Poizner tries to block PacifiCare from paying dividends

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California Insurance Commissioner Steve Poizner has ratcheted up the pressure in a long-running dispute with Cypress-based PacifiCare.

Poizner has ordered the health insurer not to pay $120 million in dividends to two subsidiaries of its parent company, saying the money may be needed to take care of penalties in an administrative case brought by the Department of Insurance.

The department has accused PacifiCare of violating state law nearly 1 million times from 2006 to 2008 by mismanaging medical records, losing patient documents and failing to pay doctors what they were owed.

The violations, each carrying a fine of up to $10,000, allegedly occurred after PacifiCare was purchased in 2005 by insurance giant UnitedHealth Group Inc., the nation’s largest insurer by revenue, state officials said.

PacifiCare has argued that the state’s case mostly involves administrative errors that did little harm to consumers. The company says that three-quarters of the allegations relate to PacifiCare’s alleged failure in 2007 to inform doctors and patients of their right to appeal coverage decisions. It can appeal Poizner’s order Dec. 21.

Company spokesman Cheryl Randolph said in a statement: “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.”

This month, PacifiCare notified the insurance department that it intended to make the two dividend payments Dec. 24 –-one for $118.8 million to PacifiCare Health Plan Administrators Inc. and the other for $1.2 million to PacifiCare Health Systems.

Poizner said in his legal order that PacifiCare has a total of $773 million in policyholders’ surplus. He said that paying the dividends could leave the company without enough money to satisfy possible penalties in the administrative case, which is being heard by an administrative law judge in Oakland.

“Nobody knows what the outcome of the enforcement action will be,” Poizner 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.”

-- Duke Helfand