Here’s how our colleagues at FC&S, a sister publication, have reported on a major federal health insurance case in California.
The U.S. Court of Appeals for the 9th Circuit has reinstated a complaint alleging that AARP, through its arrangement with UnitedHealthcare Insurance Company for Medicare supplement insurance, or Medigap coverage, is transacting insurance without a license in violation of the California Insurance Code.
In 2011, Jerald Friedman, a Medicare beneficiary, purchased Medigap health insurance through a group Medigap policy held by AARP Insurance Plan and underwritten and sold by UnitedHealthcare. Medigap policies offer supplemental private health insurance to cover costs not covered by Medicare.
AARP and UnitedHealthcare’s Medigap arrangement was governed by a 1997 joint venture agreement. The AARP-UnitedHealthcare agreement required that individuals wishing to purchase Medigap coverage from UnitedHealthcare do so through AARP’s group policy. The AARP-UnitedHealthcare agreement also required that AARP administer key aspects of the program, which involved two principal tasks.
First, AARP solicited its members’ enrollment in the Medigap program. An agreement between AARP and its subsidiary trust, AARP Insurance Plan (the “AARP Trust”) contractually obligated AARP to “solicit member participation in the [Medigap] Plan by direct mail and otherwise.”
AARP discharged this duty through television commercials, its website, and other forms of advertisements. For example, a website owned by AARP Services, Inc., a for-profit, wholly-owned subsidiary of AARP, explained why AARP members should “get an AARP Medicare Supplement Plan.” It emphasized that:
AARP Medicare Supplement Plans were the “only Medicare Supplement plans endorsed by AARP”;
The plans were “[i]nsured by UnitedHealthcare Insurance Company, the insurer serving the most Medicare supplement enrollees nation wide”; and
There was a “94% Customer Satisfaction Rate of those surveyed.”
Many of the marketing materials owned and controlled by AARP stated in bold font, “This is a solicitation of insurance.”
Second, AARP collected insurance premiums from members through the AARP Trust and remitted the appropriate payment to UnitedHealthcare. The AARP-UnitedHealthcare agreement also allowed AARP to invest the collected payments prior to remittance to UnitedHealthcare.
Significantly, AARP deducted and retained 4.95% of each dollar paid by UnitedHealthcare Medigap enrollees prior to remitting the premiums to UnitedHealthcare.
The initial version of the AARP-UnitedHealthcare agreement referred to this retained amount as an “allowance.” However, following settlement of a dispute with the Internal Revenue Service, AARP and UnitedHealthcare amended their agreement to provide that the “allowance” would be referred to as a “royalty.”
Friedman filed a putative class action against AARP and UnitedHealthcare alleging, in essence, that AARP, through its arrangement with UnitedHealthcare, was transacting insurance without a license in violation of the California Insurance Code. Friedman alleged, in short, that the 4.95% retained by AARP was a commission on the sale of insurance that was charged over and above the actual monthly premium that UnitedHealthcare charged for Medigap coverage that AARP was not entitled to collect because it was not licensed to transact insurance in California.