilizing fraudulent identities, fake residences, an international network of referrals, and the assistance of individuals and numerous entities, the Rappaports coordinated an international insurance-fraud machine,” the lawsuit states.

The insurer is seeking damages under the federal Racketeer Influenced and Corrupt Organizations Act, commonly known as RICO, a law often used to pursue organized fraud and conspiracy cases. The lawsuit alleges the defendants engaged in a coordinated enterprise involving multiple individuals and entities over several years.

The Rappaports did not have attorneys acknowledged by the court as of Monday, and could not be reached for comment.

Charities allegedly involved

According to the complaint, the scheme operated from at least 2018 until it was uncovered by CareFirst in late 2022.

CareFirst alleges the brothers recruited clients from outside Maryland and from overseas who sought access to the insurer's nationwide coverage network, particularly for expensive medical treatments available at specialty providers across the United States.

The company claims the defendants falsely represented those individuals as Maryland residents in order to obtain coverage.

The alleged scheme relied on properties in the Baltimore area owned or controlled by the defendants and their associates, which were listed as policyholders' Maryland addresses on insurance applications. When residency questions arose, the defendants allegedly directed clients to submit falsified supporting documents.

The lawsuit further alleges that the operation depended on a broader network of individuals and organizations that provided referrals, transportation, lodging and other support services.

“[S]ome of the entities the Rappaports relied upon were charities and religious organizations,” the lawsuit says. “The Rappaports’ reliance on these organizations, even if they were not knowing participants, served to lend legitimacy to the Rappaports’ illegal conduct and shield it from scrutiny.”

The complaint does not allege that all participants knowingly engaged in wrongdoing.

CareFirst: Scheme 'was successful'

CareFirst claims the defendants received commissions from the insurer for policies that should never have been issued and may have also received compensation from clients who sought coverage through the alleged scheme.

"The Rappaport conspiracy against CareFirst was successful. There can be no doubt about that," the insurer said in the complaint, alleging that more than $50 million in claims were paid on behalf of individuals who were not eligible for Maryland-based coverage.

The complaint also references a recent criminal case involving another brother, Jacob Rappaport, who pleaded guilty to bank fraud charges related to Baltimore-area real estate transactions. The lawsuit does not allege that Jacob Rappaport participated in the insurance scheme.

The lawsuit seeks to recover damages and other relief stemming from what CareFirst describes as one of the largest health insurance fraud schemes it has encountered.

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InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at [email protected]. Follow him on Twitter @INNJohnH.