Document:

exv10w1

Exhibit 10.1

IN THE MATTER OF

THE MEGA LIFE AND HEALTH INSURANCE COMPANY

State of Oklahoma

MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE

State of Texas

THE CHESAPEAKE LIFE INSURANCE COMPANY

State of Oklahoma

SETTLEMENT AGREEMENT

          This Settlement Agreement (“Agreement”) is entered into as of this 26th day of
August, 2009 by and between The MEGA Life and Health Insurance Company, Mid- West National Life
Insurance Company of Tennessee and The Chesapeake Life Insurance Company (collectively, the
“Company”) and the Commissioner of the Massachusetts Division of Insurance.

     A. Background and Recitals

	 	1.	 	The MEGA Life and Health Insurance Company (“MEGA”) is and has been a licensed
insurance company domiciled in the State of Oklahoma.
	 
	 	2.	 	Mid-West National Life Insurance Company of Tennessee (“Mid-West”)
is and has been a licensed insurance company domiciled in the State of Texas.
	 
	 	3.	 	The Chesapeake Life Insurance Company (“Chesapeake”) is and has been a licensed
insurance company domiciled in the State of Oklahoma.
	 
	 	4.	 	All three (3) Companies are subsidiaries of HealthMarkets, Inc.
(“HealthMarkets”), a Delaware corporation, with its principal place of business in
North Richland Hills, Texas. Any other current, after acquired or formed insurance
company subsidiaries, affiliates or agencies of HealthMarkets licensed by the
Massachusetts Division of Insurance (“Division”) are likewise bound by any continuing
conditions imposed on the Company pursuant to this Agreement.
	 
	 	5.	 	On November 6, 2003, the Division called a limited scope market conduct
examination of MEGA. This examination was confined to review the following standards
in small group health insurance: company operations/management, complaint handling,
marketing and sales, certificate holder service and underwriting and rating.

1

 

	 	6.	 	On January 12, 2005, as a result of the preliminary findings from the
examination referenced in the previous paragraph, the Division called a limited
scope market conduct examination of MEGA, Mid-West and Chesapeake. This
examination was confined to a review of the claims handling practices in small
group health insurance.
	 
	 	7.	 	As a result of the findings from these examinations, the Division engaged
in extensive discussions with the Company with respect to the findings, a plan of
corrective action by the Company to address those findings for the benefit of the
Company’s current and former certificate holders, and a means of providing for the
enforcement of such a plan. An examination report concerning the limited scope market
conduct examination of MEGA’s, Mid-West’s and Chesapeake’s claims handling practices
examination was released concurrently with a Regulatory Settlement Agreement (RSA) in
December 2006.
	 
	 	8.	 	During the two-year period following the RSA, the Division continued
monitoring of the Company’s activities and implementation of the RSA requirements.
Such monitoring included members of the examination team conducting periodic reviews
of randomly selected files. Monitoring also included meetings with Company senior
management to discuss compliance with the RSA.
	 
	 	9.	 	On January 12, 2009, the Division commenced re-examination of certain key
provisions of the RSA. An examination report concerning this re-examination is being
released concurrently with this Agreement.

B. Provisions

	 	1.	 	The Company will submit notice necessary to discontinue voluntarily sales
of health benefit plans to eligible individuals and eligible small businesses in the
Massachusetts market pursuant to the provisions of 211 CMR 66.05 (3) and will not
offer any new health benefit plan in the Commonwealth of Massachusetts, as defined
under M.G.L. c. 176J, Section 1 on or after October 1, 2009 for a period of three
years.
	 
	 	2.	 	The Company may continue to renew all existing health benefit plans and
honor all existing contracts according to all relevant statutory and regulatory
requirements as required under M.G.L. c. 176J, Section 4(c). Neither this Agreement
nor any of the relief to be offered under this Agreement shall be interpreted to
alter in any way the contractual items of any policy/certificate nor to reduce or
increase any rights provided by federal statute including the Federal Health
Insurance Portability and Accountability Act of 1996.

2

 

	 	3.	 	After the expiration of the three year period, the Company may submit to the Division
a business plan to offer health benefits plans that meets the Division’s approval, said
approval not to be unreasonably withheld.
	 
	 	4.	 	The Company may continue to offer the following types of health insurance plans that are
excepted from the definition of a “health benefit plan” under M.G.L. c. 176J, Section 1:
accident only; dental only; vision only; hospital indemnity plans; specified disease;
disability income products; and any other health insurance plan that may be now or later
excepted from the definition of “health benefit plan.” These types of health insurance plans
were not the subject of the December 2006 RSA. In addition, the Company may continue to offer
any type of life insurance for which it is licensed in Massachusetts.
	 
	 	5.	 	The Company must refer all producer activities that lead to any disciplinary action
against a producer, including termination of a producer’s appointment, to the Division’s
Special Investigations Unit (“SIU”) for a period of two years following the execution of
this Agreement. Said disciplinary action is that taken according to the business rules in
effect at the Company at the time of the action.
	 
	 	6.	 	The Company must contact those insureds whose health benefit plan was
issued in Massachusetts on or after May 1, 2005 and who meet both of the following
conditions, regardless of whether the person is currently covered by a Company health
benefit plan: a) those insureds who were not contacted through a Benefit Confirmation
Call (BCP) or confirmation letter (except for those insureds who were not contacted
because they cancelled their insurance coverage prior to the date they should have
received a BCP call or letter) and b) those insureds who had claims on certificates
issued that were denied in total without payment based on certain remark codes (as set
forth in Exhibit 1). The purpose of this contact is to confirm the insured’s
understanding of the product and reevaluate any claims where the insured can establish
they had a good faith basis for believing that the claims were not processed correctly.

	 	a.	 	Beginning no later than the sixtieth day following the execution
of this Agreement, the Company shall begin mailing notices (set forth in Exhibit
2) to all of the applicable insureds advising that they may request a
reassessment of totally denied claims. The mailing will be conducted in three
phases with thirty days, or the next business day, between each phase. With
respect to any insureds whose mailed notice is undeliverable, the Company shall
provide the Division with evidence that the efforts to locate insureds are
rigorous and thorough. Such efforts shall include the use of or consultation
with third parties or their databases, additional letter forwarding services
offered by the United States Postal Service,

3

 

	 	 	 	and coordination with the Division. The Company will conduct a fourth mailing
thirty days after the third phase to re-send to insureds whose notice was
returned as undeliverable.

	 	b.	 	Notice to applicable insureds whose coverage was issued on or
after May 15, 2009, will be sent in the fourth phase as described above.
	 
	 	c.	 	Insureds are to mail a Claims Reassessment Form (as set forth in
Exhibit 3) postmarked no later than sixty-seven days from the date the Company
mailed the notice.
	 
	 	d.	 	The Company will complete the reassessment pursuant to the
processes and timeframes as agreed to between the Division and the Company (as
set forth in Exhibits 4).
	 
	 	e.	 	The Company will maintain records for this reassessment process
and will submit monthly reports to the Division.

	 	 	 	The Division shall monitor the claim reassessment process and shall conduct reviews of
decisions in the manner and at such intervals as it deems appropriate.
	 
	 	7	 	The Division will monitor the Company’s compliance with this
Agreement. The Company agrees no later than ten business days after the end of the month
beginning with the October 2009 month end report, to submit monthly reports to the
Division (or less frequently as agreed with the Division) with respect to SIU referrals
as described in Section B.5 above and the claims reassessment process as described in
Section B.6 above. The Division, in its discretion, may conduct re-examination(s) of the
issues addressed by this Agreement.
	 
	 	8.	 	The reasonable costs of the Division in monitoring the Company’s compliance with the
Agreement, including, but not limited to, the cost of conducting any reviews, monitoring of
monthly reports submitted by the Company or re-examination(s) provided for by the Agreement,
shall be paid by the Company.
	 
	 	9.	 	The Company does not admit, deny or concede any actual or potential fault, wrongdoing,
liability or violation of law in connection with any facts or claims that have been or could
have been alleged against it, but considers it desirable for this matter to be resolved.
	 
	 	10.	 	The Company is entering into this Agreement in order to resolve all issues stemming from the
December 2006 RSA between the Company and the Division and to resolve all issues identified
in the subsequent reviews and/or re-examinations conducted through February 2009.
	 
	 	11.	 	The Company will continue to comply with the requirements of the December 2006 RSA related
to Company operations and management,

4

 

	 	 	 	complaint and grievance handling, marketing and sales, certificate holder services,
underwriting and rating, and claims processing as such requirements pertain to the
business that the Company continues to issue and/or renew after this Agreement is
executed. The Company, however, will not be implementing a new claims processing
system, but rather has made modifications to its existing system to resolve the
issues identified in part B.6.b of the December 2006 RSA.

