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.

Of course, sometimes a service like workers’ comp can be used incorrectly. On some occasions, these incorrect uses can even become fraudulent in nature. What happens when an employee, employer, or healthcare provider accidentally or intentionally commits workers’ compensation fraud? How can small business owners ensure workers’ comp coverage is being used effectively and for its intended purpose?

Types of workers’ comp insurance fraud

Workers’ comp insurance fraud typically falls into three main categories—it may be committed by employees, employers, or healthcare providers. There are many ways fraud may be committed, here are several of the most common:

  1. 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. For example: 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.
  2. 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. For example: 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.
  3. 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. For example: A doctor’s office submits a bill for an inflated amount in an attempt to profit off of an injured employee’s workplace accident.

The problem with workers’ comp fraud

When a small business owner reports an injury to their workers’ comp insurance provider, that provider will investigate the claim. If the reported story, medical treatment, or timelines seems amiss, it may lead the provider to suspect fraud. Ensuring workers’ comp claims are accurate and free from manipulation is everyone’s responsibility—including the insurance provider, medical staff, and small business employees.

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.

Preventing 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.

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