Limited Health Policies Vex Some Buyers * Mega Life And Health Insurance Company

Limited health policies vex some buyers

Enlarge By Robert Alan Benson for USA TODAY

Christopher Closson, right, with Kristen, from left, Lindsay and Jonathon, was left owing $200,000 for his late wife's medical bills under a Mega Life policy that he says was deceptively advertised.



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National Association of Insurance Commissioners online complaint tracking tool



Actions taken by the Massachusetts Division of Insurance



Delaware market conduct exam of MegaLife



Massachusetts lawsuit against MegaLife





By Julie Appleby, USA TODAY
Sales agents peddling health insurance through Mega Life or Mid-West National told customers the coverage was affordable and good.
What they often didn't say, according to Massachusetts' top prosecutor, was that the companies' standard policies didn't cover doctors' office visits. Or prescription drugs. Or chemotherapy. Or some lab tests and X-rays.

The insurers, whose parent company is HealthMarkets, waged a "campaign of deception and unfair practices," alleges a lawsuit filed Aug. 22 by Massachusetts Attorney General Martha Coakley.

For years, similar allegations have dogged the company, which sells policies with strict limits on what they pay toward medical care. Since 2002, the company has been fined by seven states and faced lawsuits from dozens of policyholders. It is now the focus of a probe by insurance regulators in 36 states, led by Alaska and Washington.

The results of the probe are likely to be released this fall. The findings could have far-reaching effects on HealthMarkets, which insures 650,000 people in 44 states. And it could set an example for other insurers competing for a growing market: The 17-million-plus people who buy their own insurance because they are students, self-employed or aren't offered coverage at work.

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No one connected with the probe will disclose its findings or expected recommendations, but a settlement HealthMarkets made last year with Massachusetts insurance regulators could offer clues to a possible result.

The insurer, without admitting any wrongdoing, now is writing to 22,000 Massachusetts policyholders, offering to reassess medical treatment claims it had denied dating to January 2002. Some consumers may get their money back.

The multistate probe's findings "will tell us a whole lot about … the new approach (HealthMarkets) says it's taking," says Mila Kofman of the Georgetown University Health Policy Institute. "Other insurers want to know what state regulators perceive as problems and look at whether they are engaged" in similar practices.

HealthMarkets Chief Executive Officer William Gedwed says, "We vigorously deny and disagree with the allegations" in the Massachusetts attorney general's lawsuit. Gedwed — and some regulators — say it's a better company today.

"From at least 2003 on, we've put a tremendous amount of effort into ensuring we do things the way regulators want," he says.

Since he took over in 2003, Gedwed says, the company has announced initiatives to improve customer service. Starting in 2005, HealthMarkets began making follow-up phone calls to new customers to make sure they understood their policies. And last year executives created a regulatory advisory panel that includes former state insurance investigators and former Health and Human Services secretary Tommy Thompson.

Consumer complaints against the company's insurance subsidiaries have fallen since 2005. But they're still at least twice the national median for insurers, according to a ratio of complaints to premiums calculated by the National Association of Insurance Commissioners, which in 2005 called for the ongoing probe.

State regulators have investigated other health insurers that sell similar types of policies with limited coverage; often the issue has been whether the policies' limits were clearly explained to customers. But no other health insurer has had the kind of multistate scrutiny HealthMarkets faces.

Leslie Krier, a Washington state investigator overseeing the probe, says it has examined a range of company practices "brought to our attention as … problematic in many jurisdictions."

Investigation a 'tremendous benefit'

Despite the ongoing scrutiny, HealthMarkets' three insurance subsidiaries — Mega Life, Mid-West National and Chesapeake Life — make up a business attractive enough that the company was purchased last year for $1.6 billion by the Blackstone Group (BX) and two other private-equity firms.

Gedwed says the multistate investigation has been a "tremendous benefit" because HealthMarkets has been able to work closely with state regulators. The company was given a draft copy of the probe's findings on July 31.

"A lot of the things they will recommend to us have already been implemented," Gedwed says. "We have a strong commitment to consumers and regulators as we go forward."

Many of HealthMarkets' policies are what are known as limited- or scheduled-benefit plans, a fast-growing but controversial type of coverage that sets tight limits on what an insurer will pay toward benefits such as hospital care.

Limited-benefit plans are better than no insurance, some health care analysts say, and their generally lower premiums appeal to those on tight budgets. Others question whether coverage that can leave policyholders with large bills can truly be called insurance.

Many HealthMarkets' policies cap payments for hospital care to a few hundred dollars a day, far short of the thousands of dollars it may cost a patient for daily hospital care.