	 	12.	 	In the event that subsequent to the date of the execution of this
Agreement, the Company and/or its parent settles any matter not specifically covered
by this Agreement with any other State on a multi-state basis, the Division is not
precluded from participating in any such multi-state regulatory settlement
agreement. Such participation does not void the Company’s obligations under this
Agreement.
	 
	 	13.	 	The Company shall remit the sum of $2,000,000 to the Massachusetts
Division of Insurance within ten business days of the execution of this Agreement.
	 
	 	14.	 	This Agreement may be signed in multiple counterparts, each of which shall
constitute a duplicate original, but which taken together shall constitute but one
and the same instrument.
	 
	 	15.	 	This Agreement shall be governed by and interpreted according to laws of
the Commonwealth of Massachusetts.
	 
	 	16.	 	The signatories hereto represent and warrant that they have full authority
to execute this Agreement on behalf of the parties herein.

C. Remedies

	 	1.	 	In order to encourage timely implementation of the terms of this
Agreement, the Division may impose an additional penalty of up to $3,000,000. The
Division, after appropriate examination(s), expects the Company to be in compliance
with this Agreement in various stages over the three years following its execution
as follows:

	 	a.	 	If the Company fails to make SIU referrals as
required by Section B.5. above for a period of two years following the
execution of this Agreement, the Division may impose a penalty of up to
$1,500,000.
	 
	 	b.	 	If the Company fails to make monthly reporting the
Division may impose a penalty of up to $500,000.
	 
	 	c.	 	The reassessment of certain claims should be
completed on or about 280 days from the effective date of this agreement
unless the

5

 

	 	 	 	parties have extended this date. Failure to complete this reassessment may
result in a penalty of up to $1,000,000. This requirement shall be measured
by a tolerance level of 4 %.

	 	2.	 	In addition to the other penalties applicable pursuant to this Agreement the Division retains
the right to impose any other regulatory penalty otherwise available by law, including fines,
with respect to the Company’s willful violation of the terms of this Agreement or any other
violation of law not addressed in this Agreement.
	 
	 	3.	 	The enforcement of any fine imposed hereunder and the findings upon which any such fine are
based shall be subject to judicial review as otherwise provided by law.

[THE REST OF THIS PAGE INTENTIONALLY LEFT BLANK]

6

 

	 	 	 	 	 
	THE MEGA LIFE AND HEALTH INSURANCE COMPANY

 	 
	BY:  	/s/ PHILLIP J. HILDEBRAND 	 
	 	Phillip J. Hildebrand, 	 
	 	President and Chief Executive Officer 	 
	 	 	 
	 	August 26, 2009 	 
	 
	MID-WEST NATIONAL LIFE INSURANCE COMPANY OF TENNESSEE

 	 
	BY:  	/s/ PHILLIP J. HILDEBRAND 	 
	 	Phillip J. Hildebrand, 	 
	 	President and Chief Executive Officer 	 
	 	 	 
	 	August 26, 2009 	 
	 
	THE CHESAPEAKE LIFE INSURANCE COMPANY

 	 
	BY:  	/s/ PHILLIP J. HILDEBRAND 	 
	 	Phillip J. Hildebrand, 	 
	 	President and Chief Executive Officer 	 
	 	 	 
	 	August 26, 2009 	 
	 
	MASSACHUSETTS DIVISION OF INSURANCE 

 	 
	BY:  	/s/ NONNIE S. BURNES 	 
	 	Nonnie S. Burnes,  	 
	 	Commissioner of Insurance 	 
	 	 	 
	 	August 26, 2009 	 
	 

7

 

Exhibit 1

Massachusetts Claims Reassessment Remark Codes

	 	 	 
	Code	 	Description
	 
	02

	 	PERSONAL/CONVENIENCE ITEMS, TAKE-HOME DRUGS ARE NOT ELIGIBLE. REFER
TO EXCLUSIONS AND LIMITIATIONS IN YOUR PLAN.
	 
	 	 
	03

	 	CHARGES FOR BLOOD, PLASMA OR BLOOD DERIVATIVES ARE NOT ELIGIBLE.
REFER TO EXCLUSIONS AND LIMITATIONS IN YOUR PLAN.
	 
	 	 
	05

	 	ONLY ONE SURGICAL PROCEDURE THRU ONE INCISION IS ELIGIBLE. REFER TO
THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	06

	 	ONLY ONE PHYSICIAN VISIT PER DAY IS ELIGIBLE.REFER TO THE CERTIFICATE
SCHEDULE PAGE.
	 
	 	 
	07

	 	ONLY ONE SPINAL MANIPULATION EXPENSE IS ELIGIBLE PER MONTH. REFER TO
THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	08

	 	CHARGES EXCEED THE MAXIMUM SET FORTH IN YOUR CERTIFICATE. REFER TO
THE CERTIFICATE SCHEDULE PAGE.
	 
	 	 
	15

	 	THESE CHARGES ARE NOT ELIGIBLE UNDER YOUR PLAN. CHARGES FOR BENEFITS
NOT SPECIFICALLY LISTED IN YOUR PLAN ARE INELIGIBLE
	 
	 	 
	16

	 	ROUTINE PHYSICALS AND / OR IMMUNIZATIONS ARE NOT COVERED. REFER TO
THE DEFINITION OF A COVERED EXPENSE IN YOUR PLAN.
	 
	 	 
	17

	 	ROUTINE WELL BABY CARE AND/OR IMMUNIZATIONS ARE NOT ELIGIBLE REFER TO
THE DEFINITION OF A COVERED EXPENSE IN YOUR PLAN.
	 
	 	 
	19

	 	CONTRACEPTIVE MANAGEMENT IS INELIGIBLE. REFER TO THE DEFINITION OF A
COVERED EXPENSE IN YOUR PLAN.
	 
	 	 
	20

	 	OUT-PATIENT TREATMENT CHARGES ARE NOT ELIGIBLE UNDER YOUR BASE PLAN.
REFER TO EXCLUSIONS AND LIMITATIONS IN YOUR PLAN.
	 
	 	 
	22

	 	THE FIRST DATE OF TREATMENT WAS NOT RECEIVED WITHIN THE LIMITATIONS
LISTED IN YOUR POLICY/CERTIFICATE.
	 
	 	 
	23

	 	OUTPATIENT EXPENSES NOT SPECIFICALLY LISTED IN YOUR PLAN ARE NOT
COVERED.
	 
	 	 
	24

	 	REFER TO THE EXCLUSIONS AND LIMITATIONS IN YOUR PLAN. MENTAL AND/OR
NERVOUS DISORDERS ARE NOT ELIGIBLE.
	 
	 	 
	25

	 	NO BENEFITS ARE PROVIDED FOR NORMAL PREGNANCY. REFER TO THE
EXCLUSIONS AND LIMITATIONS IN YOUR PLAN.
	 
	 	 
	29

	 	THIS DATE OF SERVICE EXCEEDS THE MAXIMUM DAYS OF TREATMENT
LIMITATIONS LISTED IN YOUR POLICY/CERTIFICATE.
	 
	 	 
	32

	 	ATTENDING PHYSICIAN VISITS MUST BE BY A PHYSICIAN OTHER THAN THE
SURGEON. REFER TO THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	33

	 	DOCTOR VISITS ARE LIMITED TO FORTY VISITS PER ILLNESS OR INJURY

HM copy of Remark Codes- MA Claims Reassessment project used in 2007

 

 

Exhibit 1

Massachusetts Claims Reassessment Remark Codes

	 	 	 
	Code	 	Description
	 	 	 
	36

	 	THE MAXIMUM BENEFIT ALLOWED FOR THIS TYPE OF SERVICE HAS PREVIOUSLY
BEEN PAID. REFER TO THE CERTIFICATE SCHEDULE PAGE
	 
	 	 
	42

	 	CHARGES ARE INELIGIBLE ACCORDING TO YOUR PLAN DEFINITION OF
PRE-EXISTING CONDITIONS. REFER TO DEFINITIONS IN YOUR PLAN.
	 
	 	 
	46

	 	THIS LOSS IS EXCLUDED UNDER THE CONTRACT PROVISIONS TITLED “EXCLUSIONS
AND LIMITATIONS”.
	 
	 	 
	47

	 	CHARGES NOT ELIGIBLE AS THE CONDITION IS RELATED TO THE SPECIAL
EXCEPTIONS ENDORSEMENT/WAIVER ATTACHED TO YOUR PLAN.
	 
