The Real Cost of Workers' Comp Fraud

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CompClaims of legal blindness didn't stop one workers' compensation claimant from driving a golf cart. Another man with supposed injuries to his back, ankle, and heel was later seen pushing his stalled pickup truck. And one woman allegedly incapacitated by severe neck pain somehow managed to compete in a rodeo. Twice.

The problem with funny anecdotes like these is that they conceal real consequences for everyone.

Detective Paul Colbert, president and CEO of Meridian Investigative Group, has seen all these cases of workers' compensation fraud and more. Huge faceless insurance companies aren't the only victims in cases like these. According to Colbert, "Workers' comp fraud costs the average consumer about $900 a year through increased insurance rates, increased health care costs and revenue stolen from their employers, which reduces their paychecks and bonuses."

Big Talk and Funny Math

It's not surprising that the insurance industry and workers' compensation lawyers are sounding alarms about the high cost of workers' comp fraud. They're not exactly objective observers. But while worker compensation fraud does hurt us all, the pain may not be quite as big as these entities make it sound.

For historical reference, consider how the insurance industry reported the costs of fraud in the 1980s and 1990s:

  • A 1998 study cited the American Insurance Association's estimate of fraud at 10% of the cost of claims paid, or about $3 billion. The Coalition Against Insurance Fraud adopted the AIA's estimate.
  • The National Insurance Crime Bureau came up with an estimate that doubled the AIA's, at $6 billion.
  • But one insurance company president put the cost of workers' compensation fraud at $30 billion a year.

Overall Claims Are Actually Shrinking

However, the total number of workers' compensation claims has fallen sharply since those reports. Workers' comp claims represented about 2% of private industry's gross earnings in 2010, according to the Workers' Compensation Resources Research Report. That's down from 3% in 1994.

According to the Bureau of Labor Statistics, workers' compensation insurance in 2009 amounted to 1.6% of total compensation costs. And per a study by the National Academy of Social Insurance (NASI), cash benefits to workers per $100 of payroll recently dropped to $0.48, the lowest level since 1980. The frequency of claims dropped by 55% between 1991 and 2008.

What's the Real Problem?

Several years ago, PBS' Frontline examined workers' comp fraud, and found that the popular image of widespread fraud didn't match up with reality. "Studies show that only 1% to 2% of workers' compensation claims are fraudulent," the program reported. By vilifying and magnifying the problem, we run the risk of stigmatizing the majority of people who truly do need workers' comp.

Workers' compensation insurance exists to protect us when we need it, and fraudulent claims against it don't appear to be an out-of-control problem. Indeed, with the proliferation of social networking, many employers, insurers, and detectives can ferret out fraud more easily than ever. That's bad news for claimants caught posting photos of their parasailing vacation -- or their rodeo ride on a bucking bronco.


Also See: Outrageous Workers' Comp Scams Are No Laughing Matter

Longtime Motley Fool contributor Selena Maranjian holds no position in any company mentioned. Click here to see her holdings and a short bio.


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Mark

The Top 5% in this country need to be policed and have been for the last decade !

July 25 2011 at 8:39 AM Report abuse rate up rate down Reply
Mark

Insurance company CEO'S will say anything to get a price hike and line there pockets with money. It's called trickle down fraud , They Lie .Steal and Cheat and the cost for all this Bogus Bullsh-t trickle's down for middle and lower classes to pay for it !!

July 25 2011 at 8:36 AM Report abuse rate up rate down Reply
Mark

There isn't even close to a billion a year in Fraud. The only Fraud is the CEO'S paychecks !

July 25 2011 at 8:30 AM Report abuse rate up rate down Reply
Mark

Bullsh-t !

July 25 2011 at 8:24 AM Report abuse rate up rate down Reply
Hi Peg and Matt

The problem starts with the V.A. Read any veterans magazine and notice the members trying to find wittnesses to suposed problems they had in the 40', 50's and even much later. Most of these,"DISABLED VETERANS', after leaving thge service, were employed for many years in productive employment, and in many cased retired on confortable pensions.Now, suddenly, the afliction suffered many decades ago, keeps them from usefull actions. Hello!!!

