BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                            



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                                    THIRD READING


          Bill No:  SB 1142
          Author:   Monning (D)
          Amended:  As introduced
          Vote:     21

           
           SENATE INSURANCE COMMITTEE  :  11-0, 4/24/14
          AYES:  Monning, Gaines, Corbett, Correa, DeSaulnier, Lieu,  
            Mitchell, Nielsen, Roth, Torres, Vidak


           SUBJECT  :    Health insurance fraud:  annual special purpose  
          assessments

           SOURCE  :     California Department of Insurance


           DIGEST  :    This bill clarifies 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.

           ANALYSIS  :    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  
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            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% of the funds  
            received shall be distributed to the Fraud Division of the  
            Department of Insurance for enhanced investigative efforts,  
            and 70% 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  
            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:


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          1.Clarifies that the annual disability fraud fee collected by  
            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.Clarifies 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.

           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 (Chapter 1008,  
          Senate Committee on Insurance, Claims and Corporations, 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 (Chapter 444,  
          Blumenfield, 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. 

          CDI has interpreted the statute to mean that the assessment is  
          to be applied to all covered persons residing in the state  

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          regardless of whether the person is covered under an individual  
          or group policy regardless of the situs of the contract, and  
          including blanket policies. 

          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 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 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.  CDI is  
          concerned that such an interpretation would dramatically reduce  
          the funds available to investigate and prosecute fraudulent  
          health and disability claims.

           Prior Legislation
           
          AB 1401 (Aghazarian, Chapter 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, Chapter 444, Statutes of 2012) increased  
          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  

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          policy it issues in this state to fund increased investigation  
          and prosecution of fraudulent disability insurance claims.

          AB 2084 (Solorio, Chapter 321, Statutes of 2012) expanded the  
          types of blanket insurance that may be offered by  
          California-admitted insurers.

           FISCAL EFFECT  :    Appropriation:  No   Fiscal Com.:  No   Local:  
           No

           SUPPORT  :   (Verified  4/28/14)

          California Department of Insurance (source)
          California District Attorneys Association
          Alameda County District Attorney
          San Diego County District Attorney
          Santa Clara County District Attorney
          NCFIA Anti-Fraud Alliance


           ARGUMENTS IN SUPPORT  :    According to CDI, the changes made by  
          this bill are necessary to more closely align the statute with  
          the original intent, CDI's current practice, and provide further  
          clarification for insurers who are subject to this assessment.  
          In addition, the proposed change would ensure that 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.


          AL:nl  4/29/14   Senate Floor Analyses 

                           SUPPORT/OPPOSITION:  SEE ABOVE

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