What is workers' comp fraud?
Fraud occurs when one party intentionally or knowingly deceives another party in a way that results in financial or other gain. When fraud occurs in the workers’ comp industry, it can happen in a few different ways.
There are typically four types of workers’ comp fraud:
- Employer fraud
- Employee fraud
- Healthcare provider fraud
- Insurance carrier fraud
Reasons for committing fraud can vary by group. To understand why someone might commit fraud, it helps to consider the potential motive behind the fraud. This evaluation can help auditors figure out how and why the fraud was committed and possibly help prevent it from happening in the future.
Employer workers’ comp fraud
Anyone who has run a business understands the need to cut costs. Keeping the company’s bottom line profitable can be a challenge. One common large expense is insurance. Workers’ comp insurance is mandatory in many states, so businesses are required to pay monthly premiums.
Unfortunately, this creates a substantial incentive to reduce insurance costs. One way a company may try to do this is by reducing the frequency and severity of workers’ comp claims that its employees submit. When a company has many insurance claims, its experience modification rate may increase, which means its premium could increase, too.
One way an employer might commit fraud in this way is by refusing to file accident or incident reports when employees become injured on the job. This is illegal and qualifies as workers’ comp fraud. This type of fraud prevents employees from receiving workers’ compensation for work-related injuries.
Employee workers’ comp fraud
Employees, on the other hand, have the opposite incentive. Because employees are the recipients of workers’ comp payments, they may have an incentive to exaggerate workers’ comp claims to receive larger payouts.
Fortunately, fraudulent workers’ comp claims made by employees are rare: only 1-2 percent of all claims are found to be fraudulent. However, when a fraudulent claim is made, the incentive for the employee is to make the injury or illness seem worse than it really is to receive a larger payout. Some injuries are invisible, such as emotional or mental stress, and could be hard to prove or disprove, even with testing.
Employee workers’ comp fraud is rare and can be difficult to perpetrate, as employers, insurance companies, and doctors must all be deceived for the fraud to work.
Healthcare provider fraud
The incentives behind healthcare provider workers’ comp fraud can be more complex. Many workers’ comp insurance companies require that the injured or ill employee see an “in-network” doctor. Because these doctors and other healthcare providers receive increased business due to this arrangement, there may be an incentive to protect the interests of the insurance company. This might be achieved by billing for services in fraudulent ways, such as lying about the completion of a procedure, double-billing for services, or doing unnecessary or irrelevant testing.
Anyone in the healthcare chain of employment can be held responsible for workers’ comp fraud, including nurses, pharmacists, and X-ray technicians.
Insurance carrier fraud
An insurance carrier is the one who handles the claims from the company. An insurance carrier may commit fraud by altering the claims in some way or suppressing evidence or other supporting material from the company. Theoretically, this would be done to prevent paying out compensation to injured or ill employees. Insurance companies have the largest financial stake in workers’ comp, since they are the ones paying out the compensation. However, they also have a very high level of visibility, and a competing large incentive to maintain good relationships with their policyholders and other businesses in the state. As such, insurance carriers stand to lose quite a lot if they were to commit workers’ comp fraud.
CompSource Mutual is a trusted partner among Oklahoma businesses. For over 85 years we have provided premier workers’ compensation and have been recognized for our superior service. In 2022, voted as Company of the Year by Big I Oklahoma, we are committed to providing world-class support to Oklahoma’s businesses and its people.
Why CompSource Mutual
Worker’s insurance is a critical component of starting or running any business. Our team is uniquely qualified to get you coverage that makes sense at a fair price. Get the support you need from Oklahoma’s long-standing workers’ compensation provider, we’re experienced with a wide range of businesses and industries across the state of Oklahoma. CompSource Mutual offers exclusive resources and a top-notch team to get you answers and coverage that make sense.
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What should a healthcare professional do if they suspect workers' comp fraud?
The healthcare provider should report the fraud to the state’s regulatory agency. Many states have a Department of Insurance or a similar regulatory organization, as well as a hotline to report problems or ask questions.
What is an example of employee workers' comp fraud?
Employee workers’ comp fraud can involve reporting an injury or illness that did not really occur while the employee was completing work-related duties. For example, an employee might suffer a minor head injury during a car accident on the way to work. It would be fraud if the employee reported the head injury as a work-related, on-the-clock injury.
Is disability fraud a type of workers' comp fraud?
Yes, it can be. If an employee claims workers’ comp disability payments when they do not really have a disability, that is considered a form of employee workers’ comp fraud.
Can a workers' comp disability rating be fraudulent?
It is possible for a healthcare provider to issue an intentionally inaccurate disability rating to an injured employee. This is considered healthcare provider workers’ comp fraud.
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