July 22 2011 at 5:01 PM Report abuse rate up rate down Reply
mccglf

How about increasing criminal penalties for fraud? All sorts of fraud...workman's comp, medicaid, food stamps, whatever. That might deter some of these folks. We aren't talking about debatable claims. That is a different topic. But the examples cited are fraud, and there is plenty of that.

July 22 2011 at 11:01 AM Report abuse +1 rate up rate down Reply
rhc396

I agree wiyh Tony. I had to wait five years to get approval for my back surgery which workmans comp said was not needed. They agreed that I was 40% disabled even though my spinal surgeon said I was 100% disabled. I was making $66,ooo a year when injured and they awarded me $240.00 per week for 4 years. Needless to say I had to cash in a lot of my savings just to keep up with my bills based on $1350.00 a week income.After 5 years of living on percoset and vicodin daily I was granted permission for surgery. I went to Cleveland Clinic for the operation, it was an 8 hour proceedure and I had 4 of the 5 lower lumbar disks fused.There was fraud alright but it was on the insurance company not me. Maryland Workmens Comp. is also fraudlent and the little guys pay for it. I hope some state officials see this.

July 22 2011 at 10:25 AM Report abuse rate up rate down Reply
dseri6

How about getting the Lawyers under control. We see Countless advertisement signs/TV encouraging people to file a claim. In these tough economic times, that's exactly what people do. The Lawyers don't care if it's fraud or not--They just want their fee. Business as usual in America

July 22 2011 at 10:09 AM Report abuse rate up rate down Reply
kme3856082

Workers compis the mostmismanaged system I ever dealt with in my entire life.i was injuried a latex allergy as a nurse. The allergy is so bad Icannot go out much as latex iseverywhere I offered to work from home and they refused. Also hear so many surgeries denied delayed for orthopedic problems then these people are injuried more as a result out ofwork longer. Of course there is some fraud in every system but if employees , insurances companies, Drs and employers worked together millions of dollars would be saved. Also why pay thousands to a person injuried that is healed back to work ridiculas.

July 22 2011 at 10:09 AM Report abuse rate up rate down Reply
Tony

I had a workers comp case in NEW York( the state that does what the insurance giants want) Had 2 surgeries (one on each shoulder ) Received my social security disability in 90 days--no lawyers involved----Time after time I went to hearings about both shoulders---there were times 9 yes NINE lawyers were there for insurance companies---Eash hearing was a farce--The judge let the insurance lawyers eat up on my only--inexperienced lawyer---Well after 9 years 2 surgeries--and needed a third becauce the 2nd surgery failed I lost my claim----My attorney kept telling me--oh they can`t do thie--they can`t do that----you are entitled to the $00 weekly comp benefit----Well he was wrong.....M y only thing ,from what I experienced-is that the insurance companies will spend any amount of money so they DON`T have to pay a claim--As for new your--I couldn`t get a state senator--or assemblyman to do anything at all...Why---Mmmmmm MONEY--It`s cheaper for the insurance companies to HELP the politicians(the ones who make the workers comp laws) and BY law can complicate--drag out--deny benefits to people who are totally disabled from doing their jobs..... I can see the scene of cheaters and what it cost the system---I can also see the CHEATS that deprive a disabled worker FAIR disability payments... New york now is more concerned about same sex marriage---legalizing weed for the ill---everybody will become ill enough to legally smoke pot....good going N.Y.

July 22 2011 at 9:55 AM Report abuse rate up rate down Reply
1 reply to Tony's comment
Tony

I did error on what my lawyer said I should get---It was supposed to be $400 a week----But as it turned out it was $00 a week--haha

July 22 2011 at 9:57 AM Report abuse rate up rate down Reply