AN INTERESTING PERSPECTIVE

Which is more expensive, employer fraud or worker fraud?

That’s a question analyzed in an interesting piece written this week by Greg Jones, ace reporter for workcompcentral.com.

Jones’ piece is titled “Employer Fraud More Expensive, Claimants More Likely To Be Jailed”. Jones analyzes California Department of Insurance data during the first half of 2013.

In the CDI sample from 2013, fraud was said to have cost employers $8 million. Over 80% of that was employer fraud, to the tune of $6.7 million. Employer fraud included misclassification of employees, payroll misrepresentation, and failure to obtain workers’ comp insurance.

$1.3 million in losses was attributed to false claims filed by 67 individuals. Those are the types of claims that are occasionally featured on the 10 o’clock news.

Jones concludes from this data that “50 of 73 individuals convicted of filing a false claim since 2013 were sentenced to at least one day in jail. By contrast, only 35 of the 77 individuals convicted of premium fraud or failing to provide coverage were sentenced to jail.”

These sort of stats are interesting. Employer fraud appears to be more costly.

There’s no question that the occasional “bad apple” claimant creates cynicism about workers’ comp generally.

It would appear, however, that the criminal justice system may generally be dealing with claimant fraud in a more strict manner than it is with employer fraudsters.

The impact of premium fraud is huge. Here’s what I wrote about that in a blog post back in 2008:

“Think back a few years.

Many in the press and public believed that California workers’ comp was rife with worker fraud. The vision was fed by the occasional arrest shown on the 10 o’clock news. Or the story that doctor and attorney mills were feeding on each other, treating workers up the yin yang, ordering every expensive test possible. Billboards plastered over some major metropolitan areas didn’t help the perception.

But the perception has changed.

Now there’s still focus on employee fraud, but increasing concern about employer fraud.

Employer comp fraud is costing honest California employers and insurers huge amounts of money.

There’s a good chance your local car wash, dry cleaner and your favorite ethnic restaurant aren’t covering their employees. It’s that bad.

Until the legislature increases penalties for failing to maintain insurance,
enforcement raids seem to be key. But given the how endemic this problem appears to be (along with widespread other labor law violations), the state has a monumental task in educating employers, many of whom are ethnic minorities.”

But what I find more interesting is these CDI numbers seem to ignore what may be a very large problem.

That’s provider fraud.

And I’m not talking just run of the mill billing fraud.

Within the last several years we’ve seen high profile cases coming out of Southern California where interlocking referrals schemes between doctors, hospitals and providers are said to have resulted in implantation of phony spinal hardware and distribution of medications that resulted in a child’s death.

These cases have ensnared dozens of doctors and chiropractors who allegedly took economic incentives. As some of these schemes unravel, we’ll likely get a peek into other questionable practices.

CDI and SIU units at carriers need to stay focused on provider fraud.

Julius Young