Limits are set on other services, such as surgery or outpatient care. Its policies often have multiple "per sickness" deductibles, rather than one annual deductible.

Unlike more traditional insurance, HealthMarkets' policies usually have no upper limit on how much policyholders could pay each year toward such things as hospital bills or chemotherapy.

"In a typical insurance policy, what you have to pay is generally capped," says Antony Stuart, a Los Angeles attorney who has represented about a dozen policyholders suing HealthMarkets. "These (policies) are upside down, where what the company has to pay is capped and what you have to pay is not."

One of Stuart's clients is Christopher Closson, whose lawsuit alleges he bought a health insurance policy in 2003 from Mega Life that Closson thought covered a broad range of medical costs.

It was only after his wife, Kathy, was diagnosed with colon cancer that they learned the policy's payment caps of $800 a night for hospital care and $1,250 a day for chemotherapy were far below what such care costs, Closson's lawsuit says. By the time Kathy died at age 40 in 2005, the couple owed more than $200,000 to hospitals and doctors, according to the lawsuit filed in California state court.

Closson's lawsuit alleges his sales agent assured him the most they would pay out of pocket for medical care under the policy would be $10,000 to $15,000 a year. "The bottom line, the way they sold me the policy (was by saying), 'You have nothing to worry about with this policy. … Everything will be covered,' " Closson says.

Gedwed will not comment on the Closson case, which is pending.

In court papers, HealthMarkets has sought to have the case dismissed, saying Closson has no legal standing because Closson's wife bought the policy, not him.

Sales practices questioned

Private lawsuits such as Closson's and the Massachusetts attorney general's complaint have targeted HealthMarkets' sales practices.

One practice cited by regulators is one requiring most policyholders to join one of three associations — the National Association for the Self-Employed, the Alliance for Affordable Services or Americans for Financial Security — that have ties to HealthMarkets.

The Massachusetts attorney general's lawsuit says the requirement is unfair because consumers should not be required to pay to join the associations to get insurance. The associations cost $100 to join plus $40 a month to maintain membership, according to the attorney general's office.

Insurance regulators in Massachusetts investigated the firm after receiving complaints that sales agents had told consumers that insurance sold by the firm was "just as good as anything else sold in the state," says Kevin Patrick Beagan, deputy commissioner for the Massachusetts Division of Insurance.

But HealthMarkets sharply limits coverage for hospital care, cancer treatment and physical therapy, "things not normally excluded," from most plans, Beagan says.

The company also has been challenged for charging high premiums relative to the benefits it pays.

The company spent an average of 47% of its total premium revenue on medical care from 2003 to 2006 in Massachusetts, the attorney general's lawsuit says. Other insurers spent an average of more than 75% of revenue on medical benefits, the complaint says.

HealthMarkets "has misrepresented … that they charge premiums that will be reasonable in relation to the benefits provided, when (it) pays benefits in Massachusetts that are less than half of premiums received," the lawsuit alleges.

HealthMarkets says its average annual premium in individual plans in 2006 were $2,577, about half the cost of a typical individual plan offered by employers.

However, employer plans generally have far lower deductibles, an annual out-of-pocket cap on costs and other benefits that many HealthMarkets policies don't have.

In a May report, Delaware regulators alleged that some additional benefits that can be added to standard policies sold by the company from 2002 to 2004 were barely worth the premiums paid for them and that consumers were not given enough information about their true cost.

Delaware regulators also alleged the company enrolled policyholders as individuals even when they qualified for more generous group policies under state law, and directed its customer service representatives to discourage policyholders from making written complaints.

Delaware's insurance commissioner will decide this month whether to uphold recommendations made by investigators. HealthMarkets can challenge the findings at a public hearing.

Among HealthMarkets' critics is Kansas Insurance Commissioner Sandy Praeger. "We have a lot of problems," she says. "I don't think the people selling them are upfront about the policies' limits."

She says she spoke with HealthMarkets recently, "And they've implemented a new procedure of contacting people to make sure they understand. We'll see if that diminishes the complaints."

Not all regulators are as critical. Kim Holland, Oklahoma's Insurance Department commissioner, says HealthMarkets and Mega Life have made substantial improvements in areas such as agent training.

"They are working very hard to improve their relationship with insurance regulators," she says. "I have no problems with Mega."

Massachusetts' Insurance Division investigators also say the company has made changes. "We know Mega has … taken steps to address what's been pointed out within all of our examination reports," says Beagan, whose division continues to monitor the insurer.

Gedwed says the company's improvements include revising its training manuals and boosting its tracking of complaints in all states. "We go out of our way to communicate with (customers) and tell them what the loopholes (in the coverage) are," he says.

