Los Angeles Sues Health Insurer for Deceptive Business Practices
On Wednesday, the Los Angeles city attorney's office filed a lawsuit accusing national health insurer HealthMarkets and its majority owners of defrauding California policyholders by selling them insurance plans that provided little or no coverage, the Los Angeles Times reports.
Los Angeles prosecutors began their investigation into the Texas-based insurer about one year ago. Goldman Sachs Group and Blackstone Group have owned a majority stake in the insurer since 2006.
The lawsuit is based on the allegations of 13 people and interviews with former and current employees of two of HealthMarkets' subsidiaries, Mega Life & Health Insurance and Mid-West National Life Insurance. The two subsidiaries -- as well as three additional not-for-profit associations -- are named as defendants in the suit.
In the lawsuit, the attorney's office claims that HealthMarkets and its affiliates trained employees to deceive consumers into purchasing confusing policies with numerous limitations and exceptions. Attorneys say the sales agents primarily targeted self-employed individuals and small businesses.
The lawsuit also claims that Goldman Sachs Group and Blackstone Group were aware of HealthMarkets' deceptive practices when they bought a majority stake in the company.
Representatives for HealthMarkets, Goldman Sachs Group and Blackstone Group could not be reached for comment on the lawsuit, the Times reports.
However, HealthMarkets has set up a website dismissing what it calls "negative opinions"Â disseminated on the InternetÂ by attorneys and former employees.
The website encourages consumers to contact the insurer with any concerns or questions about their health coverage.
In 2005, regulators from California and 34 other states opened an inquiry into HealthMarkets' business practices. The regulators cited problems with the training of sales agents and the disclosure of relationships between the insurer and three not-for-profit organizations.
In 2008, HealthMarkets agreed to pay $20 million to the affected states. The payment included $2 million for California (Helfand, Los Angeles Times, 10/21).This is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.