Workers Compensation Fraud

How big is the problem? What exactly is the problem? Why is the problem important? What can be done to combat it?

The Griffith Insurance Education Foundation

Cost of Insurance Fraud

The amount of workers compensation claims paid out annually is $60.2 billion

The National Insurance Crime Bureau estimates that workers compensation fraud costs the insurance industry about 10 percent, or $6 billion each year

What is Included in That 10 Percent?

Fraud Clear and willful act Specifically proscribed by

law Obtaining money or value Attained under false

pretenses

Abuse Unclear as to whether claim was

fabricated (Legitimate injury followed by exaggerated claim)

May not have specific insurance fraud law

May be unclear whether worker or medical provider is instigating exaggeration

The Griffith Insurance Education Foundation

W.C. Claims and Fraud Convictions for Illinois in One Year

10 indictment8 fraud convictions

5000 claims dismissed by arbitrator

200-250K Claims

“Fraudulent Insurance Act” A “fraudulent insurance act” is defined as an act committed by anyone

who, knowingly and with intent, defrauds another person for gain. A fraudulent act includes claims fraud, application fraud and the legislation has a separate provision dealing with insurer fraud. Individuals who conspire, aid and/or abet a fraudulent act also are covered by the definition. Among the actions that fall under the fraudulent act is the preparation and presentation of false information affecting:

• the application for any insurance policy;• an insurance claim pursuant to any policy;• any payments made pursuant to any insurance policy.

-Section 2- Model Insurance Fraud Act

“No fault” System With Compensability Tied to “Arising out of and in the course of employment”

Caused by some hazard of employment? Activity related to work? Injury related to work? During expected work hours? On a premises where employer conducts

business?

Examples of Worker’s Compensation Fraud “Monday Morning Syndrome” (making work comp claim for

an injury that occurred over the weekend or outside of work) Working second job while on disability for work comp claim Claim made in anticipation of retirement or layoff Medical treatment abuse

Exaggeration, Physician overtreatment, RX abuse Employer premium fraud Agent/Insurer fraud

Work Comp Premium Fraud

Underreporting Payroll

Paying employees in cash Paying bonuses off the books Hiring employees as independent

contractors Paying employees on a nonwage

basis, such as a reduction in rent Logging payments to

subcontractors as supply purchases

Misclassifying Workers and Work

Leased employees Temporary workers Independent contractors Construction employees

performing several duties

How Does Workers’ Compensation Affect Business?

Production delays Retraining costs Equipment replacement costs Possible company relocation to another state Layoffs Raise or new-hire freezes Cutbacks in work hours Employer bankruptcy

Anti-Fraud Program Areas

Require Public Private Partnerships

Categories of Anti-Fraud Legislation Fraud defined as a specific crime for:

Claims fraud (49 states) Underwriting fraud (40 states) Insurer fraud (30 states)

Fraud classified as a felony (43 states) Fraud plan required (22 states) SIU required (15 states) Insurer annual report requirement (13 states) Mandatory reporting (43 states) Immunity for reporting fraud (49 states) Fraud warning requirement (31) (some in several languages) Fraud bureau (41 states)

http://www.insurancefraud.org/statutes

California

Labor Code - Section 5401.7 “Any person who makes or causes to be made

any knowingly false or fraudulent material statement or material misrepresentation for the purpose of obtaining or denying workers compensation benefits or payments is guilty of a felony.”

Voluntary on or with check for temporary disability benefits "Acceptance of employment with a different

employer that requires the performance of activities that you have stated that you cannot perform because of the injury for which you are receiving temporary disability benefits could constitute fraud and could result in criminal prosecution. If convicted, you could lose your rights to workers' compensation benefits and face imprisonment for up to five years and a fine of up to fifty thousand dollars ($50,000) or double the amount of the fraud, whichever is greater."

New York

Workers Compensation Law Section 132 (as amended in A. 11331, 1996) By endorsement of this check, the

payee, under penalty of fine and/or imprisonment, certifies entitlement to this payment for benefits or services, circumstances affecting such entitlement have not changed and no false statements or representations have been made in support of the claim for payment. False representations could result in civil and criminal penalties.

Examples of Fraud Warnings

Fraud Disclosure Requirements of Insurers

Insurers are required to disclose information about suspected insurance fraud to any court, law enforcement agency or insurance department

Law grants civil immunity to anyone who, in the absence of actual malice, furnishes information about insurance fraud.

Permits names and addresses of reporting individuals to remain confidential

Legislative Proposals for Workers Compensation Fraud

Burden of Proof- Employee should bear the burden of proof Intoxication- Denied if intoxicated Preferred Provider Networks- Treatment from participating network

providers Medical Fee Schedule- Reimbursement for procedures, treatments,

services, or supplies Utilization Review- Medical providers shall submit to utilization reviews Standards for Determining PPD- Licensed physician reports the level of

impairment in writing Fraud- Increased penalties for medical providers and uninsured

employers

Combating Fraud Requires Public Private Partnership

• Awareness- Government and industry efforts• Detection- Industry is in front line supported by

government• Deterrence- Government and industry• Prosecution – Government with help of industry

The Griffith Insurance Education Foundation

Trends and Issues to Watch

Cultural shifts in perception of fraud Organized crime ACA and its influence on workers compensation Use of new technologies in fighting fraud (and the

legal implications of their use)

Questions?

Jim Jones, CPCU, ARM, AIC

Executive Director

Katie School of Insurance

Illinois State University

James.jones@ILstu.edu

www.katieschool.org

The Griffith Insurance Education Foundation