Business
Health plans subpoenaed in fraud probe
■ Questions over insurance brokers' fees and deals lead to investigations by state regulators.
By Robert Kazel — Posted Nov. 8, 2004
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A probe into alleged bid-rigging, backroom deals and kickbacks involving insurance broker fees, spearheaded by New York Attorney General Eliot Spitzer, sent many managed care stocks into a one-day nosedive in October and triggered numerous similar investigations by governments in other states.
Various health insurers confirmed receipt of subpoenas from Spitzer's office concerning potentially anticompetitive fees -- called contingent payments or commissions -- paid by some insurers to brokers that can sway brokers to steer customers' business to insurers that pay the fees.
Health and life insurance companies that have received subpoenas from Spitzer include Aetna Inc., CIGNA HealthCare, MetLife, Prudential and UnumProvident, a seller of disability coverage.
Aetna and CIGNA had received preliminary subpoenas about contingent fees last spring.
The brouhaha set off by Spitzer's newest offensive caused a sell-off of managed care stocks Oct. 18. Shares of Aetna were off 12% to $86.17. CIGNA dipped 10%, to $59.73. WellPoint Health Networks, Humana and UnitedHealth Group also saw sharp declines. However, the companies' stock prices stabilized after a day.
The investigation into the health insurance industry was a widening of Spitzer's probe of the property and casualty insurance field, which culminated with a Oct. 14 civil lawsuit against Marsh & McLennan, the biggest property and casualty insurance broker in the United States. Marsh & McLennan is accused of supplementing brokers' commissions with contingent fees as well as rigging the supposedly competitive bid process by purposefully soliciting overpriced insurer bids so that companies with which they had sweet deals would appear better by comparison.
Contingent fees, little known outside of the industry, have the potential to raise insurance prices for individual buyers and employers.
Marsh issued a statement Oct. 15 saying it would "immediately suspend" the fee arrangements, which it called longstanding. The company said it was "greatly disturbed by the allegations of wrongdoing" and was pursuing its own investigation.
Two Marsh executives have pleaded guilty to felony fraud related to bid- rigging. Also named in the complaint were ACE, AIG, The Hartford and Munich American Risk Partners.
Insurance regulators in California also have been looking into brokers' fees this year. After Spitzer's lawsuit was filed, California Insurance Commissioner John Garamendi issued new proposed regulations mandating that insurance brokers and agents tell a client which insurer has submitted the best bid and disclose any hidden fees paid by insurers to get preferential treatment.
Regulators across the country also followed up on Spitzer's lawsuit with their own subpoenas or probes.
Connecticut Attorney General Richard Blumenthal issued 35 subpoenas to insurers and brokers and reportedly was mulling filing a lawsuit related to the fees.
The Massachusetts Insurance Commission said it was investigating all forms of insurance that was purchased by groups and involving brokers, including health coverage, according to news reports. Executives at three plans in the state, BlueCross BlueShield of Massachusetts, Tufts HealthPlan and Harvard Pilgrim Health Care, were told by the state in October that they would be requested to provide information about how they deal with brokers, according to a report in the Boston Globe.
Officials in the District of Columbia, Florida, Georgia, Illinois, Minnesota and New Jersey also told reporters they were studying the potential impact of the fees on insurers selling policies in their respective states.
David Carter, a spokesman for Aetna, said his company "operates in a regulated industry," follows the law and "won't tolerate ... brokers who do not adhere to our standards." He declined to comment further. A spokesman for CIGNA did not respond to a request for an interview.