Maine Seeks U.S. Waiver for Blackstone's `Junk' Health Insurer

Maine wants an exemption from the federal health-care law to keep a Wall Street-controlled insurer with a history of allegedly abusive practices from leaving the state.

Mila Kofman, Maine’s insurance superintendent, asked the U.S. Department of Health and Human Services for a three-year waiver from the law’s requirement that insurers spend 80 percent of premium revenues on medical care.

Without the waiver, Kofman said in a July 1 letter to HHS Secretary Kathleen Sebelius, HealthMarkets Inc. will probably drop its Maine policyholders, who represent a third of the state’s individual market. HealthMarkets, based in North Richland Hills, Texas, is 77 percent-owned by funds run by Blackstone Group LP and Goldman Sachs Group Inc.

Maine’s request is the latest example of the difficulty the Obama administration is having enforcing the strictures of the Patient Protection and Affordable Care Act, passed in March. Although others have received waivers from the act’s rules, consumer advocates say the HealthMarkets group is different.

“If you grant a waiver to a junk health-insurance provider that is among the worst in America, then you might as well not have a health reform at all because you’re never going to say no to anyone,” said Jamie Court, president of Consumer Watchdog, a California non-profit that has asked the Obama administration to deny waivers to a unit of HealthMarkets. “This is ridiculous.”

Maine’s waiver request is the latest example of the difficulty the Obama administration is having enforcing the strictures of the federal health-care law. Photo: Joe Raedle/Getty Images Close

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Maine’s waiver request is the latest example of the difficulty the Obama administration is having enforcing the strictures of the federal health-care law. Photo: Joe Raedle/Getty Images

‘Junk Insurance’

Kofman’s letter was followed by one from the National Association of Insurance Commissioners asking to loosen the 80 percent requirement, which takes effect Jan. 1, 2011.

The City of Los Angeles sued HealthMarkets and its Mega Life and Health Insurance Co. unit on Oct. 20 for allegedly selling “junk insurance” with obscure provisions that left customers “without coverage when they needed it most.” Blackstone and Goldman Sachs are also defendants.

HealthMarkets spokeswoman Donna Ledbetter declined to comment on the litigation or the Maine request.

Last year, Mega Life and two other HealthMarkets units settled Massachusetts allegations of unfair and deceptive practices by agreeing to a five-year ban on selling health insurance in the state. HealthMarkets agreed to pay $20 million in a 2008 settlement of a 35-state examination of alleged deficient claims and complaint handling. Maine fined Mega Life $1 million and forced refunds of $4.6 million that year for charging excessive rates. The HealthMarkets companies did not admit fault in any of the cases.

More Waivers Sought

HealthMarkets’ withdrawal from Maine “would have a serious destabilizing effect in our individual market,” Kofman said in her letter. Kofman is a former Georgetown University associate research professor and an expert in health-insurance scams.

Maine is one of at least three states, including Iowa and South Carolina, that have asked for exemptions from the administration’s rules on how much insurers have to spend on care. Those requests accompany 30 others by employers, labor associations and insurers to get exemptions to regulations barring “mini-med” plans that McDonald’s Corp. and other employers use to offer limited-benefit coverage to hourly workers. Waivers are also being sought from rules stopping companies from shopping for a new insurer if they want to avoid requirements about what benefits they have to provide.

The Department of Health and Human Services will decide whether Maine gets its waiver once the final rules for the health-care law are written later this year. Jessica Santillo, a spokeswoman for the department, declined to comment on Maine’s request or on HealthMarkets.

Seeking Damages

HealthMarkets has been engaged in a “scheme to defraud consumers” for more than a decade, according to a civil complaint filed last month by Los Angeles City Attorney Carmen Trutanich. Blackstone and Goldman Sachs must have, or should have, known that the company was involved in a scheme to sell ineffective insurance, the complaint says, alleging they facilitated it “through their control of the board of directors of defendant HealthMarkets Inc. and key board committees.”

Christine Anderson, a spokeswoman for Blackstone, and Andrea Raphael, a Goldman Sachs spokeswoman, declined to comment on the lawsuit.

The lawsuit accuses the insurers of unfair competition and false advertising and seeks a court order requiring HealthMarkets and its subsidiaries to provide coverage in keeping with its promises, statutory damages of $2,500 per violation and restitution.

Medical-Loss Ratio

HealthMarkets’ Mega Life unit insured 13,535 people in Maine’s individual market as of September 2009, according to a February report from the Maine Bureau of Insurance. The company’s medical-loss ratio on such policies averaged 51 percent in the five years from 2004 through 2008, the report said. The figures don’t include the refund order by the state.

Anthem Blue Cross and Blue Shield, a unit of Indianapolis, Indiana-based WellPoint Inc., accounted for 49 percent of Maine’s individual market in 2009, and its average medical-loss ratio for the same five-year period was 88 percent for Maine individual health policies, according to the report.

HealthMarkets had $1.1 billion in revenue in 2009 from its health insurance business, company filings say. The company was bought by affiliates of Blackstone, Goldman Sachs and other investors in April 2006. Blackstone and Goldman Sachs Capital Partners held about 55 percent and 22 percent, respectively, of the shares as of Dec. 31, 2009, according to the company’s 2009 annual report.

To contact the reporters on this story: Dune Lawrence in New York at dlawrence6@bloomberg.net; Drew Armstrong in Washington at darmstrong17@bloomberg.net;

To contact the editors responsible for this story: Gary Putka at gputka@bloomberg.net; Adriel Bettelheim at abettelheim@bloomberg.net.

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