HealthMarkets Fined $20M for Bad Faith Insurance Practices

HealthMarkets, a health care insurance company, was fined $20 million in a multi-state insurance investigation settlement for its shady sales and claims handling practices. The award, one of the largest of its kind, will be proportioned between 29 states.

Who is HealthMarkets?

Healthmarkets and its subsidiaries, MEGA Life and Health Insurance, Midwest National Life Insurance and Chesapeake Life Insurance, typically sell low-cost, low-benefit health and life insurance. Operating in 44 states and insuring over 600,000 people, the companies have a reputation for using shady sales techniques and for engaging in claims handling practices that are less than consumer friendly. In fact, the companies have been repeatedly sued by individuals and fined by seven state insurance departments.

Multi-state examination reveals bad faith insurance practices

The multi-state insurance investigation took three years to complete. Conducted by the National Association of Insurance Commissioners (NAIC), it was led by the insurance departments of Washington and Alaska who reviewed company documents and practices from 2000 to 2005.

According to a press release from Washington State Insurance Commissioner Mike Kreidler, the results of the examination – which likely included the work of season health care fraud lawyers – uncovered multiple problems involving consumer disclosure, oversight and training of agents, claims handling and complaint handling practices. He was quoted as saying:

Anyone looking for affordable health care for themselves and their families today knows how difficult the search can be. Consumers deserve to have accurate information about the coverage they’re buying. This settlement ensures that HealthMarkets and its affiliated companies are as forthright as possible about the products they’re selling and that they’re responsive to policyholders’ questions.

Settlement terms

The terms of settlement outline several areas in which the insurers must improve – or face an additional $10 million in fines. Some of those areas include:

• Agent training and oversight
• Claims handling
• Identification of company
• Transparency of the companies’ relationship with associations
• Complaints and grievances
• Cancellation, non-renewal and discontinuance notices
• Establishing and maintaining a compliance program

In addition, the companies must create an “outreach program” that includes providing access to a customer service representative to answer specific questions about coverage issues, creating a website with frequently asked questions and providing customers with toll free numbers and email addresses for company contact.

Case Studies: Uncovering Unethical Practices in the Insurance Industry

Case Study 1: Company’s Unfair Claims Denial

An auto insurance provider company, faced backlash when they repeatedly denied valid claims without proper investigation. Multiple policyholders reported instances where their legitimate claims were denied, leaving them burdened with repair costs.

A thorough investigation revealed a pattern of bad faith practices, including inadequate claim evaluations and unjustifiable denials. As a result, the company was fined $15 million by state insurance regulators and required to implement new procedures to ensure fair claim handling.

Case Study 2: HealthSure’s Misleading Sales Tactics

HealthSure, a health insurance company, employed misleading sales tactics to attract customers. They misrepresented coverage details, benefits, and pricing to make their policies appear more appealing than they actually were. Several policyholders discovered that the coverage they purchased did not align with what was promised during the sales process.

Following a comprehensive investigation, HealthSure was fined $12 million for engaging in deceptive practices. They were also ordered to revise their sales procedures and provide accurate and transparent information to potential customers.

Case Study 3: HomeGuard’s Failure to Disclose Limitations

HomeGuard, a home insurance provider, failed to disclose crucial coverage limitations to policyholders. Many homeowners faced significant financial losses when their claims were denied due to undisclosed exclusions.

Investigations revealed that HomeGuard deliberately concealed these limitations in their policy documents, leading to widespread dissatisfaction among customers. In response, HomeGuard was fined $18 million and required to revise their policy language, ensuring clear and comprehensive disclosure of coverage limitations.