Workers’ comp insurance is designed to help cover an employee’s medical costs and lost wages if they are injured at work. It is also meant to help protect employers from incurring personal financial losses as the result of a workplace injury that occurs within their small businesses.
That said, sometimes a service life workers’ comp can be used in a wrong—or even fraudulent—way. What happens when an employee, employer, or healthcare provider accidentally or intentionally commit workers’ compensation fraud? How can small business owners ensure workers’ comp coverage is being used effectively for its intended purpose?
Workers’ comp insurance fraud
Workers’ comp insurance fraud costs six to seven billion dollars each year according to estimates by the Coalition Against Insurance Fraud (CAIF) and the National Insurance Crime Bureau (NICB). This type of white-collar crime may lead to fines and imprisonment for fraudsters—and increased premiums or penalties for businesses. Therefore, it’s critical that small business owners and employers recognize the signs of workers’ comp fraud and take precautions to help protect their small business.
Workers’ compensation fraud categories
Workers’ compensation fraud typically falls into three main categories and may be committed by employees, employers, or healthcare providers.
- Employees may commit claim-related fraud by fabricating a story about an injury, by claiming an injury happened at work rather than outside of work, or by exaggerating the extent of a work-related injury.
- Employers may engage in policy-related fraud by falsely reporting employees as contractors, by inaccurately classifying their employees in a lower risk category, by lying about a work-safety program, or by not carrying appropriate coverage when required by law.
- Healthcare professionals can commit medical provider fraud by performing unnecessary services to collect insurance payments, by fraudulently billing for services, or by participating in kickback schemes with other providers.
Examples of workers’ comp fraud
It may be helpful to consider these specific examples of workers’ compensation fraud:
An employee reports they have injured their back lifting boxes in the warehouse—in reality, the injury was sustained over the weekend while the employee was skiing.
To save money on premiums, an employer reports to a workers’ comp insurer that an employee (who actually performs manual labor in a warehouse) works full-time at a desk.
A doctor’s office submits a bill for an inflated amount in an attempt to profit off of an injured employee’s workplace accident.
How to help prevent workers’ comp fraud
To reduce the risk of workers’ compensation fraud, small business owners can:
Be forthcoming about physical requirements and hazards of the job
Educate employees as to the proper way to lift, pull, and carry objects
Provide training on work-related hazards, exposure risks, and safety equipment
Inform employees and new hires about a zero-tolerance policy for false claims
Teach employees how workers’ comp works and how to correctly report injuries
Provide a safe way for employees to report suspicious workers’ comp activity
Maintain and report accurate records regarding employee roles and numbers
How to report workers’ compensation fraud
If a small business owner suspects workers’ compensation fraud has been committed, they should record the details of the incident in writing and contact their state’s department of insurance. Small business owners may also choose to contact a workers’ compensation attorney if they suspect an employee is committing workers’ compensation fraud.
Thanks for reading! Please note that this content is intended for educational purposes only. As laws change regularly, you should refer to your state legislation and/or an advisor for specific legal counsel. If you’re a small business owner, learn more about workers’ compensation insurance or check your current rate in 3 minutes.