	 	 
	49

	 	CHARGES FOR PRE-NATAL AND/OR POST-NATAL CARE ARE NOT COVERED REFER TO
THE EXCLUSIONS AND LIMITATIONS IN YOUR PLAN.
	 
	 	 
	51

	 	ELECTIVE STERILIZATIONS ARE NOT ELIGIBLE. REFER TO THE EXCLUSIONS AND
LIMITATIONS IN YOUR PLAN.
	 
	 	 
	52

	 	MANIPULATIONS, HEAT AND/OR ULTRA SOUND SERVICES ARE NOT COVERED. REFER
TO EXCLUSIONS AND LIMITAIONS IN YOUR PLAN.
	 
	 	 
	54

	 	MEDICINES AND/OR DRUGS ARE NOT COVERED. REFER TO THE EXCLUSIONS AND
LIMITATIONS IN YOUR PLAN.
	 
	 	 
	59

	 	SURGERY PERFORMED IN THE PHYSICIANS OFFICE IS NOT COVERED. REFER TO
THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	63

	 	PATHOLOGY AND RADIOLOGY, INCLUDING INTERPRETATIONS ARE INELIGIBLE.
REFER TO THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	66

	 	THERE IS A 12 MONTH WAITING PERIOD FOR THIS SERVICE.
	 
	 	 
	82

	 	TREATMENT OF A SICKNESS IS NOT COVERED FOR THE FIRST 30 DAYS OF
COVERAGE.
	 
	 	 
	89

	 	NOT ELIGIBLE UNDER YOUR ACCIDENT PLAN OR SPECIFIED DISEASE RIDER.
REFER TO BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	90

	 	THE WAITING PERIOD HAS NOT BEEN MET FOR THIS BENEFIT. PLEASE REFER TO
YOUR POLICY/CERTIFICATE.
	 
	 	 
	94

	 	THE BENEFIT RIDER WHICH COVERS THIS TYPE OF SERVICE WAS NOT SELECTED.
	 
	 	 
	95

	 	DOCTOR OFFICE VISITS ARE NOT COVERED UNDER YOUR PLAN. REFER TO THE
BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	98

	 	OPEN — FREE FORM REMARK
	 
	 	 
	99

	 	OPEN — FREE FORM REMARK
	 
	 	 
	A7

	 	ANESTHESIA BENEFITS ARE PAID AT 30% OF THE BENEFIT THAT WAS PAID TO
THE SURGEON. REFER TO THE CERTIFICATE SCHEDULE PAGE.
	 
	 	 
	A8

	 	ANESTHESIA BENEFITS ARE PAID AT 30% OF THE SURGEON’S CHARGES. REFER

HM copy of Remark Codes- MA Claims Reassessment project used in 2007

 

 

Exhibit 1

Massachusetts Claims Reassessment Remark Codes

	 	 	 
	Code	 	Description
	 	 	 
	

	 	TO
THE CERTIFICATE SCHEDULE PAGE.
	 
	 	 
	AB

	 	CHARGES ARE NOT COVERED WHEN THE CLAIMANT IS OVER OR UNDER THE AGE
RESTRICTION(S) AS DEFINED BY YOUR COVERAGE.
	 
	 	 
	AG

	 	THE MAXIMUM NUMBER OF SERVICES PER CALENDAR QUARTER HAS BEEN MET.
REFER TO THE CERTIFICATE SCHEDULE PAGE.
	 
	 	 
	B6

	 	THE DAILY MAXIMUM BENEFIT FOR THIS DATE OF SERVICE HAS BEEN EXHAUSTED.
REFER TO THE CERTIFICATE SCHEDULE PAGE.
	 
	 	 
	BI

	 	THE INSURED PERSON’S BENEFIT RIDER WAS NOT INFORCE WHEN THIS SERVICE
WAS RENDERED.
	 
	 	 
	BL

	 	WEIGHT MANAGEMENT IS NOT AN ELIGIBLE EXPENSE. REFER TO THE EXCLUSIONS
AND LIMITATIONS IN YOUR PLAN.
	 
	 	 
	BM

	 	DURABLE MEDICAL EQUIPMENT IS NOT AN ELIGIBLE EXPENSE.
	 
	 	 
	BN

	 	THIS BENEFIT IS PAID IN ACCORDANCE WITH THE MANAGEMENT OF BENEFITS.
	 
	 	 
	BR

	 	MAXIMUM ALLOWABLE BENEFITS HAVE BEEN PAID. REFER TO THE CERTIFICATE
SCHEDULE PAGE.
	 
	 	 
	E0

	 	THESE CHARGES ARE NOT ELIGIBLE DUE TO YOUR PLAN’S EXCLUSIONS AND
LIMITATIONS.
	 
	 	 
	E2

	 	THIS IS NOT A COVERED EXPENSE UNDER THE TESTING AND THERAPY BENEFIT.
REFER TO THE RIDER FOR MORE INFORMATION.
	 
	 	 
	M0

	 	ANESTHESIA BENEFITS ARE ALLOWABLE ONLY TO THE PROVIDER ADMINISTERING
ANESTHESIA.
	 
	 	 
	M6

	 	MENTAL OR NERVOUS DISORDERS WITHOUT DEMONSTRABLE ORGANIC ORIGIN ARE
NOT COVERED UNDER YOUR PLAN.
	 
	 	 
	M8

	 	CHARGES FOR MANAGEMENT OF A DIFFICULT PREGNANCY ARE NOT ELIGIBLE.
REFER TO THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	M9

	 	THE CHARGES ARE NOT ELIGIBLE UNDER YOUR CATASTROPHIC CARE RIDER.
	 
	 	 
	N3

	 	VISION CARE SERVICES, SUPPLIES OR TREATMENT ARE INELIGIBLE REFER TO
THE EXCLUSIONS AND LIMITATIONS IN YOUR PLAN.
	 
	 	 
	P4

	 	THERE IS NO COVERAGE FOR THIS SERVICE WHEN RENDERED BY AN
OUT-OF-NETWORK PROVIDER.
	 
	 	 
	Q1

	 	THIS AMOUNT REPRESENTS YOUR CO-PAY / COINSURANCE PER DATE OF SERVICE.
	 
	 	 
	Q2

	 	THIS RIDER SPECIFICALLY EXCLUDES SPINAL MANIPULATIONS.
	 
	 	 
	Q3

	 	BENEFITS HAVE BEEN REDUCED BY YOUR 20% COINSURANCE.
	 
	 	 
	R6

	 	A CONDITION WHICH MANIFESTS IN THE 1ST 30 DAYS OF COVERAGE I S
INELIGIBLE FOR 12 MONTHS FROM THE INSURED’S EFFECTIVE DATE

HM copy of Remark Codes- MA Claims Reassessment project used in 2007

 

 

Exhibit 1

Massachusetts Claims Reassessment Remark Codes

	 	 	 
	Code	 	Description
	 
	 	 
	R8

	 	THESE CHARGES WERE APPLIED TO YOUR IN-NETWORK DEDUCTIBLE.
	 
	 	 
	S0

	 	YOUR TESTING & THERAPY BENEFIT COVERS THERAPY ONLY IN RELATION TO A
HOSPITAL CONFINEMENT OR SURGICAL CARE.
	 
	 	 
	S1

	 	YOUR CONTRACT LIMITS SPINAL MANIPULATIONS TO ONE PER 90 DAYS. REFER TO
THE BENEFITS SECTION IN YOUR PLAN.
	 
	 	 
	T0

	 	SUPPLIES, INJECTABLES AND EQUIPMENT ARE NOT DEFINED AS A COVERED
EXPENSE IN YOUR PLAN.
	 
	 	 
	T1

	 	THE 30 DAY WAITING PERIOD HAS NOT BEEN MET FOR THIS BENEFIT.
	 
	 	 
	T3

	 	THIS IS NOT A COVERED EXPENSE DUE TO THE POLICY DEFINITION OF A
SICKNESS. REFER TO THE DEFINITION IN YOUR PLAN.
	 
	 	 
	T8

	 	SURGICAL PROCEDURES PERFORMED IN A DOCTOR’S OFFICE ARE NOT LISTED AS A
COVERED EXPENSE ON YOUR PLAN.
	 
	 	 
	T9

	 	THIS TYPE OF SERVICE IS NOT COVERED FOR THE FIRST 6 MONTHS AFTER YOUR
EFFECTIVE DATE.
	 
	 	 
	TC

	 	THESE CHARGES WERE APPLIED TO YOUR OUT-OF-NETWORK DEDUCTIBLE.
	 
