Penalties Imposed For Violating Consent Decree and Chapter 93A
The Suffolk Superior Court docket has ordered three UnitedHealth Group subsidiaries to pay over $165 million in restitution and civil penalties for violating a consent judgment and Chapter 93A. The December 31, 2024, order by Choose Hélène Kazanjian follows a sixteen-day trial on damages and penalties, concluding a case that started with a 2020 contempt criticism.
The 2020 enforcement motion filed by then-Legal professional Basic Maura Healey in opposition to HealthMarkets, Inc., The Chesapeake Life Insurance coverage Firm, HealthMarkets Insurance coverage Company, and varied subsidiaries accused the defendant firms of deceiving over 15,000 Massachusetts shoppers into shopping for supplemental medical insurance as a substitute of main medical protection. The contempt criticism additionally alleged the defendants misrepresented their brokers as “goal, didn’t disclose gross sales assembly functions, and used misleading gross sales ways, persevering with the identical illegal gross sales ways barred by a 2009 consent judgment with the Legal professional Basic.
In April 2022, Choose Brian A. Davis granted the Legal professional Basic abstract judgment on legal responsibility, discovering the businesses violated each a 2009 consent judgment and the Massachusetts Shopper Safety Act.
Choose Davis decided that the businesses had deceived shoppers about their gross sales brokers’ roles and the insurance coverage merchandise they bought. The court docket discovered the defendants falsely claimed their brokers have been goal and represented all insurance coverage carriers. The brokers bundled supplemental medical insurance with main medical protection, offering quotes that mixed premiums with out correct disclosure.
Between 2011 and 2019, Chesapeake had acquired near a thousand client complaints. In Might 2017, sixty % of the Massachusetts complaints tracked by a subsidiary of HealthMarkets got here from shoppers who didn’t know their supplemental insurance coverage was separate from main medical protection.
Background and Context
The roots of the 2020 contempt criticism and the December 2024 mega-judgement hint to 2009, when HealthMarkets and two subsidiaries entered right into a consent judgment with Massachusetts requiring cost of $15 million. That judgment resolved allegations of misleading medical insurance advertising practices, together with deceptive shoppers about affiliation memberships and protection limitations.
The 2009 judgment imposed particular restrictions on HealthMarkets and its subsidiaries. These included a ban on providing Well being Profit Plans in Massachusetts for at the very least 5 years and everlasting injunctions in opposition to misleading promoting. The judgment prohibited advertising practices corresponding to making incomplete insurance coverage comparisons, utilizing the phrase “any physician” with out disclosing limitations, and requiring affiliation memberships for particular person well being plans.
After the 2009 judgment, HealthMarkets altered its enterprise mannequin. The corporate shifted from underwriting main medical insurance coverage to distributing third-party merchandise and advertising supplemental medical insurance. In 2010, HealthMarkets created Insphere Insurance coverage Options (later renamed HealthMarkets Insurance coverage Company) to deal with gross sales. Insphere retained many brokers and managers from the prior operation that had triggered the 2009 consent judgment.
The Chesapeake Life Insurance coverage Firm, one other HealthMarkets subsidiary, started promoting supplemental well being merchandise in Massachusetts in 2011. These included specified illness insurance coverage, hospital confinement protection, and accident-only insurance policies. Between 2011 and 2018, Chesapeake bought over 58,000 supplemental well being insurance policies to Massachusetts residents.
The company construction positioned all three defendants – HealthMarkets, Chesapeake, and HealthMarkets Insurance coverage Company – beneath frequent management. Kenneth Fasola served as President, CEO, and Director of all three firms from 2011 to 2019. The businesses shared officers and amenities, working from the identical handle in North Richland Hills, Texas. In 2019, UnitedHealth Group acquired the businesses.
HealthMarkets described Chesapeake on its web site as “our supplemental enterprise” and marketed itself as a “main medical insurance market.” Insphere started doing enterprise as “HealthMarkets” in 2013, formally altering its title to HealthMarkets Insurance coverage Company in 2017. This title change leveraged similarities with the federally labeled market alternate for Obamacare, creating potential client confusion in regards to the firm’s function in medical insurance distribution.
