Workers’ compensation fraud is a crime that undermines the workers’ compensation system. This system was designed to pay injured workers medical bills and lost wages and protect employers from lawsuits. While only around 2% of workers’ compensation claims are fraudulent, they cost insurance companies an estimated $30 billion in annual payouts, leading to higher premiums.
Workers’ compensation scams permeate every segment of the workers’ comp insurance claims process, including stolen premiums, bogus claims, crooked doctors, and predatory lawyers. When workers’ comp fraud is not stopped, every business owner pays the price in higher premiums exposure to bigger claim payouts.
What Workers’ Compensation Fraud Is
Workers’ compensation fraud is the act of creating false statements to either get a higher payout as a claimant or to deny claims as either an employer or insurance provider. The National Insurance Crime Bureau (NICB) warns that no business is immune to the fraudulent claims that cause higher premiums for all.
Most workers’ comp insurance companies have special investigation units to identify potential fraud and determine if a crime has been committed. Every state has its own insurance laws with financial penalties and potential felony charges for fraud. If you suspect a workers’ compensation fraud scam is occurring, work with your insurance carrier to investigate the claim.
Most Common Workers’ Comp Fraud Scams
Common Workers’ Comp Fraud Types
What the Scammers Do
A worker makes false statements about an injury including faking or exaggerating claim.
An attorney overstates claims, conspiring with medical providers to increase payout.
Claims adjuster accepts bribes or tampers with evidence to influence claim acceptance.
An employer makes false statements on insurance application to reduce premiums.
A company discourages or harrasses claimant or provides false information regarding claims.
Provider overbills or refuses to render services to employers.
Penalties for committing fraud with workers’ compensation vary by state. Most states have levels of misdemeanor and felony charges prosecutors can pursue in workers’ comp fraud cases.
Here are some common penalties for workers’ compensation fraud cases by state:
- California: Charged as either misdemeanors or felonies with prison up to five years and felony fines up to $150,000 or double the amount of fraud (whichever is greater). Learn more about California Workers’ Comp Insurance.
- New York: Considered a Class E felony with prison time ranging from 1.5 to four years with forfeiture of all compensation. Learn more about New York Workers’ Comp Insurance.
- Virginia: Considered a Class 6 felony with fines up to $2,500 and prison time between one and five years. Learn more about Virginia Workers’ Comp Insurance.
- Colorado: Results in penalties up to $100,000 with up to 18 months in prison followed by a mandatory two-year probation period as a Class 5 felony. Learn more about Colorado Workers’ Comp Insurance.
- Maryland: Results in imprisonment up to five years with fines up to $5,000 for false statements by employers. False claimants could see up to 15 years in prison for a felony and three times the value of the claim or $10,000 (whichever is greater). Learn more about Maryland Workers’ Comp Insurance.
Claimant Workers’ Compensation Fraud
Claimant workers’ comp fraud refers to an employee who makes a false or exaggerated claim to get benefits. This is the most common type of workers’ compensation fraud. The average claim receives $21,800 in benefits for the duration of the injury while 8% of workers comp claims receive between $60,000 and $100,000.
Claimant workers’ compensation fraud is often broken down into three categories:
- False claims: A worker makes a claim for an injury that never happened.
- Working while collecting benefits: An injured employee collects workers’ compensation benefits while finding work elsewhere and not reporting it.
- Exaggerated claim: An employee exaggerates small injuries, often with the aid of crooked doctors and attorneys, to increase the payout and length of the injury.
False and exaggerated claims are mitigated by good employer recordkeeping and insurance carrier investigations. Employers can also look for the warning signs that someone might be lying about an injury or a claim. Signs include odd claim timing, such as just after a vacation, or uncorroborated stories about injuries with no witnesses or conflicting testimony.
Attorney Workers’ Compensation Fraud
While there are great attorneys advocating for injured workers, there is a pool of attorneys soliciting and encouraging claims. They do this by talking to the injured worker and then arranging free consultations with a network of medical providers who inflate injury diagnosis to get bigger settlements.
Employers can mitigate attorney workers’ compensation fraud by encouraging workers to see their primary care physician after an incident. Most family doctors fall outside the scope of personal injury specialists who may be in the network of predatory attorneys. Getting employees to seek referrals from primary care physicians increases the chances of getting accurate diagnosis and medical treatment.
Adjuster Workers’ Compensation Fraud
Adjuster fraud refers to claims adjusters who prevent the truth about workers’ compensation injuries come to light. Adjusters might tamper with evidence or accept bribes to either deny or approve claims. This fraud can happen on either the employer or employee side. If you think an adjuster is crooked, request to speak with his supervisor. If you don’t get the answers you are looking for, report the adjuster to the state’s insurance commissioner for investigation.
