BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                  AB 2138
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          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.








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           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 








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            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 








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            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