BILL ANALYSIS �
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