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Fraud

What is Fraud?

 

The stories of workers’ comp fraud range from daring to dumb. Some schemes are concocted by hardened criminals, others by generally honest people who commit serious errors in judgment. But all are illegal, contributing to what appears to be a multi-billion dollar a year problem. The American Insurance Association estimates workers’ comp fraud losses at $3 billion a year, while industry watchdog the National Insurance Crime Bureau nearly doubles it to $5 billion. Experts believe the difficulty with measuring fraud is that much of it goes undetected.

At MEMIC, our special investigation unit works year round tracking tips across the full spectrum of fraud. Crimes can range from “hard” fraud such as collecting benefits for faked injuries to “soft,” which can mean exaggerating an injury or staying on benefits longer than necessary. Through the investigators’ work, we estimate that 3 to 5 percent of our wage replacement claims have some element of fraud. Without an effort to recover them, the associated benefits would have totaled more than $2 million a year.

To better understand the crime, let’s look at a few real life schemes

  • During periods from 2000 to 2002, a lobsterman pocketed incapacity benefits for a back injury while he kept pulling lobster pots. Under oath, he later denied working or having a bank account. His concocted stories and falsely filed paperwork did little to con investigators who turned up evidence of pay stubs and secret bank accounts. In the end, his bilking backfired into $9,000 in penalties and likely jail time in the future.

 

  • In the late 1990s, a man started carpentering shortly after back surgery. He collected benefits for three years before an anonymous tip led to a crucial piece of evidence: a photograph of him carrying tools into condos renovated by his own hands. He spent 10 months in federal prison and was ordered to pay back $72,000.

 

  • The most popular scam by far is malingering on a claim. A classic example involves a construction worker who had a genuine ankle injury but extended his claim to over a year and cashed in on $32,000 by hoodwinking his doctor. He used crutches only during doctor and workers’ compensation board visits.

 

Types of fraud

If you're an employer who is ready to turn a suspicious eye toward every workers’ comp claim that crosses your desk—don’t. Most injury claims are legitimate. Instead, let these cases serve as a reminder to ramp up your fraud prevention program.

Claimants aren’t the only drain on the workers' compensation system—employers and medical providers cheat too. Premium fraud can be as simple as under-reporting payroll or misclassifying workers to a less risky category. Medical provider double-dealings range from kickbacks from referrals to dozens of creative billing techniques like charging for services not rendered or billing for a more expensive one.

The truth about cost
The truth is we all pay for insurance fraud. But it doesn't need to flourish. Every one of us, whether employer or employee, can do our part to stop it. Not only does every ill-begotten benefit dollar add cost to our system, it also serves to undermine the plight of legitimately injured workers who deserve every payment. Perhaps that is the worst crime of all.