BILL ANALYSIS �
AB 2138
Page 1
ASSEMBLY THIRD READING
AB 2138 (Blumenfield)
As Introduced February 23, 2012
Majority vote
INSURANCE 13-0 APPROPRIATIONS 12-0
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|Ayes:|Solorio, Hagman, |Ayes:|Fuentes, Blumenfield, |
| |Bradford, Charles | |Bradford, Charles |
| |Calderon, Carter, Feuer, | |Calderon, Campos, Davis, |
| |Beth Gaines, Hayashi, | |Gatto, Ammiano, Hill, |
| |Miller, Olsen, Skinner, | |Lara, Mitchell, Solorio |
| |Torres, Wieckowski | | |
| | | | |
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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.
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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.
FISCAL EFFECT : According to the Assembly Appropriations
Committee, assuming regulations are promulgated to implement
this bill's provisions effective July 1, 2013, DOI would collect
an estimated $4 million in additional revenue in fiscal year
(FY) 2013-14 and ongoing. Local district attorneys will receive
approximately $2.9 million of this additional revenue, with the
remainder going to the DOI.
COMMENTS :
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.
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:
1)Dental Care
2)Billing Fraud Scheme
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3)Immunization Fraud
4)Unlawful Solicitation
5)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
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.
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.
Allocation of Revenues. When first established in 1991 by
Senate Bill 894 (Insurance, Banking and Corporations Committee),
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Chapter 1008, Statutes of 1991, the program required that 50% of
fraud fee revenues be distributed to district attorneys based on
the population of their county. In 2004, AB 1728 (Insurance
Committee), Chapter 599, Statutes of 2004, was enacted requiring
district attorneys to apply for funding and increased
accountability from funding recipients by:
1)Requiring district attorneys receiving funding to annually
provide an accounting for how the funding was used.
2)Requiring district attorneys to report on the success of each
case or project funded.
3)Permitting the Commissioner to audit the use of this funding
by district attorneys.
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% 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 grow as a fraction of gross
domestic product.
Analysis Prepared by : Paul Riches / INS. / (916) 319-2086
FN: 0003985