Thirty-six states join to fine UnitedHealth

By Marshall Allen

Thursday, Sept. 13, 2007 | 7:38 a.m.

UnitedHealth Group, the titan that's poised to take over the Nevada health insurance market, has been assessed a $20 million fine by insurance regulators in 36 states - including Nevada - for ongoing failures in processing claims and responding to consumer complaints.

It's the first time insurance regulators from dozens of states have joined to assess fines against a company and leverage a commitment to correct problems.

United covers about 70 million Americans and is the country's largest health insurance provider. Its proposed friendly takeover of Sierra Health Services - which covers 630,000 Nevadans and is the state's largest health insurance company - would give it a virtual monopoly in the Las Vegas health maintenance organization and Medicare HMO markets.

The merger has been criticized by Gov. Jim Gibbons, the Nevada attorney general, health care providers and consumers because it could allow United to leverage its market dominance into increased costs for consumers and lower payments to doctors and hospitals.

The deal is being examined by the attorney general's office, which could intervene in the acquisition, and investigated by the Justice Department, which must approve it.

The merger cleared its first hurdle in late August when it was conditionally approved by Nevada Insurance Commissioner Alice Molasky-Arman. Her conditions expire after two years, and mostly include promises that consumers will not bear the costs of the merger. Some critics noted that placing conditions on United is futile because the company has a history of violating regulations and paying fines.

Tyler Mason, spokesman for United, would not say the company made any mistakes, had problems or was any more at fault than any other insurance company.

"I don't think anyone is perfect or free of human error," he said.

Mason said there's always "room for improvement" and that the chronic violations of state law stemmed in part from United centralizing its claims processing. Large insurance companies have to operate in a fragmented manner to comply with varying state guidelines, he said.

The $20 million fine was negotiated between United and insurance officials from five states - including New York, where 12,811 complaints about United were filed from 2003 to 2007. Between 11 percent and 15 percent of claims were mishandled, officials concluded. New York will receive about $4 million in fines.

"What we saw was general sloppiness in claims paying and across various networks," said Charlie Rapacciuolo, health bureau chief of the New York Insurance Department.

Rapacciuolo said states banded together to go after United because some individual regulators would not have clout with the company, and it was more efficient because many states had similar problems.

The fine agreement, reached last week, include s a three-year improvement plan under which United will be closely monitored for proper claims processing and handling of appeals. If it fails, additional fines of up to $20 million could be levied against the company.

Nevada receives the smallest sum of the three dozen states, $38,092, because it has fewer United patients.

Steven Wright, chief insurance examiner for the Nevada Insurance Division, said that during United's two-year merger period with Sierra Health in Nevada, it will have to use Sierra's claims processing system, and not the administrative practices and technology that led to the claims processing problems elsewhere.

Mason said United has no current plans to change the claims processing after the two-year period is finished.

It was important that Nevada take part in the United settlement, Wright said, because it ensures regulators will hold the company accountable down the road for its claims processing . United has not had problems in Nevada before, so it's not anticipated they will be created by the merger, he said.

The $20 million fine involving 36 states is noteworthy, but pales in comparison to United Chief Executive William McGuire's compensation in 2005. Forbes reported his total compensation, including stock gains, was $124.8 million.