Cut-rate health insurer's license in jeopardy

By Rod Ohira
Advertiser Staff Writer

When the state shut down Hawai'i Healthcare Alliance last October, the company's president sold many of his clients a replacement plan offered by Maryland-based SAI Plus.

Wayne Metcalf said the public should be wary of low-cost plans. Advertiser library photo

Regulators in both states say the coverage amounted to a ponzi-like scam. Although both companies are currently out of business, organizers may still be doing business in other locations, said Hawai'i Insurance Commissioner Wayne Metcalf.

"Thankfully, we were able to shut down HHA before too much damage was done here," Metcalf said. "Elsewhere on the Mainland, tens of thousands of consumers are being bilked. There are millions of dollars in unpaid claims from this activity."

The state is seeking to revoke the insurance license of Texas-based Darren Larsen, who formed Hawai'i Healthcare Alliance in January 2000 and offered monthly health, vision, dental and prescription coverage to a family of four for $340. After the shutdown of Hawai'i Healthcare Alliance, Larsen publicly admitted signing about 40 percent of his 3,000 clients to the SAI Plus plan, Metcalf said.

Larsen's license-revocation hearing has been continued twice since January and is now scheduled for July, Metcalf said. The state is also seeking to fine him $100,000.

Attorney David Gierlach, who is representing Larsen, said his client "provided a necessary service" and did nothing wrong.

"It's baloney, pure baloney," Gierlach said of the commissioner's action against Hawai'i Healthcare Alliance. "People who paid premiums got medical coverage."

Circuit Judge Kevin S.C. Chang declared Hawai'i Healthcare Alliance insolvent last November, and Metcalf is preparing to liquidate assets seized. The commissioner's office has been talking with the state attorney general about criminal action against Larsen.

What attracted the attention of state regulators to Hawai'i Healthcare Alliance was the percentage of claims being denied, Metcalf said.

"The percentage of denials far exceeded the industry average of 10-15 percent," he said. "HHA was denying 60-70 percent of claims and at one point, it was 75 percent."

Gierlach disputes the state's numbers, noting that most of the claims rejected by Hawai'i Healthcare Alliance were for pre-existing illnesses.

"They didn't insure people for pre-existing illnesses," Gierlach said. "Many of the claims rejected were exclusively, doctor-certified pre-existing illnesses."

Metcalf cautions the public to check out new health plans offering premiums far below the market rate to attract a lot of people quickly.

"Because claims are often filed months after the services are rendered, claims begin to pile up," he said. "Once claims begin to roll in around the third month of operation, organizers will begin denying a large percentage on the basis that the claims are either a pre-existing condition or for a procedural error (lost forms)."

By the time the finances collapse or a regulatory agency shuts down the scheme, organizers will "simply avoid their contractual obligations leaving thousands of dollars of unpaid claims," the commissioner said.

According to the U.S. Department of Labor, SAI Plus allegedly divided its claims into two categories: above $200 and below $200.

"Claims below $200 were paid," Metcalf said. "Claims above $200 were either placed in a file and paid only if someone complained.

"When the claim was refiled at the request of SAI Plus, the new claim would be denied on the basis it had been filed after the deadline for filing of claims."

Metcalf's office knows of no suspicious health plans currently circulating in Hawai'i. But the commissioner warns the public to be alert. Complaints can be reported to the Department of Commerce & Consumer Affairs Insurance Division at 586-2790.