Thousands of individuals and self-employed business owners have purchased health insurance policies with MEGA Life and Health Insurance, many through membership in the National Association for the Self-Employed.

The State of Massachusetts claims the company used deceptive and unfair practices to market those policies - at least in the Bay State. As a result of the state's legal action, MEGA has agreed to settle the charges, paying more than $17 million in consumer relief, penalties and costs. The defendants will be banned for at least five years from selling their health plans in Massachusetts and are required to exit the Massachusetts health plan business completely.

"With health reform in Massachusetts and the requirement that individuals in Massachusetts have health insurance, it has been even more important to stop predatory practices in the health insurance market," said Massachusetts Attorney General Martha Coakley. "These companies used unfair and deceptive marketing and other practices to convince Massachusetts residents to buy health plans with limited benefits."

Coakley says MEGA targeted the self-employed and small business owners in Massachusetts through sales of products packaged with association memberships in the National Association for the Self Employed, Americans for Financial Security and the Alliance for Affordable Services.

The consumer relief portion of the funds will be used to provide relief to current or former Massachusetts policyholders whose claims for certain benefits mandated by Massachusetts law, such as maternity health care, were denied based on purported lack of coverage, and other policyholders whose claims were denied based on illegal pre-existing condition exclusions or waiting periods.

Consumer relief is also expected to be paid to other categories of Massachusetts consumers who have suffered harm from defendants' conduct at issue in the litigation.

MEGA ran afoul of Massachusetts authorities because the state requires insurance companies to cover certain medical issues and procedures. MEGA policyholders in other states that don't have that law should closely examine their policies to determine what is covered.