Medibank Private is being sued by the consumer regulator for allegedly denying benefits to more than 800 members who were entitled to claim on their policies.

Key points: Medibank says it has already compensated 175 customers a total of $745,691

Medibank says it has already compensated 175 customers a total of $745,691 ACCC alleges Medibank (through its 'ahm' brand) breached the Australian Consumer Law

ACCC alleges Medibank (through its 'ahm' brand) breached the Australian Consumer Law The regulator says 60 customers had to upgrade their policies "needlessly"

The Australian Competition and Consumer Commission (ACCC) has filed a claim in the Federal Court, accusing the health insurer of making false representations to its members and breaching consumer laws.

Specifically, these members were told they would not be covered for joint investigations and reconstructive surgery.

This was despite the fact those procedures were covered by Medibank's lower cost "Lite" and "Boost" policies, sold under its "ahm" brand name.

"We estimate about 60 members needlessly upgraded their policies so they could access the joint investigation and reconstruction procedures they were already entitled to under their existing, cheaper insurance policies," said ACCC chairman Rod Sims.

"In some cases, it is alleged that members who upgraded their policies were also required to serve a further waiting period to access these procedures.

"Medibank's alleged misrepresentations had serious consequences for members requiring procedures including spinal surgery, pelvic surgery, hip surgery and knee reconstructions, which often cost thousands of dollars."

Space to play or pause, M to mute, left and right arrows to seek, up and down arrows for volume. Watch Duration: 1 minute 31 seconds 1 m 31 s Pain, delay and out-of-pocket costs: ACCC takes Medibank to court

"Sometimes they had to delay the surgery and, of course, many of them were in intense pain.

"And sometimes they had to go ahead with the surgery and incur the cost themselves."

The ACCC claims the alleged misrepresentations occurred during a five-year period for the "lite" policies (February 2013-July 2018), and for just over one year in relation to the "boost" policies (February 2017-July 2018).

'Internal process failure'

In a statement, Medibank and ahm apologised "unreservedly to customers who have been impacted by the error".

Medibank blamed the problems on an "internal process failure", where a number of Medicare Benefits Schedule (MBS) item codes associated with joint and reconstruction surgery were not entered into the system for the "Boost" and "Lite" products.

The insurer said it identified the problem after receiving customer complaints, and voluntarily reported itself to the ACCC.

"We accept this was an error by Medibank — we're not suggesting that they did anything deliberate," Mr Sims said.

"But to make an error over such a core part of your policy is, we think, extremely bad and therefore justifies the [ACCC] court action."

Furthermore, Medibank said it contacted around 130,000 customers last year, and paid compensation to about 175 customers, totalling $745,691.

Jan O'Keefe, a senior executive from ahm, said: "Since 2013, ahm received and resolved around 10 Private Health Insurance Ombudsman (PHIO) complaints and an estimated 43 customer complaints across the Lite and Boost product range that may have been related to joint investigations and reconstruction procedures.

"I encourage any customer who believes they may have been impacted to contact us."