consumer protection, false claims act

HealthMarkets Faces FCA Lawsuit Over “Junk” Insurance

Jun 2017 — A False Claims Act (FCA) lawsuit has been filed against HealthMarkets Inc., alleging the company orchestrated a scheme to dupe customers into buying its “junk” supplemental insurance and cheated the government in the process.

This suit was filed in Florida federal court, and the complaint alleges that HealthMarkets – owned by a consortium led by the Blackstone Group LP – and several subsidiaries took advantage of serving as a web broker under the Affordable Care Act (ACA) to coax people into choosing qualified health insurance plans with the lowest premiums, leaving room in their budgets for the company’s junk additional insurance. The suit alleges:

In so doing, HealthMarkets violated the Affordable Care Act and accompanying regulations, submitted false claims to the government, and made false certifications to the government, all in violation of the False Claims Act.

Over $191 Million in Government Damages

According to the complaint, the damages to the government were about $90 million paid to HealthMarkets in 2013 and about $111 million paid in 2014 for enrolling individuals in qualified plans, as well as unknown damages for the years since.

A relator identified as John Doe originally filed the suit in April 2016. After the federal government declined to intervene, U.S. District Judge Mary S. Scriven unsealed the complaint on May 9. It was alleged in the suit that HealthMarkets was among more than 30 web brokers who entered into agreements to help with enrolling individuals in qualified health plans under the ACA, which requires issuers or insurers to provide a minimum amount of basic benefits.

Brokers act as private distribution channels, offering a choice of qualified plans from multiple insurers, and can enroll individuals through their own websites if they agree to certain consumer protections, such as complying with privacy and security standards. The following allegations were made in the complaint:

It’s claimed by the relator that HealthMarkets broke its promise to comply with the ACA and accompanying regulations, instead orchestrating a scheme to exploit the ACA for its own profit. The company created a website to attract people looking for qualified health insurance plans and then used their personally identifiable information to sell its own junk supplemental insurance, which provides very little coverage.

Flouting Regulations

After the consumers gave their information, HealthMarkets’ agents steered them to plans with the lowest monthly premiums – and the highest out-of-pocket costs – to make more room in their budgets for its additional insurance, the relator says. The agents were paid commissions based on consumer enrollment, receiving more money for purchases of the supplement products. HealthMarkets did not seem to care whether or not their agents were licensed to sell insurance, despite regulation requirements.

HealthMarkets also instructed agents to adjust consumers’ income to increase government subsidies. For instance, if an applicant reported a lower income than he or she actually made, the government would pay additional subsidies and thus, lower the cost of a qualified health plan, freeing up money for HealthMarkets’ supplemental insurance.

In this way, HealthMarkets violated the FCA claiming that, “when brokers enroll applicants into a [qualified health plan], web brokers receive a commission from the issuers who [receive] payment from the federal government for providing a QHP to the applicant.”

HealthMarkets wasn’t eligible for those funds because of its intentional violations of the ACA and accompanying regulations, like requirements that brokers are licensed and use personally identifiable information only for authorized purposes. This isn’t the first time HealthMarkets has come under fire for making illegal profits through the sale of its supplemental insurance.

HealthMarkets and its controlling shareholders, Blackstone and Goldman Sachs Group Inc., were sued by a number of state attorneys general a few years back for allegedly misleading consumers into buying junk insurance that left policyholders with poor coverage.

Case Information

The complaint, now unsealed, seeks three times the amount of damages to the government plus civil penalties of between $5,500 and $11,000 for each false claim, as well as the maximum allowed reward for the relator and attorneys’ fees and costs.

The relator is represented by Steven G. Wenzel of Wenzel Fenton Cabassa PA and Shauna B. Itri of Berger & Montague PC.

The suit is United States ex rel. John Doe v. HealthMarkets Inc. et al., (suit number 8:16-cv-00831) in the U.S. District Court for the Middle District of Florida.


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