$20 MILLION FINE LEVIED AGAINST INSURER TO SETTLE MISCONDUCT PROBE
Morrison Chairs National Effort Resulting In $20 Million Fine Against HealthMarkets, Inc. Operating as Mega Life And Health, Mid-West National And Chesapeake Life
As Chairman of the National Association of Insurance Commissioners Market Regulation and Consumer Affairs Committee, Montana State Auditor John Morrison today announced the details of a $20 million regulatory settlement agreement between 28 jurisdictions and HealthMarkets, Inc., and its affiliated companies, MEGA Life and Health Insurance Company, Mid-West National Life Insurance Company, and Chesapeake Life Insurance Company.
The regulatory settlement follows a three-year multi-state exam which found multiple problems involving consumer disclosure, oversight and training of agents, claims handling and complaint-handling practices. HealthMarkets faces up to $10 million in additional penalties if it fails to meet performance standards outlined in the settlement.
The multi-state examination was coordinated through Morrison’s committee and was initiated by Washington State Insurance Commissioner Mike Kreidler and Alaska Insurance Director Linda Hall in 2005.
"This is a good multi-state settlement that addresses some serious violations of our consumer protection laws," said Morrison. "By coordinating our efforts through the NAIC, we are better able to expedite a collective regulatory response that protects consumers on a nationwide basis."
The $20 million penalty will be divided among the participating jurisdictions based on the companies' premium volume. Montana’s share—estimated to be about $95,000—will be deposited into the state’s General Fund. Combined, the companies collected $8,703,766 in premiums in 2007 in the State of Montana.
According to the terms of the settlement, the companies must implement an outreach program that includes the following:
- Sending a notice to all policyholders with policies issued prior to Aug. 1, 2005, that includes a toll-free number, mailing address and e-mail address where policyholders can ask questions about their coverage. The notice also must include a Web site address for each company.
- Ensuring each method of communication is staffed by someone able to provide detailed information about the policyholder's specific plan.
- Establishing a Web site with a "frequently asked questions" section, general coverage descriptions, a listing of contact information and information on how to appeal a claim or file a grievance.
In addition, the companies must report progress twice a year through Dec. 31, 2009, on performance standards targeted for improvement. Led by Washington, the states overseeing these activities are Alaska, California and Texas. There are 13 areas in need of improvement, including:
- Agent training and oversight
- Identification of company
- Transparency of the companies' relationship with associations
- Complaints and grievances
- Cancellation, nonrenewal and discontinuance notices
- Establishing and maintaining a compliance program
The examination covers a five-year period ending Dec. 31, 2005, and stemmed from the volume, scope and nature of complaints made against the companies by consumers in many states.
According to the findings, the companies targeted their sales to self-employed individuals and sold the health plans through associations. MEGA agents sold policies through the National Association for the Self-Employed (NASE), and Americans for Financial Security (AFS). Mid-West agents sold plans through the Alliance for Affordable Services (AAS). In many instances, the agent or the company did not adequately explain the benefits covered by the health plan.
“This settlement demonstrates our commitment and determination to protect America’s insurance consumers and to hold wrongdoers in the industry accountable,” said Morrison. “I commend the fine work of everybody involved in reaching a resolution in this case – it is truly a victory for consumers.”