While most property/casualty insurance claims are legitimate, the National Insurance Crime Bureau says studies indicate that 10 percent or more of all claims are fraudulent. Workers compensation insurance fraud is not only illegal, but the Coalition Against Insurance Fraud says it also costs businesses billions of dollars each year and can lead to higher insurance premiums for policyholders.
There are three main types of workers compensation insurance fraud directly impacting the industry today: policy-related fraud, claims-related fraud, and medical provider fraud. To protect all stakeholders in the workers compensation insurance industry—including injured employees, policyholders, carriers, and others—it is essential to be aware of the different types of fraud and understand the best practices for mitigating occurrences.
Policy-related fraud occurs when a company misrepresents its business, thereby paying less workers compensation insurance premium than is rightfully owed. Companies can do this in a variety of ways, including:
• Under-reporting payroll: In this situation, a policyholder inaccurately reports its work staff to the insurance company. This can be done by representing employees as subcontractors or independent contractors rather than as actual company employees, or by paying employees off the books.
• Misclassifying employees: A misclassification of an employee is intended to result in a lower workers compensation premium for the policyholder. For instance, an employer may intentionally misclassify a high-risk employee, such as a construction worker, as a person with a lower relative risk, like an office clerk.
• Experience modification evasion: This occurs when a company with a greater-than-average loss history re-emerges as a new company on paper in an attempt to obtain a lower experience modification factor rating. In actuality, the company is unchanged in its ownership and operations, and still presents a greater-than-average risk.
Claims and premium audit professionals can help control occurrences of policy-related fraud by being aware of common ways it is committed and working with their respective fraud investigation units to explore suspicions of this type of fraud. To support these efforts, carriers should maintain detailed records of their interactions with policyholders, including all e-mail correspondences. Keeping this information on file can help prosecutors in a criminal case, if necessary.
Claims-related fraud occurs when an employee falsely states that an injury or illness occurred at work, or exaggerates an existing injury or illness in an attempt to gain a workers compensation insurance benefit. One or more of the following actions could constitute claim-related fraud:
• Submitting a false claim: This occurs when an employee submits a claim for an injury that never occurred or did not occur at work. Employees who intentionally injure themselves or stage an accident to collect medical or wage benefits also fall into this category.
• Working while collecting benefits: A claimant may commit fraud by simultaneously collecting workers compensation insurance wage replacement benefits and a salary from another job. For instance, a person may be collecting workers compensation benefits from one employer because he was injured on the job and supposedly unable to work, while at the same time actually working for another employer.
• Exaggerating a claim: A worker may attempt to collect more money or stay off the job for a longer period of time than necessary by exaggerating the severity of a legitimate work-related injury.
As a strategy for stopping fraud in its tracks, carriers should educate policyholders about the top red flags of claims-related fraud. Warning signs of claims-related fraud include reporting the claim first thing on a Monday morning, refusing treatment, or delaying reporting the claim without a reasonable explanation. Consider sharing anti-fraud materials such as posters or payroll stuffers with policyholders to help educate them and their employees about the potential consequences of committing fraud. Also, encourage them to routinely convey to their employees a zero-tolerance policy for workers compensation fraud in the workplace.
Medical Provider Fraud
Medical provider fraud is committed when a medical provider deliberately tries to profit off of the workers compensation system in ways that are unethical and illegal. Below are examples of medical provider related fraud:
• Over-treating a claimant: This occurs when a medical provider performs medically unnecessary services solely for the purpose of generating insurance payments. This can include falsifying a patient’s diagnosis to justify tests, surgeries, or other procedures that aren’t medically necessary.
• Submitting fraudulent bills: A provider might manipulate billing codes so insurance companies are billed for a more expensive service than the one provided.
• Accepting kickback schemes: In this situation, a medical provider accepts payment for referring a patient to a specific pharmacy or specialist. For example, a provider could prescribe a certain medication or send patients to a specific specialist, regardless of the patient’s injury. A high volume of workplace injury cases involving the same attorney may also be a sign of a kickback scheme.
To reduce medical provider fraud, carriers should pay attention to patterns in the billing codes that medical providers are using for workers compensation insurance cases. Carriers can also identify potentially problematic medical providers by reviewing records from multiple years and aggregating the data sets to identify trends and patterns that may suggest that an investigation should be triggered.
Suspicions of fraud, whether policy-related, claims-related, or medical provider-related in nature, should be reported immediately to the appropriate law enforcement authorities.
Whether committed by a policyholder, claimant, or medical provider, fraud is something that professionals in the insurance industry must work together to attack head on. Armed with the right information, carriers and other stakeholders in the industry can play a crucial role in identifying and preventing workers compensation fraud.