Managed care companies are under doctor's orders to bulk up their disclosures. New York Attorney General Eliot Spitzer on Tuesday formally diagnosed the group as noncompliant and threatened legal action if they fail to remedy their ways. Specifically, Spitzer said the vast majority of big health insurers fail to provide state-mandated information designed to protect sick customers who are shopping for insurance that covers their specific ailments. Spitzer made his determination at the end of an extensive study in which staff members, posing as potential customers, sought information from 22 health plans about medically necessary treatments related to five common health problems. Half of the plans -- including Aetna ( AET), Cigna ( CI) and Health Net ( HNT) -- flunked the test entirely. Most of the rest -- including Oxford ( OHP) and UnitedHealth ( UNH) -- scored Ds. Not one emerged as totally compliant. "This report shows that consumers are being deprived of information that is both required under state law and necessary to ensure appropriate health care," Spitzer announced on Tuesday. "My office is now working with health plans to ensure that appropriate information is made available to consumers. We are continuing to monitor the health plans' performance, and we are proposing new legislation to strengthen penalties for noncompliance." Currently, Spitzer said, the companies are violating New York's Managed Care Consumer Bill of Rights. However, he said, the bill fails to authorize any specific penalties for noncompliance. He is, therefore, pursuing legislation that would specify fines of up to $5,000 -- depending on the harm done to consumers -- for each violation. In the meantime, he could begin taking companies to court. "The attorney general's office has sent letters to each of the plans surveyed, detailing particular violations and requesting that each plan take immediate measures to comply with the law and set a meeting date to discuss permanent compliance measures," Spitzer stated. "Plans that repeatedly fail to comply with the law could face legal action." Investors simply yawned, pushing managed care players -- among the healthiest performers in the market -- even higher on Wednesday.
Analysts tended to downplay the news as well. Citigroup's Charles Boorady actually pounced on the opportunity to recommend managed care stocks anew. He acknowledged that industry disclosures could use enhancements that, in turn, could raise administrative costs. But he doubts the insurers face material penalties or any excess costs that couldn't be covered by price increases.