BILL ANALYSIS Ó
SENATE INSURANCE COMMITTEE
Senator William W. Monning, Chair
SB 1142 (Monning) Hearing Date: April 24, 2014
As Introduced: February 20, 2014
Fiscal: No
Urgency: No
SUMMARY Would clarify that the annual disability fraud fee
collected by the California Department of Insurance (CDI) to
fund the investigation and prosecution of disability fraud
applies to each resident in California covered by an individual
or group policy regardless of the situs of the contract or the
location of the master policy holder, and that the disability
fraud fee applies to blanket insurance policies regardless of
whether an individual certificate of coverage is issued to each
covered person under the policy.
DIGEST
Existing law
1. Provides for the regulation of disability insurers by the
Insurance Commissioner;
2. Requires a disability insurer or other entity liable for any
loss due to health insurance fraud doing business in California
to pay an annual fee that does not exceed $0.20 per year for
each insured under an individual or group policy "it issues in
this state" in order to fund increased investigation and
prosecution of fraudulent disability insurance claims;
3. Provides that after incidental expenses, 30 percent of the
funds received shall be distributed to the Fraud Division of the
Department of Insurance for enhanced investigative efforts, and
70 percent shall be distributed to local district attorneys for
investigation and prosecution of disability insurance fraud
cases;
4. Defines blanket insurance as a form of insurance that provides
coverage for specified circumstances as defined, and insured by
description of all or nearly all persons within a class of
SB 1142 Monning), Page 2
persons defined in a policy to a master policyholder, and not by
naming the persons covered, and for which a certificate of
coverage may or may not be provided to eligible persons;
5. Authorizes the above-described blanket policies, among others,
to provide that the cost of the insurance coverage is required
to be paid by either the policyholder, or the individuals
insured or their parents or guardians, payable through the
policyholder;
6. Authorizes the person insured, when the premium is paid for
these types of blanket insurance, to request a copy of the
policy from the insurer.
Existing regulations
1. Require each admitted disability insurer to pay a
disability insurance fraud assessment of $.20 for each
insured person that is covered by an individual or group
disability insurance policy issued in this state during each
calendar year or any part thereof;
2. Provide that an insured person for these purposes is
deemed to include any person that is issued an individual
certificate of coverage.
This bill
1. Would clarify that the annual disability fraud fee
collected by the CDI to fund the investigation and
prosecution of disability fraud applies to each resident in
California covered by an individual or group policy
regardless of the situs of the contract or the location of
the master policy holder;
2. Would clarify that the disability fraud fee applies to
blanket insurance policies regardless of whether an
individual certificate of coverage is issued to each covered
person under the policy.
COMMENTS
1. Purpose of the bill. To clarify the application and scope
of the disability fraud assessment to facilitate the
SB 1142 Monning), Page 3
investigation and prosecution of disability insurance fraud
by the CDI and local district attorneys, and to ensure that
the CDI has adequate resources to investigate and prosecute
disability fraud and to make grants for that purpose to
local district attorneys.
2. Background . The disability Insurance fraud assessment was
enacted in 1991 to fund investigation and prosecution
activities related to health insurance claims fraud.
According to SB 894 (Ch. 1008, Statutes of 1991), the
Legislature found that "health insurance fraud is a
particular problem for health insurance policyholders and is
believed to account for billions of dollars annually in
added costs of health care nationally. Premium dollars are
lost and health care costs increase unnecessarily."
The assessment was increased by AB 2138 (Ch. 444, Statutes
of 2012) from $.10 to $.20 per covered individual, and the
percentage of the fund granted to district attorneys was
increased from 50% to 70%. The IC is to apportion funding to
district attorneys based on criteria, including a high
probability of successful prosecutions. In Fiscal Year
2011-12, five counties received a total of $1,712,000 in
funding through the Disability and Healthcare Insurance
Fraud Grant Program. The district attorneys reported 124
investigations, 48 arrests, and 43 convictions. Chargeable
fraud amounted to $210,691,543 with $2,456,180 restitution
ordered by the courts.
As a result of the fee increase enacted in 2012, local
district attorney funding increased to $6,671,000 for Fiscal
Year 2013-14. Ten counties received awards this cycle,
including Orange County which received $2.02 million, Los
Angeles County which received $1.07 million, and San Diego
County which received $875,000.
The CDI has interpreted the statute to mean that the
assessment is to be applied to all covered persons residing
in the state regardless of whether the person is covered
under an individual or group policy regardless of the situs
of the contract, and including blanket policies.
