Report 2010-121 Summary - September 2011
Foster Family Home and Small Family Home Insurance Fund:
Expanding Its Coverage Will Increase Costs and the Department of Social Services Needs to Improve Its Management of the Insurance Fund
Our review of the Department of Social Services' (Social Services) administration of the Foster Family Home and Small Family Home Insurance Fund (insurance fund) identified the following:
- We surveyed foster parents running licensed homes and of those who responded:
- Nearly 90 percent were unaware of the insurance fund's existence, and the majority stated that they did not carry private insurance that might cover these same types of claims.
- Approximately a third reported that the possibility of liability claims against them made them less likely to continue as foster parents.
- Foster family homes that are certified by foster family agencies are currently not eligible for the insurance fund's coverage, but insuring them could cost the State a minimum of $967,500 each year.
- We were unable to determine the number of families participating in the Kinship Guardianship Assistance Payment (Kin GAP) program and thus were unable to survey those families and project the financial impact of adding them to the insurance fund.
- Social Services did not ensure claims were approved or rejected within the 180 day required time frame.
- The Department of General Services (General Services)—retained to manage the insurance fund's claims process—took between 182 and 415 days to approve or reject 16 of the 118 claims we reviewed.
- General Services did not consistently apply its policy of "procedurally rejecting" claims that it has not already approved or rejected by the 180 day deadline—one claim was rejected 210 days after the deadline.
- Social Services maintains an unnecessarily high reserve for the insurance fund because it has not obtained certain claims information nor has it established an appropriate methodology for determining the insurance fund's anticipated liabilities.
RESULTS IN BRIEF
In September 1986 the Legislature established the Foster Family Home and Small Family Home Insurance Fund (insurance fund) to pay, on behalf of foster family homes and small family homes, the claims of foster children, their parents, their guardians, or their guardians ad litem stemming from an accident that results in bodily injury or personal injury neither expected nor intended by the foster parent.1 Foster family homes and small family homes that are licensed (licensed homes) by the Department of Social Services (Social Services) or by a county under contract with Social Services are currently eligible for coverage from the insurance fund. However, almost 90 percent of the foster parents running licensed homes who responded to our survey were unaware of the insurance fund's existence, and the majority stated that they did not carry private insurance that might cover these same types of claims. In addition, approximately a third of these foster parents reported that the possibility of liability claims against them made them less likely to continue as foster parents in the future.
The Joint Legislative Audit Committee (audit committee) was interested in determining the feasibility of extending the insurance fund's coverage to foster family homes that are certified (certified homes) by foster family agencies (FFAs); FFAs are organizations that recruit, certify, and train foster family homes not licensed by the State. We surveyed the FFAs and found that most of the respondents currently maintain liability protection for themselves and their certified homes. Many of the FFAs obtained their coverage from either a specific nonprofit liability insurance provider or from excess and surplus line insurance carriers, which provide coverage for unusual or extraordinary risks. If the Legislature desires that the insurance fund expand its coverage to include the FFAs' certified homes, it will have to make statutory amendments to expressly permit the insurance fund to pay claims on behalf of certified homes. Our consultant estimated that expanding the insurance fund's coverage to the FFAs' certified homes could cost the State a minimum of $967,500 each year.2
The audit committee also expressed interest in extending the insurance fund's coverage to families participating in the Kinship Guardianship Assistance Payment (Kin GAP) program. The Kin GAP program provides financial assistance for children whom the courts place in legal guardianships with relatives. Children participating in the Kin GAP program are no longer foster children, and their legal guardians are not foster parents. Because of limitations in obtaining readily available and pertinent data, we were unable to determine the number of Kin GAP families. Consequently, we could not survey these families and project the financial impact of adding them to the insurance fund. However, to enable the insurance fund to cover legal guardians receiving Kin GAP payments, the Legislature will have to amend the pertinent statutes to expressly provide coverage for these guardians.
State law authorizes Social Services or its designated contract agency to process decisions and reports, to make claims payments, and to take other administrative actions for the insurance fund. According to Social Services, since October 1, 1986, it has entered into interagency agreements with the Department of General Services (General Services) to manage the insurance fund's claims process. However, Social Services did not ensure that General Services approved or rejected claims filed against the insurance fund within the 180 day time frame state law mandates. Specifically, General Services did not approve or reject within this deadline 16 of the 118 claims individuals filed between July 1, 2005, and December 31, 2010.3 In fact, it took General Services between 182 and 415 days to approve or reject these claims. This lack of timeliness was in part the result of inconsistencies in General Services' claims handling process. General Services has established a process it calls "procedural rejections" to ensure that it meets the 180 day deadline established by law. This process requires General Services to reject claims that it has not already approved or rejected by the statutory deadline, even if it has not completed its investigation to determine whether the fund is liable. General Services did not consistently apply this policy. In one case, General Services "procedurally rejected" a claim 210 days after the 180 day deadline, delaying the claimant's ability to seek judicial remedy through litigation.
Finally, Social Services failed to obtain key information from General Services, and as a result, Social Services has been unable to accurately project the insurance fund's budget needs. The interagency agreement between Social Services and General Services states that General Services must provide Social Services with quarterly reports that include claims and financial data. General Services has not provided that claims information. Social Services' failure to ensure that it received these data and to establish an appropriate methodology for determining the insurance fund's anticipated liabilities has resulted in Social Services maintaining an unnecessarily high reserve for the insurance fund. As of December 31, 2010, the insurance fund had a balance of roughly $5.4 million, which is significantly higher than the $1 million amount we estimate it needs to maintain as a reserve. If the Legislature expands the insurance fund's coverage to include certified homes and Kin GAP families, Social Services will need to reevaluate this reserve amount.
To mitigate foster parents' concerns about liability and to increase the likelihood that they will continue to serve as foster parents, Social Services should develop more effective methods to inform and remind licensed homes about the availability of the insurance fund.
If the Legislature desires that the insurance fund provide coverage to the FFAs' certified homes and Kin GAP families, it should amend the pertinent statutes to expand the insurance fund's coverage to include them. To comply with state law and improve the timeliness of claims processing, Social Services should ensure that General Services approves or rejects all claims within the mandated 180 day deadline.
To ensure the expedient disposition of claims, the Legislature should consider amending state law to expressly provide claimants the option of litigating against the insurance fund if General Services does not approve or reject their claims within the 180 day deadline described in state law.
To ensure that the insurance fund makes the most efficient use of the State's limited resources, Social Services should do the following:
- Ensure that General Services provides it with all the claims information specified in the interagency agreement.
- Use these claims and expenditure data to determine the annual appropriation amount needed for the insurance fund to meet its anticipated liabilities.
- Establish a written policy or procedures to guide staff on the appropriate methodology to use when calculating the insurance fund's anticipated liabilities.
- Establish an adequate reserve amount for the insurance fund and reevaluate it annually.
Social Services stated that, in general, it agrees with the findings and recommendations in our report. Social Services did not agree with our assessment that an adequate reserve for the insurance fund is $1 million. General Services agrees with our findings regarding its management of the insurance fund's claims process and stated that it has taken or is taking the appropriate actions to address the concerns we raised.
1 A guardian ad litem is a person who is appointed by the court to represent the interests of a minor child in a legal matter.
2 Our estimate of future claims and expenditure amounts is general in nature and should not be viewed as a specific projection. Our consultant based it on assumptions that are consistent with the available information and data, which are limited and incomplete.
3 We identified 126 claims filed against the insurance fund between July 1, 2005, and December 31, 2010. However, General Services did not have sufficient information for us to determine whether it timely processed eight claims.