Explaining policies better

Gedwed says that since 2005, when HealthMarkets began calling new customers to see whether they understood the limits of their policies, the company has reached 160,000 policyholders in calls that are tape-recorded and average 16 minutes in length. He says 98% of those contacted have kept their policies after such calls.

"Unfortunately, what doesn't get printed (in media reports) are all the positive aspects of our coverage," Gedwed says.

"We have a family in Connecticut whose son had a stroke, and they will praise our product and say their son is alive today because of that coverage. We have a 15-year-old boy in Arizona who is battling leukemia, and we've paid over a million (dollars) in coverage for him."

When contacted by USA TODAY, both families lauded their insurance and praised their agents, who they said made calls to HealthMarkets and took other steps to ensure their bills were paid. "Everyone came together for the good of my son," says Gary Mendez, father of the stroke patient.

But both also had substantial bills that were not covered by their insurance policies. Penny Wilson, mother of the teen with leukemia, owes $22,000 in hospital bills. She says that's better than the $1 million she might have owed without insurance.

Mendez says because his son was 19 and a full-time student, the state's Medicaid program picked up about $150,000 in costs not covered by the insurance. He says he would have been pleased with HealthMarkets' coverage even if Medicaid had not stepped in.

Although Wilson and Mendez were chosen by the company as examples of happy customers, they also represent a shortcoming of HealthMarkets' coverage.

"The idea behind being privately insured is that your insurance company will pick up the bills when you're sick, not for government programs to pick up the bills after you've paid premiums to the insurer," says Georgetown's Kofman. "By the time a consumer realizes they don't have a major medical policy, it's too late."

Posted 5d 12h ago
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Comments: (290)Showing: Newest first Oldest first


catahoulagirl wrote: 2d 16h ago
This comment was made...and the guy has NO IDEA what he is talking about...

"Insurance companies like to insure young people of which their studies show the benefits are used less than the more elderly. As a person ages the price becomes unfordable and it becomes better to qualify as destitute if you want to live. It's all about profit."


First off, the young people are the ones who KEEP THE INSURNACE PREMIUMS ON INDIVIDUAL AND GROUP POLICIES IN LINE. Unfortunately, more and more younger, healthier individuals are choosing NOT to carry health insurance, only opting to finally insure themselves WHEN THEY NEED IT. So, the younger, healthier generation are not buying healthcare insurance, then when they get sick, then they try looking for a policy. THIS IS WHAT MAKES INSURANCE PREMIUMS HIGH PEOPLE!!!!! We need more people to have insurance, and not just be willing to pay WHEN THEY NEED IT. It does not work like that, because the insurance companies are then insurance ONLY the sick, so naturally the premiums are going to be higher. We must ALL do our part to help keep premiums down, to maintain health insurance coverage on ourselves, EVEN IF WE "DONT NEED IT". If we were to practice this, it would keep premiums down! (and we will ALL benefit from this move)

Think about it.


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acarroll wrote: 2d 21h ago
This guy puts Mark Antony to shame ("so are they all, all honorable men...")

"Gedwed says the multistate investigation has been a "tremendous benefit" because HealthMarkets has been able to work closely with state regulators."

"...we've put a tremendous amount of effort into ensuring we do things the way regulators want," he says."

It's no great credit to the company's reputation that previous denials may be reviewed and some people may "get their money back." What about the people who died or were permanently injured because they couldn't afford to get the medical care they needed, all while having "insurance"? What about the lives of their families and caregivers? What about the people who had to declare medical bankruptcy and ruin their future prospects? How can such a callous outcome not be called out for what it is?

Part of the problem that is buried in this article is the way the financial services industry (of which insurance companies are part) is structured, which is antithetical to the mission of a company that is not selling widgets but human services and human trust. The obvious aim of the company was to raise its stock prices enough to make it attractive to potential buyers, and it was immaterial how it reached that goal. Private equity firms don't look at the processes or whether the goal was attained ethically or not, just the bottom line. It is not important to the buyout "experts" whether the company met its business responsibilities--the purpose of insurance is to pay out when there is an adverse event, after all--but if the dollar goals were reached by dishonest sales and administrative tactics, that is immaterial to evaluating the "quality" of the company--and caveat emptor. The multiple lawsuits and state actions against the company apparently didn't bother the three private equity firms when they did their analysis and decided that it was a good risk--and that is the point that is hardest to swallow.

There ought to be a legal and regulatory category for and separation between for-profit companies that sell consumer commodities and companies that sell human services and human trust, just like there is (or used to be) between religion and government. Standards should be different for evaluating their business practices and their risk status and their market success, and ethical standards should definitely be required to be added to the calculation by the financial services industry, rather than rewarding them for their bad behavior.



