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Employer Fraud in Workers' Compensation

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Legislatures around the country (including ours in Wisconsin) seem to be preoccupied with employeefraud in workers' compensation, despite overwhelming evidence that employee fraud is virtually nonexistent.

Employer fraud, however, continues to plague the industry. Over the last decade, my friend and colleague Len Jernigan has published a Top 10 Workers' Comp Fraud Claims. The list from 2015 can be found at this link.

None of the Top Ten includes only an injured worker. The top six of the Top Ten stem from California claims. Others are from New York, Washington, Utah, and Massachusetts.

This year's dollar amounts were particularly substantial, with nearly $850 million in total frauds, the largest being a $580 million kickback scheme out of California. The California kickback scheme involved surgeons and the owner of a hospital. The other California claims included FedEx mislabeling their drivers as Independent Contractors in order to avoid insurance, and the owners of a translation service fraudulently billing the workers' compensation system. Additional mislabeling involved California truck drivers from Pacer Cartage, which owed over $2 million to seven truckers, due to unlawful payroll deductions and misclassifications as Independent Contractors.

The single case involving a worker is a professional football player from the New York Giants who colluded with a claims adjuster, providing fictitious invoices and statements for more than $1.5 million. The New York, Washington, and Utah claims also involved misclassification in which no workers' compensation insurance was paid for actual employees.

Another popular theme is the under-reporting of earners in order to be granted lower insurance premiums. That scheme was uncovered in Massachusetts, avoiding more than a half million dollars in insurance premiums.

The workers' compensation insurance industry has done a marvelous job in diverting attention from the real culprits (employers, medical providers, and insurers) to the very rare, but sometimes spectacular claims involving employee fraud. (A worker claiming permanent and total disability climbing around on rocks is far sexier than a financial officer mischaracterizing his employees in a closed office.)

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