Prosecution Just One of Many Tools in the Fight Against Fraud

By Tim Riley, Vice President of Special Investigations

By Tim Riley, Vice President of Special Investigations

Celebrity gossip, politics, the economy – in the hierarchy of hot-button issues, workers’ compensation doesn’t register a blip on the media’s radar. So when I come across an expert who has strong opinions about the industry, I go from casual reader to loyal follower. 

A recent post by one of my favorite bloggers on all things workers’ comp hit close to home. He argued that fighting workers’ compensation fraud, at least via traditional methods, is futile. He went on to offer that we should instead approach fraud the same way the government went after Al Capone: prosecute on tax evasion.

As a 12-year veteran in the fight against fraud, I have to respectfully disagree with several of this expert’s points.

Point. Workers’ compensation fraud is hard, if not impossible, to prove.

Response. Actually, the concepts are some of the simplest in criminal law, including what may be considered the white collar crimes of health care fraud and premium fraud. When you combine experienced investigators with prosecutors who understand workers’ comp law, fraud is not difficult to prove. In fact, it’s typically easier to prove than tax evasion.

Point. Criminals will always be criminals.

Response. Maybe I have too much faith in humanity, but I don’t believe that’s a fair statement. Even if it is, what the blogger does not consider is the fact that criminals, even the lifelong variety, pick their crimes. In simple terms, prosecution is a deterrent to those who aim to cheat the system. Let’s look again to organized crime as an example. Criminals have abandoned highly prosecuted areas, such as drug trafficking, in favor of areas of limited prosecution, such as health care insurance fraud. Why? Because criminals calculate risk.  In fact, organized crime shifts to insurance fraud in part because of the lower odds of being caught and prosecuted. 

Point. Return on investment is not there.

Response. That has rarely been the case in Texas Mutual’s experience. Admittedly, restitution does not always measure up to the cost of prosecution. But that’s no reason to throw up our hands and accept fraud as an inevitable system cost. Regulatory bodies and insurance carriers have a responsibility to protect employers’ premium dollars. Furthermore, prosecution is just one of many tools at our disposal. Insurance carriers can leverage administrative means, such as pursuing administrative penalties and restitution orders through the responsible state agency, pursuing recoupment actions, and removing fraudulent billers from carrier networks.

I acknowledge that I am speaking from Texas Mutual’s perspective, and our consistent success is unfortunately not universal. I do not believe, however, that fighting workers’ comp fraud is a futile endeavor. When insurance carriers, regulatory agencies and system stakeholders collaborate to attack fraud on all fronts, using all available avenues, we can see positive results. The time, money and manpower we commit are sound investments in a strong, stable workers’ comp system for all stakeholders.

About the author

Tim Riley is vice president of special investigations at Texas Mutual Insurance Company. Tim received his law degree from Rutgers University. After earning his masters of law degree with a specialty in criminal law from the United States Army Judge Advocate General’s School, Tim served as a military prosecutor and defense attorney for nine years. Prior to joining Texas Mutual in 2004, Tim spent six years as an attorney in the hearings division, legal division and enforcement division of the Texas Workers’ Compensation Commission (now the Texas Division of Workers’ Compensation). Tim has had the opportunity to share his workers’ compensation fraud expertise as a speaker at numerous industry events.

Your Experience Modifier : How to Control it, and Why You Should

By Shelly Horelica, Senior Marketing Specialist

By Shelly Horelica, Senior Marketing Specialist

Most people don’t often think of their workers’ compensation policy until they pay their premium or file a claim. You may be surprised to learn that you can take small steps during the year to save money when you renew your policy. Your experience modifier (e-mod) is one of the keys.

In part one of this two-part series, I explained what an e-mod is. In this installment, I will give you tips for controlling your e-mod and your workers’ comp premium.

Prevent workplace accidents

The best way to reduce an e-mod is to reduce losses. The best way to reduce losses is to prevent accidents. Employers have access to thousands of free workplace safety materials through the Occupational Safety and Health Administration, the Texas Department of Insurance and Texas Mutual Insurance Company.

Focus on return-to-work

When on-the-job injuries force employees to miss work, some employers react by replacing them and moving on with business as usual. That approach is costly for both parties.

A return-to-work process helps injured workers return to productive employment. If they are unable to perform all of their normal job duties, the process provides alternative productive work they can do while they recover.

Employers who join a workers’ comp health care network have access to additional return-to-work services.

Help fight fraud

By 2015, fraud will cost the property and casualty insurance industry $80 billion a year. Those costs will trickle down to everyone in the form of higher premiums. Employers can help insurance carriers fight fraud and its cascading effects if they learn the red flags.

Learn your role in subrogation

If a third party contributed to an on-the-job accident, your insurance company may be able to recover some or all of the costs from the third party. The process is called subrogation, and it can help reduce your claim costs and your premium. Most subrogation recoveries involve vehicles, products or premises. You can facilitate the subrogation process if you know what to look for.

Come to a free workshop

If you are an insurance agent who wants to learn more about e-mods, class codes and other workers’ compensation topics, come to a free Texas Mutual workshop. You will earn 3.5 CE credits for attending.

Texas Mutual also hosts free workshops for employers. Topics include fighting workers’ comp fraud, preventing workplace accidents and managing claims.

About the author

Shelly Horelica is a certified insurance counselor with 25 years’ experience in workers’ compensation insurance. As a senior marketing specialist, Shelly partners with independent insurance agents across the state and helps them get the most value for their clients’ premium dollars. Shelly shares her expertise with agents as a presenter at Texas Mutual’s free workers’ comp workshops.

