Commerce Committee Report – week 8, 2018

SF 2305 – Establish workers’ compensation fraud unit;
HF 2175– Mezzanine loans in life insurance legal reserve. 



SF 2305 relates to workers’ compensation and insurance fraud. It creates a new Code chapter (507F) specifically for workers’ compensation fraud, codified following the existing insurance fraud Code chapter 507E. The bill establishes a workers’ compensation fraud unit in the Insurance Fraud Bureau of the Iowa Insurance Division (IID) to investigate and prosecute workers’ compensation fraud. Insurance Division investigators have the power and status of law enforcement officers. The bill specifies violations as either Class “D” felony or Class “C” felony depending on the severity of the fraud. Penalties and fines will be deposited in a new Criminal Penalty Fund. Fifty percent of the money in that fund will pay the salaries of the individuals in this newly-established fraud unit.

Opponents noted that the IID already has an active insurance fraud unit that investigates all types of fraud, including workers’ compensation. SF 2305 requires the unit to hire at least one full-time prosecuting attorney to prosecute all criminal actions brought under this chapter. In addition, a criminal intelligence analyst and six special investigators would be hired. The Legislative Fiscal Analysis also predicts that the Iowa Workers’ Compensation Division would need to hire two additional workers. If approved, the bill would cost more than $1.2 million to implement by FY20.

Opponents also noted that the language stacks the system against the employee, who likely would be hesitant to report a legitimate injury, depending on the initial diagnosis by the employer’s physician, who may reject a good-faith claim by the employee. The employee would then face concerns over the possibility of criminal prosecution and a lengthy process to resolve the issue before receiving any compensation. The legislation would take effect upon enactment.
[2/27: 28-22 (No: Democrats, Carlin, D. Johnson)]


HF 2175 (SF 2172) modifies the maximum value of a life insurance company’s or life insurance association’s investments in CM3 classified mezzanine loans as a percentage of its legal reserve. Iowa law allows companies to invest up to 3 percent of their legal reserve in mezzanine loans. Currently, no more than 2 percent can be invested in CM3 loans, requiring companies to invest in riskier CM4 mezzanine loans. The bill increases the cap on CM3 loans from 2 percent to 3 percent. The bill passed the House unanimously.
[2/26: 49-0 (Absent: Chelgren)]