Claims adjusters work for the insurance carrier and should be an objective party in reviewing the accident or incident details. The claims adjuster typically makes the final assessments regarding the case to determine final payouts and how long the injured worker is on workers’ compensation.
Premium Workers’ Compensation Fraud
Premium fraud is lying on your application about work classifications, payroll data, or claims to get a cheaper insurance premium. Workers’ compensation insurance is often one of the most expensive insurance policies that a business owner can purchase, and is required by law in most states. Giving false statements on a workers’ compensation insurance application can lead to a forfeiture of coverage and even felony charges.
While insurance companies compete for your business, they work together to fight fraud. If you have a history of claims, own up to it, set new safety standards at work, and talk to several carriers about better pricing. Small business owners may even consider working with a Professional Employer Organization (PEO) to find ways to save on workers’ compensation and other human resources benefits.
Employer Workers’ Compensation Fraud
Employer workers’ comp fraud cases involve managers or company leaders who knowingly avoid or deny claims for injured employees. While workers’ compensation laws were created to protect employees from employers unconcerned about work environment safety, there are still those who fraudulently prevent claims. Discouraging an employee from making a claim or falsifying employment records to reduce the wage payout is workers’ compensation fraud.
Business owners are responsible for the actions of their managers and should spend the time to properly train employees at all levels on how to appropriately address workplace accidents. Even though there may be many recordable incidents that never lead to a claim, how employers handle them minimizes the chance of fraud accusations.
Billing Workers’ Compensation Fraud
Billing workers’ compensation fraud can happen when a non-reputable provider either overbills for insurance or refuses to render services as required by the insurance contract. Working with national carriers that have a history of keeping their promise to cover claims is the best way for small business owners to avoid billing fraud.
7 Examples of Workers’ Comp Fraud Cases
Workers’ compensation fraud claims happen on all sides of the workers’ compensation spectrum. The following examples highlight how extensive some workers’ comp fraud scams are and how much they end up costing companies. Of course, not all crazy claims are fraudulent; take a look at some examples of insane claims that were valid here.
1. Had a Stroke but Golf Stroke Was Fine
A Sun Coast, Florida, transit worker claimed workers’ compensation benefits for 10 years, collecting nearly $750,000 in disability funds. His initial injury was a slip-and-fall accident where his medical provider declared he was permanently and totally disabled.
The insurance company suspected something was wrong and sent an investigator to interview the man who spoke like a child with his wife, who claimed he had a stroke from the accident and regressed mentally. Further investigation captured the man driving, hunting, and regularly playing golf with no sign of disability (or handicap).
2. Phantom Patients With Phantom Pain
In Dallas, Texas, a network of pharmacies built a network of bribed doctors who were paid with free rent, cash, and cars to prescribe a pain cream to real and fake patients. The network was so pervasive that there were more than $158 million in false claims made with $82 million in pharmaceutical benefits paid to the pharmacies.
3. Shell Company for All the Claims
A Los Angeles, California, man created a shell company to obtain workers’ compensation insurance and file claims. The business owner actually had a real security business with nearly 2,700 employees and didn’t want to pay the premiums for that number. Instead, he opened a fake company and told the insurance company that he had 35 employees. Claims were run through the shell company, resulting in $10.1 million in lost premiums to the insurance carrier.
4. Selling Certificates of Insurance
A Florida woman took advantage of the growing construction industry in her area and the need for independent contractors to have proof of insurance when being hired. She fraudulently told the insurance company that she had 10 years of experience with five employees when she had no experience and no employees, creating a complete lie for policy eligibility and premium ratings.
She proceeded to sell more than 250 fake certificates of insurance to contractors who wanted to avoid workers’ compensation premiums. This scheme cost the insurance carriers nearly $2.1 million in workers’ compensation premium.
5. Nose Dive Claim With Skydiving Pictures
A California concrete cutter injured his left hand on the job supposedly so badly that he couldn’t use it. He claimed he couldn’t drive or return to work, and collected nearly $52,000 in disability payments before an investigator obtained pictures of the man not just going skydiving, but teaching it.
Pictures showed the man using his “injured” arm to grab and move gear, attach students to his tandem harness, and bring them down using both hands on the parachute pulleys.
6. Slip & Fall Facebook Fail
An Ohio woman filed a slip-and-fall claim at work to receive workers’ compensation claim benefits. However, she didn’t fall at work, but instead had the accident at a nearby gas station. Rather than keep things quiet, she posted the story on Facebook, where the Ohio Bureau of Workers’ Compensation was notified and proceeded to conduct a formal investigation.
