Calif. seeks to fine UnitedHealth up to $1.3 bln

By Adam Tanner and Lisa Baertlein

SAN FRANCISCO/LOS ANGELES (Reuters) - California's insurance commissioner said on Tuesday he would seek to fine UnitedHealth Group Inc's PacifiCare unit up to $1.3 billion for alleged claims violations and would expand an audit to other insurers.

Steve Poizner, the state's insurance commissioner, said the Department of Insurance would pursue penalties of $650 million to $1.3 billion related to PacifiCare's mishandling of more than 130,000 medical claims.

The PacifiCare findings have prompted the state to investigate eight other large insurers, he added at a news conference in San Francisco.

"We will be closely examining the practices of all the health insurance companies in California," said Poizner. He declined to name the companies that will be audited this year.

If the alleged UnitedHealth violations are found to be willful, the state can fine the company up to $10,000 per incident. Unwillful violations have a maximum fine of $5,000.

"We think these violations have been willful in many cases," said Poizner.

The department's case will be reviewed by an administrative judge, who will make a recommendation regarding the appropriate penalty size. UnitedHealth would have the right to appeal.

Wall Street analysts said they doubted UnitedHealth would get hit with the maximum fine.

Stifel Nicolaus analyst Thomas Carroll said that while the California Department of Insurance penalties could theoretically total $650 million to $1.33 billion, the ultimate fine would likely be smaller.

"We do not believe the CDI penalty will be anywhere close to this severe," Carroll said in a client note.

UnitedHealth, in a statement, said it has not received a notice of a fine from the department of insurance and cited multiple reasons why such a fine should be reduced.

"While there is a theoretical maximum penalty, we believe the Commissioner will take into consideration the fact that the vast majority of the violations were identified by the company, (were) administrative in nature and did not result in harm to our members," the company said.

The state's Department of Managed Health Care (DMHC) said it planned to levy an additional fine of $3.5 million against the insurer.

UnitedHealth is still in discussions regarding the DMHC fine and has not accepted it, said company spokesman Tyler Mason.

State regulators said they launched a joint investigation into PacifiCare's alleged claim violations -- which include wrongful denials of covered claims, incorrect payments and lost documents that resulted in some people being incorrectly dropped from membership lists -- following a spike in consumer complaints after it was acquired by UnitedHealth in late 2005.