This company evolution and advertising strategy laid the groundwork for practices that will ultimately set off the 2020 contempt motion and result in the court docket’s 2024 order for $165 million in restitution and penalties.
Key Violations Discovered by Court docket
Misleading Advertising Practices
The Superior Court docket’s abstract judgment findings, issued by Choose Davis in April 2022, recognized a number of violations of each the 2009 consent judgment and state client safety legal guidelines. HealthMarkets and its subsidiaries misrepresented their brokers’ roles by tv, radio, web promoting, and direct client communications.
The businesses marketed their brokers as “neutral,” “goal,” and “unbiased” whereas compensating them for promoting Chesapeake supplemental medical insurance. The court docket discovered these brokers didn’t signify all carriers and acquired greater fee charges for promoting Chesapeake merchandise than for main medical insurance coverage. Brokers used titles like “insurance coverage advisor,” “insurance coverage specialist,” and “licensed advantages guide” with out holding required Massachusetts insurance coverage adviser licenses.
The businesses despatched automated emails to 114,000 Massachusetts residents claiming their brokers may provide “all kinds of choices from a number of extremely rated firms.” The court docket decided this misrepresented the restricted vary of merchandise brokers promoted and their monetary incentives to promote Chesapeake insurance policies.
Product Bundling Points
The court docket recognized systematic deception in how brokers mixed main medical and supplemental medical insurance merchandise. Brokers offered insurance coverage packages with single premium totals that masked particular person coverage prices. The businesses educated brokers to cover Chesapeake’s title from advertising supplies and confer with supplemental protection as “advantages” of main medical plans.
HealthMarkets created software program instruments that generated buyer quotes displaying mixed premiums with out breaking down prices by coverage. The businesses instructed brokers to current complete bundle costs first, permitting dialogue of particular person coverage prices provided that shoppers raised particular questions.
Between 2011 and 2018, over 500 Massachusetts shoppers filed complaints stating they didn’t know that they had bought Chesapeake supplemental insurance policies. Many shoppers believed the supplemental protection was a part of their main medical insurance coverage plan. The businesses tracked these “unaware of protection” complaints however continued their bundling practices.
The court docket discovered the businesses focused susceptible shoppers who certified for MassHealth or backed protection by the Massachusetts Well being Connector. Brokers misrepresented premium prices by combining expenses for supplemental insurance policies with zero-premium MassHealth protection. Coaching supplies directed brokers to market supplemental insurance policies to “the poor” and taught that “nobody is just too poor or too sick.”
The businesses’ inside communications acknowledged issues with their advertising strategy. In 2015, a HealthMarkets supervisor famous that paperwork bundling supplemental insurance coverage with “no reference to Chesapeake or these plans being elective” shouldn’t be used. But the apply continued into 2018.
Choose Davis decided these violations mirrored intentional company insurance policies slightly than remoted agent misconduct. The businesses created coaching packages, gross sales scripts, and advertising supplies designed to obscure the excellence between main medical and supplemental protection. This systematic strategy to bundling merchandise led Choose Kazanjian to characterize the violations as “significantly egregious” in her damages evaluation.
Particular Insurance coverage Product Points
Supplemental Well being Insurance coverage
The court docket centered on Chesapeake’s specified illness insurance coverage, marketed beneath the title “Important Sickness” protection, as a main supply of client deception. This product paid lump sums for eleven particular circumstances however excluded many life-threatening sicknesses corresponding to a number of sclerosis, diabetes, and meningitis.
Between 2011 and 2018, Chesapeake collected over $18 million in premiums from the sale of greater than 16,000 specified illness insurance policies to Massachusetts residents. The insurance policies confirmed loss ratios beneath 27 %, in comparison with the 88 % minimal required for main medical insurance coverage.
The court docket highlighted advertising practices that obscured the restricted scope of specified illness protection. Brokers described these insurance policies as safety for “any main sickness” regardless of the slender record of lined circumstances. Some brokers used tales about shoppers with uncovered circumstances to promote the insurance policies.