7. Spanish Speakers Needing Spanish Translators
Two California siblings billed insurance companies more than $24.6 million in fraudulent charges for translation services they claimed to have provided to injured Latino workers. While the injured workers may have had actual injuries, they all sought attention from Spanish-speaking clinics where they didn’t need a translator to talk to the doctor or staff. The siblings billed for translation services never rendered, including billing $422,000 for one translator who was in prison when he was supposedly translating.
Warning Signs of Workers’ Comp Fraud Scams
Recognizing the signs of workers’ compensation fraud helps employers and insurance companies prevent billions in unwarranted claims payouts. Insurance companies have fraud investigators who employers (or workers concerned about employer practices) work with to look into suspicious claims.
The most common signs of workers’ comp fraud include:
- No witnesses to injuries
- Injuries to new employees
- Injuries during final days on the job
- Claims reported shortly after vacation
- Untimely accident reporting
- Claimant has been recently reprimanded
- Conflicting statements regarding cause
- Inconsistent billing of medical services
- Upcoming layoffs or impending strike
These special investigation units use private investigation techniques including interviews, video recordings, social media profile review, and even following claimants thought to be working while receiving workers’ compensation benefits.
“We had a situation of this that unfortunately stretched out for a very long time. The employee in question did one job with an employee with a legitimate workers’ comp case, and on the very next job she supposedly injured herself. None of what she said ever added up, and she ended up getting a lawyer and it was very long and drawn out. We sent (video) footage to her attorney and no one ever heard from her again—including her attorney. Unfortunately, there were still tons of medical bills, legal fees, and private investigators’ fees that ended up being charged against our account.”
– Laura Smith, Owner, All Star Cleaning Services
Employers should always mention any significant work scenarios such as new hires, impending layoffs, and potential strikes when reporting a claim. This isn’t to discourage the claim from being processed and should always be presented in factual form without the assumption of fraud. The insurance company will investigate if it feels anything is off about the claim.
Avoiding Workers’ Compensation Fraud
Good hiring practices, set safety standards, and regular employee training are great ways to reduce workers’ compensation fraud cases. Keeping fraud (and any claim history) down helps business owners reduce their annual workers’ compensation premiums. A safe work environment always reduces claims, and fewer claims reduce the potential for fraud.
Business owners should establish protocols for incident reporting, even when all that’s needed is a Band-Aid for a paper cut. Proper policies and procedures help maintain a high company and employee morale while also sending a message to potential fraudulent claimants that you are aware of the rules and aware of all employee incidents. This goes a long way to reduce fraudulent claims.
What Workers’ Compensation Covers
Workers’ compensation insurance is purchased by employers to cover the costs associated with an employee getting injured on the job. Covered claims often include bills for emergency response, medical care, rehabilitation programs, as well as lost wages for the injured employee. Every state but Texas requires most employers to maintain workers’ compensation insurance.
The Occupational Safety and Health Administration (OSHA) found that U.S. employers pay nearly $1 billion every week in workers’ compensation claims benefits. Any claim can raise a small business’ workers’ comp premiums, so avoiding fraud is essential for controlling costs. Employers concerned with how internal claims affect overall premiums for the company can use OSHA’s “$afety Pays” calculator to estimate the real costs of workers’ comp claims.
Employer Reporting Compliance
Following OSHA and state rules for claims reporting and recordkeeping can help protect employers from workers’ compensation fraud. While every state has different timelines for reporting incidents, all seem to align with the notion of immediately or as soon as possible. Even incidents that don’t result in a claim should be reported and recorded in employee files in the event a claim arises later.
Common recordable incidents per OSHA’s standards include:
- Death, any loss of consciousness, or diagnosis of severe illness or injury
- Injury resulting in one or more days away from work, a job transfer, or restricted job duties
- Medical treatment beyond basic first-aid
- Potential sharps, contaminations, or blood infections
- Any medical removal per OSHA health standards rules
- Occupational hearing loss
- Tuberculosis infection
- Any hospitalization
- Amputations or eye loss
Documentation can help you establish the accuracy of workers’ comp claims, so you want to be consistent in your recordkeeping. Plus, all claims must have incident reports in the employer’s files. Employers and employees are not required to make a claim for every incident that happens. However, they should contact OSHA and work with their insurance carrier to open the claim. Failure to do say may result in fines and legal action.
No small business is immune to the potential of dealing with workers’ compensation fraud scams or other business insurance scams, for that matter. With that said, proactive employers who understand where and how fraud occurs can do a lot to avoid being exposed.