Wednesday, October 15, 2014

It's Not That Hard

A lot of employers try to lower their workers' compensation costs by fudging the numbers on their payroll reports, or paying workers "under the table," or misclassifying their jobs.

Some employees take advantage of the no-fault design of the system to make claims that didn't occur, or inflate the severity of the claim.

And there are some people on the claims side that try to "meet the numbers" by denying, delaying and otherwise obfuscating claim realities and legal obligations.

But the penalties meted are different depending upon your place in the system and don't necessarily reflect the crime.

For instance, WorkCompCentral did an analysis of California Department of Insurance fraud statistics.

Between Jan. 1, 2013, and July 10, 150 individuals were convicted of defrauding workers' compensation carriers out of $8 million; $6.7 million, or 83.75%, came from 30 of the 77 convictions for premium fraud, such as misreporting payroll, classifying workers as independent contractors or operating without mandatory workers' compensation insurance.

The CDI data does not have an estimated loss for the remaining 47 of those convictions, but if extrapolated against the "known" losses, then the total for that time period is $17.5 million of losses attributable to employers.

$1.3 million out of that "known" $8 million is attributed to false claims filed by 67 of 73 individuals. Losses for the remaining six of those false claim cases were not included in the Insurance Department data, but again, if extrapolated then the total is only $1.4 million.

Yet 50 of 73 workers 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.
"Hmm, smells good..."
CDI data does not include information about claim payer fraud - that is the jurisdiction of the Department of Industrial Relations, Division of Workers' Compensation, through their audit department.

But in July, DWC fined five claims shops a total of $218,769 after 2012 audits found the offices had not paid at least $124,654.71 in benefits due to injured workers, as well as other violations. Overall, the division said its review of 64 claims shops in 2012 found unpaid indemnity benefits in 13.32% of the claims it reviewed, including $229,107 in unpaid temporary disability or salary-continuation benefits and $202,744 in unpaid permanent disability benefits.

Remember though that not every claim shop, indeed very few claims overall, get audited; and for the most part audits are not meted out evenly. Also, overall the the number of claims where unpaid benefits is likely less than 13.32%.

But if total claims (including medical only and indemnity) are one million per year, then there are some 132,000 cases where benefits are either not timely or not paid at all. Extrapolate the audit numbers and now the money gets significant.

And don't forget that the audit statistics don't include violations that are "forgiven" for one reason or another.

All of this "fraud talk" masks the issues.

In the ‘Real World’ it is injured workers having their bodies and their lives damaged. It is the employers paying for that and not understanding what is going on. It is the carriers and all the vendors ‘eating from the trough’ and not understanding what workers' compensation is really about.

It's not a give-away, but it's not supposed to be a difficult process either.

And when one really peels the skin from the onion we find that it isn’t that complicated or complex.

Pick up the phone and call the doctor, ‘What is the treatment plan?’ Call the adjuster and discuss what is ‘fair and reasonable’. Talk to the injured worker and discuss the options.

Talking to people doesn’t make it perfect – but it makes it a lot better. And ‘a lot better’ eases the pain for injured workers, helps employers understand, and cuts costs (a lot), and minimizes opportunities for fraud globally.

Work comp in California is predicted to be a $16 billion premium market next year (nearly 30% of the entire national market!), and by some measures is the most expensive workers' compensation state in the nation though middling in the delivery of benefits.

If system participants just communicate, more benefits would get to injured workers and cost employers a lot less.

And fraud on all sides of the equation would be reduced.

I know this is an ideal, dream world, pie-in-the-sky, utopian thought with all of our busy work schedules, demands, and "meet the numbers" requirements. But one step at a time, one claim at a time, and the detritus starts going away because scrutiny is the bane of the transgressor.


  1. David, fraud is not the only high cost in work comp, the lack of common sense I feel is costing work comp far more than fraud in the name of cost containment. Sometimes the high cost involved both, provider fraud and cost containment.

  2. Outstanding post once again, David. Communication should always be paramount when dealing with employees in all respects, WC claims included. IF we all took that extra step (compassion), the results would be staggering!