[Updated & Bumped - see below]
You may have already heard that the California Department of Managed Health Care (which is a separate entity from the Department of Insurance) recently fined Pacificare a walloping $3.5 million. Adding insult to injury, the UHC-owned carrier now faces an additional potential $1.3 billion (yes, with a "b") in fines from the Golden State's DOI. This amounts to $10,000 for each of the mind-boggling 130,000 violations the troubled insurer is alleged to have committed.
If this stands (and we'll discuss the likelihood of that in a moment), it would be one of the biggest (if not THE biggest) such fines ever imposed on a carrier.
Ouch!
I mentioned earlier that I'm no carrier's shill, and especially one which I don't even represent (that would be Pacificare). And we've chronicled insurer malfeasance here for a long, long time. Still, this one seems tortured, at best:
On the one hand, I'm not terribly surprised that a carrier could have erred so many times; insurers process millions of claims every year, and we can't tell from the information thus far available the percentage that this 130,000 represents. I'm not condoning such errors mind you, simply acknowledging that they occur. It would be helpful, too, to know the nature of these violations: were they bad faith claims denials, or accounting errors, or simply computer hiccups? We just don't know.
I discussed this with a friend of mine yesterday. Fred's a carrier rep, but hasn't been in the group medical field for many years (and never worked for Pacificare or UHC). Still, he has many years of experience from "the other side of the table," and I was interested in his take on this. He had an interesting perspective, and I'd like to share that with our readers. Before I do so, let me make clear that if it does turn out that Pacificare cavalierly and negligently caused the kind of grief implied in the charges, then I applaud the efforts to punish them.
But before we run up the yardarm, let's take a more dispassionate look at what we do know, and what we can reasonable infer.
Fred and I noodled out that the $1.3 billion and the 130,000 violations share the number 13 (eat your heart out, Planck). Some quick calculation led us to the conclusion that each fine must max out at $10,000. It is Fred's opinion that this must represent the maximum fine that can be levied for each violation. It doesn't make sense, however, that every single instance would justify such a large amount. A more careful re-reading of the articles gave us a clue: "could face fines," and "could face up to." Notice the qualifying term "could." So it stands to reason that someone, either the reporter or someone in the DOI's office, is stressing the maximum fine, for maximum effect. Which is not to say that Pacificare won't be on the hook for that amount, but the odds are agin it.
Why, you ask?
Well, there are two issues here:
First, it's unlikely that every single (alleged) violation would rate the max penalty. Could it happen? Of course, but we're talking probability here.
And second, it's also likely that the Department of Insurance (in California, this is an elected office, so there's a lot of politics involved), seeking to at least share the limelight with the Department of Managed Health Care, would stress that maximum liability, no matter the likelihood that it would ever come to fruition (can you say Elliot Spitzer?).
The problem here is that we lack both facts and perspective; we've heard from but one side. One of my clients is a former commissioner of the California DOI, and I've dropped him an email seeking his opinion. I've also written to the PR folks at Pacificare, to see what (if anything) they have to say. Of course, we'll be following the press on this, to see what light they can shed.
This promises to get interesting.
UPDATE: Received an email from a kind reader which included a press release on this issue from UHC. You can download it here.
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