Fakes and pains: How to stop worker comp fraud

Clandestine trucking, falsified documents and an accomplice chauffeur. All are evidence in real life workers’ compensation fraud cases in New Hampshire.

The stories of workers’ comp fraud can be brazen or just plain stupid. Some schemes are concocted by hardened criminals, others by generally honest people who commit serious errors in judgment. But all are illegal, contributing to what appears to be a multibillion-dollar-a-year problem. The American Insurance Association estimates workers’ comp fraud losses at $3 billion a year, while industry watchdog the National Insurance Crime Bureau nearly doubles it to $5 billion. Experts believe the difficulty with measuring fraud is that much of it goes undetected.

The MEMIC Group’s special investigation unit — manned by former law enforcement officers — works year-round digging up and turning over tips across the spectrum of claimant fraud. Crimes can range from “hard” fraud, such as collecting benefits for faked injuries, to “soft,” which includes everything from exaggerating an injury to collecting benefits longer than necessary.

Through the investigators’ work, we estimate that 3 to 5 percent of our wage replacement claims have some element of fraud. Without an effort to recover them, the associated benefits would have totaled more than $2.2 million a year.

We all pay

To better understand the crime, let’s look at a two real-life schemes.

During periods from 2004 to 2006, a Newport truck driver pocketed incapacity benefits for a knee injury while moonlighting at another job. His paperwork that denied working didn’t fool investigators who caught him on camera. Restitution is being pursued in court for the $14,000 in purloined compensation.

As a footnote to this fiction, not surprisingly, not-so-honest ways are often signs of other double-dealings. In the case of the trucker, he was also caught stealing oil from his first employer, which got him fired, and then duping the second employer by secretly using the company’s equipment to install satellites on the side.

The most popular scam by far is malingering on a claim. A classic example involves a Whitefield laborer who had a genuine head injury in 2003 but extended his claim for nearly three years by hoodwinking his doctor.

Besides being spotted under surveillance doing numerous activities incompatible with his injury, like shoveling, he also told his doctor that he couldn’t drive due to headaches and an eye condition. He had, in fact, driven two hours to the doctor’s appointment, stopping three miles short to pick up a friend who drove the remainder. This malingering bilked the system for $52,000 before getting caught.

If you’re an employer who after reading these accounts is ready to turn a suspicious eye toward every workers’ comp claim that crosses your desk — don’t. Most injury claims are legitimate. Instead, let these cases serve as a reminder to ramp up your fraud prevention program.

Faked injuries aren’t the only drain on the workers’ compensation system — employers and medical providers cheat, too. Premium fraud can be as simple as under-reporting payroll or misclassifying workers to a less risky category. Medical provider fraud ranges from kickbacks for referrals to dozens of creative billing techniques, such as charging for services not rendered or billing for a more expensive one.

The truth is, we all pay for insurance fraud. But it doesn’t need to flourish. Every one of us, whether employer or employee, can do our part to stop it. Not only does every ill-begotten benefit dollar add cost to our system, it also serves to undermine the plight of legitimately injured workers who deserve every payment. Perhaps that is the worst crime of all.

John Marr is senior vice president of claims for The MEMIC Group, which provides workers’ compensation insurance to employers in Maine, New Hampshire, Vermont and elsewhere around the Northeast.