As the result of this investigation, charges concerning the theft of $3.7 million in insurance premiums by employers were filed.
Employers evade insurance compliance by mis-classifying their employees, in other words, claiming that their employees are engaged in less risky work; i.e., reporting them as office staff versus construction workers. This lowers premiums and creates a short fall in reserves for the insurance company to pay the claim. Employers also under-report payroll, misrepresent the actual number of employees and fraudulently label employees as independent contractors. All of these practices create severe short falls to pay claims, result in higher premiums and cause significant litigation, while at the same time delay and deny benefits to the people whom the law was created to protect: the injured worker.
Insurance companies contribute to the problem by allowing employers to operate without complying with statutorily required documents.
Department of labor’s statistics show that more than 13% of all employers contacted had no work comp insurance.
The impact of the problem is not simply an issue of insurance company profits, although insurance profits are certainly involved. Diversion of premiums causes higher rates for honest employers and creates unequal competition between honest and dishonest employers. This creates a cycle of pervasive premium inequality which will eventually undermine the entire work comp system.
So how does the Florida legislature address and resolve the multi-million dollar threat to the system cost drivers? It takes more benefits away from injured workers. That’s like addressing the $5 problem and ignoring the $500,000.00 problem, or in this case, the 3.7 million dollar problem. The injured worker gets punished unnecessarily for the crimes of the employer and insurance industry.
The Grand Jury concluded that employer non-compliance with the workers’ compensation law was a serious problem and that thousands of employers were engaged in blatant and obvious premium fraud. The Grand Jury further concluded that the Department of labor had intentionally inflated the compliance rates and thereby stuck its “head in the sand”. The Grand Jury concluded and accused the Department of labor of ignoring the statutory safe guards that exist in the workers’ compensation law!
NEW YORK COUNTY DISTRICT ATTORNEY’S GRAND JURY REPORT ON WORKERS’ COMPENSATION FRAUD– March 25, 2014.
A Grand Jury was empaneled at the request of the New York District Attorney to investigate fraud in the New York Workers’ Compensation system. The Grand Jury concluded that employer fraud in its work comp system was costing New York nearly $500 million annually.
The concept of workers compensation dates back to 1911 when 146 mostly immigrant workers of the Triangle Shirtwaist factory were killed in a fire. The workers compensation did not exist and the survivors had no way to recover medical expenses or lost wages. In response, the workers compensation system was born to protect and aid workers and their families, and in return, to protect employers from lawsuits that could cause financial ruin.
The Grand Jury explained how such employer premium fraud creates unfair competition between honest and dis-honest employers, causes increased insurance rates to cover the shortfalls because of a smaller pool of honest employers.
Consistent with the Florida Grand Jury conclusions in 1997, the issue of employer fraud has been and continues to be massive and pervasive. Employer fraud has not been adequately addressed by the legislature, insurance industry, business community, or legal arena. Instead, the legislature continues to stick its finger in the dyke by reducing benefits to injured workers, which is the precise reason the problem persists. The workers compensation system was created as a shield to help injured workers, and yet, has been used as a sword to punish injured workers. Instead of the media focusing on the real problem with the system, the media has been content to sensationalize small time peccadilloes committed by individual workers whose conduct has little or no impact on the true cost drivers to the overall system. By focusing on these admitted individual wayward acts, and by ignoring the massive fraud being committed by employers on a daily and continuous basis, the media has been complicit in the overall problem. By not exposing the true massive and pervasive fraud and cost drivers, the media has continued to allow the legislature to slay injured workers into oblivion while allowing the insurance companies to rake in their profits, without regulation of the “excess profit law” that was repealed in an effort to allow the insurance companies to keep their excess profits, instead of returning them to the small businesses who had been over-charged.
A STUDY ON THE MAGNITUDE OF LOSS OF WORKERS’ COMPENSATION PREMIUMS IN 1997 DUE TO EMPLOYER FRAUD AND EXEMPTIONS IN THE FLORIDA CONSTRUCTION INDUSTRY- APRIL 4, 2001
Dr. Richard Coble, PhD, associate professor and director of the Center for Construction Safety and Loss Building Control at University of Florida, conducted a study in 2001 on employer fraud in the workers’ compensation system. Dr. Coble concluded that “more money in workers’ compensation premiums was lost than collected”. Dr. Coble agreed with the conclusion of the Florida Grand Jury investigation 1997 that the extent of employer fraud “will undermine the entire workers’ compensation system and threaten its collapse”. The conservative estimate of lost premiums in 1997 just in the construction industry was $1.3 million. In discussing the issue of employer “exemptions” from coverage, Dr. Coble and the Workers Compensation Oversight Board stated, “as long as exemptions exist, ‘there will always be a hole of fraud so big you can drive a Mack truck through it’”.
ARTICLES ON WORKERS’ COMPENSATION FRAUD
In an article published January 2013 describing the top ten workers’ compensation fraud cases in the nation for 2012, three occurred in Florida. All ten involved employer fraud. None involved fraud by an injured worker. All of them involved attempts to under-report payroll, setting up phony companies and other schemes to avoid paying for workers’ compensation insurance. The fraud described counted into the millions of dollars.
In an article written in the North Carolina Workers’ Compensation Journal by Professor Leonard Jernigan, it was discussed that 100% of the top ten workers’ compensation fraud cases from 2009-2012 involved employer fraud. In 2013, nine of the top ten fraud cases involved employers. The total amount of fraud discovered amounted to $46,462,492.00, $44,962,492.00, or 97% of which involved employer fraud.
EXCESS PROFITS
In 2008, twenty-six workers’ compensation carriers in Florida were required to pay back $42.8 million to overcharged employers due to Florida’s “excess profits” law, a law that had been in existence for thirty-three years to protect Florida’s business community from insurance company gouging. These record profits were the direct result of the severe reduction in benefits to injured workers in 2003. Instead of increasing benefits to injured workers, the Florida legislature repealed the “excess profits” law to allow the insurance companies to keep the excessive profits they had over-charged Florida’s business community.
Richard B. Berman, Esq.
4-24-14
*This article is being published herein with permission of its author, Richard B. Berman, Esq.
