BILL ANALYSIS Ó ----------------------------------------------------------------- |SENATE RULES COMMITTEE | SB 1142| |Office of Senate Floor Analyses | | |1020 N Street, Suite 524 | | |(916) 651-1520 Fax: (916) | | |327-4478 | | ----------------------------------------------------------------- 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 CONTINUED SB 1142 Page 2 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: CONTINUED SB 1142 Page 3 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 CONTINUED SB 1142 Page 4 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 CONTINUED SB 1142 Page 5 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 **** END **** CONTINUED