Accused sellers of ‘sham’ health insurance ordered to repay customers $100 million [South Florida Sun-Sentinel]

A Tampa-based company accused of selling “sham” health plans marketed by third-party distributors, including a Hollywood-based insurance agency shut down amid allegations of fraud, has agreed to repay customers $100 million, according to court documents filed this week by the Federal Trade Commission.

Benefytt Technologies, known until March 2020 as Health Insurance Innovations, deceived vulnerable consumers out of hundreds of millions of dollars by lying about its products, charging illegal “junk fees,” and using deceptive websites to obtain contact information of customers searching the internet for low-priced “Obamacare” plans, the FTC said in court filings and a news release.

Benefytt worked closely with one of its largest third-party distributors, Hollywood-based Simple Health Plans LLC and its CEO Steven J. Dorfman, the FTC charged in a complaint filed Monday in U.S. District Court in Tampa.

The company’s current executives signed a proposed court order agreeing to reimburse customers $100 million. Two of its departed executives — former CEO Gavin Southwell and former vice president of sales Amy Brady — agreed to settle cases against them by accepting a permanent ban on marketing or selling any healthcare-related product. Brady will also be banned from telemarketing, the FTC said.

Under terms of the proposed orders, neither Benefytt Technologies, Southwell nor Adams admitted or denied the FTC’s charges. The FTC’s proposed orders await a judge’s signature, and an FTC spokeswoman said she is unsure of when that will take place.

Benefytt and its attorneys did not respond to requests for comment about the case.

Benefytt Technologies sells association memberships and other healthcare-related products to consumers, often through telemarketers and internet sites that collect consumers’ contact information. Southwell was the company’s president between 2016 and 2021. Brady served as a vice president of sales before leaving in 2021.

The company also sells Medicare Advantage plans marketed on cable news channels by aging celebrities like Joe Namath, William Shatner and Jimmie Walker from Good Times.

Benefytt worked closely with Simple Health Plans before the FTC obtained a temporary restraining order on Oct. 31, 2018, the eve of open enrollment for Affordable Health Care coverage, that shut down the agency’s operations, the agency’s complaint against Benefytt states.

In its case against Simple Health, the FTC charged that the company used deceptive sales practices between 2012 and 2018 to sign up thousands of consumers with assurances that they were buying major medical insurance covering pre-existing conditions, hospital stays, in-network visits to primary care physicians and specialists, prescription drugs and other services required by the Affordable Care Act.

In reality, the FTC said, consumers were charged hundreds of dollars a month for limited-benefit hospital indemnity coverage that paid a maximum of $3,200 a year, prescription discount cards and memberships in wellness plans. Dorfman and his agents, meanwhile, pocketed more than $150 million in commissions.

In March 2018, Dorfman threw himself and his bride Izabella Freitas a $300,000 wedding ceremony in Bal Harbour that included $133,000 worth of flowers and photos in front of a Lamborghini and Rolls Royce. The couple filed for divorce in May 2020, court records show.

Many consumers told investigators that they didn’t realize they had been duped until they found themselves deep in debt for medical procedures or unable to buy prescription drugs with their “health insurance cards,” FTC filings state.

Simple Health was one of Benefytt’s largest third-party distributors, the FTC’s complaint against Benefytt states.

“For years prior to the FTC’s lawsuit against Simple Health, [the] defendants were aware of and enabled the distributor’s misconduct,” it says. “Despite compelling evidence of ongoing fraud, [the] defendants continued to invest heavily in their relationship with Simple Health, ultimately collecting hundreds of millions of dollars from Simple Health customers and paying substantial commissions and bonuses on the distributor’s sales.”

Other distributors also “regularly engaged in deceptive practices” while marketing Benefytt’s products, the complaint states.

After signing consumers up for the plans, “Benefytt made things worse by making it hard to cancel their plans, even going so far as to transfer consumers who were calling to cancel back to the sales agents who deceived them in the first place,” the FTC said in its news release.

Southwell, Brady and Benefytt were aware of agents’ misconduct but “took steps to disguise and further the deception,” the release states.

The alleged deceptions have been subjects of several other court cases, some of which have been resolved while others are still pending.

The FTC’s efforts to obtain a permanent injunction to shut down Simple Health Plans has been mired in litigation by Dorfman, even though a court-appointed receiver has liquidated nearly all of Simple Health’s and Dorfman’s assets.

The case is currently on hold pending Dorfman’s appeal of a court ruling denying his motion to dissolve the temporary restraining order preventing him and Simple Health from resuming operations. The appellate court has so far taken no action on the appeal.

Meanwhile, Dorfman and two former Simple Health Plan executives are facing multiple criminal charges of defrauding consumers in all 50 states through use of interstate telecommunications systems and the U.S. mail.

In July, Benefytt agreed to pay $11 million to settle charges by the Securities and Exchange Commission that it misled investors by concealing thousands of consumer complaints while Health Insurance Innovations was a publicly traded company. In July 2020, the company was acquired for an estimated $625 million by a hedge fund, Madison Dearborn Partners LLC, and taken private.

In September, Benefytt and its founder Michael Kosloke agreed to pay $27.5 million to settle a class-action suit filed on behalf of 230,131 identified victims. If all submitted claim forms, each would receive an average payment of $80. Kosloske, ousted by the company’s board before the FTC’s investigation against Simple Health Plans was revealed, left with more than $40 million from his sale of company stock.

Presumably, the $100 million Benefytt has been ordered to pay within a year of a final order in the case will provide additional financial relief to victims. Information as to how victims can obtain a refund has not yet been made available.

In addition to paying the $100 million, Benefytt will also be required to:

Ron Hurtibise covers business and consumer issues for the South Florida Sun Sentinel. He can be reached by phone at 954-356-4071, on Twitter @ronhurtibise or by email at rhurtibise@sunsentinel.com.

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