Widespread employee Workers’ Compensation fraud costs billions of dollars each year. Business owners can reduce risk by promoting safety management, creating zero-tolerance fraud policies, and working with insurance providers.
But fraud schemes aren’t limited to employees. Employers, medical providers, and others can also commit premium fraud. Here’s why that matters.
It Hurts the Economy
Workers’ compensation insurance helps employees pay medical bills and replace some of their lost wages if they become sick or injured at work. But workers’ compensation fraud undermines the system and hurts everyone. State authorities take this crime seriously and prosecute it, sometimes with prison time and stiff fines. In addition, a felony conviction can make it harder to find employment and housing in the future.
Some employers, employees, and even health care providers commit workers’ compensation fraud to reduce insurance premium costs illegally. These schemes might include falsely faking an injury, exaggerating the severity of a problem, or engaging in other types of deception. For example, a disgruntled employee reprimanded, fired, or recently laid off might make a false claim about an injury.
Another common type of fraud is “experience modification” evasion when an employer has many claims and gets a high experience modification (x-mod). To avoid paying the higher premiums, dishonest employers change companies or hide injuries from their current insurer, then buy a new policy with a lower x-mod.
Other schemes involve paying workers cash via an underground economy and failing to report that payroll to insurance companies. These unscrupulous businesses unfairly drive up costs for honest competitors and ultimately cause states to lose competitiveness in attracting and retaining business.
It Hurts the Insurance Industry
The most recognizable type of worker compensation fraud occurs when an employee makes up an injury or illness to collect benefits. This can cost insurance carriers millions of dollars each year, and it causes delays in verifying and investigating claims. It also undermines the system by taking money away from injured employees who deserve compensation for their losses.
While individual fraud is relatively easy to detect and investigate, larger schemes can be more challenging. This is especially true when it involves medical service providers willing to bilk the system for cash. For example, a ring of doctors, lawyers, and patient brokers in California was convicted of buying and selling patients and body parts like commodities for insurance and workers’ comp purposes.
In addition to healthcare providers, some employers are also guilty of workers’ comp fraud. They may falsify records or exaggerate symptoms to get lower premiums or avoid paying employment taxes. They may even misclassify employees as independent contractors to get cheaper workers’ compensation policies.
Whether an employer is trying to cheat the system by underreporting payroll or deceiving its insurer, these types of crimes result in high fines and even imprisonment for convicted business owners. Additionally, they can cause insurance rates to rise for everyone else as they spend more time and money vetting claims and investigating suspicious activity.
It Hurts the Legal System
In addition to hurting the economy and insurers, workers’ compensation fraud hurts the legal system. When an employee knowingly submits a false claim, they violate state law and could be charged with a felony. Likewise, employers and insurance companies who make false statements are also guilty of a felony and could face severe penalties.
Some employees are known for committing workers’ compensation fraud, including filing for workers’ comp for an injury or illness that occurred off the job, inflating injuries to get larger checks, and even faking a serious injury to stay at home longer. Other fraudulent activities include:
- Avoiding medical treatment.
- Taking leave from work while working a side business.
- Lying about payroll to receive lower premiums.
In addition to injured workers, insurance fraud includes doctors, attorneys, and healthcare providers who commit malpractice or pay kickbacks to patients in exchange for referrals. This type of insurance fraud is one of the main reasons why the federal government and state insurance departments take workers’ compensation fraud so seriously. If you suspect your employees are committing workers’ compensation fraud, consider speaking to coworkers and witnesses to see if the story rings true. You should also inform your employees on the workers’ compensation process and timelines so they know what to expect if they are injured on the job.
It Hurts the Public
Workers’ compensation insurance provides medical coverage and a small portion of lost wages for hurt or sick employees. This can provide vital help and support for those with a serious injury. However, fraud undermines the entire system and affects everyone, from the injured worker to the honest employers and providers.
The most common type of workers’ compensation fraud involves false injury claims. This is often committed by disgruntled or otherwise agitated employees who make up an injury or illness to get paid time off and benefits. Other types of fraud include exaggerated claims or falsely claiming that an employee is permanently disabled from a work-related injury or illness when they are not.
Premium fraud is another serious problem in the workers’ compensation system. Anyone can commit these scams, but employers and medical or insurance providers are the most common. Examples of this type of fraud include:
- Underreporting payroll to lower workers’ comp premiums.
- Submitting inaccurate or inflated billings for medical treatment or services.
- Charging workers’ compensation and health insurance for the same service (double billing).
A recent case in California involved a workers’ comp fraud ring that preyed on migrant farmworkers. The gang included doctors, lawyers, and patient brokers who treated patients like commodities and subjected them to unnecessary, painful procedures. The total cost of the ring’s fraud exceeded $200 million. This is a staggering number and illustrates the effect that these fraudsters can have on all parties.