	 	 
	U0

	 	NOT MEDICALLY NECESSARY AND/OR RELATED TO A SICKNESS OR INJURY.

HM copy of Remark Codes- MA Claims Reassessment project used in 2007

 

 

EXHIBIT 2

[Date]

Claim Department 9151 Boulevard 26

P.O. Box 822122

North Richland Hills, TX 76182-2 122

[name1 [address] [address]

Re: Certificate #

Dear [personalized]:

As part of a settlement and in cooperation with the Massachusetts Division of Insurance, The MEGA
Life and Health Insurance Company, Mid-West National Life Insurance Company of Tennessee and The
Chesapeake Life Insurance Company (“the Company”) have agreed to implement a Claim Reassessment
Process (hereafter referred to as “the process”)1. The process is being conducted in an
effort for you to have certain claims you feel should have been covered under your plan reassessed.
However, if you believe that your claim(s) were administered according to your understanding of
the coverage, you are not required to participate in the process.

The Company and the Massachusetts Division of Insurance have developed criteria in which the
process will be conducted. Additionally, the process will be monitored by the Massachusetts
Division of Insurance.

Please find attached to this letter a Claims Reassessment Form (hereafter referred to as “the
form”). The form provides us the circumstances in which you believe your claim(s) warrant
reassessment. We will rely on the information in the form when conducting a review of your
claim(s). Please note, you must provide complete information in the form and details regarding why
you believe a claim should be reconsidered. Forms that do not include the reasons why a claim
should be reconsidered will not qualify for this Claim Reassessment Process.

The form must be completed and returned to us, post marked within 67 days from the date of this
letter. Although not required, if you want to ensure your form is received on time we suggest
submitting it via certified mail. After reviewing your form, if additional information is still
needed in order to reassess your claim(s) we will contact you.

All claims considered under the process will be administered according to the deductible,
co-insurance and co-payments set forth in the certificate of insurance you had in force at the time
of the claim.

The Company will make a decision regarding your claims within 60 days from receipt of your form.
Once our review is completed, we will notify you of the decision and if any additional benefits
were considered for processing.

We recognize that you may not be able to recall the details of your claim(s). If you require
additional information or assistance please contact us at [X-XXX-XXX-XXX], and the Company may be
able to provide more detail regarding the denied claims.

We appreciate this opportunity to serve your insurance needs.

Sincerely,

 

			
	1	 	A copy of the agreement is available on the Division of
Insurance’s web site at www.mass.gov/doi

HM 08/04/09

 

 

EXHIBIT 2

[Signature]

Reassessment Letter Number: XXXX

HM 08/04/09

 

 

EXHIBIT 3

MASSACHUSETTS CLAIM REASSESSMENT FORM

					
	 	 	 	 	 
	Name: John Doe
	 	Certificate Number: xxxxxxxxxxx
	 	 

The following information is required in order to go through the Claim Reassessment Process.

	 	1.	 	In order to have your claims considered under the process, you must provide the
specific details as to why you believe you had coverage under your plan for a claim that
was denied.
	 
	 	 	 	Please indicate what type of benefit you felt should have been covered under your plan
below. Please print and include specific details. Forms that do not include the
reasons why a claim should be reconsidered will not qualify for this Claim Reassessment
Process. 

o Child Well Care/Routine Care/Physicals

      

      

o Outpatient Lab/X-Ray

       

      

o Office visits for sickness/illness       o No limitation on number of office visits

      

      

o Benefits not subject to o deductible o co-insurance o maximum limitations

      

      

o Other

I thought I had specific coverage for:

      

      

      

REASSESSMENT LETTER NUMBER: XXXX 8-4-09

Page 1 of 2

 

 

EXHIBIT 3

MASSACHUSETTS CLAIM REASSESSMENT FORM

	2.	 	During the sale presentation, the Company’s
agent reviewed a brochure explaining
the insurance coverage with me.
 o Yes
     o No      o I do not recall
	 
	3.	 	I was provided a copy of the
brochure explaining my health
insurance plan when I applied for
coverage with the Company.
 o Yes      o No      
o I do not recall
	 
	4.	 	I read the Certificate of
Insurance’s benefit exclusions,
limitation and/or benefit maximums
before initiating the health care
treatments for the claims
subsequently denied by the Company.

o Yes      o No      o I do not recall

We recognize you may not be able to recall the details of your claims and the Company may be able
to assist you. Please call toll free [xxx-xxx-xxx] to speak to a Company representative if you
need assistance or have any questions about the completion of this form

	 	 	 	 	 	 	 	 
	Name (Please Print) 
	 	 	 	Signature

	 
	 
	 	 		 
	 	 	 	 	 	 	 	 
	Date:

	 	Daytime contact number 	 	 	 
	 
	 
	 	 	 	 

Please mail this form to:

     Address 1

     Address 2

     City, State Zip

     Attention: XXX

REASSESSMENT LETTER NUMBER: XXXX 8-4-09

Page 2 of 2

 

 

Exhibit 4-Massachusetts Reassessment Process

	1.	 	In order to obtain the required data set for the initial reassessment letters the Company
will carry out the following steps:

	 	a.	 	Identify the population of Massachusetts certificate holders with
certificates issued during the designated time frame; and
	 
	 	b.	 	Conduct an analysis to determine if those certificate holders received a
Benefit Confirmation Program (“BCP”) telephone call or letter; and
	 
	 	c.	 	Of those certificate holders who did not receive a telephone call or
letter, the Company will conduct an analysis of those certificate holders’ claims to
determine if any were denied in whole for the specified remark codes as listed in
Exhibit 1; and
	 
	 	d.	 	Based on the set criteria for the reassessment process, which will be
submitted to and reviewed by the Division, the Company will generate a listing of
the final reassessment population; and
	 
	 	e.	 	Organize up to three mailings (as necessary)* and a final mailing, all
including a self-addressed unstamped envelope.

The estimated time to complete the above steps would be 60 days to complete the initial
mailing.

	2.	 	Returned mail

	 	a.	 	Receipt of return mail is logged and date stamped.
	 
	 	b.	 	Company’s procedures for returned mail will be followed.
	 
	 	c.	 	Research is done to obtain a valid address.
	 
	 	d.	 	For certificate holders whose initial mail notice is undeliverable and
for whom the Company is unable to locate a new address, the Company will utilize
external resources to try and locate a valid address.
	 
	 	e.	 	All returned mail that the Company subsequently locates a valid address
will be resent in the final mailing. The Company will send a file of persons with
invalid addresses to the Division so that the Division can work with other entities
to obtain more current addresses for the final mailing.
	 
	 	f.	 	A reassessment letter will be sent in the final mailing to those
certificate holders for whom an updated address is obtained.

	3.	 	On coverage that was issued on or after May 15, 2009

	 	a.	 	The Company will generate a report to identify those claimants with
certificates issued on or after May 15, 2009 that did not receive a BCP call or
letter and who had claims denied in whole for the specified remark codes.
	 
	 	b.	 	A reassessment letter will be sent in the final mailing for those
certificate holders with certificates issued on or after May 15, 2009 and who did
not receive a BCP call or letter and who had claims denied in whole for the
specified remark codes.

	4.	 	The following steps will be included in the reassessment process:

 

			
	*	 	Conducting three (3) separate mailings will allow Company resources to focus on the reassessment efforts within the set time frames.

	 	 	 
	HM/Corporate Compliance/VAD
	 	 

 

 

 Exhibit 4-Massachusetts Reassessment Process

First Step:

Upon receipt of all forms and correspondence from a respondent an initial team (Triage Team)
will review. This team will review the documents received and determine next course of
action.

	 	a.	 	If item 1 of the form is blank — If information as to why the certificate
holder believed certain claims should have been covered under their plan was
not provided, as instructed in the form, the certificate holder will be sent
a letter stating they do not qualify for the process.
	 
	 	b.	 	If form is not signed — A requirement to participate in the process is to
sign the form; if the form is not signed the form will be returned to the certificate
holder requesting a signature. If a signed form is not sent postmarked from the
certificate holder within 30 days a letter will be sent to the certificate holder
stating they do not qualify for the process.
	 
	 	c.	 	If a form is postmarked after 67 days from the date the Company mailed the
notice, a letter will be sent to the certificate holder stating they do not qualify
for the process.

