HealthMarkets Fined $20M for Bad Faith Insurance Practices

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Jeffrey Johnson is a legal writer with a focus on personal injury. He has worked on personal injury and sovereign immunity litigation in addition to experience in family, estate, and criminal law. He earned a J.D. from the University of Baltimore and has worked in legal offices and non-profits in Maryland, Texas, and North Carolina. He has also earned an MFA in screenwriting from Chapman Univer...

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UPDATED: Apr 3, 2022

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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.

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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.

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