Topic:
HEALTH INSURANCE; INSURANCE (GENERAL); CRIMINAL LAW; FRAUD;
Location:
INSURANCE;

OLR Research Report


December 30, 2004

 

2005-R-0025

INSURANCE FRAUD

By: Janet L. Kaminski, Associate Legislative Attorney

You asked what the legal penalties are for insurance fraud.

SUMMARY

Insurance fraud is a crime under state and federal law. Under Connecticut law, “insurance fraud” is a Class D felony, which is punishable by a fine up to $5,000, up to five years in prison, or both. In addition, a person found guilty of “health insurance fraud” in Connecticut is subject to the monetary and imprisonment penalties for larceny, which vary based on the value of the loss involved. A number of federal laws against fraud permit criminal prosecution and civil lawsuits. Under the federal Health Insurance Portability and Accountability Act (HIPAA), “health care fraud” carries financial penalties and up to 10 years in prison, longer if a patient is injured or killed.

INSURANCE FRAUD

Fraud is made up of the following elements: (1) a person intentionally makes a false material statement of fact or conceals a material fact, (2) to deceive or mislead another with the expectation of receiving something of value, and (3) the other person relies on the false statement to his detriment.

Insurance fraud and attempts to combat it have grown substantially in the last 10 to 20 years. Virtually all lines of insurance are susceptible to fraud, including automobile, workers' compensation, property and casualty, life, disability, and health care. Insurance fraud can occur at many points in the insurance process (e.g., application, eligibility, rating, billing, claims) and can be committed by consumers, agents and brokers, insurance company employees, health care providers, and others.

Insurance fraud has a major financial impact. Estimates show that insurance fraud costs the average family over $1,800 in additional premium expense each year, according to the Connecticut Insurance Department's Insurance Fraud Unit. The department estimates the total cost of fraud to Connecticut's insurance consumers is as much as $1.9 billion annually.

FEDERAL FRAUD STATUTES

Numerous federal statutes make fraud illegal. Most of the laws summarized below are outlined in Health Care Fraud: An Introduction to Detection, Investigation, and Prevention, Health Insurance Association of America (2001).

Mail Fraud

A person who engages in a scheme to defraud any person that involves the use of the U.S. mail may be fined, imprisoned up to 20 years, or both. If the attempt to defraud affects a financial institution (e.g. bank or credit union), the person may be fined up to $1,000,000, imprisoned up to 30 years, or both (18 U.S.C. 1341). Mailing a fraudulent claim violates this statute.

Wire Fraud

A person who uses an interstate wire transmission (e.g., telephone, automated claim system) to carry out a fraudulent scheme may be fined, imprisoned up to 20 years, or both. If the attempt to defraud affects a financial institution (e.g., bank or credit union), the person may be fined up to $1,000,000, imprisoned up to 30 years, or both (18 U.S.C. 1343).

Health Care Fraud

The Health Insurance Portability and Accountability Act of 1996 (HIPAA) makes health care fraud a federal crime. Health care fraud occurs when anyone knowingly and willfully executes, or attempts to execute, a scheme to defraud any health care benefit program in connection with the delivery of or payment for health care benefits, or obtains any property of the health care benefit program by false representations. A person who violates the statute may be fined, imprisoned up to 10 years, or both. If the fraud results in injury to a patient, he may be imprisoned up to 20 years. If death results, he may be imprisoned for life (18 U.S.C. 1347). The statute applies to fraud against private insurance companies and government health care programs. It also applies to any insurance program involving medical payments (e.g., health insurance, automobile insurance, workers' compensation) (18 U.S.C. 24).

HIPAA also prohibits knowingly and willfully falsifying, concealing, or covering up a material fact; or making a false statement; or using or making any false or fraudulent document in connection with the delivery of or payment for health care benefits or services. A person who violates this law may be fined, imprisoned up to five years, or both (47 U.S.C. 1035).

Racketeer Influenced and Corrupt Organization Act (RICO)

Under RICO, criminal charges and civil lawsuits can be brought against a person engaged in a “pattern of racketeering activity.” Racketeering activity includes mail or wire fraud. Submitting a number of fraudulent insurance claims over a period of time would constitute a “pattern” of racketeering.

