One thing I heard a lot while working at my old insurance job was that workers’ compensation fraud occurred mostly on the injured worker side of things. In fact, there were some people who thought every comp case was fraudulent to some degree. I must admit that I almost drank that Kool Aid early on, almost. After working on the insurance side for most of my career, I couldn't help but notice that the issue of fraud was used as a tool or justification to demonize injured workers, applicant attorneys, certain doctors and other participants such as interpreters, copy services and the like. Some people feel that an ample amount of applicant fraud is actually driven by a few unscrupulous attorneys and doctors, and there is some evidence to support this belief - if one examines the documented fraud cases covered in the media. Regardless of one’s belief when it comes to fraud, the fact is that fraud happens everywhere in the workers’ comp system including the employers side of things. No one has clean hands. No one.
My educated guess is that insurance carriers get ripped of by their own policyholders the same amount if not more than by the fraudsters on the applicant and medical side of things. Premium fraud is a legitimate problem in the construction trades. It's a dirty little secret that does not get much publicity. You don’t see news pieces on premium fraud as much as you do claimant fraud.
Non-reporting of payroll and misclassification of employees are common tactics used by unscrupulous employers. Hiring workers, including undocumented workers willing to work for cash pay, and paying them “under the table” is how many businesses operate in California’s huge underground economy. As long as no one gets hurt, no one gets hurt. Of course, this is wishful thinking and can lead to problems down the road. Someone usually gets hurt, especially when you consider the physically demanding types of jobs people do in the underground economy, leading to repercussions.
Even in the regular economy there are undocumented workers that get taken advantage of as well. Look at agriculture and the extreme conditions some farm workers have to endure during the summer months in the valleys of California. Even the food processing factories tend to hire immigrant labor. When these workers do get hurt, they are faced with a choice: try to keep working with pain and hope things get better or report the injury, and risk getting fired or “laid off” and possibly even reported to La Migra—Immigration Authorities. Other employers in the regular economy like to get creative in how they describe their employees and the job duties they perform. Some examples include labor brokers, temp agencies, leasing companies and transportation companies. If the worker is labelled an independent contractor, then no workers' comp insurance is needed for that worker and no premium to be collected. If a worker is listed as a clerical worker when in fact the worker is doing a physically demanding job, the premiums are lower based on the lighter job classification. The new sharing economy, with companies like Uber and Lyft, pose new challenges as well. Are these drivers employees or independent contractors?
Whenever I encountered a case where I suspected insurance premium fraud, I informed Claims and let them follow up with our Audit Dept. Most of the time, the scam was uncovered and a premium bill was generated. It was not always paid, but it was generated. My main focus was on the comp case and getting it on track. A deposition of the injured worker would usually produce some useful facts about the job, the injury and the employer. A follow up with the employer always ensued. Sometimes the employer would come clean and sometimes they would play dumb. Since my client was the insurance company, I did not co-sign the employer’s scam. Denying employment, injury, or actual wages were common defenses raised by our more questionable policyholders, even in the face of the “truth”. What’s that saying? You can’t bullshit a bull shitter(at least you should try not to). So I would advise Claims to pick up the case and start paying benefits if appropriate, and most of the time they would. Sometimes, the employer would convince Claims to maintain the denial and we would have to go down to the WCAB and have a hearing, and lose.
When you have a benefit delivery system like worker’s compensation that involves billions of dollars of premium, benefits and profit, you will have certain parties willing to take the risk that they will not get caught in order to get a piece of that monetary pie, or not have to pay into that pie. It’s inevitable.