PacifiCare Halts $120 Million Dividend Amid Regulatory Pressure

PacifiCare Life & Health Insurance Co. put a proposed $120 million dividend payment to its parent company on hold under pressure from California insurance regulators seeking potential billions in fines.

After California Insurance Commissioner Steve Poizner ordered PacifiCare to halt the payment, the division of UnitedHealth Group (NYSE: UNH) notified Indiana regulators that it will not go through with a $120 million payment to two United subsidiaries. Poizner is seeking up to nearly $10 billion in fines from UnitedHealth for millions of alleged violations dating back to its acquisition of Indiana-based PacifiCare in December 2005 (BestWire, Sept. 9, 2010).

"While the investigation into PacifiCare is ongoing, the blocking of this payment is a critical victory because it keeps the money where it would be available to satisfy any order that is issued and pay accordingly the fines that go along with such an order," Poizner said in a statement.

UnitedHealth -- which previously said the size of the fine sought "has no basis in reality" -- intends to successfully resolve the legal matter, which remains pending before a California administrative law judge. "We are puzzled by the commissioner's statement because, as he is well aware, we are actively contesting his decision on the PacifiCare dividend through the process established by his own department. We continue to disagree with the commissioner's attempt to use the dividend process to try to gain leverage in a separate case about administrative issues that have long since been addressed," spokeswoman Cheryl Randolph said.

Complaints first made by the department in 2008 include fully denying covered claims, incorrectly paying claims, losing documents -- including certificates of creditable coverage and medical records; failing to acknowledge on time receipt of claims, failing to respond to member appeals and provider disputes in a timely manner and failing to resolve provider disputes. Under state law, fines range from $5,000 per incidence to $10,000 for "willful" violations (BestWire, Nov. 12, 2009).

In November 2009, a Los Angeles Superior Court judge threw out a lawsuit by PacifiCare aimed at ending a California Department of Insurance action charging the insurer with more than 100,000 violations of law in processing health-insurance claims. In 2008, regulators fined the company $3.5 million and began to pursue up to $1.3 billion in penalties for more than 130,000 alleged violations. PacifiCare's lawsuit challenged two long-standing regulations defining "willful" in a manner that PacifiCare claimed made it too easy to hit the insurer with a $10,000 per-incident penalty, according to the department (BestWire, Nov. 12, 2009).

PacifiCare Life and Health Insurance Co. has a current Best's Financial Strength Rating of A (Excellent). United Healthcare Insurance Co. has a Best's Financial Strength Rating of A (Excellent).

Shares of UnitedHealth Group were trading at $36 a share on Dec. 23, up 0.45% from the previous close.

(By Sean P. Carr, Washington Bureau Manager: [email protected])