Insurance giant Aetna in a multi-million dollar settlement with New York State is to pay thousands of students it shortchanged for out-of-network medical costs.

Attorney General Andrew Cuomo said Aetna Student Health, a subsidiary of Aetna, the nation's third largest health insurer, underpaid more than 73,000 students at more than 200 colleges, including 20 in New York.

As per the settlement Aetna agreed to pay $5 million, plus interest and penalties, for claims involving out-of-network care, resolving an investigation into the use of outdated reimbursement rate information by Aetna's subsidiary, Aetna Student Health.

Alex Detrick, a spokesman for Cuomo said the subsidiary underpaid more than $5.1 million in student health-insurance claims nationwide between 1998 and April 1, 2008. Out of the students who were underpaid, 21,000 attended school in New York, which included 6,397 at Columbia University, 7,626 at New York University and 1,243 at The New School.

These health plans were sponsored by the students' colleges, underwritten by Aetna Life Insurance Company and administered by Aetna Student Health, which earlier was known as Chickering Student Health.

This settlement is the result of a year long investigation by Cuomo which began in February 2008 to look into the insurance industry's handling of out of network medical costs. This is the second such settlement to take place and last month, UnitedHealth Group and its subsidiary, Ingenix, agreed to pay $350million to settle claims that it unfairly billed consumers.

Aetna's agreement is a part of a $20 million settlement announced Jan. 15 between the attorney general and Aetna when the insurer agreed to stop using databases operated by UnitedHealth Group Inc.'s subsidiary, Ingenix Inc., to determine out-of-network reimbursement rates.

Aetna, as a part of the settlement agreed to pay $20 million to establish a new, independent nonprofit data base to help determine fair out-of-network reimbursement rates for consumers throughout the United States.

The health insurer has also agreed to pay students, or where appropriate their doctors over $5.1 million for underpayments, plus interest and penalties calculated under governing state law. Late payments in New York are subject to 12 % interest.

Aetna agreed to hire an independent third party examiner who would review Aetna Student Health's compliance and training procedures. The company also agreed to update its claims processing systems as well as provide all employees of Aetna and its subsidiaries enhanced training on reporting compliance issues.