A health insurer owned by two Wall Street giants is headed to trial next week over claims it misled a San Bernardino County couple into buying a policy that left them with more than $140,000 in unpaid medical bills from cancer treatment.
Norman and Kathleen Carter of Yucaipa are battling their insurance company, even as Kathleen continues to fight abdominal cancer.
The couple sued a unit of HealthMarkets Inc. in August 2011 in Superior Court for fraud and breach of contract, accusing the company and its insurance agent of deliberately misrepresenting the health plan benefits. The insurer has denied any wrongdoing in court filings, and the case is scheduled for trial Wednesday.
HealthMarkets and its three subsidiaries, Mid-West National, Mega Life and Health and Chesapeake Life, cater to individual policyholders and the self-employed, and they have run into regulatory trouble for years.
The San Bernardino County case highlights the struggles many consumers face trying to understand the benefits and limits of coverage when choosing a health plan. In 2014, the federal healthcare law imposes new rules aimed at preventing insurers from selling policies with confusing exclusions that can result in large, unforeseen medical expenses for consumers.
The Carters said they purchased a Cover America plan from Mid-West National in 2004 to provide coverage for major illnesses and protect them from incurring significant medical debt. They said one of the company's insurance agents, Joseph Bertino, assured them they were purchasing up to $1 million in coverage.
Bertino couldn't be reached for comment. A spokeswoman for HealthMarkets declined to comment on the pending litigation.
Early last year, Kathleen Carter was diagnosed with a form of abdominal cancer called primary peritoneal carcinoma. The dental hygienist, 63 at the time, spent nearly four weeks in the hospital, underwent surgery and began chemotherapy.
Kathleen Carter said she was shocked when she opened a bill showing that her insurer had labeled most of her care as "miscellaneous" hospital charges, for which her policy would pay only up to $18,000 per hospital stay.
The insurance company paid roughly $30,000 toward her care, according to the lawsuit. The Carters said that left them owing more than $140,000 to Loma Linda University Medical Center and other providers. Her 64-year-old husband, Norman, is an orthodontist in Chino and both of them taught at Loma Linda University.
"You expect your insurance company to help you out with the major stuff when you've been paying premiums for years," Kathleen Carter said. "I quit answering the phone because we were getting all these calls from debt collectors about the medical bills."
Kathleen Carter, who recently turned 65 and became eligible for Medicare, is now undergoing a second round of chemotherapy.
HealthMarkets, based in North Richland Hills, Texas, paid $20 million in 2008 to settle an investigation involving California and 47 other states that accused it of deceptive business practices and misrepresentations.
In 2009, HealthMarkets paid $17 million to resolve similar allegations brought by the Massachusetts attorney general and was banned from selling policies in that state for five years.
The Los Angeles city attorney's office sued HealthMarkets in 2010 in state court over allegations of unfair business practices after it reviewed numerous consumer complaints. No trial date has been set. HealthMarkets declined to comment on the city's suit.
Private equity firm Blackstone Group and the private equity arm of investment bank Goldman Sachs Group Inc. bought a majority stake in HealthMarkets in 2006. A spokeswoman for Goldman declined to comment and a representative for Blackstone couldn't be reached.
Washington state regulators, who led the previous multistate investigation into HealthMarkets, levied an additional $325,000 fine earlier this year because the company failed to satisfy some requirements of the 2008 settlement related to agent training and oversight.
"HealthMarkets did have many issues we had concerns with especially regarding oversight of their agents, but it's not the same company today," said Stephanie Marquis, a spokeswoman for the Washington state insurance commissioner. "The key areas we had issues with no longer exist."
William Shernoff, a lawyer in Claremont representing the Carters, said the tougher regulations in the federal healthcare law are needed to better protect consumers. "People may think they have good coverage," he said, "and it may be too late when they find out that's not the case."