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wfrobinette wrote: 3d ago
jazzeewun wrote: 12h 27m ago
I am writing to all the naysayers that are complaining how much extra taxes they would be paying for national healthcare programs. ARE YOU KIDDING ME? The cost would just transfer from from the money deducted from your paychecks already for the current healthcare programs you are already enrolled in.
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HUH? I only pay 30% of my premium. The company pays the rest. Unless the plan calls for increased tax burden on the employer to offset the rest of the premium(Similar to FICA) I'll lose another 6% to 7% of my income to tax. 10% of my income to pay for universal health care is unacceptable. That would be nearlty 30% to 38% of my income going to taxes. I call BS.


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jacksmith wrote: 3d 12h ago
Well said jazzeewun. I hope people like you will spread the word to all your family, and friends. You all stand to gain a lot. But you must all come together now! You must make the whole country buzz about this.

And pressure their politician's to pass HR 676 now! Even the little children should be pestering their parentS about seeing to it that they are protected with Universal National Health Care For Life. So they can go out and play, and be in sports with out worry.

You must bring the gates of Hell, and Heaven down on your politician's heads Now! YOU HAVE THE POWER!!!! You can do it!! You Can Do Ti!! YOU CAN DO IT!!! ... Now is the time! Do this for Your-self, and all America. It's the Right THING, AND THE SMART THING to do...



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jazzeewun wrote: 3d 13h ago
I am writing to all the naysayers that are complaining how much extra taxes they would be paying for national healthcare programs. ARE YOU KIDDING ME? The cost would just transfer from from the money deducted from your paychecks already for the current healthcare programs you are already enrolled in. Everyone likes to think that their lives will always good (if they are good right now) but for the unforseen tragedies, injuries, inflation or other catastrophic loss of income, I would love for medical care not to be one of my worries. You can always recognize the guy that thinks he's supporting everyone--he's usually the one with the biggest mouth. But when his life gets turned upside down or unravels he quietly tries to fit in unnoticed. What's wonderful today can always be gone tomorrow. Ask some of them Enron folks and some of those others that saw their retirements go up in smoke. Are you really that untouchable?


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jacksmith wrote: 3d 13h ago
I have the best health care coverage money can buy in this country. Which, as I said before is very poor coverage. Because the medical care in America is so bad. Because it has been corrupted by greed, and the profit motive.

You really cant trust your medical care in America at the present time.

"Whether you have the finest full coverage health insurance. Or no insurance at all. Whether you are the President of The United States, senator, or congressman. Or a premature infant in some inner city icu struggling for your life. Your medical care has been severely compromised by greed, and the profit motive. And in medicine, compromised care means injury, disability, and DEATH."

Love.... With a clinched fist.


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newengland wrote: 3d 14h ago
Great comments MY HSAguy!!! Agreed...Health Insurance is for what you can't afford to pay!!! I have had a policy with Mega Life for over 20 years...I have the highest deductible and no other benefits..it was my choice!! It is for every one.?.no..but the agent explained everything..I also was left an outline of coverage which told me what I took...my question to those complaining about the company...did you every read the outline or policy?...one of the pages in the policy has an outline of all the benefits..if you took a limited plan and did not know it ,you would have immediately, if you took the time to read it...that is your responsibility..I also think that if these programs have limited coverage then complain to your Commissioner of Insurance in YOUR State ...that are the ones that allow these policies in..maybe they should be sued and not the insurance company..the state allows them to sell these limited policies then they are the ones that should be held liable...the insurance company had to disclose all the benefits and exclusions and how the plan worked...if the states are so upset about Mega's policies then don't approve them...so why do they.....well...every consumer is different...what you want may not be what I want...for some consumers they are not concerned with a Catastrophic illnes..they are concerned with a ten, -twenty thousand dollar bill..and those limited policies fit their needs...ultimately it all comes down to YOU and the responsibility you have in reading and questioning what you have...always easy to point fingers at someone else to justify your own failures...Are their bad agents...well yes I am sure...there are bad CEO's--Ken Lay for ie...Bush tells us things all the time that are not true...I believe 1/2 what I hear...when the agent sold me my plan I read the outline with him so I knew then if it were true or not..and I questioned him on what I read.. I can buy a limited house and car insurance policy too...if I do, is it fair to be complaining about it when I have a problem..?.and if I don't know it is limited ,doesn't that become my responsibility..Maybe those that didn't read their policy should be sued.by the insurance company..on the 1st page of your policy you have a 10 day free look...review it etc...and since you didn't read it you did not uphold your end of the contract...It works 2 ways..MY biggest recommendation though is to question your commissioner of insurance...if they didn't allow these limited plans in then the problem would stop immediately. or would it?? is that fair to the consumer who cares more about the cost...not the coverage...ummmmmmmmmmm


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GotOutOfMI wrote: 3d 15h ago
Insurance companies like to insure young people of which their studies show the benefits are used less than the more elderly. As a person ages the price becomes unfordable and it becomes better to qualify as destitute if you want to live. It's all about profit.


