BILL ANALYSIS Ó
SENATE COMMITTEE ON INSURANCE
Senator Richard Roth, Chair
2015 - 2016 Regular
Bill No: SB 585 Hearing Date: April 8,
2015
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|Author: |Leyva |
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|Version: |February 26, 2015 |
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|Urgency: |No |Fiscal: |Yes |
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|Consultant:|Erin Ryan |
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Subject: Insurance payments: interception
SUMMARY Would create the Insurance Payment Intercept Program within
the Department of Insurance (CDI), for purposes of identifying
insurance claims that are properly subject to withholding to
satisfy a child support obligation; would require all insurers
and self-insurers operating in the state to participate in the
program; would provide that an insurer that reports information
pursuant to this article, or who acts in good faith to comply
with the rules or regualtions implementing it, is not liable for
those acts; would allow the CDI to issue guidance for compliance
with this program to insurers and self-insurers without
following the provisions of the Administrative Procedure Act
(APA) until January 1, 2019; and would provide that an insurer
or self insurer who violates this article will be deemed to have
failed to carry out its contract in good faith.
DIGEST
Existing law
1. Federal law creates the federal Office of Child Support
Enforcement (OCSE) within the U.S. Department of Health and
Human Services;
2. Federal law authorizes the OCSE to compare information about
individuals owing past due child support with information
maintained by insurers (or their agents) related to insurance
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claims, settlements, awards, and payments;
3. California law provides that a child's parents share equal
responsibility to support the child in a manner suitable to the
child's circumstances, and establishes the Department of Child
Support Services (DCSS) and other public agencies to establish
paternity and enforce liability for child or spousal support;
4. Requires every employer and labor organization in the state to
provide specified information, including earnings information,
to the local child support agency or DCSS upon request;
5. Requires the Employment Development Department to withhold
from the unemployment compensation benefits or unemployment
compensation disability benefits of individuals with unmet
support obligations;
6. Provides that a local child support agency may collect a child
support delinquency or enforce any lien by levy served on all
persons having in their possession, or who will have in their
possession or under their control, any credits or personal
property belonging to the delinquent support obligor, or who owe
any debt to the obligor at the time they receive the notice of
levy, including deposit or credits or personal property in the
possession or under the control of a bank, savings and loan
association, or other financial institution as defined; (Family
Code §17500 et seq.)
This bill
1. Creates the Insurance Payment Intercept Program within the
Department of Insurance (CDI), for purposes of identifying
insurance claims that are properly subject to withholding to
satisfy a child support obligation;
2. Requires the CDI to consult with the DCSS to develop a
program requiring insurers and self-insurers to notify the
DCSS of a claim owed to a child support obligor;
3. Specifies that the new requirement applies to all insurers
operating in the state, including admitted insurers,
non-admitted domestic insurers, non-admitted foreign
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(domiciled in a state other than California) insurers,
non-admitted alien insurers, and self-insurers;
4. Provides that an insurer that reports information pursuant
to this article, or acts in good faith to comply with the
rules or regualtions implementing it, is not liable for
those acts;
5. Allows the CDI to issue guidance for compliance with this
program to insurers and self-insurers without following the
provisions of the Administrative Procedure Act (APA) until
January 1, 2019;
6. As of January 1, 2019, requires any such guidance to comply
with the APA;
7. Provides that an insurer or self insurer who violates this
article will be deemed to have failed to carry out its
contract in good faith, subject to a suspension of its
certificate of authority for up to one year, as specified.
COMMENTS
1. Purpose of the bill To require insurance companies to
participate in a program that matches individuals who owe
past-due child support with insurance claims to verify that
insurance payments made are first used to pay owed child
support.
2. Background Noncustodial parents who do not pay
court-ordered child support are subject to enforcement
measures to collect regular and past-due payments.
California currently uses a variety of tools to encourage
compliance with child support orders and ensure payments are
made, including income withholding, unemployment insurance
and workers' compensation benefits withholding, tax refund
offsets, state disability benefits, bank levies, property
liens, asset seizure, driver's license or professional
license suspension or revocation, passport denial, and civil
or criminal contempt charges.
The federal Office of Child Support Enforcement works with
the insurance industry to match insurance claimants (and
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beneficiaries) to child support obligors in order to help
states in the collection of child support. OCSE in 2008
began the Insurance Match Program with insurers, agents or
state agencies, receiving claim information and provides
matches to the state child support agency responsible to
collect the child support from the delinquent obligors. This
is a voluntary program for state child support agencies, the
insurance industry (including insurers and their agents),
state workers' compensation agencies, and the U.S.
Department of Labor. Each state processes the matches
according to its own laws and policy.
Currently, the federal program is matching individuals
delinquent in their child support obligations with 20 state
workers' compensation agencies, over 577 insurance companies
through the Insurance Services Office and the U.S.
