According to the California Department of Insurance (DOI), one California insurance company violated the law more than 900,000 times. The problems for the company began in 2005 when United Healthcare acquired PacifiCare. After that acquisition, the California Medical Association (CMA) saw a large spike in complaints about the way PacifiCare was processing claims and contracts. Between July 2006 and March 2007, the DOI processed 44 justified complaints and identified more than 144 violations of the Insurance Code, but during the entire preceding year, PacifiCare had received only two justified complaints.
When attempts by CMA to work with the insurer failed, CMA forwarded dozens of complaints to DOI for investigation. Following its investigation, the DOI filed an administrative proceeding against United Healthcare charging it with violations that included: (1) failing to give providers notice of their appeal rights and members notice of their right to an independent medical review; (2) failing to timely pay or correctly pay claims as well as interest on late-paid claims; (3) failing to acknowledge receipt of claims; (4) failing to timely respond to provider disputes; (5) illegally closing claims files; and (6) sending untimely collection notices for overpayment.
The administrative trial lasted more than four years. At the conclusion, and after issuing a 220-page decision, Commissioner Dave Jones issued an historic $173 million penalty. Interestingly, Commissioner Jones’ ruling overrode a ruling last year by an administrative Law Judge that recommended United Healthcare be fined no more than $11.5 million. Commissioner Jones’ justification was:
No other insurer has violated [the insurance laws] hundreds of thousands of times. And no other insurer has repeatedly misrepresented its business practices, failed to correct the root causes of its violations, or ignored its statutory obligations to the extent shown herein.
I would have to agree with Commissioner Jones. Without any doubt, 900,000 is a lot of violations. Not surprisingly, United Healthcare disagreed with the commissioner and sued him to block the fine, alleging he was abusing his power and using the case to set a precedent rather than base the penalty on United Healthcare’s actions. Using a method that hadn’t been used before, DOI aggregated the violations and fined the insurer for each letter that was not properly mailed out. To justify aggregation, Jones would have to have found that United Healthcare acted in bad faith. The aggregation method, however, is not limited just to health insurance. This action could be taken as a warning to other companies in California.
For consumers, this action is seen as a mixed bag. The good news is that all insurers should really be “minding their Ps and Qs” in light of this decision. But the bad news, at least according to United Healthcare, is because the ruling treats errors in paperwork more severely than errors that actually affect patient health, the whole health care system could be slower, less efficient, and more expensive. Consumers should be aware that these infractions have occurred, and may still be occurring, by United Healthcare or by any other insurance company. At this point, there is no indication that other states are looking into these types of violations. PacifiCare is a California-based insurance company.
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