Second Step:

After the first step is completed all remaining correspondence will be sent to a second team
(Qualifying Team) to review and determine the next course of action. This team will be
responsible for determining if the certificate holder qualifies for the process, does not
qualify for the process or if further review is required.

	 	a.	 	Forms lacking specific detail — For forms that do not provide the specific
information as to why the certificate holder believed certain claims should have been
covered under their plan, a letter will be sent to the certificate holder advising
that the Company requires additional information in order to consider claims for the
process. The letter will instruct the certificate holder to submit the additional
information postmarked within 37 days from the date of the letter. If the additional
information is not postmarked within 37 days, the Company will send a final letter to
the certificate holder stating they do not qualify for the process.
	 
	 	b.	 	Clarification needed — Forms that provide a reason as to why the claim
should be reconsidered but may need additional detail or information to complete the
process will undergo a clarification process. The Company will initiate contact
with the certificate holder. If after three attempts the certificate holder does not
respond a letter will be sent advising that the Company requires additional
information in order to consider claims for the process. The letter will instruct the
certificate holder to submit the additional information postmarked within 37 days
from the date of the letter. If the additional information is not postmarked within
37 days, the Company will send a final letter to the certificate holder stating they
do not qualify for the process.
	 
	 	c.	 	Case is qualified for the process — Forms that provide the specific
information as to why the certificate holder believes certain claims should
have been covered under their plan will be accepted for reconsideration of the claim.
	 
	 	d.	 	Review with the Massachusetts Division of Insurance is required — For
unique situations which may fall outside of the criteria described above, the Company
will

 

			
	*	 	Conducting three (3) separate mailings will allow Company resources to focus on the reassessment efforts within the set time frames.

	 	 	 
	HM/Corporate Compliance/VAD
	 	 

 

 

Exhibit 4-Massachusetts Reassessment Process

convene a call with the Massachusetts Division of Insurance to discuss the case and
come to an agreed solution on how to resolve the case. Both parties will work to
schedule such calls to ensure that the time-frames for the reassessment process are
met.

Third Step:

After the second step is completed, those cases where certificate holders qualify for the
process will be sent to a third team (Claims Review Team). The Claims Review Team will
review the certificate holders claims that were denied in total for services related to the
specific information the certificate holder stated on the forms.

Fourth Step:

After all claims for the certificate holder are identified as requiring reprocessing, the
information will be provided to a fourth team (Claims Remediation Team). The Claims
Remediation Team will complete the following steps:

	 	a.	 	Reprocess all applicable claims
	 
	 	b.	 	Issue all applicable checks, Explanations of Benefits (EOB) and final
letters

	5.	 	The Company will maintain records and will submit reports beginning in November 2009 to the
Division regarding the remediation process and its results. Reporting will continue through
the end of the claims reassessment process.

	 	a.	 	The following elements will be included in the record documentation:

	 	i.	 	The Company will maintain the original data set for all
mailings.
	 
	 	ii.	 	The Company will image all documentation to and from
the insured/claimant.
	 
	 	iii.	 	The Company will maintain a secure image of all
documentation related to the reassessment process.

	 	b.	 	The report will include the information in a format approved by the
Division. Reporting will be provided monthly or less frequently as agreed with the
Division.

 

			
	*	 	Conducting three (3) separate mailings will allow Company resources to focus on the reassessment efforts within the set time frames.

	 	 	 
	HM/Corporate Compliance/VADexv10w2

Exhibit 10.2

COMMONWEALTH OF MASSACHUSETTS

	 	 	 
	SUFFOLK, SS.

	 	SUPERIOR COURT DEPARTMENT

CIVIL ACTION NO. 06-4411-F

	 	 	 	 	 
	 

	 	 	 	 
	 

	 	 	)	 
	COMMONWEALTH OF MASSACHUSETTS,

	 	 	)	 
	 

	 	 	)	 
	Plaintiff,

	 	 	)	 
	 

	 	 	)	 
	v.

	 	 	)	 
	 

	 	 	)	 
	THE MEGA LIFE AND HEALTH INSURANCE

	 	 	)	 
	COMPANY, MID-WEST NATIONAL LIFE

	 	 	)	 
	INSURANCE COMPANY OF TENNESSEE

	 	 	)	 
	and HEALTHMARKETS, INC.,

	 	 	)	 
	 

	 	 	)	 
	Defendants.

	 	 	)	 
	 

	 	 	)	 

FINAL JUDGMENT BY CONSENT

     The Court has reviewed the First Amended Complaint (“Complaint”) filed in this case by the
Commonwealth of Massachusetts and the joint Motion for Entry of Final Judgment by Consent. The
Court finds that it properly has subject matter jurisdiction of this Complaint and that the entry
of this Final Judgment by Consent is in the interests of justice.

     WHEREAS, the Attorney General has concluded an investigation into the practices of The MEGA
Life and Health Insurance Company (“MEGA”), Mid-West National Life Insurance Company of Tennessee
(“Mid-West”), and HealthMarkets, Inc. (“HealthMarkets”) (collectively, “Defendants”) regarding the
content and sale of health insurance policies issued or delivered in Massachusetts;

     WHEREAS, as a consequence of its investigation, the Attorney General filed its First Amended
Complaint in this matter on or about August 22, 2007;

     WHEREAS, each of the Defendants deny all the allegations set forth in the First Amended
Complaint;

 

 

     WHEREAS, the Attorney General and the Defendants (the “Parties”) believe that this Final
Judgment by Consent set forth herein is an appropriate means by which to address all allegations
and requests for relief raised, or that could have been raised, in Plaintiff’s First Amended
Complaint. In particular, this Final Judgment of Consent will avoid the uncertainty, time and
expense related to the conduct of motion practice, discovery and trial; and

     WHEREAS, the Parties have filed a Joint Motion for Entry of Final Judgment by Consent;

     Accordingly, good cause being shown, IT IS ORDERED THAT:

     1. (a) Effective on October 1, 2009, the Defendants MEGA and Mid-West, and any directly or
indirectly owned or operated subsidiary of any of the Defendants acting as a licensed insurance
company (“Insurer Subsidiary”), are enjoined from offering for sale in Massachusetts any Health
Benefit Plan as that term is defined in M.G.L. c. 176J, § 1. The Defendants shall be prohibited
from writing or issuing Health Benefit Plans in Massachusetts for a period of five (5) years from
the date of written notice to eligible individuals and eligible small businesses pursuant to the
process set forth in Section 1(b) immediately below, concerning the restricted opportunity for
renewing existing Health Benefit Plans.

     (b) Subject to the approval of the Division of Insurance of the Commonwealth of Massachusetts
(“DOI”) and the provisions of 211 CMR 66.06(6), the Defendants, and any Insurer Subsidiary, shall,
on or before June 30, 2011, provide written notice to all eligible individuals and eligible small
businesses in Massachusetts insured by any of them under a Health Benefit Plan at the time of the
notice that (i) coverage may only be renewed during the time period of 180 days following the date
of the written notice and (ii) after such 180 day period

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Defendants, including any directly or indirectly owned or operated subsidiary of any of the
Defendants acting as a licensed insurance company, shall not renew any Health Benefit Plans.

     (c) The Defendants MEGA and Mid-West shall send a written notice to each of its respective
Health Benefit Plan policyholders in Massachusetts (i) informing them of its respective Medical
Loss Ratio (i.e., the ratio of incurred medical or hospital claims to the premium earned for that
same calendar year) for its Health Benefit Plans in Massachusetts for the calendar years 2008, 2009
and 2010 only, and (ii) reminding policyholders if their coverage does not qualify as “Creditable
Coverage” as that term is defined in M.G.L. c. 111M, § 1. For Medical Loss Ratio information for
the calendar year 2008, the notice shall be sent on or before December 31, 2009; for such
information for the calendar year 2009, the notice shall be sent on or before October 1, 2010; and
for such information for the calendar year 2010, the notice shall be sent on or before October 1,
2011. The notice required by this Section 1 (c) shall be in the form attached hereto as Exhibit
A, and may be sent by electronic mail so long as the Defendants MEGA and Mid-West can demonstrate
receipt or by United States Mail either separately or combined with other policyholder
notifications sent in accordance with the terms of this Final Judgment by Consent or policyholder
notifications (that do not include any form of marketing materials) sent in the ordinary course of
business. The notice required by this Section 1 (c) is expressly not subject to Section 7 of this
Final Judgment by Consent.

