Insurance company sued over fixed-payment plans

SEATTLE – A national insurance company is being sued for millions of dollars for selling fixed-payment health plans that, according to plaintiffs, violated minimum standards in Washington and had not been authorized by the state.

In the case filed Wednesday against Nationwide Life Insurance Co. in U.S. District Court, John Gabriel and Lauren Gustafson-Omer, both of Seattle, and Ruth Bjorklund, of Bainbridge Island, asked that it be made a class action covering 465 others in the state who bought Nationwide health plans through employers between April 16, 2003, and Aug. 27, 2008.

The plaintiffs are seeking damages of up to $10,000 for each violation of Washington’s Consumer Protection Act, plus refund of premiums, payment of previously denied claims, and legal costs.

Eleanor Hamburger, a lawyer for the plaintiffs, said if class-action status is approved and the complaint is upheld, consumer protection violations alone could exceed $4.6 million – $10,000 per insured – and other damages could boost the total to more than $7 million.

Elizabeth B. Stelzer, a Nationwide spokeswoman at corporate headquarters in Columbus, Ohio, said Thursday the company was aware of the case and reviewing it but would not comment further.

Consumer groups have been critical of fixed-payment or fixed-indemnity plans.

Unlike plans which pay a percentage of medical expenses or cap the expenses a consumer must pay, fixed-payment plans set maximum payments for each service or expense that typically are far below what is charged by doctors, clinics, hospitals and other providers, Hamburger said.

Such plans were not allowed in Washington before July 22, 2007, and are now permitted only with full disclosure to consumers and – as has long been required for all insurance policies in Washington – by companies with a certificate of authorization to provide that type of coverage.

Hamburger said such plans fall outside laws on portability of coverage, so someone who seeks comprehensive coverage after being on a fixed-indemnity plan may have to undergo a medical examination and could be disqualified for a pre-existing conditions.

The lawsuit against Nationwide does not claim misrepresentation, although Bjorklund believes that happened in her case, Hamburger said.

Bjorklund, 53, a retired King and Kitsap county public librarian, switched from an individual comprehensive coverage policy on Oct. 1, 2006, after being told she was eligible for the Nationwide plan by a representative of Risk Management Strategies, which paid for her to care for her disabled daughter, according to the suit.

Despite paying $6,000 a year for a plan covering her, her husband, her teenage son and her disabled adult daughter, she was left with bills for more than $135,000 after being treated for a brain tumor in May 2007.

“I have a master’s degree, and I got duped,” Bjorklund told the Seattle Times.

Gustafson-Omer had medical bills after an automobile accident on Nov. 18, 2006. Gabriel did not have any uncovered medical expenses but is seeking return of premiums and to be let out of the plan, according to the lawsuit.