States Go After Health Market’s Mega Life, Mid-West Life and Chesapeake Life for Unfair Practices

Mega Life and Health Insurance Company, along with its parent company HealthMarkets and sister companies, Mid-West National Life Insurance Company of Tennessee and Chesapeake Life Insurance Company (“Chesapeake”), have had countless complaints and lawsuits filed against them by individuals, groups and state insurance commissioners. Thirty-four states have issued fines against these companies along with their parent, HealthMarkets, Inc. after investigating the company’s practices.

Mega Life and Mid-West Scam Policyholders into Buying Low-Cost/Low-Benefit Coverage

For the past few years, Mega Life and Mid-West have repeatedly been in the news for allegedly deceiving policyholders about the type of insurance offered. In some of the more grievous complaints, consumers are scammed on at least two levels. First, Mega Life, Mid-West, and Chesapeake agents were often representing themselves as brokers from independent associations, such as the National Association for the Self Employed (NASE), Americans for Financial Security (AFS) and the Alliance for Affordable Services (AAS). Policyholders were led to believe that the agents were obtaining quotes from various companies and presenting them with the best plan available. Little did consumers know, these associations only sold policies for Mega Life, Mid-West, Chesapeake and their affiliated companies. Furthermore, policyholders were REQUIRED to join these associations, for a monthly fee, in order to purchase the Mega Life insurance policies. This requirement is not legal in many states.

Second, aggressive sales agents have been accused of misleading consumers as to what their policies actually cover; agents were selling the Mega Life, Mid-West, and Chesapeake coverage as major medical, when in reality the policies covered FAR less. In case after case, consumers complained that claims for even the most basic services, such as lab tests, doctor visits and prescriptions, were denied by Mega Life, Chesapeake and Mid-West – even though sales representatives told them those items would be covered. More disturbingly, when policyholders faced a serious health crisis, they discovered that their policies covered little to none of those costs, often leaving them with debts of up to hundreds of thousands of dollars.

Mega Life, Mid-West, Chesapeake, and their parent company, HealthMarkets, Inc., have a history of defrauding their policyholders. However, states have taken notice, and many have successfully prosecuted these companies, fining them for their violations, and even barring them from selling insurance in some states. Some of the more noteworthy cases are as follows:

Delaware Fines Mega Life $500,000 – Largest Fine Against a Health Insurance Provider in State History

In May of 2007, Delaware regulators prepared a report that alleged that Mega Life sold policies in the state that were not worth the premiums that consumers paid. The report accuses the company of not providing consumers with adequate information to make an informed choice and of enrolling some policyholders as individuals – even when they could have received better rates under a group policy.

In October 2007 Delaware’s Insurance Commissioner fined Mega Life $500,000 – the largest fine against a health insurer in Delaware history. According to the Commissioner’s office, Mega Life routinely violated Delaware law between January 2002 and June 2004. Nearly 3,000 Delaware residents were affected by Mega Life’s violations, which included:

• Failure to provide mental health coverage and immunization coverage required by Delaware law;
• Did not use the correct names of plans to allow consumers to match the product issued by Mega Life with the product for which they applied;
• Failure to adequately train insurance agents on Mega Life plans available to small employers.
• Failure to institute sufficient procedures for taking, tracking and responding to customer complaints against Mega Life and affiliates;
• Failure to have appropriate written procedures in place to assure consistent operation and activities compliant with applicable statutes, rules and regulations.

Massachusetts Reaches a Record $17 million Settlement against Mega Life, Mid-West and HealthMarkets

Massachusetts has had several legal run-ins with Mega Life. In the largest settlement against a health insurer in state history, the Massachusetts Attorney General’s Office reported that it reached a record $17 million settlement against Mega Life, Mid-West and parent company HealthMarkets, for bad faith insurance practices including unfair and deceptive marketing and administration practices and for denying claims to Massachusetts residents.

Specifically:

• Mega Life and affiliates must pay more than $17 million in consumer relief, penalties and costs. The judgment consists of $13.35 million for consumer relief, $3 million in civil penalties and $750,000 in costs and attorneys’ fees;
• Mega Life, Mid-West and HealthMarkets, Inc. were barred from a number of unfair and deceptive acts and practices that were subjects of the lawsuit, including deceptive advertising, predatory sales practices, failing to provide health benefits mandated by law, unfairly disclosing consumers’ personal information to third-parties and illegally requiring individuals and small businesses to join associations to gain access to health plans;
• Mega Life, Mid-West and HealthMarkets, Inc. were banned from selling their health plans in Massachusetts for five years.
• Mega Life, Mid-West and HealthMarkets, Inc. were ordered to leave the Massachusetts health plan business completely – although they were allowed to renew existing health plans with individuals and small businesses through 2012, giving current policyholders time to obtain other coverage.

