3 Types of Workers’ Comp Insurance Fraud and How to Prevent Them

Workers’ compensation insurance is a safety net for employees who are injured on the job, as well as for their employers. It pays for lost wages, medical expenses and other expenses and benefits incurred by an injured worker. Sometimes, however, unethical employers, workers and medical providers attempt to bilk the system. The National Insurance Crime Bureau estimates that one in 10 of all property/casualty insurance claims are fraudulent.

There are three main types of workers’ compensation insurance fraud:

• Policy-Related Fraud: Policy-related fraud occurs when a company intentionally manipulates or withholds information from its insurance company in an attempt to lower its premium payment. For example, it is fraudulent for a business to inaccurately report the size of its workforce, misclassify employees or re-emerge as a new company on paper in an attempt to obtain a lower experience modification factor rating—a factor that adjusts the premium based on claims history.
• Claim-Related Fraud: Claim-related fraud typically occurs when an employee falsely claims a work-related injury or illness in an attempt to gain a workers’ compensation insurance benefit. This type of fraud can be committed if an employee is injured outside of the workplace, but claims the injury occurred at work. It can also happen if an employee exaggerates the severity of an injury in order to receive a greater benefit.
• Medical Provider Fraud: Medical provider fraud is committed when a medical provider deliberately attempts to profit off the workers’ compensation system by unnecessarily performing services on a claimant solely to collect an insurance payment. Fraudulent billing and kickback schemes with pharmacies or medical specialists are other examples.

Any kind of workers’ compensation insurance fraud can adversely affect policyholders, legitimately injured employees and insurance carriers. There are important steps claims professionals can take to mitigate the occurrence of fraud.

Telltale Signs of Workers’ Compensation Fraud

One of the best ways claims professionals can help detect and address policy-related fraud is to be aware of and monitor for some common warning signs, such as whether employees’ reported injuries are inconsistent with their job titles or duties, or whether the business has frequently changed insurance carriers. While the presence of any one of these warning signs is not a guarantee that fraud is being committed, multiple warning signs should trigger a deeper investigation.

There are also 10 common red flags for claim-related fraud. Oftentimes, fraudulent claims are filed early in the week for an injury that supposedly happened late on a Friday afternoon. Other warning signs include a claimant who refuses a diagnostic procedure to confirm the nature or extent of an injury, or a claimant who is difficult to reach at home. While there is no silver bullet in identifying claim-related fraud, history shows that if two or more red flags are present, the situation probably warrants further review.

To stop medical provider fraud in its tracks, carriers should monitor patterns in the billing codes that medical providers use for workers’ compensation insurance claims. Potentially problematic medical providers can also be identified by reviewing records from past years and combining the data sets. Trends or patterns should be investigated further.

Any suspicion of fraud should be reported immediately to the appropriate law enforcement authorities.

All fraud, whether policy-related, claim-related or medical provider related in nature, is unethical, illegal and costly. By being able to recognize some of the telltale signs of fraud, claims professionals can help reduce the likelihood of it happening.

Samuel V. King is vice president, Fraud Investigations Department, for EMPLOYERS, America’s small business insurance specialist, which offers workers’ compensation insurance and services through Employers Insurance Company of Nevada, Employers Compensation Insurance Company, Employers Preferred Insurance Company, and Employers Assurance Company. Not all insurers do business in all jurisdictions. EMPLOYERS and America’s small business insurance specialist are registered trademarks of Employers Insurance Company of Nevada.