Calif. Injured Workers’ Advocates Request Audit of Insurers to Confirm Numbers

Advocates for injured workers have called for an audit of insurance companies to confirm whether they have reported and remitted all of the fraud assessments they collect from employers.

A recent report by California’s Auditor reportedly found that the Department of Industrial Relations (DIR) suspects that some insurers are pocketing millions of dollars in levies on employers that are supposed to be spent to fight fraud in the system. The attorneys for injured workers called for legal action against any insurers found to have pocketed fraud funds.

“Insurers are charging employers for anti-fraud efforts and are suspected by DIR of pocketing some of those funds, false claims about injured worker fraud,” said Art Azevedo, president of the California Applicants’ Attorneys Association (CAAA), whose members represent injured workers. “It’s outrageous that the governor has just cut billions of dollars from injured workers’ benefits because of alleged worker fraud. Yet there is no empirical data to support that claim. Thus, the workers’ compensation reform itself was based on a false claim. Meanwhile, insurers appear to be skimming millions of dollars from funds paid by employers to fight fraud. Yet that action goes uninvestigated and unpunished. The governor has blinders on when it comes to examining the fraudulent actions of his insurer friends. The State Auditor recently concluded that ‘no meaningful steps have been taken to measure the extent and nature of fraud in the system.”

Azevedo added, “Injured workers are targeted in 72% of fraud cases, yet 87% of those find no evidence of fraud. The insurance commissioner is relying on insurers and employers to generate fraud leads, and this contains an inherent bias against injured workers. It’s time to study actual fraud statistics and design a system that uncovers abuse by any party, rather than targeting injured workers based on myths and anecdotes.”

One program already exists to identify uninsured employers, yet the program is reportedly not fully funded.

According to CAAA, here is what we do know about workers’ comp fraud in California:

* Employee fraud accounts for less than one-half of one percent of claims filed.

The Department of Insurance and the fraud commission have no idea of the extent and nature of fraud, nor by whom the fraud is committed.
The Bureau of State Audits issued a report last month that was highly critical of the Fraud Bureau’s inattention to the need for some way to measure the nature and extend of fraud in the system, and lack of any coherent strategy to fight fraud. “Instead, the fraud commission, the insurance commissioner, and the fraud division rely primarily on anecdotal testimony from stakeholders in the workers’ compensation community, unscientific estimates, and descriptions of local cases involving fraud included in county district attorneys’ applications for antifraud program grants…”

* Employer fraud is “pandemic” according to the Riverside District Attorney’s Office.

Because unregulated insurers are gouging employers with sky-high premiums, many employers are breaking the law to avoid paying those premiums.

“The extent of this problem is pandemic,” [Riverside County Deputy District Attorney Paul] Fick said. “Thousands of companies in Riverside County either are operating without workers’ compensation insurance or are seriously cheating on their premiums.” Premium fraud is widespread in the construction industry, and ‘the smaller the company, the more likely there will be cheating in some way,’ [Fick] said. Fick estimated that as many as 60 percent of California’s roofers, who hold an especially risky profession, are not covered by workers’ compensation.” (Riverside Press Enterprise, Feb. 7, 2004)

The State Auditor reportedly cited not one case of applicant attorney fraud. Despite claims by the governor and other politicians and insurers that attorneys for injured workers have been scamming the system, not one case involving an applicants’ attorney was cited in the Auditor’s report.

“Those who attack attorneys for injured workers are in truth attacking injured workers. But if they admitted that, they would lose the political battle, so they focus on attorneys instead, making up allegations and using antipathy towards attorneys to cut injured workers’ benefits,” said Azevedo.

“Unjustified, unscientific estimates made by the insurance companies had previously shown up on the Department of Insurance Web site,” said Azevedo. “These inflated figures fueled the public’s belief that close to one-third of all claims were fraudulent. We are pleased that the Department has removed these unsubstantiated numbers from its website, but unfortunately many workers continue to experience the stigma associated with making a workers’ compensation claim.”

The Department of Insurance has released its own report of the activities of the Fraud Division for 2002-03. It reportedly concludes: “It is the intention of the Department that the foremost targets of fraud program resources should be medical provider fraud and employer premium fraud.” There were 174 premium fraud cases opened at the end of fiscal year 2002-03.

“Anti-fraud efforts should be concentrated on areas where fraud has a major impact on employers’ costs. Task forces should be created under the Attorney General’s office to coordinate investigation and prosecution of fraud by employers and providers,” added Azevedo.
“Impose penalties on and prosecute employers who refuse to get workers’ compensation insurance, understate their payroll or otherwise fail to meet their obligations.”