Accused seller of ‘sham’ health insurance paid $100 million for consumer refunds before seeking bankruptcy protection

A Tampa, Florida-based health insurance distributor accused by the Federal Trade Commission of misleading consumers into buying “sham” health insurance plans has filed for Chapter 11 bankruptcy protection.

Benefytt Technologies, which has offices in Fort Lauderdale and Sunrise, last year settled a Federal Trade Commission complaint that it participated in “deceptive, unfair and abusive acts” in connection with the sale and marketing of its memberships and related health products, including short- term medical plans, limited benefit plans and medical discount plans.

According to the FTC, the company targeted customers searching for insurance that complied with the Affordable Care Act. In agreeing to the settlement, Benefict agreed to pay $100 million to refund consumers but neither admitted nor denied the allegations.

That $100 million payment, combined with $27.5 million the company paid to settle a class-action lawsuit over related allegations and $11 million paid to settle claims by the Securities and Exchange Commission, contributed to a cash-flow problem that nearly forced the company to cease operations, Benefytt disclosed in its bankruptcy filing on Tuesday.

In addition to paying the $100 million, Benefytt’s settlement with the FTC included its agreement not to lie about its products, tell customers its plans to comply with the ACA, or charge “illegal junk fees.” The company’s former CEO and former vice president of sales were permanently banned from selling or marketing any health care product.

The SEC’s complaint accused Benefit of concealing consumer complaints about its health insurance products between 2017 and 2020 and falsely telling investors that it held its distributors to high compliance standards.

Benefytt operates a number of subsidiaries, including the direct-to-consumer platform TogetherHealth Insurance, which are all parties to the bankruptcy case. Benefytt currently employs 855 workers and operates in 44 states, its bankruptcy filing states.

Benefict’s restructuring plan, filed Tuesday in US Bankruptcy Court in the Southern District of Texas, disclosed that the company owes its creditors about $606 million. The plan calls for Benefict to split into separate operating and cash-flow companies, with the operating company securing about $64 million in new capital from its current owner, a private equity firm called Madison Dearborn Partners LLC, and “certain co-investors.”

The restructuring plan aims to avoid “immediate liquidation” and “allows Benefict to emerge ahead of the annual (Open) Enrollment Period opening in October,” which it called “a critical window that will shape the Company’s 2024 performance.”

Originally a publicly traded entity called Health Insurance Innovations, the company was accused in the class action suit of financing the creation of Hollywood-based Simple Health Plans LLC, and paying the company $180 million in commissions between 2014 and 2018.

The relationship ended around the same time that the FTC secured a court injunction that shut down Simple Health Plans in 2018, just prior to the start of open enrollment for the following year’s health insurance plans.

The FTC accused Simple Health Plans and its CEO Steven Dorfman of misleading consumers into buying nearly worthless health insurance plans by assuring them that their plans covered preexisting conditions, hospital procedures, primary care visits, and other services required by the Affordable Care Act, according to the FTC’s complaints.

Consumers who relied on Simple Health’s assurances when scheduling expensive medical procedures were stuck with thousands of dollars in unpaid medical bills while others only realized after enrolling that they had actually bought a package of discount plans and limited benefit hospital indemnity plans that paid out a maximum of $3,200 a year, the FTC said.

Simple Health Plans’ operation generated about $190 million from more than 400,000 consumers between 2012 and 2018, the FTC said.

In 2022, Dorfman and two of his former top executives were indicted by federal authorities on wire and mail fraud charges. The indictments, which are still pending in the Southern District of Illinois, accuse the three of defrauding customers in all 50 states through use of interstate telecommunications systems and US mail.

In March, the federal judge in the FTC’s lawsuit seeking to permanently shut down Simple Health Plans agreed to Dorfman’s request to put the case on hold while the criminal case proceeds.

Health Insurance Innovations changed its name to Benefytt Technologies in March 2020 and that July announced its purchase by Madison Dearborn Partners for $625 million. The company was delisted from NASDAQ and taken private as part of the transaction.

According to the bankruptcy filing, Benefytt currently operates an insurance sales platform, search engine, mobile application, and insurance plan comparison tool that individuals can use to purchase Medicare and private health insurance and “supplemental insurance products such as accident insurance.” It also operates a technology system that connects consumers with more than 300 insurance agents, as well as a subscription-based portal that enables agents and brokers to manage their customer’s accounts.

After severing ties with Simple Health Plans, the company made changes to protect itself from future “bad actor” distributors, including exiting the business line of serving third-party brokers except in certain cases in early 2021, its filing states.

In addition to the settlements, the company’s cash-flow problems resulted from high customer turnover, increased competition, growing debt service costs, and television marketing campaigns in 2022 that “failed to generate the expected enrollments necessary to generate adequate liquidity to fund operations for the year,” the filing said.

The bankruptcy filing referred to the FTC and SEC settlements as “legacy matters” that occurred while the company was a publicly traded entity, prior to its acquisition by Madison Dearborn Partners LLC. Since that period, “substantially all” senior managers have been replaced, the filing states.

Today, Benefytt might be best known for its TV commercials featuring 1970s New York Jets quarterback Joe Namath as spokesman for the company’s Medicare Advantage plans.