Contending that health insurance provider Hawai’i HealthCare Alliance is insolvent and an unauthorized seller of health insurance in Hawai’i, the state has served a cease-and-desist order on HHCA’s organizer, Darren Larson. David Gierlach, Honolulu attorney for Larson and HHCA, said
Contending that health insurance provider Hawai’i HealthCare Alliance is insolvent and an unauthorized seller of health insurance in Hawai’i, the state has served a cease-and-desist order on HHCA’s organizer, Darren Larson.
David Gierlach, Honolulu attorney for Larson and HHCA, said the company was solvent and current on its payments to providers and policyholders when the state seized the company in mid-October.
In a Honolulu courtroom today, arguments were scheduled to be heard on the state’s motion to liquidate the assets of HHCA to pay creditors, said Wayne Metcalf, insurance commissioner in the state Department of Commerce and Consumer Affairs Insurance Division.
Caught in the middle are 157 HHCA policyholders on Kaua’i. The number of affected Kaua’ians could be about 500, based on the statewide average of three family members or employees covered under each policy.
The state alleges HHCA was $200,000 in the red when it seized the company, with more claims being filed almost daily.
Lani Yukimura, spokeswoman for Wilcox Health System (Wilcox Memorial Hospital and Kaua’i Medical Clinic) confirmed yesterday that the system has outstanding claims with HHCA.
Also potentially impacted, according to Metcalf, are independent healthcare providers of services to HHCA policyholders, as well as those policyholders who may have been unjustly denied claims.
Gierlach said yesterday that his client did not deny any justified claims. He said Larson met with state officials, explained why his products don’t require state regulation, and got written confirmation that the state agreed with Larson.
“There are lots of health programs in our community that are not regulated by the insurance commission. Darren shared with them that information, he got correspondence from them that indicated that they agreed with him, and he went out and did his business,” said Gierlach.
HHCA was “aboveboard, it was no secret they were doing business, and after doing business successfully for almost 10 months, all of a sudden the insurance commissioner, behind closed doors, gets (Larson) closed down,” Gierlach said. “To the best of my knowledge, no beneficiary of this plan has had a valid claim denied. This company has been able to run itself in a solvent way. They’ve made money. They’ve paid their claims. They were a responsible business, and it’s unfortunate that the commission has taken this kind of action.” Once HHCA understood it had to comply with state insurance laws, as the state insurance commission determined, it would have done so if given adequate time, Gierlach added.
Following today’s court action, two administrative hearings set for next week aim to formally prevent Larson and his companies from re-signing or referring HHCA policyholders to two other companies which the state contends offer “unauthorized insurance products,” and to strip Larson of his license to sell insurance in the state, Metcalf said.
“The Insurance Division has taken these actions to protect the consumers of the state. Since taking control of (HHCA), we have discovered that it is not only insolvent by law, but also insolvent in fact,” Metcalf said.
He said Larson and some entities under his control or with which he’s affiliated are also subject to ongoing investigations by the FBI, U.S.
Department of Labor, U.S. Postal Inspection Service and the state of Texas, where Larson is a resident. The probes could result in suggested fines totaling $1.1 million if Larson and the entities are found guilty of charges against them.
Hawai’i took action against HHCA because the company “was unlicensed and did not possess adequate financial resources to protect consumers and ensure that claims would be paid,” Metcalf said.
Gierlach said Larson met with state Insurance Division representatives before starting up his businesses in Hawai’i and explained his services weren’t under state regulatory control because they were federally regulated.
The state disagreed, and in mid-October gave HHCA 30 days to comply with licensing requirements and raise the necessary funds to ensure timely payment of claims, according to Metcalf.
“Thirty days later, no substantial steps had been taken to meet those requirements, and it was discovered that HHCA did not even have enough money to pay claims which had already been incurred,” he said.
Metcalf claimed Larson has “marketed at least two unauthorized health insurance carriers in Hawai’i, and has misrepresented their policies to regulators and consumers.” Gierlach contended that the state sent letters containing “false and misleading” information to HHCA policyholders, when there is no case law giving the state jurisdiction over Larson’s business dealings.
“Our view is, we think it’s an open question whether or not the commission has jurisdiction over HHCA as it is constituted. That’s not something that any court has decided,” Gierlach said. “But even assuming that it does, we’re willing to do whatever we need to to come into compliance. And if (the state) doesn’t have jurisdiction, then they’ve effectively destroyed this business, with all of these nasty press releases and information given to consumers, some of which has been, quite frankly, false and misleading.
“It’s really the haste that the commission acted with that we’re objecting to,” Gierlach said of the state arbitrarily deciding after the better part of a year that some of HHCA’s activities fell under state regulation and were in alleged violation of state insurance laws.
By state law, Metcalf, as insurance commissioner, would be the one in charge of any court-ordered liquidation.
He said the state will “look to all possible sources, including Mr. Larson, for repayment of the estate” of HHCA, which would be the entity if the judge today grants the state’s liquidation motion.
Whether or not the state will be successful in recovering any money for creditors, policyholders or others remains to be seen, Metcalf continued. A liquidation would take about six months to complete, and longer if there is further litigation involved, he said.
Metcalf’s job as liquidator, if the court sides with the state, will be to “marshal the assets and pursue any claims that can be pursued, to try to make the estate whole, to ensure that policyholders and medical-care providers are reimbursed the money that has been lost,” he explained.
According to Metcalf, the insurance through HHCA and the SAI Plus LLC Health Insurance Plan was marketed in Hawai’i to self-employed business people and independent contractors not covered under the Hawai’i Prepaid Health Care Act.
“We recognize that this is a population struggling to provide affordable health insurance for themselves and their families,” but the answer is not “in questionable insurance companies which provide products that are too good to be true. The problem most likely will need to be addressed by the Legislature some time in the future,” said Metcalf, a former state senator.
Staff Writer Paul C. Curtis can be reached at pcurtis@pulitzer.net or 245-3681 (ext. 224).
