It’s not everyday that the Centers for Medicare and Medicaid Services (CMS) cracks down hard on one of its clients; that is, one of the private insurance companies Congress allowed and encouraged to provide benefits to Medicare recipients. Bloomberg News published a story Monday that told a sorry tale of the country’s second largest insurance carrier (revenue-wise) and how it treated seniors who depend on coverage from the company to pay for their drugs. CMS gave Bloomberg a copy of the letter it sent to WellPoint which said the carrier has “demonstrated a longstanding and persistent failure to comply with CMS’ requirements for proper administration of its Medicare Advantage Prescription Drug Plans (MA-PD) and Prescription Drug Plans (PDP).”

The letter went on to say that the noncompliance has resulted in thousands of Medicare beneficiaries being denied access to “critical medications” that included cardiac drugs, anti-seizure drugs, anti-clogging drugs as well as medicine for asthma and chronic obstructive pulmonary disease. “WellPoint failed to follow through on its assurances to CMS that the problem was immediately and fully corrected,” the letter explained. CMS spokesman Peter Ashkenaz told me that the Medicare regulator had gotten a spike in complaints from WellPoint customers last week when new drug plans took effect. In December, he said, the agency received “under 100 complaints” and in the first week in January “we had more than 500. People were not getting their drugs.”

So the agency slapped a penalty on the carrier: effective immediately, it cannot market Medicare Part D plans, which provide pharmaceutical benefits to seniors, nor can it enroll new plan members. Even though the general Part D open enrollment season just ended, carriers can still sign up seniors with low incomes and people turning 65 who need to find a drug plan. Seniors enrolled in the controversial Medicare Advantage plans whose sellers are being overpaid by the federal government, can still switch plans until the end of March. So it’s fair to say the sanctions are likely to pinch WellPoint’s profits. WellPoint said in a statement that it had made significant progress in addressing problems cited by CMS and that since it had been working with the agency, it was “surprised by this recent action.”

Not many reporters cover insurance these days. But this is a good story, as Bloomberg knows, and a good company to keep an eye on. There are several ways to go. There are the usual business stories that quote stock analysts lamenting a fall in the company’s share price. The Bloomberg story went there. Carl McDonald, an analyst at Oppenheimer & Co., told Bloomberg that the CMS sanctions are “definitely not a good thing.” Then there’s the consumer story which tells people what to do. Bloomberg pointed out that people can stay with the carrier, or if they choose to drop out, they can call 1-800-Medicare and ask about a special enrollment period to select a new plan by the end of the month. Much less transparent to journalists is the health reform story and where WellPoint fits in. The insurer is a lobbying force. It helped to defeat Gov. Arnold Schwarzeneggar’s health reform drive in California in 2007 with a series of TV ads raising doubts about the plan, and it was prepared to spend millions to keep reform from happening. WellPoint has staked out a lucrative market selling bare bones policies, the kind that many politicians see as the solution for covering everyone. It could benefit handsomely from many of the reform proposals now on the table if they require people to buy health coverage from private insurers.

In case you think WellPoint is alone in designing questionable insurance practices, take note. Yesterday the nation’s biggest carrier UnitedHealth Group agreed to pay a $50 million settlement after New York attorney general Andrew Cuomo accused the insurers of overcharging millions of customers when a research firm owned by United manipulated the numbers so that the carrier underpaid policyholders when they filed claims. Said Cuomo: “This is a huge scam that affected hundreds of millions of Americans who were ripped off by their health insurance companies.”

Trudy Lieberman is a fellow at the Center for Advancing Health and a longtime contributing editor to the Columbia Journalism Review. She is the lead writer for The Second Opinion, CJR’s healthcare desk, which is part of our United States Project on the coverage of politics and policy. Follow her on Twitter @Trudy_Lieberman.