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Regulation and Compliance > Litigation

Health Care Group to Pay $2M for Misleading Clients

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What You Need to Know

  • HPIH and its third-party agents falsely told customers its plans were ACA-compliant, the California insurance commissioner says.
  • Consumers were left with limited coverage and tens of thousands of dollars in out-of-pocket costs.
  • HPIH agreed to reform several of its business practices, including its sales and marketing practices.

Health Plan Intermediaries Holdings has agreed to pay $2 million to resolve allegations that the company and its third-party agents knowingly marketed and sold insurance policies that they misrepresented as compliant with the Affordable Care Act, misleading consumers with limited coverage and large out-of-pocket costs, California Insurance Commissioner Ricardo Lara announced this week.

The settlement also resolves allegations that HPIH illegally raised the cost of the coverage to policyholders to cover their broker fees, among other fees. The company does not admit wrongdoing in the settlement.

“Consumers looking to purchase health insurance expect they are getting coverage to meet their medical needs, not be sold a ‘bill of goods,’” Lara said in a statement. “Misrepresenting health insurance coverage puts consumers’ physical, mental, and financial well-being at great risk.”

The California Department of Insurance alleges that HPIH, and its agents with HPIH’s knowledge, misrepresented to consumers the nature of coverage or benefits provided by the policy and other services that it packaged and sold. 

The department further alleges that HPIH knowingly misrepresented policies to consumers to create the impression that the policies purchased were either a robust ACA-compliant policy or were as comprehensive as an ACA-compliant policy. 

In one instance, a consumer was sold a policy represented to her as ACA-compliant and included coverage for hospitalization, according to the department’s order to show cause. In fact, the policy included only limited medical benefits. 

When the consumer was later hospitalized, she incurred more than $26,000 in charges and received only $300 in policy benefits, leaving her responsible for the remainder of the bill.

Another consumer bought what he believed was a broad supplementary health insurance plan when in fact he was sold a limited insurance benefit with benefit caps of $250 a day and a surgery benefit of only $1,000. The consumer required surgery and incurred uncovered out-of-pocket medical expenses exceeding $85,000.

The order further alleges that several other consumers signed up for coverage believing that they had an expansive network of physicians to choose from, prescription drug coverage, access to preventive care and coverage of preexisting conditions. None of these things were true, leaving them with substantial uncovered out-of-pocket costs.

In addition to the $2 million settlement payment paid to California’s General Fund to benefit consumers, taxpayers and residents, HPIH also agreed to reform several of its business practices, including its sales and marketing practices.

Earlier Issues

Two years ago, a federal class action lawsuit filed in the Southern District of Florida accused HPIH and Health Insurance Innovations of defrauding customers out of millions of dollars by misrepresenting the benefits of their insurance policies.

The charges against the businesses included allegations of racketeering as well as aiding and abetting fraud in addition to unjust enrichment.

According to the attorneys, the defendants unlawfully led customers to believe that the limited-benefit indemnity and medical discount plans they were offering provided the full range of medical benefits included with traditional health insurance.

Jason Kellogg, a partner with Levine Kellogg Lehman Schneider + Grossman in Miami, said the class action began with a lawsuit against South Florida company Simple Health Plans in October 2018 by the Federal Trade Commission.

“The Tampa companies … create insurance products — but it’s not major medical insurance — and they sell it through third-party distributors,” he said, noting Simple Health had been one such business partner of HPHI and HII. Kellogg explained that Simple Health would use a script to mislead customers regarding the nature of Health Insurance Innovations plans.

“If you wanted a boots-and-suspenders-type thing, you could buy this product, in case you had an event where you had to come up with a deductible,” Kellogg said. The attorney added although these plans were “not meant to cover catastrophic health injuries,” Simple Health had been advertising them as if they did.

The 2019 complaint alleged that HII and HPHI loaned Simple Health “millions of dollars to fund its operations,” in addition to training its customer service agents and providing the company with “extremely generous commissions.”

The lawsuit contended that Health Insurance Innovations “paid about $180 million in commissions to Simple Health” between 2014 and October 2018.