Employee Fraud Least Costly Workers’ Comp Fraud

A recent poll on Claims Journal’s website ranked employee fraud as the top costliest fraud in workers’ compensation. Though stories of employee fraud are publicized frequently by state insurance departments, two other types of workers’ compensation fraud – employer and healthcare – cost the system much more.

Employee or claimant fraud in worker’s comp is pretty simple because the way the system works has not changed dramatically over the years, said Tim Riley, vice president of special prosecutions for Texas Mutual Insurance Company, the state’s main provider of workers’ compensation coverage.

“We’ve always seen the problem with the false claim, the individual who is feigning injury to extend out the benefits. The one you see most frequently is what we call double dipping, or the working and drawing. That still predominates what we see in claimant fraud. That’s people going back to work and not notifying us that they are going back to work and drawing benefits while they’re doing it. We have not seen significant changes in that type of fraud over the years,” said Riley.

While a down economy may spur more employer fraud, Riley found the opposite held true for claimant or employee fraud.

“I know there was a lot of talk about when we had the financial downturn really start to hit in 2008, there was a lot of speculation about would that raise the number of fraudulent claims. Of course there was the opposite, in an economic downturn people would be trying to protect their jobs, therefore you would not see anybody who would even want to think about filing a claim, even a legitimate claim, at a time when an employer was downsizing,” said Riley.

The insurer’s numbers didn’t show any significant change relating to that type of claim as far as drawing benefits and working or any change in the number of fraud cases found; despite speculation the down economy would raise the number of fraudulent claims.

“We have found in the six or eight years I’ve been here, we have consistently found about the same amount of fraud and claims fraud,” said Riley.

With claimant fraud there’s no real organized crime aspect because it would be too difficult to carry out and unlikely to generate much money, he said.

Low Dollar Amount

“This is fraud by individuals. It does tend to be your lowest dollar fraud from our perspective. That means maybe $2000, $3000. You’ll see it higher than that, but it’s not unusual to see a $2000, $3000 fraud. The issue with that, of course, becomes who is interested in prosecuting a fraud at those low numbers when you’ve got a busy prosecutor’s office,” said Riley, who indicated that as the biggest challenge facing insurers.

Because Texas Mutual is a state fund, the company has the benefit of a statute that allows it to cooperate with local prosecutors.

“We as a company don’t face that problem that other carriers may face. The biggest problem I think now people would agree with, is any time in a fraudulent claim situation, is proving that the individual knew that it was something that they needed to report to us,” said Riley.

Proof Required

Insurers need to provide proof that employees were on notice.

“Unfortunately, the forms that go out to them, the division mandated forms, really don’t isolate those particular things,” said Riley. “They’ll have general obligations on them and the notice ‘file a false claim and you can be prosecuted for it,’ but it’s hard to prove that those forms covered everything that needed to be covered and also that they read the form. They can simply say, “Yeah, I get these form from the government all the time, and I don’t read them.””

Texas Mutual has implemented a number of measures on prosecutor recommendations to make sure that it could show the individual clearly knew there were various things he or she needed to report.

“We include with every check, a tear off portion at the bottom of every check, a notice to them when they do receive a benefit check that specifically lays out their obligation to notify us when various things happen with respect to their employment and in regard to earning wages again,” said Riley. “We put that in to make sure that we can show every time that they’re receiving a check they’re receiving that notification. Our adjusters are also careful to give what we essentially call a fraud notice. It’s a warning to the individual. We are very clear to them what kinds of things need to be reported and if they’re not reporting that could be a violation of the law. The adjusters will read this notice to the individual, and we will have it recorded that they were specifically provided that notice. Those things go a long way in making the prosecution much easier. If you don’t do those things, you are going to hear from a prosecutor.”

The company, which tracks fraud cases, reported 196 instances of confirmed employee fraud in 2012, totaling an estimated $523,451. In the same year, Texas mutual discovered $2.7 million in premium fraud. The company, which also tracks healthcare provider fraud cases, said it saved an estimated $1.2 million as a result of investigations it conducted with approximately $560,000 in questionable bills denied. Many companies don’t release healthcare provider fraud statistics and none of the industry organizations contacted, the National Council on Compensation Insurance or the Insurance Information Institute, could provide dollar figures on the cost of this type of fraud. Though too early for the organization to release any statistics, the National Insurance Crime Bureau plans to research workers’ compensation healthcare fraud with its new Aggregated Medical Database.

Read about employer fraud in the summer issue of Claims Journal Magazine.