Workers' compensation fraud is a growing concern that costs employers and insurance companies billions of dollars annually. This form of fraud involves employees or employers making false claims to receive workers' compensation benefits, often exaggerating or fabricating injuries 9, 10.

Workers' compensation fraud takes three main forms: claim fraud, premium fraud, and provider fraud. 

Claim fraud involves employees falsely reporting injuries or illnesses to receive workers' compensation benefits. 

Premium fraud involves employers paying less than the required amount in workers' compensation premiums. 

Provider fraud involves third-party providers, such as doctors or therapists, overcharging for services or providing unnecessary treatments 3.

Identifying Potential Fraud

One of the key methods to identifying potential fraud is through the use of red flags. These include: 

• Injuries occurring just before a weekend or holiday 

• Conflicting descriptions of the acts that resulted in the injury 

• Employees with a history of injury claims 

• Employees who refuse medical treatment to determine the extent and severity of a workplace injury 9.

Another approach is using technology to identify potentially problematic claims. For instance, Klear.ai, a company that develops predictive analytics software, uses artificial intelligence to scan for potentially problematic claims. 

Its model’s algorithm lists more than 40 red flags that indicate potential fraud, including demographic and employment details, wages, number of claims filed in the past three years, and other behavioral markers 10.

Implementing Anti-Fraud Measures

To effectively combat workers' compensation fraud, employers can implement several measures.

 First, implementing written zero-tolerance policies can help reduce fraudulent claims. Second, pre-employment screening can help reduce problematic employees with histories of injury claims. Third, improving workplace safety can reduce both fraudulent claims and overall workplace injuries 9.

Having a clear policy regarding workers' compensation can also help prevent fraud. 

Employees should be made aware of the purpose of the program, its benefits, and its obligations. They should also understand how the program works and the company's zero-tolerance stance. 

Employees should also know how they can anonymously report their suspicions of fraud 12.

Promoting a fraud-free workplace can also help prevent fraudulent workers' compensation claims. This can be done through communication channels like emails, posters, and employee newsletters that highlight work comp fraud as a serious crime 12.

Penalties for Workers' Comp Fraud

The penalties for workers' compensation fraud can be severe. According to the National Insurance Crime Bureau, an individual can face up to five years in prison and a $250,000 fine for committing workers' compensation fraud. 

Additionally, the state may impose fines of up to $25,000 per violation for each day the violation continues 5.

Employers can also face significant penalties for workers' compensation fraud. For example, an employer who knowingly submits a false claim can face a maximum penalty of $1,000 per violation, plus civil penalties. 

If the employer has previously been convicted of workers' compensation fraud, the maximum penalty increases to $10,000 per violation 5.

The Role of Technology

Technology plays a vital role in combating workers' compensation fraud. Predictive analytics, machine learning algorithms, and data mining techniques can help identify patterns and anomalies that might suggest fraudulent activity. 

For example, Klear.ai uses artificial intelligence to scan for potentially problematic claims, listing more than 40 red flags that indicate potential fraud 10.

The use of biometric technology can also contribute to reducing fraud. Biometrics can be used to verify the identity of claimants, thereby reducing the risk of fraudulent claims. 

Additionally, geolocation technology can be used to track the location of claimants, helping to ensure that they are at home when they claim to be at work 14.

Additional Anti-Fraud Measures

In addition to the measures mentioned earlier, there are several other strategies that employers can implement to prevent workers' compensation fraud. 

Regular audits and reviews of workers' compensation policies, procedures, and records can help identify any irregularities or potential areas of vulnerability. This can help detect fraudulent activities and ensure compliance with regulations 1.

Fostering strong partnerships with insurance carriers, regulatory authorities, and law enforcement agencies can also be beneficial. Sharing information, collaborating on investigations, and participating in fraud prevention initiatives can help to combat workers' compensation fraud 1.

Establishing mechanisms to protect and encourage employees to report suspected fraud without fear of retaliation is another effective strategy. Clear channels for reporting should be provided and whistleblowers should be ensured of confidentiality 1.

Developing and enforcing comprehensive fraud prevention policies and a code of conduct that clearly defines expectations, ethical standards, and consequences for fraudulent activities can also help to deter fraud 1.

The Role of Anti-Fraud Staff

Many employers have an anti-fraud staff with extensive law enforcement and criminal fraud investigation experience. These professionals can save millions in fraudulent claims costs and reduce expenses, which can help lower the cost of workers’ compensation insurance 4.

Conclusion

Preventing workers' compensation fraud requires a comprehensive approach that includes: 

• Identifying potential fraud through red flags and utilizing technology

• Implementing anti-fraud measures, promoting a culture of honesty and transparency in the workplace 

• Providing thorough employee training 

• Investing in anti-fraud staff and resources

By taking these steps, employers can significantly reduce the likelihood of fraudulent workers' compensation claims, saving both themselves and their employees significant financial burdens.

To protect your business from the rising threat of workers' compensation fraud, consider getting workers' comp insurance with Deerfield Advisors. Contact us today to learn more about how we can help you safeguard your business.

References

1. The Warning Signs of Fraudulent Workers’ Compensation Claims - USRisk

2. Insurers mobilize to identify comp fraud in effort to stem rise in suspicious claims - Business Insurance

3. Prevent Workers' Compensation Fraud - Arrowhead Group

4. New Tactics to Watch in Workers' Comp Fraud Investigations - Risk and Insurance

5. Using Biometrics to Fight Fraud - Forbes

6. Preventing Workers’ Comp Fraud - All Voices

7. Workers’ Compensation Insurance Fraud Prevention - Employers