Louisiana Participates in $20 Million Settlement Against Health Insurers

Released: July 28, 2008

Commissioner of Insurance Jim Donelon announced today that Louisiana is one of 29 states entering into a $20 million settlement with The MEGA Life and Health Insurance Company; Mid-West National Life Insurance Company of Tennessee; and The Chesapeake Life Insurance Company.

The settlement comes after a multi-state exam of the companies in 2005 initiated by the National Association of Insurance Commissioners found problems with the companies’ claims and complaint handling practices; oversight and training of agents; and consumer disclosure. The exam findings show that the companies targeted self-employed individuals and sold their health plans through associations. In some instances, the agent or the company did not adequately explain the benefits covered by the health plan. In 2005, the companies began calling insureds in an effort to confirm understanding of the plan purchased. 99 percent of customers choose to retain their coverage with the companies.

Louisiana’s portion of the settlement will be a minimum of $208,000. The entire $20 million penalty will be divided among the participating states based on the companies’ premium volume in each state.

According to the terms of the settlement, the companies must mail a notice to all policyholders with policies issued before August 1, 2005, that includes a Web address, toll-free telephone number, mailing address and e-mail address where policyholders can ask questions about their coverage. Each method of communication must be staffed by a company representative who can provide information about the policyholder’s specific plan. Each company’s Web site must also include a “frequently asked questions” section, company contact information, and general coverage descriptions as well as information on how to appeal a claim or file a grievance.

Additionally, the companies must report their progress on performance standards targeted for improvement to a five-state examination team. Improved standards include claims, complaint and grievance handling; and agent training and oversight. Failure to meet the performance standards will result in additional penalties of up to $10 million.

The companies have approximately 17,000 Louisiana policyholders. At year-end 2007, MEGA Life’s direct written premium in the state was $9.1 million with a 0.16% share of the health insurance market. Mid West’s marketshare was 0.12% with nearly $6.5 million in direct written premium; and Chesapeake’s direct written premium was nearly $95,000.

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