The consumer watchdog is taking Medibank to court, accusing the health insurance provider of wrongly telling customers they were not eligible for some benefits.

The Australian Competition and Consumer Commission claims Medibank incorrectly told some “lite” or “boost” policy holders with its ahm subsidiary they were not entitled to cover for joint investigations or reconstruction procedures between February 2013 and July 2018.

Ahm is Medibank’s low-cost brand, with about 900,000 members across health, life, travel and pet insurance. The affected policies had about 130,000 members during the relevant time frame.

“We will allege that Medibank incorrectly rejected claims or eligibility enquiries from over 800 members for benefits that they were entitled to and were paying for,” ACCC chair Rod Sims said on Tuesday.

The ACCC has launched civil action in the Federal Court, claiming Medibank’s actions breached consumer law.

“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,” Mr Sims said.

“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.”

The ACCC also alleges that Medibank breached consumer laws by failing to supply insurance cover for joint investigations and reconstructions, despite accepting payment from members for that cover.

The watchdog says Medibank’s alleged actions had serious consequences for customers requiring procedures, including spinal surgery, pelvic surgery, hip surgery and knee reconstructions – which often cost thousands of dollars.

“Some members were forced to delay surgery due to high out-of-pocket costs for these procedures and to seek alternative remedies to manage pain, when they were in fact entitled to insurance cover,” Mr Sims said.

Medibank said the issue stemmed from an “internal process failure”, as item codes relating to the relevant category were not entered into its claims assessment system.

Complaints led to the inconsistency being identified in 2017, and the insurer had since contacted 130,000 customers and paid out $745,691 in compensation.

“We apologise unreservedly to our customers who have been impacted by the error,” ahm senior executive Jan O’Keefe said.

The ACCC is seeking wide-ranging penalties in Federal Court as a result of the alleged consumer law breaches.

-with AAP