     (d) In the event that Defendants, including any Insurer Subsidiary, or any one of them, after
the expiration of the five year period required by Section 1(a), seek to write new Health Benefit
Plan business in Massachusetts, said Defendant or Defendants shall provide written notice to the
Attorney General at least sixty (60) days before writing new business or filing any products or
policy forms with DOI. Nothing herein shall prevent the Defendants or any of their

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respective subsidiaries from continuing to offer and issue any insurance products that are not
Health Benefit Plans in Massachusetts and the Defendants may continue to offer the following types
of health insurance plans that are excepted from the definition of Health Benefit Plan: accident
only; limited scope vision or dental benefits if offered separately; hospital indemnity insurance
policies if offered as independent, non-coordinated benefits which shall mean policies issued under
M.G.L. c. 175 which provide a benefit not to exceed $500 per day, as adjusted on an annual basis by
the amount of increase in the average weekly wages in the Commonwealth as defined in section 1 of
M.G.L. c.152, to be paid to an insured or a dependent, including the spouse of an insured, on the
basis of a hospitalization of the insured or a dependent; disability income insurance; specified
disease insurance that is purchased as a supplement and not as a substitute for a health plan and
meets any requirements the Commissioner of Insurance by regulation may set; and any other health
insurance plan that may be now or later excepted from the definition of Health Benefit Plan under
G.L. c. 176J. Nothing herein shall prevent the Defendants or any of their respective subsidiaries
from offering Health Benefit Plans of a third-party carrier or carriers neither owned nor operated
by the Defendants.

     2. Effective October 1, 2009, the Defendants and their subsidiaries, divisions, agents,
employees, servants, successors, and assigns, whether acting individually, or in active concert or
participation with them, or through any corporation, trust or other device, are permanently
restrained and enjoined in connection with their business in the Commonwealth of Massachusetts
from:

	 	(a)	 	representing as a Health Benefit Plan benefit that prospective purchasers
cannot be singled out for a rate increase or cancellation;

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	 	(b)	 	representing that Defendants’ products provide prescription drug coverage if
they do not;
	 
	 	(c)	 	requiring association group membership in connection with the marketing and
sale of any Health Benefit Plan under M.G.L. c. 176J for individuals or small employer
groups of five (5) or fewer employees unless the association operates as an
“intermediary” in accordance with M.G.L. c. 176J;
	 
	 	(d)	 	requiring association group membership in connection with their sale of any
Health Benefit Plan under M.G.L. c. 176J to small employer groups of six (6) or more
employees;
	 
	 	(e)	 	declining to pay claims that are valid and outstanding (for purposes of
Sections 2 (e) and (g), the Attorney General and the Defendants agree and acknowledge
that claims are “outstanding” so long as they are open or subject to grievances or
external appeals on or after entry of this Final Judgment by Consent) for coverages and
benefits mandated by M. G. L. c. 175, § 47C (newborn wellness); M. G. L. c. 175, §47F
(maternity care); M. G. L. c. 175, § 47G (cytologic screening and mammographic
examinations); M. G. L. c. 175, § 47H (infertility treatment); and M. G. L. c. 175, §
47W (contraceptive services) when it knows or should know that such denial(s) violate
these mandated benefit laws in Massachusetts;
	 
	 	(f)	 	disclosing protected health information, as that term is defined by 45 C.F.R. §
164.501, to any third party in any manner that MEGA or Mid-West know or should know
violates the privacy provisions of HIPAA (45 C.F.R. Parts 160 and

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	 	 	 	164) and M. G. L. c. 175I and c. 214, § 1B in connection with their conduct of
health insurance business operations in Massachusetts;

	 	(g)	 	declining to pay claims that are valid and outstanding in violation of the
provisions of M. G. L. c. 176J, §§ 1, 2 and 5, and c. 176N, § 2, when it knows or
should know that such denial(s) violate these laws in Massachusetts;
	 
	 	(h)	 	using any advertisement in Massachusetts that contains the representations “any
doctor” or “choose any doctor anytime, anywhere” or equivalent language, unless such
advertisements clearly and conspicuously, and in close proximity to the representation,
disclose any exceptions, restrictions and/or limitations that apply;
	 
	 	(i)	 	using any advertisement in Massachusetts that it knows or should know is false
or deceptive, including, but not limited to, any representation offering prescription
drug coverage, except where the product being offered provides insured prescription
benefits;
	 
	 	(j)	 	using in Massachusetts any advertisements or proposed agent scripts that
unfairly or incompletely compare any MEGA or Mid-West product to any Health Benefit
Plan offered by a competitor, or otherwise make comparisons that it knows or should
know are false, incomplete or unfair;
	 
	 	(k)	 	offering and issuing health insurance policies to Medicare-eligible residents
that fail to comply with M. G. L. c. 176K or 42 USC § 1396, et seq.

     3. Within thirty (30) days of entry of this Consent Judgment, Defendants shall cause a true
and correct copy of injunctive terms contained herein to be served on every person who, since
January 1, 2009, has acted or has been appointed to act as an insurance producer for one or more of
Defendants in Massachusetts.

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     4. On or before December 31, 2009, the Defendants shall:

	 	(a)	 	Implement the revised training materials for their agents licensed to sell
insurance Health Benefit Plans in Massachusetts that incorporate Section 1, entitled
“Health Insurance Agent Training,” of the performance standards contained in the
MultiState Regulatory Settlement Agreement entered into by the Defendants MEGA and
Mid-West as of May 29, 2008 (the “MultiState RSA”);
	 
	 	(b)	 	Implement the revised agent oversight procedures that incorporate Section 2,
entitled “Agent Oversight,” of the performance standards contained in the MultiState
RSA;
	 
	 	(c)	 	Submit to the Commonwealth, on or before February 14, 2010, a copy of the
report required by Section G.3. of the MultiState RSA and concerning the status of and
compliance with MultiState RSA performance standards;
	 
	 	(d)	 	Notwithstanding the foregoing, the Defendants shall be subject to the
requirements of this Section 4 only if they, jointly or severally, are acting as a
sales agency and selling the Health Benefit Plans of a third party carrier.

     5. Within thirty (30) days after the entry of this Final Judgment by Consent, each of the
Defendants shall pay separately the sum of five million dollars ($5,000,000) to the Commonwealth
for a collective total payment of fifteen million dollars ($15,000,000), subject to Section 5(d)
below. Said payments due under this Final Judgment by Consent shall be made by electronic fund
transfer to the Office of the Massachusetts Attorney General to an account identified by the
Commonwealth. The five million dollars due from each Defendant shall be comprised of: (i) one
million dollars ($1,000,000) to be paid as civil penalties pursuant to G.L. c. 93A, § 4; (ii) two
hundred and fifty thousand dollars ($250,000) to be paid as attorneys’ fees and

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costs, and (iii) three million seven hundred and fifty thousand dollars ($3,750,000) for
consumer compensatory damages or other consumer relief (“Consumer Relief”). With respect to the
three million seven hundred and fifty thousand dollars ($3,750,000) payments for Consumer Relief
from each Defendant, and the collective total payments of eleven million two hundred and fifty
thousand dollars ($11,250,000) from the Defendants for Consumer Relief, the Attorney General shall
expend and distribute those funds, in her sole discretion and in amounts she deems appropriate, to
provide restitution or other relief to individuals who at any time since January 1, 2003 were
Massachusetts residents insured under a health, accident or sickness policy issued by one of the
Defendants and who the Attorney General in her sole discretion determines suffered an otherwise
unremediated ascertainable loss or other cognizable harm as a result of the conduct of Defendant(s)
(“Affected Consumers”). The Attorney General’s distribution of Consumer Relief to Affected
Consumers (“Consumer Relief Program”) shall conform to the following:

	 	(a)	 	Consumer Relief funds will be distributed to Affected Consumers who:

	 		 	i) file a claim after the entry of this Judgment through a claims reassessment
process as may be required by a regulatory Settlement Agreement between the
Defendants and the DOI;
	 
	 		 	ii) filed a consumer complaint with the Commonwealth prior to August 1, 2009; or
	 
	 		 	iii) file a claim through a claims reassessment or complaint review process as
may defined by the Attorney General, at her sole discretion, to provide relief
for otherwise unremediated losses to Massachusetts consumers who: (1) before or
during the period of coverage reached the age of Medicare eligibility, (2) had
claims denied because of policy maximums on benefits or

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	 	 	 	the number of services within a period of time, (3) had claims denied because of
coverage limits on prescription drugs, doctor’s office visits, simultaneous
surgeries, or procedures related to pregnancy, (4) terminated coverage citing a
miscommunication at presentation or similar complaint of agent misconduct; or
(5) the Office of the Attorney General determines suffered ascertainable loss or
other cognizable harm as a result of Defendants’ conduct.

