Is Workers’ Compensation Fraud a Rampant Problem?

Five months ago, the Texas Division of Workers’ Compensation established a new in-house fraud unit to investigate fraud within the workers’ comp system. Since then, it has opened over 40 investigations and has expanded its workforce to cast a wider net to catch fraud when it happens. But is fraud really that big of an issue in the workers’ comp system?

Fraud: Workers vs. Employers

It is a myth that workers exploiting the workers’ comp system for personal gain is a common problem. In fact, a six-year study by the Department of Workforce Development found that the amount of prosecuted fraud by workers is less than one in 20,000 work injuries.

On the other hand, fraud by other players in the workers’ comp system can cause serious harm to workers. Last year, for example, almost $850 million in workers’ comp fraud was discovered in five U.S. states, with California being the location of the most egregious frauds. Compare that to the total $1.5 million in fraud by workers discovered in the same year, and you see that the problem is largely with the employers and other parties, not the workers.

Employer fraud can potentially involve hundreds or thousands of fraudulent transactions, and can happen in a variety of ways, including:

• Intentional refusal to purchase insurance for employees
• Misclassification of employees to obtain reduced premiums
• Denial of valid claims in hopes the employee won’t pursue the matter
• Denial of clear-cut occupational disease claims, forcing the employee to seek legal action
• Referring injured workers to doctors that deny care and prematurely return the worker to work

So, is workers’ comp fraud a rampant issue? Yes – but fraud against workers is a much, much bigger problem than fraud by workers.