UnitedHealth Co. Ordered Not to Pay $120M Dividend

California insurance regulators have blocked a UnitedHealth Group subsidiary from paying dividends to its parent companies, alleging that the company committed almost a million acts that violate the state's insurance regulations.

A California Department of Insurance commissioner on Monday issued an order blocking a UnitedHealth Group subsidiary from paying $120 million in dividends to its parent companies.

On December 8, PacifiCare Life & Health Insurance Company said that it intended to pay $118.8 million to PacifiCare Health Plan Administrators, Inc., and $1.2 million to PacifiCare Health Systems, LLC.

Ordinary dividends must be paid out of policyholders' surplus, which totaled $773 million as of September 30, according to the order.

But California regulators have accused the company of committing at least 992,936 acts that violated the state's insurance regulations. The potential civil penalty for each violation is $5,000 for each non-willful act and $10,000 for each willful act, according to the department. Even if the company were held liable for $1,000 per alleged violation, it would face a penalty of nearly $1 billion. That amount far exceeds the policyholders' surplus, from which penalties must be paid.

Alleged violations-which occurred several years ago-include failing to address claims in a timely manner, wrongfully denying claims, losing claims, making payments late, and underpaying health care providers, according to a California Department of Insurance accusation from 2009 when the case began.

Moreover, the order said that PacifiCare Life & Health Insurance Company previously notified California regulators that group health policies are no longer being sold under its license-meaning that after the end of 2010, the company will no longer be able to replenish or contribute to its policyholders' surplus from California health insurance premiums.

Minnetonka-based UnitedHealth Group-which has said that most of the alleged errors were administrative in nature-bought PacifiCare in 2005 for $8 billion. California regulators claim that shortly after that, they began receiving hundreds of complaints from consumers and doctors regarding improper handling of thousands of claims.

In a Tuesday morning statement e-mailed to Twin Cities Business, UnitedHealth Group said: “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.We are reviewing the decision and deciding upon our next steps.”

PacifiCare will have an opportunity to contest the order at a hearing scheduled for December 21.

“Nobody knows what the outcome of the enforcement action will be,” Insurance Commissioner Steve Poizner, who issued the order, said in a statement. “But it is entirely possible that allowing United to siphon off $120 million would enable them to turn penalties into profits. My order simply requires that the company keep the money where it would be available to satisfy any order that is issued.”

UnitedHealth Group is Minnesota's largest public company based on revenue, which totaled $87.1 billion in 2009.