The Washington Division of Child Support (DCS) within the Department of Social and Health Services (DSHS) reported more than $2 billion in accumulated past-due child support at the end of 2019. This total includes years of past-due payments, much of which the state may never collect. These payments are owed to custodial parents to help pay for the financial responsibilities of raising a child, including the costs of food, clothing, medical care and education.
When non-custodial parents fall behind in paying child support, DCS can use multiple tools to collect the past-due amount. Options include garnishing wages, placing liens on real property, and withholding lottery winnings. It can also intercept insurance claim payments, but only if it is aware of the claims. This performance audit looked at whether requiring insurance companies to report eligible claims to DCS could increase collections. The increased collections would benefit custodial parents owed child support.
Some insurance companies operating in Washington participate in the state’s voluntary insurance intercept program. This audit shows that expanding the program by making it mandatory would be a small but meaningful step toward collecting more past-due child support for custodial parents. We estimate the likely increase in collections at between $1 million and $3 million a year. The amount represents just a small portion of the total past-due child support owed in Washington. Nonetheless, it would greatly benefit the hundreds of families who would receive the payments.
Washington has considered mandatory insurance intercepts in the past. It is time to take action and implement a mandatory program to help families. Twelve other states have mandatory insurance intercept programs that work. Washington should draw on the experiences of those states to craft and pass legislation that would make our state’s intercept program mandatory for all insurance companies that do business here.
DCS can use multiple tools to collect past-due money from non-custodial parents who fall behind in paying child support. This includes garnishing wages, placing liens on real property, and withholding lottery winnings. DCS also has a program to intercept insurance claim payments payouts to parents who owe child support. For example, a parent receiving an insurance payment following an automobile accident could have all or a portion of that payment diverted to fulfill an outstanding child support obligation. However, DCS can act only if it is aware of the claims.
This audit evaluated historic DCS insurance intercept collections. It also considered the rate of voluntary participation by insurance companies in the state’s insurance intercept program. The goal was to determine how much the state could increase collections of past-due child support by requiring participation in that program.
Not all insurers report eligible claims
Washington cannot collect child support from many eligible insurance claims because some insurance companies choose not to report them. For example, at least six of the top 10 auto liability insurers do not voluntarily report some or all of their Washington claims. These top 10 insurers made up more than 80 percent of the $3.6 billion auto liability market in 2018. This market includes very large national chains and smaller regional companies. Of the top 10 insurers, DCS and insurance stakeholders concluded that two companies voluntarily reported claims. Two others may voluntarily report some Washington claims. However, neither DCS nor insurance stakeholders could verify whether reported claims were from Washington or another state.
Mandatory reporting could increase collections
Mandating claim reporting by every insurer licensed to operate in Washington could help DCS almost double collections from intercepted insurance claims. If insurers reported just bodily injury claims, we estimated the annual gain at between 70 percent and 170 percent more from this increase in intercepted claims. This range is roughly between $1 million and $3 million in additional collections of past-due child support.
Furthermore, we developed another estimate of gains in collections using an approach used by the Child Support Lien Network. That estimate suggested the state could see an increase in collections of about $3 million within three years.
Bear in mind it can take up to three years to collect on an identified claim. Thus, the state would likely realize the full increase amount about three years after passage of a reporting requirement. We noted that the increased workload to process these additional collections may mean DCS needs more staff.
Other states’ experiences
The 12 states that already had a voluntary insurance intercept program, like Washington, reported increased collections after mandating reporting. These increases ranged from about 50 percent to almost 350 percent more than previous insurance intercept collection amounts. Some state’s results are comparable to the 70 percent to 170 percent increase in collections we estimated for Washington. For example:
Oregon reported a nearly 50 percent increase in collections from insurance intercepts in the first year after mandating its program in 2018.
Colorado reported its collections more than tripled within two years after passing its mandatory reporting law in 2017.
Furthermore, Washington could benefit from applying lessons learned from these other states when designing and implementing its own program. For example, our interviews revealed that child support agencies in other states worked closely with members of the insurance industry. By doing so in the early stages of program development, they more readily addressed industry concerns.
The audit report includes other practices Washington should consider, such as allowing insurance companies to use existing networks to report claims and including provisions that protect insurers from liability.
Build on existing program
Aside from the lessons gained from other states, Washington can build on successful elements of its existing voluntary program. In addition, previous efforts to develop legislative language for a mandatory insurance intercept program provide a starting point.
Initial attempts to develop a mandatory intercept program began more than five years ago. Renewed efforts and cooperation between DSHS, the Office of the Insurance Commissioner and insurance industry representatives have produced draft legislative language that could form the basis of a new bill. Two issues that may require additional discussion include:
How and when program details are put into statute and regulation
Details about insurer liability under a mandatory law
We recommended that the Legislature enact a new law requiring insurance companies that conduct business in Washington to participate in an insurance payment intercept program. We also recommended several provisions it should consider when drafting the legislation.