The cost of insurance fraud including workers compensation, automobile, and home owners insurance is estimated at 80 billion dollars a year. That is enough money to pay the salaries of every CEO of America’s 500 largest companies for the next 16 years!
Insurance fraud is often broken down into two types, intentional fraud and exaggeration fraud. Intentional fraud, also known as hard fraud, is where a person makes a deliberate attempt to fake an insurance claim for the purpose of defrauding the insurance company. For example, a hotel maid is in debt and decides to fake a back injury accident without any witnesses in a hotel room to receive a workers compensation settlement.
Exaggeration fraud, also known as soft fraud, occurs when there is a legitimate insurance claim, but the claimant decides to increase the size of the claim. For example, a construction worker falls off a scaffold and injuries his knee. The worker decides since he is going to be off work anyway to tell the doctor and adjuster he also injured his back. The worker has had back problems for years, but now has a chance to get it taken care of and paid for by the insurance company.
The people who commit workers compensation fraud often think they are just taking money from the “big insurance company”. They do not realize that the insurance company money is collected in the form of insurance premiums from the employers. For the insurance company to stay in business, the cost of insurance fraud is passed from the insurance company to the employers. The more employers have to pay for workers comp premiums, the higher the cost of the product or service the employer produces. The higher premiums force employers to reduce the number of jobs available and reduce the other benefits they provide to the employees.
Dishonest employees are not the only ones committing workers compensation insurance fraud. Employers who underreport the size of their payroll or the number of employees for the purpose of lowering their workers comp premiums are committing fraud. Employers who misclassify workers (for example high-rise window washers who are classified as janitors) are also committing fraud.
Workers compensation fraud is also committed by organized rings of lawyers, doctors, chiropractors, physical therapists and other medical providers. The workers compensation claims they are involved in can be either intentional fraud or exaggeration fraud. The medical treatment is either not provided or is inflated to increase the insurance billing. The amount of permanent partial disability from the injury is overstated for the sole purpose of defrauding the insurance company.
Recently in the insurance news there have been a lot of articles about the run-away cost in workers compensation of prescriptions drugs and narcotics in particular. Prescription fraud is a part of the problem. Employees fake injury claims, and have frequent visits to the doctor, (especially to pain management clinics) not only for the purpose of collecting the indemnity benefits, but also to obtain prescriptions for OxyContin, Vicodin and other narcotics they can sell on the black market. The diversion of narcotics, both for street resale and for recreational use is one of the fastest growing areas of insurance fraud.
Employers should be ever vigilant against the possibility of workers compensation claim fraud. The most common indicators of fraud include (WCxKit)
- Several prior claims
- Accidents without witnesses
- Accidents where the only witness is a friend
- Witness(es) heard but did not see the accident
- Poor attendance record prior to the injury
- Disciplinary action prior to the injury
- Problems with co-workers
- Performing a task that is normally not a part of the job
- In a work area that the employee does not work at
- Upcoming layoff
- Recent termination
- Missed promotion or transfer
- Passed over for a pay raise
- Monday morning accident
- New employee
- Resist light duty work
- Complaints of injury out of proportion to actual injury
- Nature and/or extent of injury is increased after it is originally reported
- It should be noted that none of these indicators is proof of fraud. However, with any of these indicators it is prudent to investigate the workers comp claim thoroughly.
There are steps the employer can take to reduce the cost of workers compensation fraud. The employer who has a strong safety program reduces the scenarios an employee can use to create a fraudulent workers comp claim. A strong and well known return to work program with a transition duty job for every injured employee reduces the financial incentive for workers comp fraud. Any suspected fraudulent claim should be discussed with the claims adjuster and special investigative unit. Any case of proven fraud should be prosecuted to the maximum to prevent copycat claims.
Author Rebecca Shafer, JD, President of Amaxx Risk Solutions, Inc. is a national expert in the field of workers compensation. She is a writer, speaker, and publisher. Her expertise is working with employers to reduce workers compensation costs, and her clients include airlines, healthcare, printing/publishing, pharmaceuticals, retail, hospitality, and manufacturing. She is the author of the #1 selling book on cost containment, Workers Compensation Management Program: Reduce Costs 20% to 50%. Contact: RShafer@ReduceYourWorkersComp.com.
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