According to the National Insurance Crime Bureau, workers' compensation fraud is a $5 billion-a-year liability nationwide. And a recent report from the New York County Grand Jury proves that it continues to be a costly headache here in New York State.
The report cites a June 2013 Fiscal Policy Institute report, estimating that New York State and New York City lost over $420 million in 2011 due to 70,000 construction laborers being paid off-the-books or misclassified as independent contractors.
The largest part of that loss? Unpaid workers’ compensation premium – over $230 million worth. Another $100 million was due to healthcare costs shouldered by the taxpayer or paid through surcharges on employers’ health insurance.
According to the New York Insurance Association, fraud is rampant in the state’s workers’ compensation. And it comes in many forms:
- People who inflate or misrepresent a claim or submit a false claim
- People who get hurt in a leisure activity on Sunday and report it as a work-related accident on Monday
- Employers who misclassify their employees or payroll
- Healthcare providers who submit false medical reports or inflated bills
- Attorneys who solicit a person to file a false claim
- Insurance carriers who alter evidence to support a denial of benefits
This isn’t just your insurance company’s problem…
Workers’ compensation fraud can directly affect your business in a number of ways, including:
- Higher premiums
- Lost jobs
- Lost pay
- Lower profits
- Weakened market share
- An unfair disadvantage against companies illegally avoiding workers' comp insurance
- Lower employee morale
What’s being done to address the problem?
On the federal level, the Department of Labor’s Wage & Hour Division has been cracking down in recent years on the misclassification of workers as independent contractors instead of employees – a major source of workers' comp fraud.
On the state level, Cyrus Vance, New York County District Attorney, has called for increased penalties for job misclassification, reforms in the application and audit process, greater access to information for fraud investigators and prosecutors, and more education for employees and the community about the workers’ comp system. And New York employers and public officials are calling for insurance companies to conduct better audits of employers’ job classification practices.
What can your company do?
As an employer, you have a vital role in helping to prevent workers’ comp fraud. Here are some steps you can take to battle this drain on your bottom line:
- Gain your employees’ trust by creating a safe work environment
- Train supervisors and managers in fraud prevention
- Create a zero tolerance policy, making it clear that fraud will be prosecuted
- Thoroughly screen job applicants with reference, criminal, and background checks
- Require all employees to report workplace accidents immediately
- Thoroughly investigate all workplace accidents
- Advise your insurance company of any suspicious claims
- Provide a fraud hotline number for employees to confidentially report suspected fraud
- Stay apprised of your injured worker’s healthcare and status, and thoroughly review all medical billings
- Provide an effective return to work program to give workers an incentive to get back to work
In the end, workers’ comp fraud eats into your bottom line, hikes up your New York workers’ compensation insurance premiums, affects pay for current employees and the hiring of new employees, and costs your customers more in higher prices. It’s a losing proposition all the way around.
For more ways to fight workers' comp fraud and save money on premiums, talk to the New York workers’ compensation experts at BNC Insurance and Risk Advisors.
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