Chesapeake’s hospital confinement and accident-only medical insurance confirmed related patterns of misrepresentation. Brokers marketed hospital protection as paying for “any hospitalization” with out disclosing exclusions for psychological well being remedy and regular being pregnant. The insurance policies confirmed loss ratios under 23 %.
Brief-Time period Well being Insurance coverage
From August 2015 to Might 2016, Chesapeake brokers bought 267 short-term medical insurance insurance policies from Unified Life Insurance coverage Firm to Massachusetts residents. These gross sales generated $112,780 in commissions however violated state necessities for coverage submitting and approval.
The brokers marketed these short-term plans as masking “any physician” with out disclosing the exclusion of behavioral well being companies. Well being Insurance coverage Innovation, the plan administrator, knowledgeable HealthMarkets in Might 2016 that the product lacked state approval on the market in Massachusetts.
Gross sales to MassHealth-Eligible Customers
The businesses directed brokers to promote supplemental insurance policies to shoppers eligible for MassHealth regardless of federal guidelines requiring Medicaid beneficiaries to assign insurance coverage advantages to the state. Inside paperwork from 2015 acknowledged this battle however have been by no means distributed to brokers.
Coaching supplies described MassHealth-eligible shoppers as “the candy spot” for supplemental insurance coverage gross sales. Brokers hid shoppers’ MassHealth eligibility to facilitate supplemental coverage gross sales, combining premium quotes to recommend MassHealth required cost.
Monetary Impression on Customers
The court docket discovered Chesapeake’s supplemental medical insurance offered minimal worth to Massachusetts shoppers. The corporate’s incapacity earnings insurance coverage confirmed loss ratios under 9 %, whereas accident-only protection paid lower than 5 % of premiums in advantages.
Via 2018, Chesapeake collected and retained over $3.2 million from insurance policies bought by its highest-complaint agent. 5 different brokers generated between $938,000 and $2.5 million every in retained premiums, with criticism ratios exceeding 7 % of their gross sales and, in a single case, reaching 12% of gross sales.
The court docket decided these merchandise served primarily as income sources for the businesses and their brokers slightly than significant insurance coverage safety. Choose Kazanjian cited these low loss ratios and excessive retention charges as components in assessing damages and penalties.
Gross sales Follow Violations
Agent Coaching and Supervision
The court docket recognized systematic coaching practices designed to mislead shoppers about supplemental insurance coverage merchandise. HealthMarkets offered brokers with scripts that misrepresented their function and the character of insurance coverage protection. The businesses educated brokers to explain themselves as “licensed advantages consultants” with out required Massachusetts adviser licenses.
Coaching supplies instructed brokers to bundle main medical and supplemental protection into single premium quotes. A 2013 coaching doc directed brokers to “group them as one complete value” as a result of quoting separate costs decreased supplemental insurance coverage gross sales.
The businesses created a “three-option shut sheet” template that mixed main medical and supplemental premiums. This advertising device confirmed shoppers complete bundle costs whereas reserving detailed premium breakdowns for agent-only views. Brokers acquired coaching to current these bundled choices as full well being safety packages.
Administration Response to Complaints
HealthMarkets tracked client complaints about unauthorized or misunderstood supplemental insurance coverage purchases however took restricted corrective motion. The corporate recognized a pattern of “unaware of protection” complaints but continued coaching brokers in practices that generated these complaints.
In October 2016, gross sales managers reported issues about misleading practices to firm executives. Inside communications described “disturbing accusations by purchasers” turning into “extra frequent,” however the firms maintained their advertising strategy by 2018.
The court docket discovered the businesses didn’t self-discipline brokers regardless of mounting proof of misconduct. One agent amassed forty client complaints with out suspension or financial penalties. One other agent generated 13 complaints in his first six months of gross sales.
Goal Advertising Considerations
Firm coaching supplies directed brokers to give attention to “the poor” and Medicaid-eligible shoppers as prime targets for supplemental insurance coverage gross sales. The businesses educated brokers to cover subsidy eligibility info till after acquiring client funds figures.
Brokers acquired directions to current supplemental insurance coverage as a part of “packages” to MassHealth-eligible shoppers. This apply created false impressions about protection prices for shoppers qualifying for zero-premium public insurance coverage.
