Labor Department Seeks to Recover Over $1 Million from Defunct Maryland Health Provider

Archived News Release — Caution: Information may be out of date.

The U.S. Department of Labor today filed a lawsuit and obtained a temporary restraining order freezing the assets of SAI MED Health Plan, L.L.C. of Rockville, Maryland, and its principals to prevent further depletion of health plans assets. Participants in various states including Maryland, Virginia and West Virginia are owed at least $1.6 million in outstanding health claims.

Beside freezing the assets, the restraining order removed the defendants from the SAI MED plans and barred the defendants from providing services or receiving compensation from SAI MED. The court also appointed David W. Silverman, of the New York firm Granik, Silverman, Campbell & Hekker, to be the independent fiduciary. A hearing on the restraining order was held this afternoon in a federal district court in Greenbelt, Maryland. The court is scheduled to hold a hearing on the preliminary injunction on February 21, 2001.

The department’s actions closely follows a cease and desist order issued on January16, 2001 by the State of Maryland revoking SAI MED’s registration as a third-party administrator and ordering the company to stop any unauthorized insurance business in the state. The state’s Insurance Commissioner took this action because the firm failed to obtain required stop-loss insurance and to pay health claims.

Prior to 1999, SAI MED was a multiple employer welfare arrangement which marketed its services to employers. The company pooled the premiums of client employers to cover all claims.

In 1999, SAI MED began to sell a self-insured welfare plan to employers, which was designed to include the purchase of stop-loss insurance to pay employees’ health claims in excess of the attachment point. The company collected health benefit premiums and processed claims of an estimated 4,000 employees of 200 sponsoring employers at various times.

SAI MED set its own compensation and paid its bills, including the salaries of defendants Samuel Kreiter and Martin Sonnenberg, while claims of participants remained unpaid. At the end of 2000, SAI MED had approximately $276,000 in its accounts.

SAI MED ceased operations on February 1, 2001 without any prior notification to plan clients. At that time, the company had processed and was holding at least $1.6 million worth of claims checks in its offices for unpaid claims dating back to as early as November 1999.

The Labor Department’s lawsuit alleges that SAI MED, president/general counsel Kreiter and chief financial officer/treasurer Sonnenberg violated the Employee Retirement Income Security Act (ERISA) when they failed to:

• Hold plan assets in trust accounts and instead commingled the plans’ assets with the general operating account of SAI MED
• Pay premiums to purchase stop loss insurance, which resulted in cancellation of stop-loss coverage for all groups retroactive to January 2000
• Notify the plans of the loss of coverage while continuing to collect premiums
• Return to the plans refunds of premiums resulting from cancellation of the stop-loss coverage
• Mail checks for processed claims even though the checks were generated by defendant Sonnenberg
• Collect sufficient funds from the employers to pay benefit claims
• Pay claims instead of paying itself excessive fees.

The department also asked the court to permanently order the relief contained in the temporary restraining order.

This case resulted from an investigation conducted by the Washington District Office of the department’s Pension and Welfare Benefits Administration into alleged violations of ERISA.

(Chao v. SAI MED Health Plan, LLC
Civil Action No. 01-CV-325)

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Archived News Release — Caution: Information may be out of date.