Workers Comp FraudThe New York Times article that I highlighted in yesterday's posting about the growing crisis in the workers compensation system contained the following paragraph describing some of the causes of the problem
Prices are escalating, government and industry officials said, because of rising medical and legal costs; a recent devastating price war by insurers; and, many insurers and business executives say, a significant amount of fraud.What kind of fraud you ask? Well, I'm pretty sure that the insurers and business executives are not talking about the most common and expensive type of workers compensation fraud: Employer fraud.
According to a 1998 article, "Fraud in the Workers' Compensation System: Origin and Magnitude"* by Dr. David Michaels, currently at George Washington University,
In states where the relative importance of worker and employer fraud can be compared, it is apparent that the magnitude of employer fraud greatly exceed that of worker fraud.And what is "employer fraud?"
It's avoiding insurance payments by underreporting payrolls, manipulating injury and claims data to show move favorable claims experience...and improperly using independent contractor status ...to avoid workers compensation insurance..But if employer fraud is so much more common and costly than worker fraud, why do we always seem to hear anecdotes and television stories about scandals involving workers, allegedly seriously injured on the job, filmed taking out the garbage? Sexier television or is there an ulterior motive? According to Michaels,
Employers and insurance carriers know that the campaigns against worker fraud rarely identify many actual cases of outright fraud, and they save little or no money In fact, they may lose money. Their primary purpose is not to save money. High profile campaigns that focus primarily on worker fraud are actually public relations campaigns to convince the public and legislators of the demonstrably false asssertion that the workers compensation system is rife with worker fraud. Once this occurs:The winners? Insurance carriers who don't have to pay claims, and employers who don't have their premiums raised. The losers? Workers and their families who bear the costs themselves; other workers, because the employer has even less incentive to make the workplace safe, and of course, taxpayers who ultimately end up paying the bills.
- The public and legislators become more accepting of "reforms" that significantly reduce benefits paid to disabled workers; and
- workers injured on the job become concerned that they will be stigmatized by neighbors and coworkers if they file legitimate compensation claims. To avoid this stigma, injured workers shift the medical costs of their claims to their group health insurance policies and pay the cost of lost wages themselves, through their accrued sick days and vacation leave, and continue to work while injured.
Last week I cited Lisa Cullen's article, "Safety Pays, Or Does It?" about how safety doesn't really pay for those who are able to work the system so that workers and society end up paying the real costs of unsafe workplaces.
Legislatures in many states will be seeking to "reform" the workers compensation system in the near future. And they'll be using worker fraud as an excuse. Print out this article and save it for the upcoming battles.
*Occupational Medicine: State of the Art Reviews, Vol 13, No.2, April-June 1998, Philadelphia, Hanley & Belfus, Inc.