BILL ANALYSIS Ó AB 2138 Page 1 Date of Hearing: April 18, 2012 ASSEMBLY COMMITTEE ON INSURANCE Jose Solorio, Chair AB 2138 (Blumenfield) - As Introduced: February 23, 2012 SUBJECT : Health and Disability Insurance Fraud Fees SUMMARY : Increases the fee charged to health insurers to pay for health and disability insurance fraud investigations and prosecutions (fraud fee) from $0.10 to $0.20 per insured and increases the share of this fee revenue provided to district attorney's from 50% to 70%. Specifically, this bill : 1)Increases the maximum fraud fee that may be charged by the Insurance Commissioner (commissioner) from $0.10 to $0.20 per insured. 2)Increases the share of fraud fee revenue allocated to district attorney's from 50% to 70%. 3)Reduces the share of fraud fee revenue allocated to the Department of Insurance (DOI) from 50% to 30%. 4)Requires the commissioner to adopt regulations to implement these changes. EXISTING LAW 1)Establishes insurance fraud as a felony. 2)Requires health and disability insurers to pay a $0.10 annual fraud fee for every insured. 3)Specifies that the DOI and local district attorneys share the revenue generated by the fraud fee evenly. 4)Requires the commissioner to distribute one-half of the fraud fee revenues to district attorneys to enhance the prosecution of disability and health insurance fraud. 5)Permits district attorneys to apply for fraud fee funds. 6)Requires the commissioner to conduct audits of how district attorneys use the fraud fee revenues they are awarded. AB 2138 Page 2 FISCAL EFFECT : Unknown. COMMENTS : 1)Purpose of the bill . According to the author, health and disability insurance fraud in California is on the rise. While fraudulent claims are increasing, there are insufficient funds to investigate and prosecute these claims. Although there are no precise figures, it is believed that fraudulent activities account for billions of dollars annually in added health care costs nationally. An incremental assessment may prove to be cost effective given how much fraud costs the insured, the insurer, the state of California, and society as a whole. 2)Department Fraud Program . The fraud fee supports criminal investigations by the DOI's Fraud Division and prosecution by district attorneys of suspected fraud involving disability and healthcare fraud. This program area includes fraudulent claims involving: a) Dental Care b) Billing Fraud Schemes c) Immunization Fraud d) Unlawful Solicitation e) Durable Medical Equipment Currently, there are ten investigators statewide assigned to investigate suspected disability and healthcare fraud. This team also provides assistance and training to investigators and adjusters of private health insurance companies and other state and federal government agencies. During Fiscal Year 2009-10, the Fraud Division identified and reported 288 suspected fraudulent claims, assigned 33 new cases and made eight arrests with 13 submissions to prosecuting authorities. Potential losses in these cases exceed $32 million. In Fiscal Year 2009-10, five counties received $1.7 million AB 2138 Page 3 through the department's Disability and Healthcare Insurance Fraud Grant Program. District attorneys in these counties reported 133 investigations, 59 arrests, and 58 convictions. Chargeable fraud amounted to $320,384,787, with $1,758,527 restitution ordered by the courts. 1)Revenue . The fraud fee was established in 1991 with the current cap of $0.10 per insured and the fee cap has not been increased since then. Much of the increase called for in this bill offsets the impact of inflation (the fee would need to be increased to $0.17 to adjust for the impact of inflation since 1991). The bill proposes a modest increase in real revenue to increase the resources available for fraud investigations and prosecutions. The department estimates that the proposed increase would produce approximately $4 million per year in added revenue. 2)Allocation of Revenues . When first established in 1991 by Senate Bill 894 (Committee on Insurance, Banking and Corporations) (Stats. of 1991, ch. 1008) the program required that 50% of fraud fee revenues be distributed to district attorneys based on the population of their county. In 2004 Assembly Bill 1728 (Committee on Insurance) (Stats. of 2004, ch. 599) was enacted requiring district attorneys to apply for funding and increased accountability from funding recipients by: a) Requiring district attorneys receiving funding to annually provide an accounting for how the funding was used. b) Requiring district attorneys to report on the success of each case or project funded c) Permitting the Commissioner to audit the use of this funding by district attorneys. 3)Prevalence of Health Insurance Fraud . According to the Federal Bureau of Investigation, fraudulent billings to health care programs, both public and private, are estimated between 3 and 10 percent of total health care expenditures. Over time, fraud schemes have become more sophisticated and complex and are now being perpetrated by organized crime groups, corporate-driven schemes, and systematic abuse by healthcare providers. Health care fraud is expected to continue to rise as people live longer and healthcare expenditures continue to AB 2138 Page 4 grow as a fraction of gross domestic product. REGISTERED SUPPORT / OPPOSITION : Support Insurance Commissioner Dave Jones (Sponsor) Alameda County District Attorney, Nancy O'Malley Association of California Life & Health Insurance Companies California District Attorneys Association California State Sheriffs Association Kern County District Attorney, Lisa Green Riverside County District Attorney, Paul Zellerbach San Bernardino County District Attorney, Michael Ramos Valley Industry and Commerce Association Opposition None Received Analysis Prepared by : Paul Riches / INS. / (916) 319-2086