Easy methods to defend a small enterprise from employees’ compensation fraud

The Coalition Against Insurance Fraud (CAIF) and the National Insurance Crime Bureau (NICB) estimate that employee insurance fraud costs six to seven billion dollars annually. (Photo: Shutterstock)

Workers Comp insurance is designed to help cover a worker’s medical costs and lost wages if they are injured while at work. It is also designed to help protect employers from personal financial loss as a result of a workplace injury that occurs in their small businesses.

Of course, sometimes a service like Workers’ Comp can be used incorrectly. In some cases, these misuse can even be fraudulent. What happens if an employee, employer, or healthcare provider accidentally or intentionally commits an employee compensation fraud? How can small business owners ensure that employee coverage is used effectively and for the intended purpose?

Types of Employee Insurance Fraud

Employee insurance fraud typically falls into three main categories: It can be committed by employees, employers, or health care providers. There are many ways in which fraud can be committed. Here are some of the most common:

1. Employees can commit fraudulent fraud by making up a story about an injury, claiming an injury occurred at work instead of outside of work, or exaggerating the extent of a work-related injury.

Example: An employee reports that he injured his rear lift boxes in the warehouse – in reality, the injury was sustained while the employee was skiing over the weekend.

2. Employers can engage in policy-related fraud by incorrectly reporting employees as contractors, by inaccurately classifying their employees in a lower risk category, by lying about an occupational safety program or by insufficient coverage, if this is required by law.

Example: To save on premiums, an employer reports to an employee’s insurer that an employee (who actually does manual labor in a warehouse) works full-time at a desk.

3. Healthcare professionals can commit fraud against health care providers by providing unnecessary services to collect insurance payments, fraudulently billing services, or participating in kickback programs with other providers.

Example: A doctor’s office submits an invoice for an excessive amount in order to benefit from an injured employee’s accident at work.

The problem with the workers’ comp fraud

When a small business owner reports an injury to their employees’ comp insurer, that provider will investigate the claim. If the reported history, medical treatment, or deadlines appear incorrect, the provider may suspect fraud. It is everyone’s responsibility to ensure that workers’ comp claims are correct and free from tampering, including the insurer, medical staff and small business workers.

The Coalition Against Insurance Fraud (CAIF) and the National Insurance Crime Bureau (NICB) estimate that employee insurance fraud costs six to seven billion dollars annually. This type of white-collar crime can result in fines and prison sentences for fraudsters – and increased rewards or penalties for businesses. It is therefore important that small business owners and employers recognize the signs of employee fraud and take precautions to help protect their small business.

Preventing Comp Fraud By Workers

To reduce the risk of employee compensation fraud, small business owners can:

  • Learn about the physical demands and dangers of the job.
  • Educate staff on how to properly lift, pull and carry objects.
  • Training on work-related hazards, exposure risks and safety equipment.
  • Educate employees and new hires about a zero tolerance policy for false information.
  • Teach employees how employee compensation works and how to correctly report injuries.
  • Provide employees with a secure way to report suspicious employees.
  • Maintain and report accurate records of employee roles and numbers.

How to Report Employee Compensation Fraud

If a small business owner suspects that employee compensation fraud has been committed, they should write down the details of the incident and contact their state’s insurance department. Small business owners can also turn to an employee compensation attorney if they suspect an employee is committing employee compensation fraud.

Melissa Eaton is the vice president, customer success for Pie Insurance, responsible for defining and promoting the company’s customer success strategy initiatives. Pie Insurance is modernizing insurance for small businesses by automating the entire insurance experience.

A version of this article was originally published by Pie Insurance.


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