In a separate matter, the state Attorney General recently filed a lawsuit against the company for its pricing of policies, among other things. The suit alleges that Mega Life spent less than 50% of its annual premium revenue on medical care in a three-year period, compared to over 75% for other insurers in the same period.

Maine Orders Mega Life to Refund $4.6 million in Premiums and Pay Record $1 million Fine

Maine’s Attorney General announced that they have fined Mega Life $1 million in civil penalties and have ordered the company to reimburse policyholders $4.6 million in overpaid premiums, plus interest. The $1 million fine represents $250,000 per year for each year from 2004 to 2007. Maine’s Attorney General was quoted as saying, “Based on the evidence, Mega Life’s rates were determined to be excessive under Maine law. Instead of bringing their rates down as required by law, Mega Life continued to charge inflated rates. This practice resulted in Maine policyholders being overcharged for years. This settlement will return the overcharge plus interest to the policyholder.”

It is estimated that over 9,800 policies were affected by this action.

Multi-state Insurance Investigation Finds Mega Life and Mid-West Deficient

A massive, multi-state insurance examination of Mega Life, Mid-West, and its affiliated companies, involving the National Association of Insurance Commissioners, 34 states and the District of Columbia, found that the companies were deficient in five major areas:

• Handling of policyholder complaints and grievances
• Oversight, communication, monitoring and training of agents
• Processing and handling of claims made by policyholders
• Adherence to a compliance plan
• Disclosure of relationships with membership associations and affiliated companies to consumers and policyholders

Although many of the states involved in the investigation had already fined Mega Life, Mid-West and HealthMarkets separately, regulators concluded that the companies’ actions and complaint histories had not significantly improved when the multi-state investigation had begun, leaving the door open to further fines and penalties.

What Can I Do If I Have Mega Life Insurance?

Given Mega Life’s history of defrauding its customers, it is of little surprise that nationwide, states are pursuing lawsuits against the company and its affiliates, Mid-West, Chesapeake and HealthMarkets. However, it is not only states that are successfully prosecuting cases against Mega Life – individual policyholders are as well.

If you purchased insurance through Mega Life, Mid-West, Chesapeake, HealthMarkets, National Association for the Self-Employed (“NASE”), or Alliance for Affordable Services, take a moment to review your policy; find out specifically what is covered and what is not. Don’t rely on what the salesperson told you – if it turns out that your healthcare policy is anything but what the agent promised you, contact the State Insurance Commission from your state, and contact an attorney who understands how insurance companies operate.

If you have already had medical bills or claims denied, or if you feel Mega Life, Mid-West, Chesapeake, or any other insurer, has acted in bad faith, contact an attorney experienced in health insurance law.

To contact a qualified attorney, please click here. Consultations are free, without obligation and strictly confidential.

Case Studies: States Go After for Unfair Practices

Case Study 1: Deceptive Marketing and Coverage

Several individuals and groups filed complaints against Mega Life and Mid-West, alleging deceptive marketing and coverage practices. Sales agents misrepresented themselves as independent brokers from associations like NASE, AFS, and AAS, while in reality, they exclusively sold policies from the affiliated companies.

Additionally, policyholders were misled about the extent of coverage, often believing they were purchasing major medical insurance when, in fact, the policies provided limited benefits. This case study highlights the impact of deceptive sales tactics and its consequences on policyholders.

Case Study 2: State Fines and Settlements

Delaware, Massachusetts, and Maine are among the states that have taken significant legal action against Mega Life and its affiliates. Delaware’s Insurance Commissioner imposed a $500,000 fine—the largest in the state’s history—citing multiple violations and lack of consumer information. Massachusetts reached a record $17 million settlement to address unfair and deceptive practices, including denying claims to residents.

Maine ordered Mega Life to refund $4.6 million in premiums and pay a $1 million fine for overcharging policyholders and charging excessive rates. These case studies demonstrate the enforcement of penalties to protect consumers’ rights.

Case Study 3: Multi-State Investigation

A multi-state insurance examination involving 34 states and the District of Columbia found Mega Life and Mid-West to be deficient in various areas, including claims handling and consumer information. Despite previous fines, the investigation showed little improvement in their practices. This case study underscores the significance of multi-state cooperation in addressing unfair insurance practices.