Compensation Construction
The businesses structured agent compensation to advertise supplemental insurance coverage gross sales. First-year fee charges ranged from 46 to 65 % for Chesapeake’s specified illness and incapacity merchandise. These charges exceeded commissions for main medical insurance coverage.
Agent compensation tiers relied on weighted fee components that favored supplemental insurance coverage gross sales. The businesses offered inventory in HealthMarkets as further compensation for high-producing brokers between 2011 and 2018.
Compliance Oversight Failures
Regardless of a 2009 consent judgment requiring enhanced oversight, the businesses maintained weak compliance controls. They didn’t audit Massachusetts brokers or evaluation advertising supplies for regulatory compliance. The businesses ignored proof that brokers used unapproved advertising supplies and assumed enterprise names.
The court docket discovered this sample of weak oversight mirrored company priorities centered on gross sales over client safety. Choose Kazanjian cited these systematic compliance failures in assessing civil penalties in opposition to the businesses.
Monetary Impression and Treatments
Restitution Order
Choose Kazanjian ordered the defendants to pay $50,095,562.07 in restitution to Massachusetts shoppers who bought supplemental insurance coverage between 2011 and 2020. The quantity represents internet premiums collected after refunds, minus $5.5 million in claims paid to over 500 shoppers.
The court docket primarily based its restitution calculation on Chesapeake’s receipts for supplemental well being insurance policies bought by each Insphere and Simpson Monetary Group brokers. The order contains $112,780 in restitution for commissions from unauthorized Unified Life short-term insurance coverage gross sales.
Restitution and Civil Penalties totaling $165,237,562.07
The court docket imposed $115,142,000 in civil penalties, reflecting a number of classes of violations. The penalties handle misleading bundling practices affecting 43,974 supplemental insurance policies bought between 2012 and 2016.
For the interval 2012-2016, when each bundling and provider misrepresentation occurred, the court docket assessed $2,000 per coverage, totaling $87,948,000. Gross sales from 2017-2018 drew penalties of $1,000 per coverage, including $13,019,000.
The court docket levied further penalties for particular advertising violations:
- $11,400,000 for sending 114,000 misleading automated emails at $100 per e-mail
- $2,775,000 for false statements on agent web sites considered 5,550 instances at $500 per view.
In complete, the court docket ordered the defendants to pay in restitution and penalties $165,237,562.07
Additional proceedings, a potential attraction, or perhaps a settlement
Legal professional charges and injunctive reduction
Choose Kazanjian’s remaining orders have been for the Legal professional Basic to file a charge petition for an award of her cheap prices of investigation and legal professional’s charges inside forty-five days. The defendants should file their opposition inside 30 days of receiving the Commonwealth’s petition for prices and legal professional charges.
The order requires the events to submit separate briefings on injunctive reduction, to not exceed ten pages, inside forty-five days. After receiving all of the briefings, the clerk will schedule a listening to on each the prices and charges petition and injunctive reduction.
Enchantment
As soon as the court docket disposes of the problems of investigation prices, legal professional charges, and injunctive reduction, the court docket will enter a remaining judgment.
The defendants could have thirty (30) days after the entry of that judgment to file a discover of attraction.
Settlement
One other risk is that HealthMarkets’s mother or father firm since 2019, UnitedHealth Group, might determine to settle.
Whereas the $165 million order in opposition to the HealthMarkets defendants is the biggest such award in Massachusetts historical past, it’s not a major quantity to HealthMarkets’ mother or father firm. UnitedHealth Group projected in December 2024 that it will have gross sales in 2025 between $450 billion and $455 billion.
Presently, UnitedHealth Group is coping with the December 4, 2024 homicide of its UnitedHealthcare subsidiary’s CEO, Brian Thompson, which engendered widespread detrimental commentary reflecting frustrations with medical insurance firms normally and United Healthcare specifically. UnitedHealth Group may choose to settle to keep away from additional detrimental publicity ensuing from the Superior Court docket’s discovering that one other of its subsidiaries systematically ripped off shoppers with misleading advertising of overpriced minimal profit insurance policies.
Company Checklists will maintain its readers posted
A duplicate of Choose Kazanjian’s 48-page choice is out there under:
