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LA expands WellPoint lawsuit while targeting another insurer

The city attorney's office alleges that HealthMarkets continues to defraud consumers by selling "junk insurance" through deceptive sales tactics.

By Emily Berry — Posted Nov. 9, 2010

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Health insurers are under fire in Los Angeles, where City Attorney Carmen Trutanich's office has expanded its lawsuit against WellPoint and filed a new one against HealthMarkets, also known as Mega or Mid-West Insurance Co.

On Oct. 13, the city attorney's office added to the allegations of improper rescissions made in its 2008 lawsuit against WellPoint, the parent company of Anthem Blue Cross of California.

The city attorney claims that WellPoint executives lied this year when they said the company had not targeted breast cancer patients for rescission. The denials came in response to a Reuters article that said in an attempt to save money, the company sifted through records for members diagnosed with breast cancer to find a way to cancel their coverage.

The lawsuit also alleges that the company continued to illegally rescind coverage even after publicly declaring that it would stop rescinding policies on May 1 -- except in cases of fraud -- before the Sept. 23 effective date of a new federal law requiring them to do so.

A company statement in response to the amended complaint said in part: "We stand by the statements we made regarding these issues. The city attorney's allegations are misguided, and the company will vigorously defend the new claims along with the remainder of the 2-year old complaint."

The complaint against HealthMarkets, filed Oct. 20 in Los Angeles Superior Court, names the company, based in North Richland Hills, Texas, and its corporate parents, Goldman Sachs and The Blackstone Group.

The city attorney's office alleges that despite prior investigations and settlements in multiple states, HealthMarkets continues to defraud consumers by selling limited benefit plans under the pretext that they deliver comprehensive coverage.

California received part of a $20 million multijurisdiction settlement reached in July 2008 to resolve problems with the way the company was training its agents. The city attorney alleges that the company's agents continue to sell "junk insurance" policies using deceptive sales tactics.

The lawsuit states that Blackstone and Goldman Sachs should have known that HealthMarkets' profits were based on fraudulent activity when they bought the company in 2006.

HealthMarkets spokesman Donna Ledbetter declined to comment on the allegations.

A Goldman Sachs spokeswoman declined to comment. Calls to Blackstone were not returned.

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