When the Affordable Care Act (Obamacare) remade the healthcare landscape, it left in place the already-rancorous relationship between insurance companies and government, with patients and providers as collateral damage in the battle over diminishing resources.

Last week, the nation’s largest health insurer, UnitedHealth Group Inc., sued California to block a $173.6 million fine levied last month by California’s Department of Insurance Commissioner Dave Jones. At stake, to hear insurance executives tell it, is nothing less than the future of health care in California.

“This ruling threatens to paralyze the healthcare system in the state, resulting in more costs and bureaucracy for Californians,” UnitedHealth’s PacifiCare President Stephen Scheneman told the Los Angeles Times.  

The lawsuit was the latest iteration of a conflict dating back nine years. Insurance Commissioner Steve Poizner, a Republican, announced his intention in 2008 to sue UnitedHealth for $1.3 billion over its slipshod takeover of PacifiCare in 2005. The insurance department alleged the company violated state laws 992,936 times between 2006 and 2008, with each violation punishable by a $10,000 fine.

Poizner upped the ante to $10 billion in September 2010 while making an unsuccessful run at becoming the state’s governor.

Policyholders complained of lost and miscoded records during the transfer, a bunch of which ended up in India, and said they went months without medical care while the snafus were sorted out. Doctors complained that the insurance company mixed up which providers belonged to which medical groups and messed up contract information that resulted in lower payments to them.

UnitedHealth said those were administrative errors that didn’t hurt anyone and an administrative judge agreed with them last year, settling on an award of $11.5 million. That was more in line with the $2 million settlement reached with the Department of Managed Health Care over similar transgressions.

The commissioner said he regarded the judge’s ruling as simply advisory and issued the $173.6 million fine.    

Jones clashed with the company in May 2013, on the eve of the Covered California rollout, over an 8% rate hike it imposed on 45,000 small-business employees and dependents. Jones called it “just one more unwarranted economic burden on California's small business owners and their employees.”

UnitedHealth, the nation’s largest health insurer, responded from its headquarters in Minnetonka, Minnesota, that it was “disheartened” by Jones’ sentiments. A month later, it followed Aetna and Cigna out of the state when it announced that it was leaving California’s individual market. They were all small players in the state market. UnitedHealth’s subsidiary, PacifiCare, had 10,000 policyholders as of 2012, according to the California Department of Insurance. Aetna had 60,000.

California voters will have a chance to tip the balance of power in the health insurance market in November. Lawmakers put a measure on the ballot, Proposition 45, that will let the commissioner reject rates found to be unreasonable. Thirty-five states already let regulators have that control, which is similar to that already exercised in California over auto and home insurance.

State lawmakers rejected a single-payer system in January 2012 that would have removed private insurance companies from the equation. It fell two votes shy in the Senate and never made it to the Assembly or governor.  

–Ken Broder

To Learn More:

PacifiCare Sues State Insurance Commissioner over $173 Million Fine (by Kathy Robertson, San Francisco Business Times)

UnitedHealth Group Sues California over Fine (by Chad Terhune, Los Angeles Times)

Health Insurer Faces $9.9 Billion in Fines (by Ben Rooney, CNN Money)

Feds Say PacifiCare Overbilled Medicare $424 Million in California (by Ken Broder, AllGov California)