When employees file fraudulent workers compensation claims, not only are they stealing from the insurance company, but also stealing from their employer, the shareholders of the employer if a publicly held company, and from their co-workers. The fraudulent workers comp claim is included in the claim history used by the insurance company to set the premium rates for the employer. When the employer pays higher insurance cost due to fraud, there is less money available to invest in the company and to pay the wages and pay raises of the employees of the company.
Nearly 25% of workers comp claims involve some element of fraud or malingering, whether it is an outright false claim or inflation of an otherwise legitimate claim. The Coalition Against Insurance Fraud estimates workers compensation fraud cost employers $6 billion a year. The National Insurance Crime Bureau recently reported the number of suspicious or questionable claims has increased as the economy has deteriorated. In fact, workers comp fraud is the second largest category of white-collar fraud only behind income tax evasion. Every employer must be vigilant in protecting themselves from the dishonest employees who will attempt to exploit the workers comp claim system.
There are five common areas of employee workers comp fraud:
- The false injury. The employee claims a hurt back or neck or other muscle problems for the sole purpose of collecting indemnity benefits.
- The inflated injury. The employee receives a real job related injury but then tries to extend his/her time off work by pretending the injury is worse than it really is so s/he can collect indemnity benefits.
- The prior injury. The employee has a real back, shoulder or knee problem from years ago, but now needs additional medical treatment for it.
- The at-home injury. The employee gets hurt at home, working for someone else or participating in a sports event, and claims s/he got hurt on the job.
- The malinger. The employee got hurt, got well, but got use to staying home and does not want to come back to work.
There are several courses of action the employer can take to combat workers comp claim fraud. One of the most effective things an employer can do reduce workers comp claim fraud is to have a well publicized and well used transitional duty or light duty return to work program. While a return to work program will not prevent all fraudulent workers comp claims, it will stop many of them.
The dishonest employee who got hurt at home but does not have medical insurance, or has medical insurance with a high deductible, will still file the fraudulent claim that he got hurt at work. However, the dishonest employee who wants to take an extended paid vacation with workers comp indemnity benefits, or the dishonest employee who wants to work at another job while collecting workers comp benefits, will be stopped from doing so by a strong transitional duty program.
Steps to Prevent Workers’ Comp Fraud
In addition to a strong transitional duty program, there are various other steps the employer can take to fight fraudulent claims including:
- Do not hire employees of questionable character or background. Prior to any offer of employment, thoroughly check the references of the potential employee and their background information.
- If an employee refuses transitional duty work, or tries transitional duty work for an hour or two, or a day or two and then stops, make an immediate inquiry into what part of the transitional duty job can’t be done. Make arrangements to alter the transitional duty job to fit the complaints. If the employee still refuses the transitional duty work, ask the insurer’s claims office to consider surveillance on the employee to be sure the limitations away from work are the same as when at work.
- Keep an ear open to the rumor mill. Disgruntled employees are far more likely to file a fraudulent workers comp claim then happy employees. Address any legitimate grips or complaints of the employees.
- Train your supervisors and department managers to recognize the characteristics of claims frequently indicating fraud. Provide the supervisors and department managers with a copy of our blog on Employee Workers Compensation Fraud
- Make sure all new and current employees are aware of your fraud policy of prosecuting workers comp fraud as a criminal offense. (And back it up! If you have an employee who commits workers comp fraud be sure to fully prosecute. If you want to see the number of your workers comp claims skyrocket, feel sorry for the employee or his family and not prosecute an obviously fraudulent claim).
- Make sure all employees understand that fraudulent claims come out of the employer’s pocket and reduce the pay raises or bonuses for everyone.
- When you suspect a workers comp claim may be fraudulent or when you have rumors or evidence that a claim has an element of fraud, contact the workers comp insurer’s Special Investigative Unit. They have the expertise and the connections with law enforcement to properly investigate and build the necessary proof to prosecute the fraud.
- Make it a requirement that the claims handling office of the insurer or third party administrator files an Insurance Services Office index report on every new workers comp claim and does a claims inquiry every six months as long as a claim remains open.
- Do not make it easy for the employee to file a bogus claim by having a loose safety program. By removing safety hazards from the work place, the employee has fewer options in creating a false injury scenario.
- Remember many fraudulent claims start out with a real injury. When the employee sees the television commercial with somebody holding fists full of money their attorney got them for their workers comp injury, the employee may be tempted to exaggerate his/her own claim. Anytime an employee hires a television attorney, you cannot discuss the claim with the employee, but you can advise the employee of the company’s policy to fight all claims vigorously when an attorney is hired.
- Make it a practice to reward fraud tips. Have a publicized program of paying a reward to anyone who reports a workers comp fraud resulting in conviction.
Fighting fraudulent workers comp claims is not easy, but it is absolutely necessary to protect your company’s bottom line. Make fraud prevention a component of your integrated workers compensation program.
Author Michael Stack, CEO Amaxx LLC. He is an expert in workers compensation cost containment systems and helps employers reduce their work comp costs by 20% to 50%. He works as a consultant to large and mid-market clients, is co-author of Your Ultimate Guide To Mastering Workers Comp Costs, a comprehensive step-by-step manual of cost containment strategies based on hands-on field experience, and is founder & lead trainer of Amaxx Workers’ Comp Training Center. .
Workers’ Comp Roundup Blog: https://blog.reduceyourworkerscomp.com/
©2017 Amaxx LLC. All rights reserved under International Copyright Law.
Do not use this information without independent verification. All state laws vary. You should consult with your insurance broker, attorney, or qualified professional.