States scrutinize health insurer offering limited-benefit policies

Washington -- Thirty-six states are investigating and another is suing a national health insurer that specializes in limited-benefit plans for individuals, the self-employed and small businesses. The scrutiny points to the need for doctors to verify that the services they perform are covered or that patients are financially responsible for them.

In an Aug. 22 lawsuit, Massachusetts Attorney General Martha Coakley accused HealthMarkets and its subsidiaries MEGA Life and Health Insurance and Mid-West National Life Insurance of failing to cover conditions and benefits required by state and federal law and of misrepresenting the benefits, limitations and terms of its policies. The state also charged that the company illegally made health insurance policies conditional upon the purchase of association memberships and that it unfairly disclosed personal information about insured consumers to third parties.

Limited-benefit or scheduled-benefit plans set strict caps on what they will pay for care by physicians or hospitals. The amount spent on treatment of specific conditions also may be restricted.

HealthMarkets denies the allegations and will fight the suit, said company spokeswoman Donna Ledbetter. It contacts new customers by telephone to ensure that they understand their policies, she added.

Massachusetts Medical Society President Dale Magee, MD, said the association hasn't received any formal member complaints about the company. But he noted that many physician practices cannot keep up with the nuances of small insurance companies and depend on insurers or patients to make good on claims. At the same time, coverage policies are so complicated that it is impossible for patients to act like consumers when they purchase insurance.

The ability of patients to understand what is and isn't covered by their policies is an increasingly critical problem as the state implements its universal health coverage law and requires all residents to purchase a policy, Dr. Magee said.

State insurance regulators are particularly concerned about limited-benefit firms' record of failing to fully explain coverage, said Kansas Dept. of Insurance Commissioner Sandy Praeger. She met with HealthMarkets officials after receiving several hundred complaints from state residents about the company. Most consumers claimed that it didn't pay for services believed to be covered. Most complaints have been resolved, she said, and the company now calls its customers after they purchase policies to explain what is and isn't covered.

Physicians shouldn't drop patients covered by HealthMarkets or limited-insurance companies, Praeger emphasized. The policies cover certain benefits and may be the only health insurance an individual can afford. But doctors should understand the limitations of its policies, she said.

Dr. Magee agreed. "We wouldn't prescribe physicians to go on the offensive on this, but employers that offer it need to be extremely clear on what they cover and don't."

The Massachusetts complaint expanded a previous state lawsuit against the company, alleging that it failed to cover contraceptive services required by Massachusetts law and excluded benefits for some patients with preexisting conditions.

Meanwhile, 36 states are investigating HealthMarkets' marketing and claims handling. The results of the examination have been shared with the company but have not been made public, said Washington State Insurance Commissioner spokeswoman Stephanie Marquis. The commissioner's office is a leader in the investigation. Marquis would not comment on the examination's contents but said they would be released in the next 30 to 60 days.

HealthMarkets is working closely with state insurance commissioners on the investigation and views it as an opportunity to improve value and service, Ledbetter said.