Workers’ Comp Fraud: What is it and How Can You Prevent it?

What is Workers’ Comp Fraud?

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. 

Workers’ Comp Fraud Statistics

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. 

Workers’ Comp Fraud Examples

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. 

Employee Workers’ Comp Fraud

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:

• Filing a workers’ comp claim for an injury that never happened
• Filing a worker’s comp claim for an illness or injury that isn’t work-related
• Exaggerating the extent of a work-related injury or illness
• Misrepresenting their inability to work while receiving short-term disability benefits

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. 

Employer Workers’ Comp Fraud

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:

• Misclassifying employees as independent contractors instead of full-time employees
• Submitting false payroll data to the insurance provider
• Lying about having a safety program in place
• Failing to purchase workers’ comp insurance when the state requires it

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. 

Healthcare Workers’ Comp Fraud

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:

• A healthcare provider performed unnecessary testing or treatment on the injured worker to reap financial benefits
• A healthcare professional bills for services or treatments that were never performed
• A healthcare worker bills the workers’ compensation insurance and the workers’ health insurance for the same services in hopes of a double payment

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. 

Identifying Workers’ Comp Fraud

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:

• Delayed reporting without a legitimate reason
• Inconsistent descriptions of the incident or injury
• A lack of witnesses
• Monday morning claims or claims that come in after a holiday break or vacation
• An employee with a history of workers’ comp claims
• Evidence that the employee is engaging in off-the-job activities while claiming disability and an inability to return to work
• Employees who are uncooperative with the claims process
• Social media activity regarding the claim, especially when posts contradict what the employee claimed happened
• Exaggerated symptoms, pain levels, or limitations beyond what medical records show
• Inconsistent medical records

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:

• If the employee’s story does not add up or changes from one account to the next, this should be a red flag. Check with the employee’s supervisor to compare the account they received from the employee against the one on the insurance claim to identify any inconsistencies.
• If you have surveillance cameras in the area where the incident happened, review the footage to make sure it matches what the employee is claiming. 
• Speak to witnesses who were around when the incident occurred. If other team members or eyewitnesses give an account different from the injured employee's, this can be a red flag.

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.

What to do if you Suspect Workers’ Comp Fraud

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. 

Workers’ Comp Fraud Prevention

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
fraud

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

Conclusion

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.