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May 20, 2009
Testimony of Sean Dilweg
Chairman Durbin, Ranking Member Graham, and Members of the Subcommittee on Crime and Drugs, thank you for the opportunity to testify today. My name is Sean Dilweg and I am the Commissioner of Insurance for the state of Wisconsin. I commend you and the Committee for taking the lead in examining fraudulent activity in the health care marketplace.
Health care consumers have in the past and continue today to be harmed by health care fraud and regulatory gaming. State insurance regulators have fought a decades long battle against fraudulent and near fraudulent health care plan schemes. Such schemes range from bogus health care plans that leave millions in unpaid claims to more sophisticated schemes designed to circumvent rating and other restrictions to protect less healthy, less fortunate consumers.
I applaud your efforts to study prevention of billing, provider and other fraud that increase the costs of health care delivery, including fraud affecting Medicare, Medicaid and private health plans. It is just as critical that federal legislative proposals include measures to prevent schemes designed to directly harm consumers. I urge you to make this issue your highest priority and advocate for health care reform that allows confidential coordination of inquiries and investigations among state and federal regulatory and law enforcement agencies, creates a coordinating council, and gives regulatory flexibility to adapt to the changing face of fraudulent and regulatory gaming schemes.
This Congressional session may be a turning point in the history of our country's health care financing system. Great care must be taken to ensure these proposals do not inadvertently expose consumers, our families and friends, to fraud, or leave them unprotected from unscrupulous schemes. Now is the time to enact measures that encourage communication and coordination among federal and state regulatory and law enforcement jurisdictions, as well as set firm boundaries in the law to prevent schemes that abuse consumers.
There have been other such turning points. The enactment of the federal Employee Retirement Income Security Act of 1974 (ERISA) is an example. The enactment of the Erlenborn amendment in 1983 to ERISA is another. The 1974 enactment of ERISA was a major step towards protecting workers against fraud and abuse in the private pension system. It also was the unintended door opener to fraudulent health care insurance schemes. After enactment of ERISA, unscrupulous and innovative operators set up multiple employer trusts to provide bogus health coverage. These operators used the cover of ERISA's preemption of state regulatory authority over insurance activity to set up such fraudulent health insurance plans. They relied on legal ambiguity, limited federal administrative agency flexibility, and gaps in communication, coordination and authority among federal and state law enforcement and regulatory agencies to run bogus health insurance scams.
After the Erlenborn amendment was enacted, health care insurance schemes became more diverse. They included operations that:
o Purported to "aggregate" small employers into a "self-funded" single large employer by "leasing" employees;
This history demonstrates that legislation to prevent criminal health schemes must be flexible and provide for coordinated enforcement and education measures.
The second and equally important lesson is that fraudulent health plans often evolve from schemes to gain windfall profits at the expense of the public by exploiting regulatory gaps. The history of fraudulent health plans demonstrates that it is not uncommon for regulatory avoidance schemes to convert to criminal enterprises.
1) Establish a privilege and a statutory structure for confidential coordination and exchange of information among federal agencies and states insurance regulators. The privilege and structure should safeguard the confidentiality of communications among states regulatory and law enforcement and/or with the federal government for the purpose of regulatory oversight and facilitating investigations and inquiries.
2) Provisions reaffirming state insurance regulators authority to protect consumers. The legislation should not include ERISA-like preemption provisions that provide cover for health coverage schemes or create regulatory gaps.
3) A provision enabling the federal administrating agency to issue regulations or orders establishing that a person engaged in the business of insurance is subject to the laws of the states regulating the business of insurance and to foreclosing the use of federal law, including ERISA, as cover for fraudulent health plan schemes or for schemes to exploit regulatory gaps.
4) Provisions establishing a coordinating body to focus on health insurance fraud schemes and schemes to exploit regulatory gaps. The coordinating body should include state and federal regulators and law enforcement including the U.S. Department of Labor, FBI, the U.S. Postal Inspector, the Department of Labor's Inspector General, the IRS, and the Department of Justice and the U.S. Department of Health and Human Services.
5) Criminal and civil penalties for operators, and those who assist operators, of a health plan that falsely represents itself as exempt from state insurance regulatory authority.
6) Provisions for adequate staff and funding for regulatory enforcement.
7) Provision for adequate staff and funding for an effective consumer education program.
Your committee is right to make health care fraud a priority. I urge you to continue your attention to this important and timely topic.