Workers’ Compensation Insurance Fraud 101
Workers’ compensation insurance fraud is illegal! Every year, billions of dollars are stolen in the U.S. due to fraudulent claims and misreported business information. While most claims are legitimate, studies indicate that 10% or more of all property/casualty insurance claims are fraudulent¹. Fraud can be separated into two categories:
1) Claim related fraud-committed by unscrupulous workers, medical providers, vendors, attorneys, employers and even insurance company personnel, and;
2) Policy related fraud-committed by policyholders and/or insurance agents. Sometimes, either party can be in collusion with doctors, attorneys, or other professionals.
Workers’ compensation insurance fraud may adversely affect a state’s workers’ compensation insurance rate system. This has a negative impact on the competitive business environment and can lead to higher premiums for all employers. Policy related fraud shares the same general adverse effects as claim related fraud, but also artificially reduces the premium paid to insurance carriers and commission paid to agents.
Here is a list of the four most common types of workers’ compensation fraud:
1. The exaggerated claim: Workers who initially sustain a legitimate injury, but exaggerate it’s severity in order to collect more money and stay off the job for a longer period of time.
2. Working while collecting benefits: The claimant states that he or she cannot or are not working to continue receiving workers’ compensation benefits while the individual is actually working at another job to simultaneously collect benefits and an additional salary.
3. The false claim: The injury either NEVER occurred, or was knowingly misrepresented as a work-related injury to collect medical and/or wage benefits. Staging an accident also falls into this category. This occurs when a worker intentionally injures him or herself to collect medical and/or wage benefits.
4. Fraud from the top: Businesses can also break the law through policy related fraud. The two most common types of policy related fraud are under reporting of payroll and employee misclassification.
Ranney Pageler, Vice President, Fraud Investigations Department of EMPLOYERS® puts it this way: “Numerous studies have demonstrated that workers’ compensation fraud costs the average consumer hundreds of dollars each year through increased insurance rates; a cost that is either passed on to consumers, or a business may reduce its expenses, which can include work force reductions. In my 24 years of investigating and obtaining the criminal prosecution of workers’ compensation fraud, I have never seen a study that indicates that workers’ compensation fraud reduces costs for consumers or improves the business environment.”
In order to help prevent fraudulent claims, it is important to be aware of the different types of workers’ compensation insurance fraud, as well as how to identify them.
Below are the top 10 warning signs of potential claim related fraud. Experience shows that when two or more of these factors are present in a workers’ compensation insurance claim, there is a chance the claim may be fraudulent. These are simply indicators, and many perfectly legitimate claims are filed on Mondays and sometimes have no witnesses.
> Monday Morning Reports: The alleged injury occurs first thing on Monday morning, or the injury occurs late on Friday afternoon but is not reported until Monday.
> Suspicious Providers: An employee’s medical providers or legal consultants have a history of handling suspicious claims, or the same doctors and lawyers are used by groups of claimants.
> Conflicting Descriptions: The employee’s description of the accident conflicts with the medical history or first report of injury.
> Treatment is Refused: The claimant refuses a diagnostic procedure to confirm the nature or extent of an injury.
> Claimant is Hard to Reach: The allegedly disabled claimant is hard to reach at home.
> Employment Change: The reported accident occurred immediately before or after a strike, job termination, layoff, end of a big project or at the conclusion of seasonal work.
> No Witnesses: There are no witnesses to the accident and the employee’s own description does not logically support the cause of injury.
> History of Claims: The claimant has a history of a number of suspicious or litigated claims.
> Late Reporting: The employee delays reporting the claim without a reasonable explanation.
> Changes: The claimant has a history of frequently changing physicians, changing addresses and numerous past employment changes.
Below are the top nine indicators of potential policy related fraud.
> Business address is a mail drop or P.O. Box.
> Business is physically located in another area of the state.
> Business avoids audit or has never been audited.
> Carrier drops the business or frequent change of carriers.
> Multiple claims made by injured workers but no payroll.
> Injuries are not consistent with purported job title or duties.
> License does not match business name or is in someone else’s name.
> Revoked or suspended license in the past.
> It is a purported new business, despite principals having been in business before.