Workers' Compensation Fraud Prevention & Red Flags

Melanie Baird
Sr. Claims Advocate

Every year workplace injuries, illnesses and deaths cost our nation $170 billion according to OSHA. The National Insurance Crime Bureau estimates the cost of workers' compensation fraud as $7.5 billion annually.

Common frauds include "padding" or inflating actual claims; submitting claims for injuries or damage that never occurred, services never rendered; misrepresenting facts on an insurance application; and "staging" accidents.

The best way to confront the problem of insurance fraud is through prevention, investigation, and prosecution. Over the years, the insurance industry has identified actions by insureds or claimants that often point to fraud. These “red flags" do not prove fraud even when several of them are present in one claim. They do however, point to claims where the employer and adjuster should proceed with caution and consider further investigation into the validity of the claim.

Common “Red Flag” Indicators:

Personal Factors
Secondary gain motivation could be present if your employee has a negative home situation. A negative home culture where there might be a disabled spouse, an alcoholic or a recent family crisis (death, divorce, retirement, work lay-off, etc.) or other domestic difficulties can be a motivator for an employee to attempt to defraud an insurance company.

Financial Factors
If the compensation the employee is paid while on workers’ compensation disability is equal to or approximates their regular income, this could be a red flag. Most states have a set minimum and maximum disability income benefit amount. If your injured worker’s average weekly wage is less than the state minimum, they will be paid the minimum income benefit amount allowed by the state.

Is your employee nearing retirement age, receives or has applied for Social Security? As we get older, our financial situation is top of mind. If an employee is receiving workers’ compensation disability benefits, this can alleviate those concerns during the benefit period.

Does your employee believe he/she is entitled to a large settlement, obtains unnecessary legal counsel, and/or pursues third-party claims being processed concurrently (auto or general liability)? The rise of personal injury lawsuits increases motivation to secondary gain.

Medical Factors
Did your employee’s treating doctor estimate a lengthy recovery period, or does your employee have a negative attitude towards recovery? An injured worker who may be potentially defrauding the insurance carrier may frequently request for their physician to be changed if they are not getting the result they desire.

Is your employee excessively using narcotic medication being prescribed by the treating doctor? Prescription drug addiction is on the rise. Morphine (hydromorphone), methadone and Vicodin (hydrocodone) are examples of the most commonly prescribed narcotics. Development of a narcotic dependency doesn’t take long once usage begins. The user will also build a tolerance to them the longer they’re taken. The more tolerant to the drug, the greater risk of an overdose.

Employment Factors
Is the work your employee is required to perform arduous or heavy? Has your employee been on the job only a short time? A job or the income associated with a specific line of work may at first sound glamorous. For example, with the oil boom, there are many people attracted to jobs working for an oil company. They hear rumors of people making $30, $40, $50 or more per hour and want to gain that type of income for themselves. Once they start the job, they realize that the income may have been overstated and/or the work required is heavy lifting and takes more physical resources than they want to exert to make the income they heard about. Reporting a work-related injury is an easy way to get out of doing the work and still earning an income from the workers’ compensation policy.

Did your employee report their injury outside of company or state law guidelines? Late reporting of an injury many times can be combined with the employee stating bizarre symptoms; an employee stating the employer maintains unsafe work conditions; or, they may have other negative attitudes toward work or supervisors.

Sociological Factors
Media coverage or word-of-mouth about injuries a person suffered can spread fast among co-workers, relatives or acquaintances with prior or concurrent injury claims. When an employee learns about a claim experience from someone they know, they may be tempted to use the same injury for themselves.

Prevention Tips
Putting in place a solid claims reporting procedure and return-to-work program is the first step in prevention of fraudulent workers’ compensation claims. However, this will only be effective when combined with continuously educating your employees on company policy that fraud will be investigated and pursued, and disciplinary actions will be taken when internal policy is not followed.

For a review of your claims reporting and return-to-work program, or help establishing policies and procedures to limit the risk of fraud against your company, contact one of our Advisors at 888.687.6078 or:

Justin Crain, jcrain@gibraltarrisk.com
Jeff Anderson, janderson@gibraltarrisk.com