HealthMarkets, Subsidiaries Banned From Selling Health Plans in Mass. for Five Years

HealthMarkets Inc. and two subsidiaries have settled a lawsuit by the Massachusetts attorney general that resolves allegations that the insurers deceptively marketed and administered health plans sold to businesses and individuals in the Bay State.

Under the consent judgment in Suffolk Superior Court, HealthMarkets, and its Mega Life and Health Insurance and Mid-West National Life Insurance subsidiaries, must pay $17 million in consumer relief, penalties and costs and are banned from selling health plans in Massachusetts for at least five years, Attorney General Martha Coakley's office said.

The insurers allegedly targeted the self-employed and small business owners in Massachusetts through sales of products packaged with association memberships in the National Association for the Self-Employed, Americans for Financial Security and the Alliance for Affordable Services, Coakley's office said.

The state Division of Insurance also conducted a parallel market conduct examination and entered a regulatory settlement agreement with the insurers.

In a statement, the Texas-based HealthMarkets said it worked with the Massachusetts Division of Insurance and the state attorney general to resolve all matters related to regulatory issues with the insurance division dating back to 2003, and to litigation brought by the attorney general office dating back to 2004.

HealthMarkets said its subsidiary insurance companies will focus only on marketing its ancillary vision, dental and related specialty plans in Massachusetts and discontinue marketing health insurance products in the state after Sept. 30.

The settlement also prohibits several practices, including deceptive advertising, failing to provide health benefits mandated by law, illegally requiring individuals and small businesses to join associations to gain access to health plans and disclosing consumers' personal information to third parties, Coakley's office said.

"With health reform in Massachusetts and the requirement that individuals in Massachusetts have health insurance, it has been even more important to stop predatory practices in the health insurance market," Coakley said in a statement.

Under the settlement, the companies agreed to pay the state $17 million, including $11.25 million for consumer relief; $2.1 million in consumer relief, which was already paid; $3 million in civil penalties, and $750,000 in costs, including attorneys' fees. The consumer funds will go to current or former policyholders whose claims for some benefits mandated by Massachusetts law, such as maternity health care, were denied based on purported lack of coverage, and other policyholders whose claims were denied based on illegal pre-existing condition exclusions or waiting periods, the attorney general's office said.

Massachusetts law requires health insurers to include a set of mandated benefits in their plans, including maternity health care, Pap test screening, mammography, and preventive care for children up to age 6. The law also limits health insurance plans' limitations on coverage for pre-existing medical conditions and other waiting periods.

Mega Life and Health Insurance and Mid-West National Life Insurance each currently have Best's Financial Strength Ratings of B++ (Good).