BILL ANALYSIS �
SENATE INSURANCE COMMITTEE
Senator Ronald Calderon, Chair
AB 2138 (Blumenfield) Hearing Date: June 27, 2012
As Amended:June 18, 2012
Fiscal: Yes
Urgency: No
VOTES: Asm. Floor(05/29/12)71-02/Pass
Asm. Appr. (05/25/12)12-0/Pass
Asm. Ins. (04/18/12)13-0/Pass
SUMMARY: Would grant the Insurance Commissioner the authority
to raise the special purpose assessment that funds
investigations and prosecution of fraudulent disability
insurance claims up to 20 cents annually per insured.
DIGEST
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 loss due to health insurance fraud doing business in
California to pay an annual fee that does not exceed $0.10
per year for each insured in order to fund increased
investigation and prosecution of fraudulent disability
insurance claims;
3. Requires that 50% of those funds be distributed to the
Fraud Division of the Department of Insurance for enhanced
investigative efforts and that the other 50% be distributed
to local district attorneys for the investigation and
prosecution of disability insurance fraud cases, as
specified.
This bill
1. Would authorize the Commissioner to increase the fee to
AB 2138 (Blumenfield), Page 2
no more than $0.20 per year for each insured and would
require that 30% of those funds go to the Fraud Division of
the department and that 70% go to the local district
attorneys;
2. Would require the Commissioner to adopt regulations to
implement these provisions;
3. Would authorize an insurer to recoup this fee by way of
a surcharge on premiums or by including the fee within the
insurer's rates, as specified.
AB 2138 (Blumenfield), Page 3
COMMENTS
1. Purpose of the bill . According to the author, this bill
would add 10 cents to the current annual assessment of 10
cents paid by health and disability insurers today for each
insured under an insurance policy issued in the state. This
increase will principally go to local district attorneys and
also the California Department of Insurance (CDI) to support
workload increases related to investigating and prosecuting
health and disability fraud in the State.
2. Background and Discussion . According to CDI's website,
although there are no precise figures, it is believed that
fraudulent activities account for billions of dollars
annually in added health care costs nationally. Health care
fraud causes losses in premium dollars and increases health
care costs unnecessarily.
a. Disability and Healthcare Fraud Program. CDI also
states that from 2007 to 2010, it received complaints of
over 6,000 health and disability suspected fraudulent
claims statewide, with only a fraction of those claims
referred to the local district attorneys (DAs). The DAs
were only able to conduct 656 investigations, resulting
in 221 arrests, 184 convictions by local DAs, and an
annual average of $233 million in chargeable fraud. This
only represents a small portion of total fraudulent
activity currently being perpetuated within the state
because most cases go unreported to CDI. Due to limited
resources, CDI closes some claims and only a fraction of
those claims are turned over to the DAs for further
investigation and prosecution.
b. Disability and Healthcare Fraud Program. Insurance
Code section 1872.85 requires every admitted insurer that
sells disability and health insurance to contribute to
the Disability Insurance Fraud Account. The insurer pays
an annual fee, determined by the Insurance Commissioner,
up to 10 cents per each policy it issues. Half of the
fee collected is distributed to CDI's Fraud Division and
the other half to local district attorneys for
investigation and prosecution of fraud cases. According
to the author, the annual collection is estimated at
$4,080,000 annually with $2,040,000 allocated to CDI's
AB 2138 (Blumenfield), Page 4
Fraud Division and $2,040,000 to local district
attorneys.
c. SB 2138 Will Permit the Commissioner to Increase the
Fee and Shifts More Funds to DAs. This bill would allow
the Commissioner to increase the fee from the current 10
cents per policy to up to 20 cents per policy. The
author estimates that this will provide an increase of
$4,080,000 for both local district attorneys and CDI's
investigation and enforcement units, totaling $8,160,000.
It also shifts a greater share to the local district
attorneys, 30 percent to the Fraud Division and 70
percent to qualifying district attorneys.
d. Recoupment of Costs. Recent amendments also provide
that the insurer may, within the year the assessment is
paid, recoup these costs by way of a surcharge on the
premium as specified.
e. Potential Chaptering Problem with AB 1431. This
bill and AB 1431 (Accountability and Administrative
Review Committee) amends Section 1872.87 of the Insurance
Code. AB 1431 would eliminate a report requirement in
subdivision (c). The author has advised the Committee
that his office has contacted and will work with the
Assembly Accountability and Administrative Review
Committee to address this problem as both bills move
forward in the process.
1. Summary of Arguments in Support
a. CDI states that additional funding would provide local
assistance with the resources they need to increase
investigations, arrests, and convictions, as well as
extend their reach to other counties.
b. CDI believes that with the implementation of the
federal Patient Protection and Affordable Care Act, it is
crucial to ensure that district attorneys receive
additional funds necessary to aggressively investigate and
AB 2138 (Blumenfield), Page 5
prosecute disability and healthcare insurance fraud.
1. Summary of Arguments in Opposition
None received.
2. Prior and Related Legislation
a. AB 1401 (Aghazarian) (enacted as Chp. 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.
b. AB 1183 (Vargas) (enacted as Chp. 717, Statutes 2005)
extended the sunset date for fees imposed on insurers that
are used to fund consumer functions, DOI's Fraud Division,
and the Organized Automobile Fraud Activity Interdiction
Program; and allows DOI and the Department of Motor
Vehicles (DMV) to propose that up to $0.05 of the $0.10
fee levied against insurers be used for the purpose of
informing consumers about the existence of any low cost
automobile insurance program.
POSITIONS
Support
California Department of Insurance / Sponsor
California District Attorneys Association
California State Sheriffs
Valley Industry and Commerce Association
District Attorneys
Alameda County
Kern County
Monterey County
Orange County
Riverside County
Sacramento County
San Bernardino County
San Diego County
AB 2138 (Blumenfield), Page 6
Santa Clara County
San Diego County
Shasta County District
Yolo County
Opposition
None received.
Consultant: Hugh Slayden, (916) 651-4773