Experience modifiers: the good, the bad and the average

By Shelly Horelica, Senior Marketing Specialist

By Shelly Horelica, Senior Marketing Specialist

Most people don’t often think of their workers’ compensation policy until they pay their premium or file a claim. You may be surprised to learn that you can take small steps during the year to save money when you renew your policy. Your experience modifier (e-mod) is one of the keys.

 What’s an e-mod?

An experience modifier is a factor used in the calculation of your insurance premium.  It reflects your loss experience. To qualify, a business must have an average workers’ compensation premium of $5,000 during the last two or more years of coverage, or develop at least $10,000 premium during the last year. The experience modifier formula is complicated, but in its simplest form, it is actual losses/expected losses.  If your business’ actual losses are lower than expected for your industry, you should receive a favorable experience modifier.

How do losses impact e-mods?

The e-mod formula puts a cap on larger losses. It also gives greater weight to accident frequency rather than the severity of a loss. Claims with $0 losses are not considered in the actual calculation and do not affect an employer’s e-mod.

E-mods: the good, the bad and the average

E-mods come in all sizes. An e-mod of 1.00 is considered average, and it will not positively or negatively affect premium. An e-mod of less than 1.00 is a credit e-mod, indicating a risk with better-than-average experience. An e-mod over 1.00 is a debit e-mod, indicating a risk with worse-than-average experience.. Let’s look at how this could impact premium.

Company Base premium E-mod *Adjusted premium
A $43,925 1.00 $43,925
B $43,925 .70 $30,747
C $43,925 2.00 $87,850

*Prior to underwriter pricing considerations

In the example above, Company C gets the same amount of coverage as the other companies, but may pay significantly more because it has a debit e-mod. In our next installment, I will give some tips for reducing your e-mod and, in turn, your premium.

About the author

Shelly Horelica is a Senior Marketing Specialist.  Shelly has been working with Texas Mutual insurance agents for 19 years.  She also works closely with the marketing representatives across the state.  Shelly is a frequent presenter at our statewide workers’ comp workshops and is a certified insurance counselor with 25 years’ experience in workers’ compensation insurance.

Workers’ Comp Fraud and the Myth of the Victimless Crime

By Eileen Cook, Claimant Fraud Unit Supervisor

By Eileen Cook, Claimant Fraud Unit Supervisor

A Texas Mutual claimant was injured while working in an oil field. He claimed he was unable to work and, in the meantime, launched his own oil field supply company. He then tried to purchase workers’ comp coverage for the new business from, you guessed it, Texas Mutual.

A truck driver, off work due to two fractured fingers and receiving income benefits, posted on his unprotected Facebook page that he was riding bulls again. The story then directed his readers to a YouTube video demonstration that showed the allegedly disabled hand wrapped in the rope.

These are examples of a scam that investigators call double-dipping. In double-dipping scams, claimants collect benefits for being too injured to work when they are, in fact, gainfully employed. Texas law requires claimants to notify their workers’ comp company when they return to work.

Some people think workers’ comp fraud is a victimless crime that only affects insurance companies with “deep pockets.” That could not be farther from the truth.

For years, experts have estimated that fraud costs the property and casualty (P&C) insurance industry, of which workers’ comp is part, $30 billion a year. A 2013 study by Aite Group found that number to be conservative at best, and grossly naïve at worst.

The study estimates that in 2012, fraud bilked $64 billion from the P&C industry. By 2015, the bill could reach a whopping $80 billion a year. Those costs will trickle down to everyone in the form of higher premiums.

Insurance carriers have a vested interest in containing the costs of fraud, and most are stepping up their efforts. In 2012, P&C companies spent $271 million fighting fraud. The study predicts spending to rise by $20 million a year, reaching $360 million by 2016.

I am encouraged by the industry’s commitment to uncovering and punishing those who cheat the system. I also know, however, that the insurance industry cannot win this fight alone. Employers must do their part.

Learn the red flags

Many of Texas Mutual’s most successful fraud investigations started with a tip from an employer. If you see two or more of these red flags in a claim, contact your workers’ comp provider immediately:

  • Suspicious injury on Monday or Friday
  • New or disgruntled worker
  • No witness to alleged injury
  • Inconsistent or illogical description of incident
  • Tip from a credible source
  • Hard to contact injured worker
  • Injured worker avoids contact or acts upset/defensive when contacted
  • Injured worker has a pattern of missed medical appointments

Cooperate with the investigation
Your responsibility is not limited to reporting your suspicions. Your investigator may need your help during the investigation:

  • Provide a photo and complete description of the employee
  • Tell the investigator about dual employment or hobbies
  • Notify the investigator if new evidence surfaces
  • Allow access to the workplace and witnesses
  • Attend hearings if requested

Claimant fraud is just one type of fraud that affects the workers’ compensation system. In future posts, we will look at premium fraud and provider fraud, which are less common but typically far more costly.

For more information about fighting workers’ comp fraud, visit Texas Mutual and the Texas Department of Insurance.

The price of workers’ comp fraud can be high for claimants who are caught cheating the system. Watch this short video for a real-life example.

About the author
Eileen Cook has more than 40 years’ experience in law enforcement and fraud investigations. She spent 12 years as an investigator with the Brazoria and Midland County Sheriff’s Departments. After leaving law enforcement, Cook served as a training specialist at the Texas State University Institute of Criminal Justice Studies, where she trained police and probation officers for 10 years. Eileen has been helping Texas Mutual fight fraud and its cascading effects on policyholders since 1995. Cook earned a degree criminal justice from the University of Houston at Clear Lake City.

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