A recent bill passed by both the House and Senate in Colorado would create a new fund called the Insurance Fraud Cash Fund. Having been introduced by the House, and then passed by the Senate with the addition of a technical amendment, the last hurdle before the bill is signed into law is House approval of the amendment. Lawmakers in Colorado do not anticipate the amendment holding up the bill.
Basically, the Fund is used to finance the investigation and subsequent prosecution that the state undertakes to punish and prevent insurance fraud. Under current law, insurance companies must pay an annual fee of $425, which is appropriated to the Division of Insurance to fund the investigation and prosecution of fraud. The recently proposed bill will increase the amount from $425 to $561 and modify the structure of the payments and the method of the funding.
Under the new bill, the annual fee will be directed straight into the Insurance Fraud Cash Fund. Additionally, the fee will no longer be fixed and will instead be set annually at a level determined by the attorney general. The amount of the fee will be set based on the amount of costs associated on an annual basis with the investigation and prosecution of insurance fraud. The total amount of revenue will also be high enough to create a three-month reserve in the Fund.
Colorado, like most states, has suffered from decreased revenues since the economy soured. Increasing the amount of the annual fee and setting it to be in direct proportion to costs will avoid a potential situation in which the Division of Insurance would not have sufficient funds to properly investigate and prosecute insurance fraud.
Besides choking off revenue streams, a poor economy also increases the instance of fraud among those hurting for money themselves. Insurance fraud in Colorado comes in many shapes and sizes. Persons holding automobile insurance may attempt to file a fraudulent insurance claim after intentionally setting up an accident or find a cooperating mechanic to file false claims in connection with damage to a vehicle. Those working in the medical field may also file false claims for medical procedures never actually performed. These are just a few examples of insurance fraud.
The lawmakers proposing this bill hope that increasing the fees will prevent the double-edged sword of a poor economy, when revenue dries up at the same time as fraud increases. Without proper investigation and prosecution, fraud will go unpunished and undeterred. The fear of being caught and prosecuted will prevent fraud and, in turn, keep insurance premiums at an appropriate level.