Kaiser Permanente Sues Insurers for $95 Million Following Medicare Advantage Fraud Settlement

A month-long strike involving 31,000 Kaiser Permanente healthcare workers has ended abruptly amid emerging legal battles that highlight deep-seated issues within America’s healthcare system.

The United Nurses Associations of California/Union of Health Care Professionals (UNAC/UHCP) terminated the strike without securing a new contract or conducting a membership vote, leaving workers to face deteriorating wages and working conditions while their employer pursues financial maneuvers following a record fraud settlement.

Kaiser Foundation Health Plan and Kaiser Foundation Hospitals have filed suit against nine major insurers, including American International Group and Chubb Limited, seeking up to $95 million in directors and officers liability coverage. This legal action comes after Kaiser agreed to pay $556 million in January to resolve False Claims Act allegations brought by the U.S. Department of Justice.

The settlement, the largest ever related to Medicare Advantage risk-adjustment practices, stemmed from whistleblower lawsuits filed by former Kaiser employees Ronda Osinek and James Taylor. Osinek, previously a medical coder, alleged that Kaiser pressured physicians to retroactively add diagnosis codes to increase reimbursement rates, while Taylor, a physician medical director, reportedly attempted to correct coding irregularities internally before filing his complaint.

Federal prosecutors contended that between 2009 and 2018, Kaiser conducted retrospective record reviews generating approximately 500,000 unsupported diagnoses. These additions allegedly produced about $1 billion in excess Medicare payments, despite internal compliance warnings. The whistleblowers shared a $95 million reward for bringing the case forward.

Kaiser has denied wrongdoing, characterizing the dispute as a technical disagreement over evolving federal guidance. The healthcare giant settled to avoid protracted litigation without admitting liability, and notably, the agreement did not impose a Corporate Integrity Agreement – suggesting reluctance by authorities to increase oversight of one of the nation’s largest healthcare systems.

In its lawsuit against its insurers, Kaiser argues that the $556 million payment constitutes a covered “loss” under its liability policies. The organization’s legal argument rests on three main claims: the payment represents a standard settlement covered by policy language; the lack of admission of liability means insurers cannot classify the conduct as fraudulent to invoke exclusions; and False Claims Act settlements are compensatory rather than disgorgement of profits, which would typically be uninsurable.

The insurers have countered with an “uninsurability defense,” arguing the settlement represents restitution of improperly obtained funds and therefore does not constitute a true loss. They maintain that allowing coverage would create a moral hazard by enabling corporations to treat regulatory violations as insurable business expenses.

Financial analysts note the circular nature of these transactions. While Kaiser settled allegations of approximately $1 billion in excess payments for $556 million, it effectively retained about $444 million of the contested amount. If Kaiser successfully recovers $95 million from its insurers, its effective settlement cost would drop to $461 million – meaning the organization could potentially retain over half the allegedly fraudulent payments.

For a healthcare system generating over $115 billion in annual revenue, the settlement functions more as a manageable expense than a punitive measure. The complex flow of funds ultimately spreads costs across taxpayers, patients, and insurance markets while allowing Kaiser to continue operations with minimal disruption.

The situation exposes fundamental problems in America’s healthcare model, where enormous corporate entities navigate regulatory frameworks through settlements, litigation, and financial engineering rather than addressing basic healthcare needs. Corporate misconduct becomes treated as negotiable risk, with financial institutions and ultimately workers absorbing the costs.

While Kaiser’s executives pursue insurance coverage for their half-billion-dollar settlement, frontline healthcare workers continue to face overwhelming workloads that threaten both patient safety and their own well-being. The abrupt termination of the strike by union leadership has left many workers questioning whose interests are truly being represented.

The Kaiser litigation demonstrates that healthcare crises extend beyond workplace conditions to the financial architecture governing the entire system. Billing practices, insurance markets, and corporate reserves shape not only profits but also staffing levels, patient outcomes, and workplace conditions.

Regardless of how the current legal disputes resolve, they have exposed questions about Kaiser Permanente’s “nonprofit” status and the functioning of Medicare Advantage programs. Critics argue that the healthcare system under its current structure prioritizes revenue extraction over public health, with fraud settlements and insurance disputes merely symptoms of this fundamental misalignment.

While workers finance Medicare through their taxes, pay insurance premiums, and provide the labor that sustains healthcare institutions, they increasingly face understaffed facilities, rising costs, and declining working conditions – a contradiction that lies at the heart of the ongoing tensions in American healthcare.