Department of Labor. The types of insurance subject to the
program include annuity, disability, life insurance, auto
bodily injury liability, directors and officers liability,
errors and omissions liability, policy surrender, and
workers' compensation. By statute, insurers cannot be held
liable for participating in the match program.
Six states now require mandatory insurer
participation-Texas, Pennsylvania, New Jersey, Oklahoma,
Rhode Island and Massachusetts. In Rhode Island, any
insurance company making a settlement of any claim of $3,000
or more must look up the case on the Rhode Island Website to
determine if the non-custodial parent is on the list of
parents who owe past due support in the amount of $500 or
more. In Massachusetts, insurers must check the database
when they have a non-recurring insurance claim of $500 or
more. In Pennsylvania, overdue support is a lien by
operation of law. An insurer must obtain a lien report to
determine if child support arrears are owed prior to
distribution of any monetary award. Net proceeds of an award
must be more than $5,000 before any payment will be deducted
for a child support lien, unless a court has issued a
non-disbursement order to the insurer. Since 2009, Texas has
required all insurers to participate, including
self-insurers, and the failure to honor a lien or levy can
result in liability in an amount up to the amount of the
settlement but not to exceed the amount of the arrearage.
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The CDI in 2011 initiated a pilot project in cooperation
with the California Department of Child Support Services
asking California insurers to voluntarily agree to offset
insurance benefit payments against delinquent child support
obligations. According to the CDI, currently 309 out of
approximately 1,230 insurance companies participate.
3. Support According to the author, child support recipients
are not receiving the full amount of financial support they
are owed. The most recent census data revealed that on 43
percent of recipients received full payment. In California
alone, the total amount of unpaid child support is nearly
$18 billion.
According to the Insurance Commissioner, since 2011 the CDI
and DCSS have worked to help increase voluntary
participation of insurance companies to assist in collection
past-due child support, but only about one quarter of
insurance companies are currently involved. Through this
voluntary collaboration, approximately $17 million is
currently being collected annually in California. This
compares to Texas which made this program mandatory and
collected $463 million in fiscal year 2014. Requiring
insurance companies to participate in the Insurance Payment
Intercept Program would facilitate collection of overdue
child support and help improve the quality of life for
children in California. The Children's Advocacy Institute
support SB 585 because it will provide children with the
crucial monetary support needed to foster a healthy living
environment.
4. Opposition Several major insurance trade associations
oppose SB 585 as drafted. Among their concerns are that the
bill lacks detail on how turning a voluntary program into a
mandatory one will be effected and insurers have had no
meaningful input into the bill. They believe that SB 585 may
have the unintended consequence of disrupting the voluntary
participation of insurers who currently willingly
participate in the permissive federal program. In addition,
the mandatory nature of the program could cause significant
hardship to smaller companies. Some insurers have raised
the need for delayed implementation for six months to a year
to allow companies time to come into compliance with the new
mandatory requirement.
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The California Association of Joint Powers Authorities
(CAJPA) opposes the bill as introduced because it seeks to
intercept workers' compensation benefits paid to injured
workers for the purposes of child support. CAJPA opposes
transferring the monitoring of child support for
interception purposes from DCSS to insurance professionals,
third party administrators and self-insured employers and
firmly believes this is a responsibility of the state, not a
public and private sector business obligation.
5. Questions The bill as drafted does not include any claims
threshold amount triggering the duty to search the databases
for individuals owing past-due child support before issuing
payments. Should there be such a minimum claim amount?
The opposition to the bill by the insurance industry appears
to be based on the fact that they had no input into the
development of the bill, and that they want to
collaboratively develop amendments that allay insurance
industry concerns. Their letter offered no specifics or
possible amendments to the bill, however. The bill is
double-refered. The CDI has now had convesations with the
insurance industry and circulated draft amendments (too late
for this committee's deadline) that clarify the scope and
implementation of the child support claim match requirement,
and is still in the process of consulting with the insurance
industry to work out any additional concerns with the bill.
Should action on the bill be delayed or should it continue,
with the committee reserving the right to pull the bill back
if subsequent amendments do not resolve concerns with the
bill?
This is a major change in process for many insurance
companies. Should implementation of the bill be delayed
until July 1, 2016 to give companies additional time to come
into compliance with the new requirement? Also, the penalty
for non-compliance with this provision is the possible
suspension of a company's license to operate in the state
for up to one year-a very significant penalty. Should there
be a higher violation standard, such as a willful violation,
or at least a pattern of practice, for a company to be held
subject to such a penalty?
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POSITIONS
Support
California Department of Insurance (sponsor)
Children's Advocacy Institute
Oppose
Association of California Life and Health Insurance Companies
American Insurance Association
Association of California Insurance Companies
Pacific Association of Domestic Insurance Companies
Personal Insurance Federation of California
National Association of Mutual Insurance Companies
California Insurance Wholesalers Association
California Association of Joint Powers Authorities
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