UnitedHealth and AARP face a class-action lawsuit for allegedly diverting $400 million a year through a Medigap premium rebate scheme that violates Connecticut law, breaches the terms of contract with enrollees and misleads consumers about the insurance offering.
Here are six things to know about the lawsuit.
1. The lawsuit was filed May 10 in the U.S. District Court of Connecticut by Mark Dane, a Connecticut resident who enrolled in the AARP-UnitedHealth Medigap policy in January 2014. Medigap is supplemental Medicare insurance that pays some costs not covered by original Medicare.
2. The policy in question is the AARP Medigap plan. AARP is the group policyholder and UnitedHealthcare operates the plan. The lawsuit alleges UnitedHealthcare gives AARP a 4.9 percent rebate on every dollar that comes through the plan and claims this arrangement is documented in a confidential contract separate from the group policy insurance contract.
3. Premium rebates are illegal in Connecticut, and any payer headquartered in Connecticut is subject to this law in their dealings nationwide. Although UnitedHealth Group is headquartered in Minnetonka, Minn., UnitedHealthcare Insurance Company is based in Hartford, Conn.
4. AARP calls the payments "royalty" payments, according to the lawsuit. If the payments are considered royalties, they would be legal and tax-free. In an emailed statement, AARP said, "We are in the process of reviewing the lawsuit details, but it is immediately apparent that the allegations are meritless."
5. In a separate but related claim, the lawsuit alleges AARP invests enrollees' monthly premium payments to earn money during a 31-day grace period before it pays the premiums to UnitedHealthcare. The lawsuit alleges AARP pockets the income from these investments without consumers' knowledge. In 2016, AARP earned almost $45.77 million from the alleged investment vehicle.
6. The lawsuit seeks to recoup the rebates charged to enrollees above the true cost of their insurance and stop the practice of collecting rebates.
Becker's has reached out to UnitedHealth Group for comment and will update this article accordingly. This article was updated May 16, 2018 at 1:45 p.m. CT to include a statement from AARP.
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