LOS ANGELES CITY ATTORNEY'S OFFICE FILES LEGAL ACTION AGAINST HEALTH INSURERS FOR DEFRAUDING CONSUMERS

Suite 800, City Hall East
Los Angeles, CA 90012
Phone: 213-978-8340 Fax: 213-978-2093
http://www.atty.lacity.org
**PRESS RELEASE**

WEDNESDAY, OCTOBER 20, 2010

LOS ANGELES – The Los Angeles City Attorney’s Office announced today that it has filed an enforcement action against Health Insurance Companies engaged in a long running scheme to defraud consumers involving the sale of “junk insurance” – health insurance coverage that is marketed as comprehensive, that includes hidden and obscure exclusions and limitations that leave policyholders without coverage. The prosecutors handling the case are Chief Assistant City Attorney Jeffrey Isaacs and Deputy City Attorneys Felton Newell and Jeremy Berzon.

The Complaint, filed by the Office’s Criminal Branch, names 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 Sach Group, Inc.; and three affiliated non-profit associations.

The Defendants are charged with violations of California’s Unfair Competition and False Advertising Laws for engaging in unlawful, unfair and fraudulent business acts and making false and misleading advertising claims.
The Complaint alleges that Mega, Mid-West and HealthMarkets train their insurance agents in the use of deceptive marketing techniques and incentivize them to say and do whatever it takes to sell a policy, including making
misrepresentations and concealing important information about the most basic terms of the coverage being offered.

According to the Complaint, Blackstone and Goldman acquired control of HealthMarkets in 2006 in an $850 million transaction. The Complaint alleges that, at the time of the acquisition, Blackstone and Goldman knew, must have
known, or should have known that HealthMarkets was engaged in a fraudulent scheme to sell junk insurance products, and that they allowed the scheme to continue while in control of the HealthMarkets board and key committees, including its Compliance and Governance Committee.

FOR IMMEDIATE RELEASE
CONTACT: Frank Mateljan - PIO
(213) 978-8340 (office)
(213) 479-5675 (mobile)
From the Office of the City Attorney
Carmen A. Trutanich

According to the Complaint, HealthMarkets reported revenue from the sale of its health insurance products of $1.1 billion in 2009 alone, and so far this year has paid special dividends to Blackstone and Goldman totaling $90 million.
The City Attorney’s action seeks an order requiring the Defendants to provide coverage consistent with the promises their agents made to California policyholders; an injunction putting an end to Defendants’ unlawful and fraudulent
practices and use of deceptive marketing techniques; restitution for the victims of Defendants’ scheme; and civil penalties of $2,500 for each violation of the Unfair Competition and False Advertising Laws, which could total in the tens of millions of dollars.
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