Workers Compensation Fraud  How big is the problem?  What exactly is the problem?  Why is the problem important?  What can be done to combat it? The Griffith Insurance Education Foundation

Cost of Insurance Fraud  The amount of workers compensation claims paid out annually is $60.2 billion  The National Insurance Crime Bureau estimates that workers compensation fraud costs the insurance industry about 10 percent, or $6 billion each year

What is Included in That 10 Percent? Fraud  Clear and willful act  Specifically proscribed by law  Obtaining money or value  Attained under false pretenses Abuse  Unclear as to whether claim was fabricated (Legitimate injury followed by exaggerated claim)  May not have specific insurance fraud law  May be unclear whether worker or medical provider is instigating exaggeration The Griffith Insurance Education Foundation

W.C. Claims and Fraud Convictions for Illinois in One Year 10 indictment 8 fraud convictions 5000 claims dismissed by arbitrator K Claims

“Fraudulent Insurance Act”  A “fraudulent insurance act” is defined as an act committed by anyone who, knowingly and with intent, defrauds another person for gain. A fraudulent act includes claims fraud, application fraud and the legislation has a separate provision dealing with insurer fraud. Individuals who conspire, aid and/or abet a fraudulent act also are covered by the definition. Among the actions that fall under the fraudulent act is the preparation and presentation of false information affecting:  the application for any insurance policy; an insurance claim pursuant to any policy; any payments made pursuant to any insurance policy. -Section 2- Model Insurance Fraud Act

“No fault” System With Compensability Tied to “Arising out of and in the course of employment”  Caused by some hazard of employment?  Activity related to work?  Injury related to work?  During expected work hours?  On a premises where employer conducts business?

Examples of Worker’s Compensation Fraud  “ Monday Morning Syndrome” (making work comp claim for an injury that occurred over the weekend or outside of work)  Working second job while on disability for work comp claim  Claim made in anticipation of retirement or layoff  Medical treatment abuse  Exaggeration, Physician overtreatment, RX abuse  Employer premium fraud  Agent/Insurer fraud

Work Comp Premium Fraud Underreporting Payroll  Paying employees in cash  Paying bonuses off the books  Hiring employees as independent contractors  Paying employees on a nonwage basis, such as a reduction in rent  Logging payments to subcontractors as supply purchases Misclassifying Workers and Work  Leased employees  Temporary workers  Independent contractors  Construction employees performing several duties

How Does Workers’ Compensation Affect Business?  Production delays  Retraining costs  Equipment replacement costs  Possible company relocation to another state  Layoffs  Raise or new-hire freezes  Cutbacks in work hours  Employer bankruptcy

Anti-Fraud Program Areas Require Public Private Partnerships

Categories of Anti-Fraud Legislation  Fraud defined as a specific crime for:  Claims fraud (49 states)  Underwriting fraud (40 states)  Insurer fraud (30 states)  Fraud classified as a felony (43 states)  Fraud plan required (22 states)  SIU required (15 states)  Insurer annual report requirement (13 states)  Mandatory reporting (43 states)  Immunity for reporting fraud (49 states)  Fraud warning requirement (31) (some in several languages)  Fraud bureau (41 states)

California Labor Code - Section  “Any person who makes or causes to be made any knowingly false or fraudulent material statement or material misrepresentation for the purpose of obtaining or denying workers compensation benefits or payments is guilty of a felony.” Voluntary on or with check for temporary disability benefits  "Acceptance of employment with a different employer that requires the performance of activities that you have stated that you cannot perform because of the injury for which you are receiving temporary disability benefits could constitute fraud and could result in criminal prosecution. If convicted, you could lose your rights to workers' compensation benefits and face imprisonment for up to five years and a fine of up to fifty thousand dollars ($50,000) or double the amount of the fraud, whichever is greater." New York Workers Compensation Law Section 132 (as amended in A , 1996)  By endorsement of this check, the payee, under penalty of fine and/or imprisonment, certifies entitlement to this payment for benefits or services, circumstances affecting such entitlement have not changed and no false statements or representations have been made in support of the claim for payment. False representations could result in civil and criminal penalties. Examples of Fraud Warnings

Fraud Disclosure Requirements of Insurers  Insurers are required to disclose information about suspected insurance fraud to any court, law enforcement agency or insurance department  Law grants civil immunity to anyone who, in the absence of actual malice, furnishes information about insurance fraud.  Permits names and addresses of reporting individuals to remain confidential

Legislative Proposals for Workers Compensation Fraud  Burden of Proof- Employee should bear the burden of proof  Intoxication- Denied if intoxicated  Preferred Provider Networks- Treatment from participating network providers  Medical Fee Schedule- Reimbursement for procedures, treatments, services, or supplies  Utilization Review- Medical providers shall submit to utilization reviews  Standards for Determining PPD- Licensed physician reports the level of impairment in writing  Fraud- Increased penalties for medical providers and uninsured employers

Combating Fraud Requires Public Private Partnership Awareness- Government and industry efforts Detection- Industry is in front line supported by government Deterrence- Government and industry Prosecution – Government with help of industry The Griffith Insurance Education Foundation

Trends and Issues to Watch  Cultural shifts in perception of fraud  Organized crime  ACA and its influence on workers compensation  Use of new technologies in fighting fraud (and the legal implications of their use)

Questions? Jim Jones, CPCU, ARM, AIC Executive Director Katie School of Insurance Illinois State University The Griffith Insurance Education Foundation