There are several sources of fraud involving workers’ compensation insurance, which include the employer, the employee, the insurance provider, the insurance agent, medical providers and even attorneys. The focus of this newsletter is on the employee’s opportunity to commit fraud, otherwise known as claimant fraud. This type of fraud is addressed for three reasons; it occurs more often than the other types; it is one of the largest sources of irritation regarding workers’ compensation insurance; and it is the type of fraud that is best controlled by the employer.

Claimant fraud occurs more often for a simple reason – there are so many employees and each of them is unique. Some may be dishonest from the beginning. Others may be lead into dishonesty by peers, relatives or spouses. And others may be lead into dishonesty by economic pressures in their personal lives.

Whenever an individual perceives that he or she has been deceived, in this case an employer and the bill payer for workers’ compensation premiums, the accompanying feelings are strongly emotional because the event was personal. Overtime the result is a general suspicion regarding all occupational injuries and a general dislike of workers’ compensation insurance companies. This is unfortunate because only a minor number of employees ever commit workers’ compensation fraud, which means that most occupational injuries are valid. In addition, the negative opinion of workers’ compensation insurance companies may result in the employer denying access by the loss control consultants from that company. These are the very people who can help identify workplace hazards and recommend effective control measures to prevent occupational injuries. In effect, this stereotyping of employees and insurance providers complicates the problem.

Claimant fraud is best prevented by the employer. Others, such as the insurance provider, the medical provider and the state workers’ compensation agency, may become involved but the individual who has the greatest advantage for preventing claimant fraud is the employer. There are several methods of doing so; however, the six listed below are typically the most effective.

  1. Don’t let them get hurt. Identifying and controlling workplace hazards is the first step. Next, employees need to be properly trained, equipped and supervised to safely accomplish their jobs. By the way, this is what is referred to as a safety program.
  2. Investigate all injuries. This should be done for two reasons – to find out what happened to prevent its reoccurrence, and to determine if it really happened. When employees know that all injuries will be investigated, they are less likely to fake an injury.
  3. Surround yourself with good people. In other words, don’t hire substandard employees who may be likely to commit claimant fraud. This can be accomplished by applying due diligence hiring practices (formal applications, verification of references, criminal background checks, substance abuse screens, and even medical/physical determination if the applicant has the ability to perform the critical functions of the job). Subsequently, the workforce should be managed through supervision (counseling and performance appraisals).
  4. Educate the workforce. Inform them about the workers’ compensation process, which includes the costs to the company and the consequences of claimant fraud. Also brief them on the company policies and procedures regarding accident investigations, etc. This precludes confusion and misperceptions regarding the situation plus it subtly sends notice to substandard employees that fraud will not be tolerated.
  5. Communicate with your employees. This should be occur prior to any injury and definitely after any injury. Employees become experts at their jobs. Over time they know better than anyone else what and where the hazards are with their specific tasks. Listen to their comments and recommendations. You will be surprised how this improves your loss history (less number of injuries) and it improves the morale of the workforce. They will feel valued by the employer simply because the employer listened to them. If one of them does sustain an injury continue to communicate with that individual even if he or she can not immediately return to work. They will heal faster and be less likely to develop feelings of inadequacy, paranoia or even mistrust if you stay in touch with them. Of course, the individual who should do this is their immediate supervisor because employees have a closer personal relationship with their supervisor than they do with their employer.
  6. Bring them back to work. Primarily there are two expenses associated with a workers’ compensation claim. One is the cost of medical services. The other is payment to the employee for wages lost during that period of time when he could not work because of medical restriction. Most often the motivator for fraud is to remain off of work as long as possible and receive temporary benefits while supplementing that income by working on the side for someone else. To counter this the company should establish a policy (known as early return to work, modified duty, limited duty, restricted duty or even light duty) and ensure that all employees understand the policy (see point #4 above). This deters fraud because those who might be tempted to try this tactic will be required to return to work in accordance with the medical restriction, thus reducing the cost of the claim by reducing or eliminating the amount of lost wages paid or by causing that employee to refuse to return to work. This, by the way, is a refusal to work and in most companies that constitutes a valid reason for termination. If the employee is terminated because he refused work, then the lost wages expense of that claim will most likely also be terminated by the insurance company. In this process, the company has contained the cost of claimant fraud and purged the workforce of a substandard employee.

As previously stated, the employer is in the best position to prevent, identify and then control claimant fraud. This requires action, but so does the prevention of fire damage, theft, burglary and larceny. It’s a loss than can and should be controlled.