Criminal penalties include a fine, imprisonment up to 20 years (or more in certain circumstances), or both and forfeiture of any proceeds gained from the racketeering activity (18 U.S.C. 1693). Civil remedies include treble damages, meaning an insurer could collect punitive damages equal to three times their actual losses, and reasonable attorney fees (18 U.S.C. 1964).

False Claims

A person who knowingly presents a fraudulent claim to the U.S. government (e.g., Medicare) is fined between $5,000 and $10,000 plus treble damages (three times the government's losses) under the federal False Claims Act (31 U.S.C. 3729).

False Statements

A person who knowingly and willfully falsifies, conceals, or covers up a material fact; makes a false statement; or uses or makes a false or fraudulent statement to a government agency is fined, imprisoned up to five years, or both under the federal False Statements to a Government Agency law (18 U.S.C. 1001).

Anti-Kickback

The federal anti-kickback statute prohibits anyone from knowingly or willfully soliciting or receiving any remuneration (e.g., kick-back, bribe, rebate) in return for referrals for health care services paid under any federal health care program. A violation of this statute is a felony, subject to a fine up to $25,000, imprisonment up to five years, or both (42 U.S.C. 1320a-7b(b)).

STATE FRAUD STATUES

Most states have statutes regarding fraud and some specifically address insurance fraud. Insurance fraud statutes generally define what constitutes fraud and what penalties or damages may be imposed. Both the National Conference of Insurance Legislators (NCOIL) and the National Association of Insurance Commissioners (NAIC) have insurance fraud model acts. A copy of each is enclosed.

NCOIL's model act includes criminal penalties, restitution, administrative penalties, and civil remedies for insurance fraud. NAIC's model requires fraud warnings on insurance applications and claim forms, fraud reporting by insurers, the creation of fraud units within insurance departments, insurer anti-fraud initiatives, and penalties. While Connecticut has not adopted either of these models, it has made insurance fraud a crime.

Connecticut

Insurance Fraud. In Connecticut, a person is guilty of insurance fraud when, with the intent to injure, defraud, or deceive any insurance company, he knowingly presents false, incomplete, or misleading information in support of an insurance application, claim, or other benefit. The offense includes conspiracy. Insurance fraud is a class D felony, which subjects a person to a fine up to $5,000, up to five years imprisonment, or both (C.G.S. 53a-215).

Health Insurance Fraud. Connecticut requires a person, including an insurance company, who has knowledge or suspicion of health insurance fraud to notify the insurance commissioner. Any person who commits health insurance fraud, which is insurance fraud that is specific to health insurance, is subject to the state penalties for larceny, as shown in Table 1 (C.G.S. 53-440 to 53-445).

Table 1: Larceny Penalties

Larceny Degree

Property Involved

Classification

Penalty

First

Over $10,000

Class B felony

Up to 20 years prison;

up to $15,000 fine; or both

Second

Over $5,000

Class C felony

Up to 10 years prison;

up to $10,000 fine; or both

Third

Over $1,000

Class D felony

Up to 5 years prison;

up to $5,000 fine; or both

Fourth

Over $500

Class A misdemeanor

Up to 1 year prison;

up to $2,000 fine; or both

Fifth

Over $250

Class B misdemeanor

Up to 6 months prison;

up to $1,000 fine; or both

Sixth

$250 or less

Class C misdemeanor

Up to 3 months prison;

up to $500 fine; or both

(CGS 52a-122 to 53a-125b)

INSURANCE FRAUD UNIT

The Connecticut Insurance Department has an insurance fraud unit. Its mission, posted on the department's web site, is to 1) promote insurance fraud prevention, detection, and reporting through consumer outreach and education; 2) facilitate cooperation and communication among insurers, state and federal agencies, law enforcement, and insurance industry groups; 3) provide oversight of and assistance to insurer's anti-fraud programs; and 4) determine and report on the scope and patterns of insurance fraud in Connecticut. The department refers suspected fraud to the Chief State's Attorney's office, which investigates and prosecutes as appropriate.

JLK:ts