You know that workers comp is a problem when the so-called mainstream media begin to take note. Normally, workers comp is a topic relegated to the trade journals or the deepest nooks and crannies of the business pages in the daily news. Contrast this with the early 1990s, when headlines screamed about runaway costs and story after story included tales of employers closing shop or moving operations from one state to another due to the burdens of workers compensation.
This month, Forbes features a story about current workers comp woes, and it is interesting to note that this story entitled Workers Con deals primarily with the proliferation of premium fraud.
The story cites a number of examples: a FL PEO that pocketed $600 million in premium leaving employers and their employees uncovered; a California janitorial firm that underreported the number of employees by several hundred; a Texas janitorial firm that played a shell game by switching employees between a number of companies; an Illinois temp service that misclassified warehouse workers as clerical workers, and a California PEO that hid more than a million dollars in wages by calling them “partnership distributions.”
Is employer fraud actually more widespread in reaction to rising costs, or are state regulators just taking a harder look now that reforms have wrung the fat out of other aspects of the system? Hard to say for sure since fraud statistics – both on the employer and the employee side – are often difficult to quantify and generally rather squishy at best. The Forbes article says yes, if the rising number of suits filed by state and private insurers is an indicator.
One thing is for sure – fraud schemes hurt us all: the injured employee is often left without recourse or forced to bring suit to pay for medical care; the honest employer pays higher premiums as insurer costs “trickle down.” In addition, fradulent employers often enjoy an unfair competitive edge. By illegally evafing a cost of business tht can be substantial, fraud perpetrators can offer lower prices in competitve or bidding situations.
Employers that hire contract workers through a third party, such as through a temp agency, or a leasing company, and employers who purchase workers comp packaged in a bundle of other services, such as in a PEO, need to be particularly alert to the issue of coverage lest they find themselves holding the bag. The California Department of Industrial Relations offers an employer tip sheet on ensuring the legitimacy of workers comp coverage. It is worth kicking the tires before cementing any arrangements: check business licenses and verify coverage with a local insurance authority.
Related:
Florida uninsured employer jailed for fraud after two deaths
West Virginia is cracking down on deadbeat employers
Ohio getting tough on premium compliance
Insurer insolvencies, guaranty funds, and joint and several liabilities between temp staffing agencies & contracting employers
Tags: fraud, insurance scams, premium fraud, workers compensation fraud
