A California regulator is taking the unprecedented step of ordering PacifiCare Life and Health Insurance to keep $120 million in profits in the state to help pay up to $1 billion in possible fines for mishandling claims of policyholders.
Insurance Commissioner Steve Poizner ordered the insurer to not send its dividends home to its parent company, Minnetonka, Minn.-based UnitedHealth Group, in an administrative order issued Monday.
Similar warnings have been made informally to insurers in the past, but Poizner’s order marks the first time a formal order to keep dividends has been issued to a health insurer in California.
The health insurer faces record fines of nearly $1 billion in fines for 991,936 alleged instances of mishandling insurance claims, according to the Department of Insurance.
PacifiCare spokeswoman Cheryl Randolph says the insurer is reviewing the order and weighing next steps.
“We disagree with the Commissioner’s refusal to allow PacifiCare to issue an ordinary dividend, and it’s inappropriate to use this process to try to gain leverage in a separate case about administrative issues that have long since been addressed,” Randolph said in a statement.
The insurer can protest the order at a hearing on Dec. 21.
After UnitedHealth Group purchased PacifiCare in 2005 for $8 billion, the regulator says it began receiving numerous complaints from consumers and doctors about improper handling of claims. Each instance is subject to up to $10,000 in fines, if the violation was willful.
In a statement, Poizner said it’s still unclear whether the fines will stick, “but it is entirely possible that allowing United to siphon off $120 million would enable them to turn penalties into profits.”
A hearing on the fines is still pending before an administrative law judge.
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