Workers’ compensation pays out money in cases of workplace injury or illness. Since the payouts can be thousands of dollars, it’s all too common for workers’ comp fraud to be committed. Fraud can be executed by employers, employees, or healthcare providers. To prevent workers’ comp fraud in your company, you need to know what it is and the red flags to watch for.
Workers’ comp fraud is an attempt to benefit financially from a workers’ comp policy through falsifying information. There are two primary types of this fraud.
Claims-based workers’ comp fraud is where an employee files a false claim to receive benefits.
Policy-based workers’ comp fraud is when an employer misclassifies employees or falsifies payroll data to reduce premium payments.
According to the Coalition Against Insurance Fraud, workers’ comp fraud costs the United States about $25 billion annually. This statistic highlights how many fraud cases are prosecuted annually in the country, how much they cost, and the epidemic of insurance fraud in general.
Committing workers’ comp fraud is a felony, but workers’ comp fraud consequences vary by state. For example, if a person commits this fraud in California, they face up to five years in prison and a fine of $50,000 or double the cost of the fraud, whichever is greater. Other states have laws that call for the convicted to pay fines in the amount of the value of the fraud.
There are many different workers’ comp fraud cases that can be prosecuted. Healthcare personnel can commit workers’ comp fraud, but most cases are performed by either employers or employees.
The most common motivator for employees committing fraud is to gain a large sum of money. Some of the most common examples of employee workers’ comp fraud cases include the following:
For example, an employee may report being injured at work after lifting a heavy box. He files a workers’ comp claim and receives benefits through the claim. However, he was never truly injured.
Another example is an employee stating that chemical exposure at work caused her illness, so she filed a claim. However, her illness wasn’t caused by her workplace; it was an illness she got while off the clock.
Most employer fraud cases are committed by employers with a history of numerous workers’ compensation claims. These attempts are made to try to lower an increasing premium payment. The most common examples of these cases include the following:
Examples of employer fraud can vary by state because each state has its own guidelines for when workers’ comp insurance is required. Employers may lie about how many employees they have on payroll to either lower their insurance premiums or opt out of providing coverage entirely.
Another common example is an employer saying they have a complete safety program because they know it will give them credit toward their premium, yet they don’t have a program at all.
While less common, it’s worth mentioning the common types of healthcare fraud that can occur. Healthcare fraud is often committed by the hospital staff overbilling for a service provided or even billing for a service that was never done. Here are some common examples:
For example, a hospital surgeon may send a bill for a surgery that was never performed in hopes of getting reimbursed through the patient’s workers’ comp claim.
Another example is a worker in the billing department seeing that X-rays were performed on an injured worker, so she bills both the workers’ comp policy and the patient’s health insurance to put money in her pocket.
Knowing the red flags of potential workers’ comp fraud as an employer is essential. With how much these fraud cases are costing the country and employers annually, there’s always a chance that an employee may try to cheat the system.
There are some common red flags that you should investigate a claim more than you typically would. While these signs don’t confirm fraud is being committed on their own, they do signal a need for a diligent examination of the incident. Be aware of these red flags:
If you are concerned about potential employee fraud, it’s important to take the proper action steps to investigate immediately. Here are some ways to identify fraud if you have any concerns over an employee’s claim:
It’s also possible to accidentally commit fraud as an employer, which is why accurate and updated payroll information is so important. A workers’ compensation audit can reveal fraudulent reports or actions, costing your business penalties and fines, and may even cause your policy to be canceled.
Let’s say an employee has filed a workers’ comp claim, but something doesn’t seem right about the case. If you suspect the claim is falsified in any way, you must report it. Reporting fraud can help protect you and your business.
Report the suspected fraud to your state’s insurance fraud department. Provide the name and address of the person you’re reporting. Be sure to include as much information as you can about the incident. Explain exactly why you believe the employee has committed insurance fraud.
If you have any information about the employee that may be relevant, relay that information as well. Once you’ve made the report, your state’s agency will take over and investigate the claim.
Preventing workers’ comp fraud in your business should be a top priority. Many businesses won't be able to afford the cost of insurance fraud cases and penalties. The more filed claims, the higher your insurance premiums will go. This means it’s vital to ensure all cases filed are legitimate and provide safe working conditions for employees.
Some proven ways to prevent workers’ comp fraud in the workplace include the following steps:
Create strict disciplinary actions for employees who commit insurance
Ensure all employees know when and how to file a workers’ comp claim properly
Keep your payroll records up to date to ensure accuracy when sent to the insurance company
Seek legal counsel if you’re ever unclear about an employee’s classification status to prevent accidental misclassification
Look for previous fraud convictions in background checks performed on new or prospective hires
Encourage employees to report suspected workers’ comp fraud – having an anonymous report method may help
Preventing workers’ comp fraud and knowing the warning signs of it are crucial to your company’s success. Ensure you’re doing your part as the employer by providing correct and updated information to your insurance provider. Give employees the resources they need to work safely and report incidents when they occur.
To ensure your workers’ comp insurance coverage is what it should be, contact Kickstand Insurance for a free quote. Our team is ready to work with you and ensure you have a policy to pass all audits and keep your business safe against potential workers’ comp claims.
Note: The information provided in this blog is intended for general informational purposes only and is not a substitute for professional legal or insurance advice. Laws and regulations regarding workers' compensation insurance are complex and vary by state and by specific circumstances. Therefore, readers are encouraged to consult with a qualified legal or insurance professional to obtain advice with respect to any particular issue or problem they might have.
Mordechai Kamenetsky, co-founder and lead agent of Kickstand, is recognized as an expert in workers' compensation. He is passionate about helping small businesses manage risks and lower their workers' comp costs. In his articles, he educates readers and clients on the intricacies of workers' comp insurance.