HealthMarkets sued for deceptive marketing

A lawsuit filed last week by the Los Angeles city attorney's office accuses HealthMarkets Inc., a national health insurer, and its majority owners, Goldman Sachs Group Inc. and Blackstone Group, with defrauding California customers by providing "junk insurance" that failed to protect them, the Los Angeles Times reports.

The city attorney charged the defendants with violating California's Unfair Competition and False Advertising Laws. The complaint alleges that HealthMarkets teaches insurance agents deceptive marketing techniques and gives them incentives to say and do whatever it takes to sell a policy, including making misrepresentations and concealing important information about the most basic terms of coverage being offered.

"All their marketing and training and advertising was aimed at convincing people that this was not comprehensive coverage that will protect you in your time of need, Chief Assistant City Attorney Jeffrey Isaacs told the Times. "It certainly did not prove to be that way."

The lawsuit was filed against two California health insurers--Mega Life and Health Insurance Company and Mid-West National Life Insurance Company of Tennessee; their parent company, HealthMarkets, Inc.; their controlling shareholders Blackstone Group, L.P. and Goldman Sachs Group; and three affiliated non-profits.

HealthMarkets is trying to confront the negative information about its companies head-on with a website that implies that the negative information that's available online about HealthMarkets and its subsidiaries might not be true. According to the Times, representatives for HealthMarkets, Goldman and Blackstone could not be reached for comment.

The prosecutors began their investigation of HealthMarkets one year ago, and based last week's lawsuit on the allegations of 13 people, as well as interviews with current and former sales agents.

This is not the first time HealthMarkets has drawn scrutiny. In 2008, the health insurer agreed to pay $20 million to settle violations of insurance rules in most states. Between 2000 and 2005, state regulators investigated the company and found that, among many problems, the sales agents weren't fully disclosing policy limits to consumers.

In one example, a couple was not informed that the drug benefit was capped at $1,000 a day, which turned out to be far lower than the cost of chemo the husband needed. Because the insurer did not cover treatments and three surgeries, the couple had to pay out-of-pocket and went more than $450,000 into the red.

To learn more:
- here's the press release from the Los Angeles City Attorney's Office
- read the Los Angeles Times article

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