MA Worker’s Comp Fraud Costs $100 Million

Tuesday, December 16, 2014

Patrick Sargent, GoLocal Worcester Contributor

According to the Coalition Against Insurance Fraud, workers comp insurers in Massachusetts lose $100 million a year in unpaid premiums to businesses that misclassify their workers and falsify their employee records.

"You have businesses doing state work or large contracting work, and they cheat on the number of people they employ. They’re not reporting all the people that are doing work for them. Of course, if somebody gets injured, they say they work for them and they get their claim," said Dan Johnston, Executive Director of the Massachusetts Insurance Fraud Bureau (IFB).

In 2012, a task force made up of state agencies, including the IFB, collected $21.4 million over the course of two years in lost tax revenue that was the result of workers compensation insurance fraud.

Workers Comp Fraud Statistics

The Department of Industrial Accidents (DIA) is responsible for the Workers Compensation system in Massachusetts. In 2013, the DIA investigated nearly 6,000 businesses' workers compensation coverage. From those investigations, 2,337 Stop Work Orders were delivered, resulting in $1.35 million in fines and more than 6,000 new employees covered by workers compensation insurance.

According to the DIA, "One study estimated that there are between 126,000 to 248,000 misclassified workers in Massachusetts, with approximately 13% of the Commonwealth’s employers misclassifying some of their workers."

According to a report done by Harvard Law School, one of seven construction workers in Massachusetts is hired off the books or illegally classified as independent workers. Some of these schemes include intentionally misreporting number of employees and putting people in high-risk jobs in a low-risk category.

Johnston said, "Sometimes companies can keep from paying hundreds of thousands of dollars to insurance companies because they misclassify or they under report their payroll. What that does is get them a leg up in bidding for jobs. The honest people are at a disadvantage when that happens."

In 2012 in Massachusetts, the IFB received 392 cases of insurance fraud. Ten percent of those cases constituted workers compensation fraud. According to the DIA, in 2012, a total of $290,181 in restitution was ordered for workers compensation cases. Three individuals were indicted and seven were convicted.

Staged Accident Epidemic on the Decline

“Over the last ten years, staged accidents was a predominant type of fraud, but we have been very successful eliminating it. If you asked me today what the predominant type of fraud is, it’s not the same as it was six or seven years ago because we did a good job to get rid of it," said Johnston.

In 2003 and 2004, the Massachusetts IFB implemented a task force to investigate a slew of staged accidents within 13 communities across the state. Staged accident cases involve large numbers of people, typically four people in each car, working under the guidance of a chiropractor or a lawyer that was behind the scenes encouraging it.

"We went into various cities, and worked with the local police departments, installed our investigators into various towns, worked with the District Attorneys and virtually eliminated staged accidents. Over the last ten years, we have saved people on their insurance bills $1.25 billion in the thirteen cities we brought this program to," said Johnston. "We take these cases to court when we can to stop them from happening. Our goal, of course, is to keep it in the news that we are doing this."