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News Release: 99-16
GRAY DAVIS, Governor
Date: 11/16/99
WILLIAM KENEFICK, Acting Commissioner
Department of Corporations Issues Warning to Unlicensed Discount Health Benefit Card Plans
Sacramento, November 16, 1999 — The Department of Corporations’ Health Plan Enforcement Division announced that it is taking enforcement action against discount health benefit card plans, also called "referral" plans, conducting operations illegally in California. These plans promise discounts on health care services, most commonly dental, prescription and vision, in exchange for membership fees, which are usually charged on a monthly or annual basis. It is generally unlawful for such a plan to engage in business in California unless it has a license from the Commissioner of Corporations pursuant to the Knox-Keene Health Care Services Plan Act of 1975.
Discount health benefit card plans solicit California members by a variety of methods, including Internet sites, direct telemarketing, television advertising, and e-mail. The so-called discounts they offer may be illusory (no better value than what is already available in the marketplace without payment of a membership fee), or duplicative of other health benefits to which the individual is already entitled. In some cases, these plans may also misrepresent the number or geographical distribution of their health care service providers, or their procedures for confirming or monitoring the qualifications of those providers.
Once the department determines that a discount membership plan falls under the jurisdiction of the Knox-Keene Act, the Health Plan Enforcement Division has the option to issue a cease and desist order to require the plan to halt its unlawful business operations. Violations of a cease and desist order subject an unlicensed entity to additional enforcement action, including monetary penalties.
Editor's Note: As of July 1, 2000 the Health Plan Program and the administration of the Knox-Keene Health Care Service Plan Act of 1975, as amended by the 1999 HMO reform legislation, has transferred to the new Department of Managed Health Care (www.dmhc.ca.gov).
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