Dr. Norman Carter and his wife Kathleen are not alone, and a lawsuit they are fighting now in San Bernardino County superior court might help hundreds of other Californians who also believe they’ve been scammed by companies selling what lawyers often call "junk health insurance."
Carter, 63, an independent orthodontist practicing in Chino since 1976, and his dental hygienist wife bought their $400-per-month individual policy from Mid-West National Life Insurance Co. of Tennessee in 2004, switching over from Blue Cross, which they believed was becoming too expensive. Besides their practices, both also taught at Loma Linda University.
Like many of the self-employed, all they wanted was comprehensive hospitalization coverage in case of a major illness. A high deductible was fine with them, so long as the lifetime cap on expenses was at least $1 million.
But, their lawsuit charges, what they bought into was a fraud. For their policy contained ambiguous language that set a limit of $18,000 for miscellaneous hospital expenses. When crunch-time arrived for the Carters, their suit charges, Mid-West used that language to classify almost anything done in a hospital as miscellaneous. The Carters contend they weren’t told this could happen when a Mid-West agent sold them the policy.
Their lawsuit contends that when Kathleen Carter, also 63, needed surgery and chemotherapy for primary peritoneal cancer in early 2011, Mid-West paid only about $30,000 out of almost $200,000 in bills, the couple today still owes Loma Linda more than $140,000.
The suit says Mid-West accomplished this mostly with that "miscellaneous" tag. Among doctor-prescribed items placed under this label were $49,660 in operating room charges, $28,300 for anesthesia used during an eight-hour surgery and $24,381 in prescription drugs.
The Carter’s lawyer, Claremont-based William Shernoff, calls this a combination of fraud, breach of contract and "breach of the covenant of good faith and fair dealing." His action does not seek a specific amount of damages, instead asking a jury to penalize Mid-West and its parent company, Texas-based HealthMarkets Inc., enough to discourage them and other insurance companies from doing anything similar.
For sure, it takes a huge penalty to discourage the type of scam alleged here. As recently as 2008, HealthMarkets (owned mostly by the New York-based Blackstone Group and the Goldman Sachs investment bank) agreed to a $20 million settlement with insurance regulators in an action begun by the Massachusetts attorney general. Three years later, the firm was forced to pay another $350,000 in penalties.
HealthMarkets, Mid-West Life and two sister companies are also now being sued by the Los Angeles city attorney for "unlawful, unfair and fraudulent" insurance sales and advertising. Among other claims, the city’s lawsuit says HealthMarkets’ agents were deliberately trained to defraud customers by not explaining all the limits on their policies.
How widespread is this type of practice? The state Department of Insurance reports it received more than 100 complaints about Mid-West Life from policyholders who claimed their legitimate claims were denied or massively reduced. And that’s just from one company. Several others - the department wouldn’t name them - supposedly perform similarly.
HealthMarkets refused either to comment on the lawsuit or to say how many policies it writes in California, saying that information is private. But it reported collecting $73.6 million in premiums here last year. If the Carters’ premiums are close to typical, that would mean somewhere between 10,000 and 15,000 California individuals and families have such "coverage."
"These companies used to do this even more than they do now," said Shernoff, whose firm has won hundreds of millions of dollars in settlements from insurance firms. "But once they paid that $20 million fine and were also banned for a year from selling policies in Massachusetts, they improved a little."
Shernoff said he has settled 10 cases similar to the Carters’ in the last five years and estimates there were hundreds of instances like theirs in California during that time.
No one knows if this will all end when the state health insurance exchange created under the federal Affordable Health Care Act, better known as Obamacare, begins operating in 2014.
"We can’t speculate on that," says insurance department spokesman Byron Tucker. "We don’t yet know what companies will sell insurance there and we don’t know how they’ll be regulated and which ones will be eligible."
All of which means this remains a classic case of "caveat emptor" - let the buyer beware. If an insurance agent won’t answer every question asked, if a policy is written so ambiguously it might allow an insurer to weasel out of most reasonable and customary expenses, it’s probably best to seek elsewhere for coverage.
Email Thomas Elias at firstname.lastname@example.org. His book, "The Burzynski Breakthrough: The Most Promising Cancer Treatment and the Government’s Campaign to Squelch It," is now available in a soft cover fourth edition. For more Elias columns, go to www.californiafocus.net.