FCA Suit Against HealthMarkets Dismissed

U.S. District Judge Mary S. Scriven dismissed a suit brought against HealthMarkets Inc. (“HealthMarkets” or the “Company”) by an anonymous whistleblower (“John Doe” or “Doe”) on May 23, 2017, after the federal government declined to intervene and John Doe dropped the suit.

In the complaint, originally filed under seal in April 2016, Doe accused the Company of taking advantage of its position as a web broker under the Affordable Care Act (“ACA”) to sell its own additional insurance. As a web broker, HealthMarkets helped enroll tax-subsidy-eligible individuals into qualified health insurance plans. Doe alleged that the Company coaxed people into choosing plans with the lowest premiums in order to leave room in their budgets for the additional insurance offered by HealthMarkets. In addition, to further increase the customers’ ability to afford HealthMarkets’ supplemental insurance, the Company allegedly instructed its agents to adjust customers’ incomes in order to increase the amount of government subsidies for which they were eligible. Doe referred to the additional insurance as “junk” insurance because it supposedly provided very little protection.

John Doe claimed that the Company’s actions violated the ACA and its accompanying regulations by not ensuring that its agents were licensed to sell insurance and by using the personally identifiable information of its customers for unauthorized purposes. When HealthMarkets’ agents enrolled applicants into a qualified health plan, the Company received a commission from the issuers of the plans, who, in turn, received payment from the federal government for providing a qualified health plan to the applicant. Doe alleged that HealthMarkets was not eligible for those funds because of its intentional violations of the ACA. Submitting a false claim to the government in order to receive payment is a violation of the False Claims Act.

According to the suit, the resulting damages to the government equated to the approximately $90 million paid to HealthMarkets in 2013, the approximately $110 million paid to the Company in 2014, and the amount of damages for the subsequent years. At the time of filing, Doe did not have the information needed in order to determine the amount of damages for 2015, 2016, and 2017.

This suit is not the first time HealthMarkets has been in legal trouble. Between 2008 and 2010, regulators from California, and more than 30 other states, have fined HealthMarkets and its affiliates nearly $40 million over alleged deceptive business practices, such as violating unfair competition and false advertising laws, and including a $17 million settlement paid to the State of Massachusetts.

The legal team at SFMS has significant experience litigating securities matters. If you have any questions regarding this subject or this posting, please contact Nick Lussier ([email protected]) or Chiharu Sekino ([email protected]). We can also be reached toll-free at (866) 540-5505.

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Helfand, Duke. “Health insurer HealthMarkets sued by L.A. city attorney over ‘junk insurance’.” Los Angeles Times. Last modified on October 21, 2010.

Posses, Shayna. “HealthMarkets Faces FCA Suit Over ‘Junk’ Insurance.” Law 360. Last modified on May 10, 2017.