The CDI's Fraud Disability and Health Assessment Data Call
instructs companies to include blanket insurance in their
covered lives total for group plans. The instructions are as
follows: "Provide Covered Lives and Direct Earned Premium on
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group policies that provide coverage, singly or in
combination, for death, dismemberment, disability or
hospital and medical care caused or necessitated as a result
of accident or specified kinds of accidents. Types of
coverage include: sports accident, travel accident, blanket
accident, specific accident or accidental death or
dismemberment."
According to the CDI, many insurers have routinely paid the
assessment on covered California residents, regardless of
the situs of the contract, and on blanket policies where no
individual certificates had been issued. Recently, however,
some insurers have challenged the obligation to pay the
assessment on California residents who are covered under a
group policy not issued within California, or individuals
covered under a blanket insurance policy when the
individuals are not issued individual certificates of
coverage. The increase in the fee may have prompted some
insurers to more closely examine the statute and determine
they could legally argue they were not obligated to pay
under a strict reading of the language regarding both situs
of the contract, and issuance of individual certificates
under blanket insurance master policies. The CDI is
concerned that such an interpretation would dramatically
reduce the funds available to investigate and prosecute
fraudulent health and disability claims.
3. Support . According to the author, this bill will ensure
that the disability fraud assessment fee will apply to
insurers equally regardless of the location of the master
contract, and that adequate resources are provided to the
CDI, and particularly local district attorneys, to
aggressively investigate and prosecute health insurance
fraud. Disability fraud is not bound by the location of the
issuer, but the location of the claimant.
According to the CDI, the changes made by this bill are
necessary to more closely align the statute with the
original intent, the CDI's current practice, and provide
further clarification for insurers who are subject to this
assessment. In addition, the proposed change would ensure
that the CDI has the resources to continue investigating and
prosecuting fraudulent disability claims, which can occur in
California regardless of where a group policy is issued.
SB 1142 Monning), Page 5
Alameda District Attorney Nancy O'Malley supports SB 1142
because it is essential to continue the efforts of her
office, the other 57 prosecutor offices and the CDI in their
efforts to combat disability fraud through investigation and
prosecution. The funds available through this program have
been an invaluable resource to her office in combating
disability and health fraud. In 2013, the Alameda District
Attorney's office investigated 22 cases of disability and
health fraud involving 26 perpetrators, with a total loss of
$1,052,811. Of those cases resolved in 2013, they have
secured $165,167 in restitution orders.
San Diego County District Attorney Bonnie Dumanis supports
SB 1142 because when insurers challenge their assessments
there is an immediate and significant decrease in the fraud
funds which diminishes the Fraud Division's ability to
investigate and prosecute insurance fraud.
4. Opposition None has been received by the committee,
although the Association of California Life and Health
Insurance Companies is concerned that this proposal does not
codify current practice, but expands the scope of the
assessment currently authorized under existing law. In
certain group and blanket coverage situations, the residence
state of the policy/certificate holder is not known, and may
not be available from a systems standpoint. Their concerns
are primarily with technical/administrative feasibility.
Discussions are continuing with the CDI on how to address
these concerns.
5. Questions How have insurers determined the number of
covered persons under a blanket insurance policy for
purposes of this assessment when no individual certificate
has been issued? Is it likely the intent of the statute was
to exclude a significant number of California residents
covered under group disability policies from application of
the assessment?
6. Prior and Related Legislation
AB 1401 (Aghazarian) (Ch. 335, Statutes of 2007) increased
the maximum per company general assessment CDI may annually
charge insurance companies to combat insurance fraud from
$1,300 to $5,100;
AB 2138 (Blumenfield) ( Ch. 444, Statutes of 2012) increased
SB 1142 Monning), Page 6
the maximum annual special purpose assessment on disability
insurers to investigate health insurance fraud from $.10 to
$.20 annually for each insured under an individual or group
insurance policy it issues in this state to fund increased
investigation and prosecution of fraudulent disability
insurance claims.
AB 2084 (Solorio) (Ch. 321, Statutes of 2012) expanded the
types of blanket insurance that may be offered by
California-admitted insurers.
POSITIONS
Support
California Department of Insurance (sponsor)
California District Attorneys Association
Alameda County District Attorney
San Diego County District Attorney
Santa Clara County District Attorney
NCFIA Anti-Fraud Alliance
Oppose
None received
Consultant: Erin Ryan (916) 651-4110