For Immediate Release - August 31, 2009

Attorney General Martha Coakley Reaches $17 Million Settlement with Health Insurers Regarding Unfair and Deceptive Conduct

BOSTON - Today, Attorney General Martha Coakley's Office resolved the Commonwealth's consumer protection lawsuit against HealthMarkets, Inc., and its subsidiaries, the MEGA Life and Health Insurance and Mid-West National Life Insurance, settling allegations that the insurers engaged in unfair and deceptive practices in their marketing and administration of health plans sold to small businesses and individuals in Massachusetts. These insurance carriers 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.

"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. We have vigorously sought to hold companies accountable for such practices and this settlement is an important step forward in our efforts," Attorney General Coakley said. "These companies used unfair and deceptive marketing and other practices to convince Massachusetts residents to buy health plans with limited benefits. Massachusetts health care consumers must be fairly told what they are buying, and their premium dollars should be used predominantly to pay health care benefits and not inflated commissions, overhead and profits. We will continue to pursue companies that seek to prey on Massachusetts residents looking for health insurance."

Under the terms of the Consent Judgment filed today in Suffolk Superior Court, the defendants are required to pay more than $17 million in consumer relief, penalties and costs. The defendants will be banned for at least five years from selling their health plans in Massachusetts and are required to exit the Massachusetts health plan business completely. They are allowed to renew existing health plans with individuals and small businesses through 2012, giving current policyholders ample time to obtain other coverage. The settlement further bars 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. The Consent Judgment has been filed and must be approved by the Court. The defendants' new management has cooperated with the Attorney General's Office in reaching this settlement.

Believed to be the largest consumer protection settlement against a health plan in Massachusetts history, the settlement followed an extensive multi-year investigation and litigation by the Attorney General's Office. The Massachusetts Division of Insurance conducted a parallel market conduct examination and recently entered a regulatory settlement agreement with the Defendants, with certain terms reflected in the Consent Judgment.

Under the terms of the Consent Judgment, Defendants have agreed to pay the Commonwealth $17 million, including $11.25 million for consumer relief, $2.1 million in consumer relief (an amount that has already been paid), $3 million in civil penalties, and $750,000 in costs, including attorneys' fees. The Consent Judgment counts towards these figures amounts to be paid pursuant to the Insurance Commissioner's regulatory settlement agreement . The consumer relief funds will be used to provide relief to current or former Massachusetts policyholders whose claims for certain 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. Consumer relief is also expected to be paid to other categories of Massachusetts consumers who have suffered harm from Defendants' conduct at issue in the litigation. Consumers who may receive relief under the settlement will be contacted directly and do not need to take any action now.

Under Massachusetts law, health insurers cannot deny health plan membership to individuals and small businesses based on the consumer's medical condition. Massachusetts law requires health insurers to include in their health plans a set of mandated benefits, including maternity health care, "pap" test screening, mammography, and preventive care for children up to age six. Massachusetts law also restricts health insurance plans' limitations on coverage for pre-existing medical conditions and other waiting periods.

The Attorney General's Office first filed suit against the defendants in October 2006, alleging that the company failed to provide outpatient contraceptive services as mandated by Massachusetts law, and illegally excluded benefits for some patients with pre-existing conditions. After further investigation, the Attorney General's Office filed an amended complaint in August 2007, expanding significantly upon the allegations in the initial suit. In the amended complaint, the Attorney General's Office alleged that the insurers violated state law by misrepresenting the provisions of their policies, failing to cover numerous health benefits and services required by Massachusetts law, disclosing personal health information about insured consumers to third parties, and illegally requiring self-employed individuals and small businesses to pay fees to join associations to gain access to health plans. In November 2007, the Attorney General's Office reached a preliminary agreement with the defendants prohibiting them from engaging in certain practices outlined in the amended complaint.

Consumers concerned about deceptive health insurance practices in the Commonwealth are urged to call the Attorney General's Health Care Hotline at (888) 830-6277. Guidance on how to choose a health plan is also available on the Attorney General's website.

This case was handled by Assistant Attorneys General, Thomas O'Brien, Emiliano Mazlen, Susan Brown and Emily Paradise, and Paralegal Jordan Akerley all of Attorney General Martha Coakley's Health Care Division, with assistance from Quinton Dale, Dean Bates and Kristen Metzger from the Attorney General's Civil Investigations Division.