Self-Insured Businesses Deserve Equal Protection Against Fraud

Recently, State Senator Joseph A. Lagana introduced a bill to correct a gaping hole in New Jersey’s anti-fraud laws: the bill would allow self-insured entities to sue under the Insurance Fraud Prevention Act when they are victimized by insurance fraud.  As long-standing leaders in the fight against insurance fraud, Kennedy Vuernick fully supports this measure (Senate Bill S-3657).

Under current law, self-insured entities are unable to bring suit under the Insurance Fraud Prevention Act (IFPA), even though they are defrauded by phony claims just as insurance companies are.  This hole in the anti-fraud arsenal leaves millions of New Jersey residents almost defenseless, because their insurance plans cannot use the IFPA, the most powerful civil remedy against insurance fraud. The situation will only get worse as the prevalence of self-insured plans continues to increase

According to the Kaiser Family Foundation’s 2018 annual survey of health benefits, 56% of New Jersey’s population receives health insurance through employer-sponsored plans.  61% of those plans are self-funded.  Thus, over 3 million New Jersey citizens depend on self-insured plans for their health coverage.  The percentage of people covered by self-insured health plans has been steadily increasing over the past decade.

Self-insurance is not limited to health plans.  Many entities self-insure for liability and workers’ compensation as well.  Thus, self-insurance extends beyond the 3 million who are self-insured for health care.

It is commonly estimated that between 5% and 10% of all insurance claims are infected by fraud.  There is no reason to believe that fraud infects fewer claims under self-insured plans than under fully insured plans.  If there is any difference in the rate of fraud, one would expect fraud to be greater among self-insured plans, because those plans lack the dedicated special investigation units and other measures used by insurance companies to detect and combat fraud.

The IFPA is the most powerful civil remedy for insurance fraud available under New Jersey law.  It requires fewer elements of proof than a common law fraud action, and permits the recovery of treble damages, legal fees and costs, which are not generally available in common law fraud suits.

Because self-insured entities cannot bring suit under the IFPA, millions of New Jersey citizens are left without access to this remedy, and yet they and their plans are just as vulnerable to insurance fraud, and bear just as high a price due to that fraud, as those covered by fully insured plans.  This state has long had a public policy of aggressively confronting insurance fraud.  This public policy recognizes that every person who pays an insurance premium, and every business that provides insurance coverage, ultimately pays the price of insurance fraud. The businesses and the people of New Jersey would be well served by amending the IFPA to permit suits by self-insured entities.

Senator Lagana’s bill would amend the IFPA to correct this oversight, and allow self-insured entities to sue when they are defrauded, just as insurance companies now can.  This bill benefits the millions of New Jersey citizens and businesses that rely on self-insurance for their insurance coverage.  Kennedy Vuernick supports the Senator’s efforts to improve the law and commends his leadership on this important issue.