Regulators tell HealthMarkets to improve practices

— -- A nationwide health insurer that primarily covers the self-employed must improve its business practices — from training agents in ethics to speeding claims payments — following an unusual multistate probe prompted by numerous complaints.

HealthMarkets, a Texas-based insurer that covers 650,000 people in 44 states, faces a range of possible sanctions, including fines or being forced to re-assess denied claims.

At issue in many of the complaints and in a lawsuit by the Massachusetts attorney general is whether agents fully explained the limits of their policies. Many of HealthMarkets' policies are so-called limited- or scheduled-benefit plans, a growing but controversial type of coverage that sets tight caps on what an insurer will pay toward benefits such as hospital care. Most states allow such policies but require that agents provide clear information about the limits to potential policyholders.

Late last week, regulators from 35 states and the District of Columbia released a long-awaited report outlining problems they said occurred from 2000 to 2005. Those included inadequate training and supervision of agents and delays in claims payments. The report included requirements for specific corrective actions and a response from HealthMarkets.

The review comes amid increased interest by insurers, regulators and politicians in the individual insurance market, where more than 18 million people buy their own health coverage because they don't get health coverage through their jobs.

The report notes that HealthMarkets, purchased in 2006 by the Blackstone Group and two other private-equity firms, says it has made improvements since 2005. Regulators said they did not validate those changes because they came after the scope of the report.

"A full reading of the exam report displays clearly the meaningful and extensive changes we have made," said HealthMarkets President and Chief Executive Officer William Gedwed in a statement.

In 2005, for example, the company began making follow-up calls to new policyholders to make sure they understand their policies' limits, Gedwed's statement says. The company says complaints have fallen 50% since it made the changes.

The review began in 2005 at the behest of the National Association of Insurance Commissioners.

The report says two of HealthMarkets' companies, Mega Life and Health Insurance and Mid-West National Life Insurance, received 931 complaints from 2000-05, with about a third concerning sales agent actions, including some that alleged fraud and forgery.

HealthMarkets sells its insurance mainly through three associations: the National Association for the Self-Employed, the Alliance for Affordable Services and Americans for Financial Security.

Since 2002, the company has been fined by eight states and faced lawsuits from dozens of policyholders. In October, HealthMarkets agreed to pay up to $500,000 to settle allegations about its business practices in Delaware.

The Massachusetts attorney general filed a lawsuit in August alleging that the insurer waged a "campaign of deception and unfair practices," and earlier the Massachusetts Division of Insurance required the company to reassess nearly 23,000 denied claims.

Starting this week, regulators will begin the penalty phase of the review. A decision is expected within six months.