It’s not about the individual claimant who’s working while getting benefits, or the Sunday afternoon injury reported as on-the-job come Monday morning, or the migrating pain.
The construction premium fraud racket may well be a far bigger issue for workers’ comp than the sum of individual claimant problems. That’s my conclusion after listening to several experts who deal with this issue every day, in every state.
I don’t pretend to understand this at anything other than a very high level, but suffice it to say it is massive. Moreover, by far the biggest problem is on really big projects – we aren’t talking about the local sub who builds decks and redoes bathrooms. Bridges, airports, office parks, malls, government buildings – all targets for fraudsters who under-report wages, fail to obtain valid workers’ comp insurance, and rely on horrendously short-staffed enforcement of laws that are often far too permissive.
Here’s how this works. A contractor or subcontractors contracts with “facilitators” that obtain work comp insurance from agents and provide insurance certificates to labor brokers tasked with finding and paying workers.
The work comp insurance coverage is usually minimal, and is based on false payroll data.
Far too often these labor brokers cash their payments from the facilitator, payments that can run into the tens of thousands of dollars per week (and the facilitator may well get a % of the check as a kickback from the check cashing facility). The broker may pay the actual workers in cash.
So, the general contractor has the paper that shows they have insurance and their labor costs are low (this is a highly competitive business, and construction contractors usually win or lose business based on their cost of labor). The facilitator makes money on the front end and back end, the labor broker usually doesn’t pay the workers what they tell the facilitator the costs are, and the check cashing store makes anywhere from a couple percent to near ten percent in fees.
The folks who get screwed by construction work comp premium fraud are diverse – most importantly, it’s the worker. They get caught up in the scheme when they get hurt, and either there is no workers’ comp insurance at all or the paper trail is, at best, inconclusive as to the worker’s coverage. Often dumped at the door of the nearest ER, the worker is stuck for the cost of their care, or, more likely, the taxpayer is.
The original work comp insurer gets screwed too, with perhaps thousands of dollars of premiums foregone due to fraudulent reporting while the “insured” is deemed covered by state law.
And ethical contractors find themselves facing a very difficult situation; either lose bids to lower-cost competitors or play the work comp fraud game.
What does this mean for you?
We’re going to dig deeper into this in future posts, because we really need to.
This has been a huge issue here in Florida, with check cashing stores enabling these schemes to rip off both the injured and the insurers. One carrier I recently spoke with just “found out” about a one year old quadriplegic claim that had never been filed that was part of a massive 8 figure fraud scheme.
Lots of branches to this tree. Some are easier to pick up on than others. For example, several years ago in FL there was a “facilitator” with a minimal policy who was having cert’s issues from his agent on average at more than 3 times a day for an entire year (1,000+ per policy year), yet there was no increase in exposure on the policy. Clearly a red flag, as 15-20 cert’s per year would normally be on the high side. There was no follow up on the cert’s to determine if they obtained the job, and thus would need their payroll estimates increased on the policy.
A simple phone call from the agent to the cert holder would have been a good preventative measure to head off this fraud before they even got to the check cashing payment portion. Under reported payroll on this case was $15 million in payroll and millions in premiums over 3 separate policies. 2 of those policies were with the same carrier.
Common sense out of the gate would be helpful in catching a good portion of this fraud, instead of leaving it to auditors to figure out on the back end when little to nothing can be done as the money has been spent. All auditors can do is detail how much was not reported and the amount of premium lost as a result of it.
Thank You, CG well seasoned auditor