	 	(b)	 	The Attorney General, in the exercise of reasonable discretion, will endeavor
to retain a qualified, independent, professional third-party administrator to
administer, and process payments resulting from, the Consumer Relief Program described
in this Section 5 (“Settlement Administrator”). The Defendants shall cooperate with
the Attorney General and the Settlement Administrator, if any, to efficiently and
effectively complete the Consumer Relief Program. The Defendants shall, at their own
cost and expense (separate and apart from any payment made to the Commonwealth under
this Judgment), provide information within a reasonable period of time in response to
any reasonable requests from the Attorney General or Settlement Administrator for
information or data to be used to establish and complete the Consumer Relief Program,
which information or data may include, without limit, claims and premium payment data
by consumer. The Attorney General and the Defendants agree and acknowledge that any
requests for information or data under this Section shall be reasonable so long as they
can be addressed by the Defendants in the ordinary course of business, during ordinary
business hours, employing existing systems and resources and using existing staff. The
Attorney General further agrees and acknowledges that

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	 	 	 	any information or data produced by the Defendants under this Section 5 may contain
highly sensitive and commercially valuable confidential information as well as
highly sensitive and private health information. The Attorney General therefore
agrees that to the extent permissible under law, she will maintain the
confidentiality of any information or data produced by the Defendants pursuant to
this Section 5; she will notify the Defendants in writing within seven (7) days of
any request or court order seeking the production of such information or data; and
upon the conclusion of the Consumer Relief Program, she will either return all such
information or data to the Defendants or certify in writing that she has destroyed
the same. The Attorney General further agrees that if she retains a Settlement
Administrator, she will obtain the Settlement Administrator’s agreement to abide by
the terms and conditions for maintaining the confidentiality of Defendants’
information or data described in this Section 5 (b). The direct costs of the
Attorney General’s Office and any Settlement Administrator in administering, and
making payments to consumers resulting from, the Consumer Relief Program shall be
paid or reimbursed from the Consumer Relief fund. If the Attorney General is unable
to secure the services of a Settlement Administrator upon terms and conditions that
the Attorney General determines to be reasonable and acceptable in her sole
discretion, the Defendants shall provide any administrative services determined by
the Attorney General to be reasonably necessary to implement and complete the
Consumer Relief Program, and the direct costs of the Defendants, including such
costs as may be reasonably necessary to expand the Defendants’ capacity and/or
capabilities, in

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	 	 	 	administering, and making payments to consumers resulting from, the Consumer Relief
Program shall be paid or reimbursed exclusively from the Consumer Relief fund,
provided, however, that such direct costs must be previously approved by the
Attorney General.

	 	(c)	 	The Attorney General shall report to the Defendants the names of the consumers
who receive Consumer Relief funds and the amounts each received on a semiannual basis
beginning on March 1, 2010. The Attorney General shall also notify the Defendants in
writing thirty (30) days after the completion of the Consumer Relief Program, said
notice to include the amount of the funds, if any, that remain unexpended. If, after
the Attorney General completes the Consumer Relief Program described in this Consent
Judgment, Consumer Relief funds remain unexpended, under this Consent Judgment the
Attorney General shall direct any residue to the Local Consumer Aid Fund, established
pursuant to M.G.L. c. 12, § 11G.
	 
	 	(d)	 	The Attorney General acknowledges that the Defendants MEGA and Mid-West have
agreed to make certain payments pursuant to a certain Regulatory Settlement Agreement
dated August 26, 2009, including the sum of two million dollars ($2,000,000) to the DOI
and an as yet undetermined sum pursuant to a claims reassessment process (“DOI
Process”). Relative to these payments, the Parties agree as follows: (i) The Attorney
General shall credit the two million dollars ($2,000,000) payment to the penalty
payments due from the Defendants MEGA and Mid-West under this Section 5. Upon written
certification by the Defendants MEGA and Mid-West that the two million dollars
($2,000,000) payment due the

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	 	 	 	DOI has been made, the Attorney General shall deem the penalty payment due under
this Section 5 from Defendants MEGA and Mid-West (but not Defendant HealthMarkets)
to be fully satisfied. (ii) The Parties agree that the amount to be paid to
consumers under the DOI Process is presently unknowable and uncertain. As a result,
the Attorney General shall preliminarily credit the Consumer Relief payment due from
each of the Defendants MEGA and Mid-West by two hundred thousand dollars ($200,000)
(for a total credit of four hundred thousand dollars ($400,000)) on account of the
sum due each for the DOI Process. Within thirty (30) days of the completion of the
DOI Process as determined by the DOI, the Defendants MEGA and Mid-West shall submit
to the Office of the Attorney General a written statement signed by an authorized
representative attesting to the total amount of payments to consumers made pursuant
to the DOI Process (“Claims Reassessment Statement”). From the date of entry of this
Final Judgment by Consent until such time as the Defendants deliver the Claims
Reassessment Statement, the Defendants shall submit to the Office of the Attorney
General every ninety (90) days a quarterly statement signed by an authorized
representative describing (i) the total amount of payments to consumers made during
that period through the DOI Process, and (ii) the then current estimate on the
amount of time and additional payments needed to complete the DOI Process. The
Attorney General and the Defendants agree and acknowledge that said quarterly
statement is not intended and shall not constitute a statement of material fact; and
such statement is not intended to and shall not constitute a representation or
warranty by the Defendants of the information

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	 	 	 	contained therein. If the total amount of such claim reassessment payments is less
than four hundred thousand dollars ($400,000), the Defendants MEGA and Mid-West
shall, concurrent with the submission of the Claims Reassessment Statement, deliver
to the Office of the Attorney General a check or checks for the difference between
the total credit amount of four hundred thousand dollars ($400,000) and the amount
paid. If the total amount of such claim reassessment payments is more than the
total credit amount of four hundred thousand dollars ($400,000), the Office of the
Attorney General shall, within thirty (30) days of receipt of the Claims
Reassessment Statement, deliver to each of the Defendants MEGA and Mid-West a check
for one-half of the total amount by which such payments exceeded the total credit
amount of four hundred thousand dollars ($400,000), but not to exceed a maximum
reimbursement to MEGA and Mid-West of six hundred thousand dollars ($600,000)
(collectively, or three hundred thousand dollars ($300,000) to each of MEGA and
Mid-West) regardless of the amount by which claims reassessment payments exceed the
total credit amount of four hundred thousand dollars ($400,000). To provide for
this potential payment following the claims reassessment process, the Office of the
Attorney General may maintain six hundred thousand dollars ($600,000) of the
Consumer Relief Funds in a separate escrow account until the claims reassessment
process is complete. Nothing in this Judgment prohibits the Attorney General, the
DOI and the Defendants from agreeing to administer the DOI Process as part of the
Consumer Relief Program required by this Section.

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     6. Within one-hundred and fifty (150) days of entering this Final Judgment by Consent, the
Defendants shall submit to the Office of the Attorney General a written statement signed by an
authorized representative under the penalties of perjury attesting and detailing:

	 	(a)	 	the steps that Defendants have performed since February 1, 2007, to reassess
and remediate categories of claims originally denied, in whole or in part, that should
have been paid as valid claims in accordance with:

	 	1.	 	benefits mandated by M. G. L. c. 175, § 47C
(newborn wellness); M. G. L. c. 175, §47F (maternity care); M. G. L. c.
175, § 47G (cytologic screening and mammographic examinations); M. G.
L. c. 175, § 47H (infertility treatment); and M. G. L. c. 175, § 47W
(contraceptive services) (collectively “Mandated Benefits”);
	 
	 	2.	 	policy exclusion limitations mandated by M. G.
L. c. 176J, §§ 1, 2 and 5, and c. 176N, § 2 (“Exclusion Limitations”);
or
	 
	 	3.	 	the claims reassessment process required by a
certain Regulatory Settlement Agreement, as amended, between the DOI
and the Defendants MEGA and Mid-West and dated December 6, 2006.

	 	(b)	 	the total number of consumers who have had claims paid through said claims
reassessment processes, and the total amount of payments made by Defendants since
February 1, 2007 up to and including the date of entry of this Final Judgment by
Consent to remediate claims described in Subsection (a) of this Section 6. If the
total amount of such claim remediation payments, plus interest, made by the Defendants
since February 1, 2007 up to and including the date of

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	 	 	 	entry of this Final Judgment by Consent is less than two million one hundred and
seventy five thousand six hundred and sixty two dollars ($2,175,662), the Defendants
shall collectively, and separate and apart from the payments required by Section 5
above, deliver to the Commonwealth within one-hundred and eighty (180) days of entry
of this Final Judgment by Consent a check for the difference between two million one
hundred and seventy five thousand six hundred and sixty two dollars ($2,175,662) and
the amount of such claim remediation payments. Any such payment shall be made to the
Local Consumer Aid Fund, as established by M.G.L. c. 12, § 11G, and shall be made by
check made payable to “The Commonwealth of Massachusetts, Local Consumer Aid Fund”
delivered to Thomas O’Brien, Assistant Attorney General, at the Office of the
Attorney General, Health Care Division, One Ashburton Place, Boston, Massachusetts
02108.