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jacksmith wrote: 3d 16h ago
You see. These people against universal National Health Care For All arent really concerned about what it would cost. They know we can easily afford it. And it would cost much less than what we pay now.

They arent worried about socialism. Or government taking over controls of our lives. They know that will never happen. Having guaranteed health care will just make America stronger, and more free. Because people will be healthier.

Americans can take more chances. And change jobs without worry over loss of health care. Or being bankrupted, and financially destroyed if they get sick. Or have an accident.

Parents can let children go out to play. And let them participate in sports. Without fear of financial destruction if the child gets injured or hurt. No more children will die from a tooth ache that turns into an abscess and destroys their brain before the parents can get help for the child.

Sounds beautiful doesn't it. And you can have it. But you have to act now. Get on your politician's. And run against them if you have too. sickocure.org

These people opposed to universal national health care for all. Are the people who have raped you. Your family's. And your loved ones with, and through medical care for years. Doctors. Pharmaceutical company's, insurance company's, hospitals, and politician's.

Forget about these bums. Take what is yours. And make your politicians give you what you want. Or be thrown out of office by the seat of their pants.

For those of you whining about possibly having to pay your fair share for your fellow Americans health care. I have no problem with giving you an option to opt out of the benefit of guaranteed National Health For All.

They could give you a tax deduction. But if you or any member of your family gets in an accident. Or gets sick and has to be cared for through any part of the National Health Care system. You and your insurance company will be billed the full cost of care. And if you fail to pay. Reported to a credit agency. And forced into bankruptcy if you don't pay.

You nor your children should receive any of the protections of National Health Care For All until you pay your full bill. Although we would allow you minimal emergency room care. Before we dump you on skid row. :-) :-) :-)

Best of luck

Love.... With a clinched fist.


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MyHSAguy wrote: 3d 17h ago
Why is it that we look at health insurance so much different than any other type of insurance we purchase? Does our auto insurance cover oil changes and windshield wiper blades? Does our homeowners insurance cover our washer/dryer or furnace? Why is it we expect health insurance to cover every minor expense? The problem with our current health insurance system lies in how the services are delivered. What else in our free-enterprise society today is delivered in a "copay" system? Imagine buying a car and paying a $200 copay with someone else paying the rest. Would any of us be driving the same car we are today? Of course not! No wonder health care now consumes over 16% of our total GDP which is 60% more than Americans spend on housing!

With skyrocketing health insurance premiums companies such as Mega Life and Health can easily sell these limited policies to people because they get insurance that includes copays for doctor's office visits and some prescription drug coverage at a much lower premium than comprehensive major medical plans.

There needs to be a change in vocabulary in order for people to understand how to purchase health insurance. Most comprehensive major medical health insurance plans have 3 moving parts consisting of deductible, coinsurance, and copays. These 3 combine to represent some sort of out-of-pocket maximum that is difficult to understand. Most plans do not even count copays towards this maximum. Those plans should be described as "unlimited" out-of-pocket. Other than the new HSA qualified major medical insurance plans, which are required by IRS guidelines to have maximum out-of-pocket limitations, it can be very difficult to understand how much is covered.

This is why you should consider an HSA qualified comprehensive major medical PPO insurance plan. Once you own a qualified insurance plan you are then allowed to open a triple tax-advantaged (pre-tax deposits, tax-deferred interest earned, and tax-free withdrawals for eligible medical expenses) HSA account. You then pay your smaller bills out of your HSA at the in-network PPO discount while retaining insurance in case of a larger expense. Whatever is left in your HSA account YOU KEEP! The insurance deductible is offset by your HSA so that your total out-of-pocket maximum is usually much lower than it is with traditional plans.

I have read many of Julie Appleby's writings and she has mentioned HSAs on many occasions. Although most health insurance brokers are hesitant to recommend HSA designs experts are still predicting 10 million HSAs will be in use by 2008. HSAs provide a vested interest in saving health care dollars for possible future expenses, or if we never spend it, keep it to help supplement retirement income (think IRA).

I just wish the people victimised in this article had been given this information.

Scott Borden
OFM Benefits Consulting, LLC