MEGA Life's Insurer's practices questioned in Alabama

Former clients, agents raise complaints about company's ties to association

About this time last year, Barbara Parrish sold Adrian Childers a health insurance plan backed by what Childers thought was an independent consumer group -- the National Association for the Self-Employed Inc.

At the time, the $109-a-month policy with Mega Life and Health Insurance Co. seemed well suited for Childers, a 25-year-old often working full-time hours in a job without benefits, all the while going to school.

"What appeared to be, to me, is that it paid health, dental, vision, a prescription plan," he said. But within five months, he had given up on the policy. "Why do I have it? It took $10 off a $90 prescription.

"I got a lot of stuff that I thought might be covered, but it ain't," Childers, of Ozark, Ala., said.

He said he was told that being part of the massive membership of NASE would help keep his rates competitive. What he said he did not realize was that the association was tied financially to the insurer.

The Alabama Department of Insurance has joined Montana, California, Iowa and Colorado in investigating Mega anor its Texas-based parent company, UICI (NYSE: UCI). "They've got problems. To what extent I don't know," said Ragan Ingram, an assistant commissioner with the Alabama department.

Ingram last week confirmed the department's participation in a "multi-state exam" of Mega but could not comment further. Ingram said his department handles about 4,000 insurance complaints each year, about a third of which are health-insurance related. He could not break down what percentage of complaints are tied to Mega.

Robert Thomas, vice president of government affairs for UICI, referred the Mobile Register's questions about customer and former agent complaints to the group's legal counsel, who did not provide a response to the newspaper.

Parrish, a first-time insurance saleswoman from Dothan, said she sold about 40 policies in the six months she worked for the company.
 

In the beginning, she said, she thought it strange that she would be sent to pursue potential clients in areas an hour's drive from home while other agents were assigned to Dothan. She said she found it odd that her paychecks came from her district manager's personal account rather than from the company.

Parrish said she also wondered why her questions at staff meetings seemed to her to go unanswered and why agents were not supposed to leave promotional materials in the homes of people who did not buy a policy.

Mega agents she knew were not supposed to use insurance terms, but to sell the benefits of NASE membership and its preferred providers, she said. Now she believes, they were "giving those people false security."

Two other former agents from Alabama -- Paul Chaney of Faulkville and Richard Aplin of Mobile -- tell similar stories.

The way UICI marketed its insurance plans, and its employees' alleged failure to clearly explain the connection between an insurance company such as Mega and the national association is the subject of a class ac tion lawsuit that affects hundreds of thousands of people nationwide, a lawyer for the class participants said.

Childers said he thought Parrish was an independent saleswoman for the association rather than a Mega employee.

NASE has an operating agreement with Mega, signed in 1996, that allows NASE members access to certain Mega products. UICI officials in June told the Fort Worth Star Telegram that there are no hidden links between the associations and UICI, and that information about their business dealings is in Securities and Exchange Commission filings. Yet in a proposed settlement, it has offered to put the information in the materials given to consumers.



Low costs, fewer benefits:



About 45 million Americans were uninsured in 2003, according to the U.S. Census Bureau. That leaves a big market for groups like UICI, which maintain that a little coverage is better than none at all.

UICI's products are low-cost policies with limited benefits. Rather than buying standard health policies, Mega's customers can choose how much coverage they want and how much they can afford, UICI Chief Executive Officer William Gedwed has said. The idea is to provide health insurance that fits individual budgets.

Lisa McGiffert, a senior policy analyst with Consumers Union, said high insurance rates and a stagnant economy are a few reasons why more people are turning to cheaper insurance plans.

"I think everyone's looking for a better deal because everyone's premiums are going up," McGiffert said. "This whole con cept of people just buying what they think they need leads to people being underinsured. A lot of these plans fall short in meeting these people's needs."

According to National Underwriter, a trade publication, Mega is the 239th largest insurance firm in the country, with assets of $1.18 billion in 2003, up from $927.5 million in 2002.

There are 2,161 Mega policyholders in Alabama, according to Thomas' office, and Mega has 347,624 policyholders nationwide. Mega has 7,000 agents across the country, and 179 of those sell in Alabama, he said.

UICI, which had $1.98 billion in revenue in its most recent fiscal year, also operates Mid-West National Life Insurance Co. of Tennessee, which Thom as' office said has 45 agents in Alabama and 488 policy holders in the state.

UICI agreed in May to settle the class action litigation, which was filed in the U.S. District Court for the Northern District of Texas. Anyone who bought insurance from any UICI subsidiary or any of the associations tied to it between Aug. 1, 1998, and May 14, 2004, is automatically part of the class. Besides NASE, other similarly paired associations are Americans for Financial Security Inc. and the Alliance for Affordable Services.

The proposed settlement offers discounts on accident insurance from any agency with an industry ranking similar to Mega's, plus discounts on association memberships. According to reports, some past policy-members will be entitled to free coverage for "a period of months under a personal accident policy." Such a policy would not be a full health benefit plan.

UICI will also have to disclose its connection to its associations and revise its marketing materials as part of the proposed settlement.

In 2003, UICI recorded a $25 million charge related to the cases, according to published reports.

The class action litigation will "clean up the practice, and it's going to allow this company -- and hopefully others will follow their example -- to sell this needed-type insurance in a manner that is not deceiving people," said Richard Phillips, a Batesville, Miss.-based lawyer representing the class action participants.

Phillips said the association-linked insurance plans provide an important service. "UICI has recognized the vast number of uninsured Americans today that need some kind of insurance no matter how low the limits of it may be," Phillips said.

Insurance rates vary from person to person depending on a wide range of conditions, industry watchers say. Consumer groups urge comparison shopping before signing up with any insurance provider.

An individual policy from Blue Cross Blue Shield of Alabama for health insurance can range from $110 to $135 a month for a single person, according to company spokesman Jim Brown. For a family policy, that cost could rise to $350 or $400 a month on average, Brown said.



Inexperienced agents:



None of the three former Mega agents -- Chaney, Aplin and Parrish -- had insurance sales experience before joining the company. Each said they left the company after they learned more about other health insurance policies.

"The training was how to close a deal. It wasn't about the nuts and bolts of insurance," 33-year-old Aplin said.

Chaney, 29, said he worked for Mega about four months before he saw another insurance company's policy and began to believe he was selling incomplete coverage.

Salespeople "don't even talk about the insurance," he said. "You talk about the NASE and then you get them and you go.

"I didn't know that the insurance was linked to the NASE," Chaney said.

Parrish said the experience has been hard for her personally.

"I wish I would have had sense enough or the insight enough to have researched it before I got into it," said Parrish, who said she checked with the Better Business Bureau and Alabama Department of Insurance but did not detect any warning signs. The 37-year-old is a mother of seven, and her husband is a firefighter for the federal government at Fort Rucker.

Parrish said she is trying to pay off a $4,000 bill she received from Mega for advances she got after signing on would-be policyholders. At $10 a month, it will take some time.

Aplin said most of his clients only kept their policies four to six months.


This article first appeared HERE