	 	(c)	 	The Attorney General agrees that to the extent permissible under law, she will
maintain the confidentiality of any individually identifiable health information that
may be contained in the written statement or any portion of its contents produced by
the Defendants pursuant to this Section 6; she will notify the Defendants in writing
within seven (7) days of any request or court order seeking the production of
individually identifiable health information that may be contained in the written
statement.
	 
	 	(d)	 	Nothing in this Section 6 is intended to create nor does it create any
obligation on the part of the Defendants to reassess or remediate any claim.

-15-

 

     7. Any notices to current or former insureds, or to current or former insurance producers, of
the Defendants that are made in accordance with this Final Judgment by Consent shall reference this
Judgment and shall be subject to prior approval by the Attorney General, which approval shall not
be unreasonably withheld and which shall be provided within a reasonable period.

     8. This Final Judgment by Consent resolves the allegations and requests for relief raised, or
that could have been raised, in the First Amended Complaint filed against MEGA, Mid-West and
HealthMarkets, and their respective successors, assigns and subsidiaries, including their
respective present and former officers, agents including licensed insurance producers, directors
and employees (collectively, “Defendants” for the purposes of Sections 8 and 9 hereof), in the
above-captioned matter, provided that nothing in this paragraph shall prevent the Attorney General
from taking appropriate action to enjoin, or seek other relief concerning, any conduct by any
current or former insurance producers whom the Attorney General believes to be in violation of
Massachusetts laws or the terms of his or her agent’s license and whom the Attorney General has
identified in writing to the Defendants concurrent with the execution by the Parties of the Joint
Motion for Entry of Final Judgment by Consent. This Final Judgment by Consent does not resolve any
claims by any party other than the Commonwealth, does not resolve any claims that may be brought by
the DOI, and does not resolve any claims that may be brought by the Commonwealth against any other
person or party other than the Defendants as defined in this Section.

     9. Except for purposes of its enforcement, no part of this Final Judgment by Consent,
including without limit any statements or notices required by this judgment, shall be construed or
admitted into evidence as an admission of liability by Defendants, as defined in the

-16-

 

preceding Section 8, or any of them, in any other proceeding, and any such liability is
expressly denied by Defendants, as defined in the preceding Secton 8, collectively and
individually. By entering into this Final Judgment by Consent, Defendants, as defined by the
preceding Section 8, collectively and individually do not admit to any violation of law.

     10. Defendants have waived all rights of appeal. Defendants have also waived the requirements
of Rule 52 of the Massachusetts Rules of Civil Procedure.

     11. This Final Judgment by Consent shall be governed by and interpreted in accordance with the
laws of the Commonwealth of Massachusetts. Any violation of this Final Judgment by Consent shall be
punishable by civil or criminal contempt proceedings, or as otherwise provided by law. The Attorney
General agrees that, prior to any action against the Defendants to enforce this Final Judgment by
Consent, the Office of the Attorney General will provide Defendants written notice of any suspected
violations of this Final Judgment by Consent and a twenty (20) day period to address any such
violations within which period the parties will make good faith efforts to meet and confer
regarding the suspected violations. Any efforts by the Defendants during the twenty (20) day
period to address any such violations shall not bar or limit the Office of the Attorney General
from taking actions that she deems in the public interest. Nothing in this section shall affect or
apply to any action that might be brought by the Attorney General except actions to enforce this
Judgment.

     12. This Final Judgment by Consent and related Joint Motion represent the entire agreement
between the Commonwealth and the Defendants about the matters addressed herein. It supersedes any
prior agreements, understandings or stipulations between the parties regarding the subject matter
hereof and may not be modified except by further order of the Court.

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     13. Any notices or communications required to be transmitted between the Defendants and the
Commonwealth pursuant to this Final Judgment by Consent shall be provided in writing by first class
mail, postage prepaid, and by electronic mail or facsimile transmission, to the parties or
successors as follows, unless otherwise agreed:

	 	 	 
	Commonwealth of Massachusetts	 	Defendants
	 
	Thomas M. O’Brien, Esq.

Assistant Attorney General 

Office of the Attorney General 

One Ashburton Place 

Boston, MA 02108

Thomas.M.O’Brien@state.ma.us

	 	Curt Westen, Esq. 

General Counsel 

HealthMarkets, Inc. 

9151 Boulevard 26

North Richland Hills, TX 76180

Curt.Westen@healthmarkets.com
	 
	 	 
	 

	 	With a copy to:
 

	 

	 	Dean Richlin, Esq. 

Foley Hoag LLP 

155 Seaport Boulevard 

Boston, MA 02210

drichlin@foleyhoag.com

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     14. The Court shall retain jurisdiction of this case for the purpose of ensuring compliance
with the terms of this Judgment.

     SO
ORDERED, this ___ day of _______, 2009.

	 	 	 	 	 
	 	 	 
	 	
 	 
	 	Justice of the Superior Court 	 
	 	 	 
	 

	 	 	 	 	 	 	 
	Approved by:
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	COMMONWEALTH OF 

MASSACHUSETTS 

Martha Coakley, Attorney General

	 	 	 	THE MEGA LIFE AND HEALTH
INSURANCE COMPANY, MID-WEST
NATIONAL LIFE INSURANCE COMPANY
OF TENNESSEE, and HEALTHMARKETS, INC. 

By their attorneys,	 	 
	 
	 	 	 	 	 	 
	/s/
Thomas M. O’Brien 

	 	 	 	/s/ Dean Richlin 

	 	 
	Thomas M. O’Brien, BBO # 561863

Emiliano Mazlen BBO # 600912

Assistant Attorneys General 

Health Care Division  

One Ashburton Place  

Boston, MA 02108 

(617) 727-2200

	 	 	 	Dean Richlin, Esq., BBO # 419200 

Colin J. Zick, Esq. BBO # 556538 
 

Foley Hoag LLP  

155 Seaport Blvd.  

Boston, MA 02210-2600 

(617) 832-1000	 	 
	 
	 	 	 	 	 	 
	Dated:
August 31, 2009
	 	 	 	 	 	 

-19-

 

EXHIBIT A

COMPANY LETTERHEAD

[Company name]

9151 Boulevard 26

North Richland Hills, TX 76180-5605

{Date}

{Primary Name}

{Address 1}

{Address 2}

{Address 3}

Reference No.:

Dear {Primary Name}:

We are providing this notice to you as required by a consent judgment voluntarily entered
into to resolve a lawsuit brought by the Massachusetts Attorney General.

As you are probably aware, with limited exceptions, every resident of the Commonwealth of
Massachusetts over the age of 18 is required to have health insurance coverage that meets the
standard of Minimum Creditable Coverage in order to avoid certain state tax penalties. At
present, [no Mid-West policy constitutes Minimum Creditable Coverage] [only the MEGA
CareChoice Plus Health Savings Account (HSA) Qualified Plan constitutes Minimum Creditable
Coverage, and all other MEGA plans, including the Signature Benefit plan, do not qualify].
Please review your policy and most recent renewal notices, which may bear a notice regarding
Minimum Creditable Coverage under the current standard.

We are also writing to inform you that the Medical Loss Ratio for the Massachusetts health
plans of [the MEGA Life and Health Insurance Company (“MEGA”)] [Mid-West National Life
Insurance Company of Tennessee (“Mid-West”)] for [2008] [2009] [2010], was: [insert 2008
figure and future figures here] This Medical Loss Ratio shows that on average we paid [insert
2008 figure and future figures here] cents in medical claims for every dollar we received in
health plan premiums in Massachusetts.

You may seek additional information about the status of your coverage or request a copy of
your current insurance certificate by contacting our Customer Care Center at the number
listed below or by accessing [MEGA’s websites at www.megainsurance.com] [Mid-West’s website
at www.midwestlife.com]. Our Customer Care Associates are available to answer any
additional questions you may have regarding this notice or your current coverage. Our
Customer Care Center can be reached at {x-xxx-xxx-xxxx} Monday through Friday, x:00 a.m. to
x:00 p.m. Eastern time. We are committed to helping you understand your responsibilities
under the new law as they relate to your coverage with [MEGA] [Mid-West].

To learn about other available health plan options, you also may contact the Division of
Insurance by calling (617) 521-7794 or visiting its website at www.mass.gov/doi, or contact
the Commonwealth Health Insurance Connector at 1-877-MA-ENROLL or by visiting its website at
www.mahealthconnector.org.

Sincerely,

{Company Name}

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