Medical insurance left them hanging

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Penn Valley couple shocked by big bills

Sacramento Bee

When Darlene Henderson became ill with breast cancer in 2001, the illness devastated her body and soul.

And that was only the start of her misfortunes.

Soon afterward, the Penn Valley woman’s husband, David, was felled by an abdominal aortic aneurism the size of a baseball and rushed to surgery.

As the self-employed couple struggled to recover from three major surgeries each, their only comfort was that they had bought $1 million worth of catastrophic medical insurance through a business association.

Or, so they thought – until a blizzard of medical bills topping $210,000 buried them.

The Hendersons soon learned their insurance would cover less than 20 percent of the bills, plunging them into a financial crisis.

Backed by a Santa Monica-based consumer group, the Hendersons and dozens of others like them statewide are calling on Insurance Commissioner John Garamendi to educate consumers about the perils of such insurance and crack down on companies selling it.

“Like people who have swerved over a cliff on a dangerous road, we feel obligated to petition for a hazard sign to protect others,” David Henderson said.

Garamendi, concerned about the proliferation of what he called “skeletal” health coverage, will examine the sale of limited insurance policies through industry associations at a Sept. 20 public hearing in San Francisco.

Currently, state rules require basic hospital insurance benefits to be “of real economic value to the insured.”

Yet the regulations, last updated in 1972, include a minimum hospital benefit of just $30 a day.

The Hendersons bought their insurance through the National Association of Self-Employed because of promises made by their sales agent, who pitched a policy from the Mega Life and Health Insurance Co. of North Richland Hills, Texas.

For $400 a month, the couple said the Mega sales agent told them, they could buy a group policy that would cover 80 percent to 100 percent of their hospital costs up to $1 million.

In the end, Mega covered $33,428 of the Hendersons’ bills, they said, leaving them quivering when they learned they still owed $181,855.

The agent, the Hendersons said, didn’t emphasize or explain some critical information:

* There was no cap on their out-of-pocket expenses, unlike traditional health insurance available through large employers.

* Their benefits had daily maximums so far below the average cost of medical procedures and hospital stays that the financial security it purported to offer was illusory.

The Hendersons acknowledge that they didn’t read the fine print in the policy. Even if they had, they might not have understood it, said a representative of the California Foundation of Taxpayer and Consumer Rights. The Santa Monica-based consumer group said the complex policies are riddled with exclusions and caps.

“No other policy sells patients health care coverage that promises so much yet delivers so little,” spokeswoman Carmen Balber said.

She said Mega and other association health insurers pay maximum benefits that are so far below the average cost of medical procedures that customers have little or no protection from financial ruin.

David Henderson urged authorities to act fast to protect consumers: “The public has to be protected from these unscrupulous practices.”

Sick and unable to work while trying to care for themselves and Darlene Henderson’s 88-year-old mother, the Hendersons were forced to sell a car and other possessions on eBay to help pay some of their bills, David Henderson recalled.

The couple still owe close to $200,000, with interest. They have sued Mega, its parent and the association in Nevada County’s Superior Court.

The company and the National Association for the Self-Employed deny wrongdoing or any liability. A trial is set for January.

The Hendersons also say that the association, an organization they thought was representing their interests as small-business people, has close ties to Mega.

“The NASE was not an independent entity. It was a marketing ruse,” David Henderson said.

Mega is one of several specialty life and health insurers operated by UICI, a holding company that trades on the New York Stock Exchange.

Mega recruits members for the National Association for the Self-Employed, based near Mega in Grapevine, and sells insurance policies on the association’s behalf.

Mega also sells marketing services to the association, and a company controlled by the children of UICI Chairman Ronald Jensen sells administrative and billing services to NASE, a company spokesman confirmed.

Despite these ties, a spokesman for UICI and its Mega affiliate said that the companies and the association are distinct and separate legal entities, adding that ties between them have been properly disclosed to authorities and policyholders.

In an Aug. 8 securities filing, UICI revealed that its Mega affiliate has been named a defendant in “numerous cases” in California and other jurisdictions by plaintiffs challenging the way it is selling health insurance in the self-employed market.

The insurer’s stock, which rose to a 52-week high of $36.40 in the fall of 2004, sank to $21.31 in April before recovering to the $30-$31 range this month.

Plaintiffs are also challenging the relationship between UICI insurance units such as Mega and the associations that are actively promoting its insurance products to members, the company said, adding it has settled several cases without admitting liability.

The company, which last year reported net income of $161.6 million on revenue of $2.1 billion, said in its most recent quarterly report with the Securities and Exchange Commission that resolving the outstanding cases will not have a material effect on its finances.

In January, Mega and the other defendants paid $1.7 million to settle a lawsuit by court reporter Dana Christensen of Marina Del Rey.

Christensen alleged that the defendants deceived her family into purchasing what she calls a “sham insurance policy.” She sued after her husband died from bone cancer, leaving her with uncovered medical bills totaling $450,000, her attorney Tony Stuart said.

A company spokesman insisted its coverage, limitations and caps were all disclosed and discussed with the Christensen family before they bought their policy.

The spokesman added that the Christensens paid $7,760 in premiums to Mega and received about $167,000 in benefits.

“The impression given is that there was no value to the policy and that it was worthless,” the company spokesman said. “That’s an incorrect impression.”

The lawyer for the Christensens said this amount included payouts totaling only $97,000, but the insurer had boosted the benefit by including medical network care discounts for another $70,000.

Regulators here and in other states are taking action as consumer complaints and lawsuits mount.

In late March, the National Association of Insurance Commissioners named the states of Washington and Alaska to lead “a multistate examination” into the conduct of three UICI affiliates, including Mega, Mid-West National and the Chesapeake Life Insurance Co.

The examination started in May 2005 and officials are hoping to finish it by year’s end, said Bill Ripple, a spokesman for Washington Insurance Commissioner Mark Kreidler.

“The number of complaints we had become a trend, not only here, but elsewhere,” Ripple said.

“We’re looking at practices and procedures, such as marketing, to check that they’re doing what they say they’re doing.”

In March, Washington’s Insurance Department served a cease and desist order on Mega, after finding the insurer was selling “substandard and legally noncompliant” group health insurance that included forms “inconsistent with state law.”

In 2004, Mega and another UICI affiliate were fined $100,000 by California’s Insurance Department after auditors found the companies deliberately delayed paying claims.


The California Department of Insurance wants to make consumers considering health insurance from an association aware of several facts:

* The department does not regulate the associations that offer the coverage.

* Since the association purchases the policy on behalf of its members, it is the association that dictates or negotiates the coverage.

* The quality of the coverage depends on what the association is willing to pay in most cases.

* Consumers should request a specimen copy of the policy and the plan booklet before submitting an application for coverage. To the best of the department’s knowledge, the industry does not routinely offer this.

Source: California Department of Insurance

Weighing the benefits
The chart below shows the maximum payout from Mega Life and Health Insurance Co. and the average cost of treatment.

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