10:00 PM PST on Sunday, February 20, 2005

By LORI MATSUKAWA / KING 5 News

A warning is going out about an insurance scam so widespread it's leaving hundreds of thousands of unsuspecting Americans with hundreds of millions of dollars in unpaid bills.

Most of us have never heard of this scam, but it can potentially leave you bankrupt. It happened to Gwen Carter. She thought she had health insurance through her husband's employer, but then she got Multiple Scelorosis. Thousands of dollars in medical bills started piling up and her insurer only made one payment.

“The rest of them went unpaid,” said Carter.

Carter had a major disease to deal with and a financial crisis.

“That set another stress mark over and above what I needed at the time,” said Carter.

What happened to Carter has become one of the largest insurance scams out there: Unlicensed companies posing as real insurers. They take your premiums and pay one or two small bills, then disappear when the big claims arrive.

“The policies themselves are counterfeit,” said Alice Molasky-Arman, National Association of Insurance Commissioners and Nevada Insurance Commissioner. “They look like and sound like an ordinary insurance contract."

The names sound real, too: Employers Mutual, TRG Marketing. These companies are two of the largest fake insurance companies the Department of Labor has gone after.

"We have seen the incidence of phony insurance policies rise by approximately 100 percent. So, the problem is absolutely enormous," said Molasky-Arman.

In fact, the most recent government investigation finds more than 200,000 consumers were left with $252 million in unpaid claims over just a two year period. The Department of Labor officials said it has more than 100 ongoing investigations and is working to shut down these fake companies.

"The people who perpetuate these plans are predators," said Molasky-Arman.

So what can you do to protect yourself?

"The best cure is a large dose of prevention," said James Quiggle, Coalition Against Insurance Fraud.

The Washington State Insurance Commissioner Mike Kreidler advised be skeptical of any policy that is really inexpensive or offers easy sign-up despite a pre-existing condition. And watch out for companies that refer to coverage as “stop-loss insurance.”

"Consumers will have to be very careful when they're offered a deal that seems too good to be true," said James Quiggle, Coalition Against Insurance Fraud.

And the number one thing to do that few of us have done: Call the state insurance Commission to confirm the policy is legitimate.

Officials warn these fake insurance companies generally will start off by actually paying a small claim here and there to throw members off. Then, they continue to pocket premiums until they get nabbed for not paying larger claims.

As for Gwen Carter, while the case against her insurer plays out in court, it’s still not know whether she’ll be liable for any or all of the unpaid medical bills.

To check on your insurer, go to the Web site for the Washington State Office of the Insurance Commissioner and click on "verify before you buy," or call 1-800-562-6900.