Health Net Fined $55K for Data Breach

Another state attorney general is using new enforcement powers granted by HITECH – again, at the expense of Health Net, Inc.

Health insurance giant Health Net has been fined by the state of Vermont over the insurer's loss of a portable disk drive that exposed the protected health information (PHI) of 1.5 million people, including 525 Vermonters.

This is the second HIPAA enforcement action of its kind since HITECH in February 2009 granted state attorneys general HIPAA enforcement authority. Connecticut's AG was first.

Health Net discovered the drive was missing May 14 but did not start notifying affected Vermont residents until more than six month later, the state AG's office reported in a press release.

Attorney General William Sorrell's January 14 complaint against Health Net, Inc., and Health Net of the Northeast, Inc. charges the insurer with violations of HIPAA, Vermont's Security Breach Notice Act, and the Consumer Fraud Act.

The settlement also calls for Health Net to submit to a data-security audit and file reports with Vermont regarding its information security programs for the next two years.

"Consumers expect—and the law requires—that personal information be treated with the utmost care," Sorrell said in a statement. "Identity theft remains one of the fastest growing crimes in America. Companies must be careful to prevent Vermonters' sensitive information, especially their medical records, from falling into the wrong hands."

Health Net told HealthLeaders Media in a statement that "protecting the privacy of our members is extremely important to us."

"Health Net has worked closely and cooperatively with the Vermont Attorney General," according to the statement, "and we have agreed to the terms contained in the agreement filed with the court to resolve this matter, which occurred in 2009."

To date, Health Net has no evidence that there has been any attempt to access or misuse the data, the company said in the statement.

The lawsuit is Vermont's first enforcement action under the Security Breach Notice Act. Included in the portable hard drive were PHI, social security numbers and financial information. 

The complaint filed January 14 says Health Net's six-month delay in notifying Vermont residents violates the Security Breach Notice Act. That law requires data collectors to notify affected individuals of security breaches "in the most expedient time possible and without unreasonable delay."

Health Net violated HIPAA by failing to secure PHI and breached the Consumer Fraud Act by misrepresenting the risk posed to affected individuals in the company's notice letters.

The complaint and proposed consent decree were filed in the U.S. District Court for the District of Vermont. The consent decree must be approved by a judge before it takes effect.

"Health Net has taken significant steps to assure that our members are protected," Health Net says. "We have offered two years of free credit monitoring services for all impacted members who elect this service. This service also includes $1 million of identity theft insurance coverage, as well as fraud resolution and credit and identity restoration services at no cost to the members." 

Health Net not only settled with the Connecticut state attorney general's office (for $250,000) but also with the Connecticut Insurance Commission, which reached a settlement with Health Net in which the insurer had to pay the state $375,000 in penalties for failing to safeguard the personal information of its members from misuse by third parties.