Until recent years, premium fraud has been a relatively invisible crime. It has been underreported by the media, and to a great extent, ignored by the business community at large. However, the impact of premium fraud on your business is very real.
Premium fraud is a crime. It jeopardizes workers’ rights to health care. It fosters unfair competition. And by raising premiums, it punishes employers who play by the rules. Here’s how you can identify premium fraud and what you can do about it.
What is premium fraud?
According to the Labor Research Association in New York* for every $1 that is lost in claimant fraud, at least $4 to $5 are lost through premium fraud. Premium fraud includes a number of schemes used by employers to reduce the cost of premiums paid for workers’ compensation. The most common illegal practices are underreporting payroll, misclassifying employees’ occupations and misrepresenting their claims experience.
Employers reduce their premiums by not reporting parts of the work force, paying workers off the books or creating a companion corporation to hide a portion of the employees.
Employers avoid premium payments for employees by classifying them as independent contractors even though they are legally employees.
Employers intentionally misrepresent job risks to put employees in less hazardous occupational categories and reduce premiums.
Misrepresenting claims experience
Employers hide previous claims by classifying employees as independent contractors or leased employees, or creating a new company on paper.
Misrepresenting company ownership
Employers misrepresent company ownership in order to hide dangerous practices or poor safety records, or to avoid a bad experience rating.
Employers deliberately and materially underestimate payroll projections at the beginning of the premium year and essentially receive an interest-free loan from the insurance company for the amount that would have been charged with an accurate estimate.
Discouraging employee claims
Employers knowingly misrepresent employees’ entitlement to benefits to discourage employees from filing a claim, telling employees that they are an independent contractor, that workers’ compensation benefits are only available if he or she has been employed for six months, or firing workers who attempt to file a claim.
There are also reports of employers who instruct injured employees to seek medical treatment from their group medical plan rather than through workers’ compensation. In addition to premium fraud, employers often fail to purchase workers’ compensation insurance, despite state laws mandating that they do so.
How does employer fraud affect you?
1. Employer fraud hampers your ability to compete by giving your competitor an unfair advantage.
2. If the “abuser” is a subcontractor, it could make your company vulnerable to prosecution as well as a potential target for lawsuits filed by injured employees.
3. Fraud increases the cost of workers’ compensation premiums statewide, which leads to higher costs and less profit for your business.
4. By causing higher premiums, fraud also lessens the amount of remuneration or benefits you can offer your employees, thereby reducing your ability to secure the most qualified workers.
What can you do about premium fraud?
If you have difficulty interpreting the workers’ compensation law or are concerned that you may be committing a violation, call your HEMIC representative or your agent. If you suspect that another employer is committing these violations, do not address the employer yourself. Instead, call the HEMIC Fraud Hotline or call your representative. If necessary, refer your report to the Department of Labor or local or state prosecutors. All reports are strictly confidential.
HEMIC FRAUD HOTLINE
Neighbor Islands Toll Free: 1- 888-522-5295
Reporting fraud is everyone’s business
When you report unfair, dishonest labor practices, you help to promote fair competition, which in turn strengthens our economy and makes Hawaii a better place in which to live and work.
*Labor Research Association, Workers’ Compensation Fraud: