After reading a contractor's assessment of American Home Shield (AHS) business practices and reimbursement models, my recent negative experiences with this company now make sense. Basically, although I cannot prove this, it appears that AHS and their contractors are committing widespread fraud on a consistent basis, with the home warranty client being the primary victim.
Over the past 2 months I have had two occasions to request warranty coverage from AHS. The first was on an AC unit that was not producing cool air. After requesting a service call, my first issue was that it took over 2 days to obtain an appointment. It turns out that the HVAC company was based north of Atlanta (over 2 hours away) and they only made trips to Columbus, GA when they had enough appointments to justify a trip. My second issue arose when I was advised of the estimate by AHS. Not only did the contractor report that the condenser coils needed to be replaced, but that in addition to this there were approx $500 in "non-covered" work that needed to be done to bring everything "up to code". The need for this additional work to bring things up to code was surprising to me seeing that the home was not even 10 years old, and HVAC contractors that I questioned were not aware of any substantial code changes over this timeframe. Secondly, I have had numerous HVAC maintenance service calls in the past few years, and none ever mentioned or identified any of this work needing to be done. When I requested that only the covered work be done, I was told by AHS that the contractor cannot do the warranty covered work without also doing the necessary non-covered upgrades. Suspecting a fraudulent estimate on the part of the contractor, I asked AHS for a second opinion, only to be told that I cannot obtain a second opinion on non-covered items. Ultimately, I refused on principle to pay for these non-covered repairs and therefore was unable to get the warranty covered work done either. I called a local HVAC company who came out promptly and informed me that NONE of the items that had been identified as needing repair or replacement by the AHS contractor was necessary, and they repaired the unit in short order for minimal cost with cleaning and refrigerant recharge. It has since worked fine.
The second incident I have had with AHS involved the hot water heater which had begun leaking. I submitted a service request on Tuesday, and still had not received a call from the contractor for over 2 days. Finally, on Thursday afternoon AHS called and assisted me in scheduling the appointment for Friday afternoon. I actually addressed my concerns about my prior HVAC experience with the agent, who stated that I would be able to obtain a second opinion if I disagreed with the estimate. Well, you can probably guess what happened next. Sure enough, I was told that the hot water heater needed replacement which was covered under my warranty, but that there was an additional $440 in "non-covered" repairs needed to bring my unit "up to code". See a disturbing trend here? I own a number of residential investment properties that are much older than this, and have had to replace a few hot water heaters in recent years. NEVER have I been told that additional work needed to be done to bring anything up to code. Again, when calling AHS to dispute this estimate, I was told that I could not get a second opinion as this was non-covered work. I requested cash in lieu of the repair, called my own local service company who came out and promptly replaced the unit for less than $800. I verified with them that no additional work was needed to "bring the unit up to code". I did receive $250 from AHS in lieu of the work being done by their contractor. Yes, I ended up paying about $100 more by doing this with another service provider, but I think this is how the AHS service companies calculate their additional non-covered work costs. It's always a just low enough additional charge to make it less costly to go through the AHS provider than going to another company! To help visualize, here is a hypothetical summary:
Cost of repair under AHS warranty: $0
Service call fee $60
Cost of additional "non-covered" items: $450
$510 total repair cost
Cost of repair using a non-AHS service provider: $800
Amount of cash in lieu of warranty repair: $250
$550 total cost
The way they calculate it, as long as the consumer sees they will still be paying less with the AHS provider in scenario A, they'd be willing to pay. In addition, they figure you've been paying all these premiums to AHS so you would want to get your money's worth. Remember, the "non-covered items" are really not repairs that are needed, but you are unable to dispute this as AHS will not support second opinions for non-covered items. Nice scam isn't it?
In summary, AHS uses a very select group of contractors that are usually not local to their coverage areas (except for small appliances), resulting in long wait times for estimates and repairs. The question arises: Why would this be the case when there are numerous licensed/insured businesses in my metropolitan area (the 3rd largest city in the state with a population of near 200,000) that could provide adequate, affordable, high volume service? I think the answer becomes clear when you think about their reimbursement model. It seems that AHS grossly under compensates their contractors, requiring them to use the aforementioned fraudulent business practices to make profit. AHS benefits by not having to pay the contractors a fair price for performing their warranty-covered repairs. The contractor makes their profit then by charging the client for additional non-covered items that didn't really need to be repaired. The only one who doesn't benefit is the warranty consumer, who not only pays their premiums to AHS, but also pays a $60 fee for the initial service calls, then pays the extra money for the "non-covered" items. The key is, when you add in the $35 premiums per month, the scenario B above actually looks way better financially. So, in conclusion: don't ever buy an American Home Shield warranty!
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