Go figure: fraud data

Measuring insurance fraud is an elusive target. No single national agency gathers omnibus fraud statistics. Insurance fraud data thus are relatively piecemeal, making our understanding of insurance fraud an ongoing work in progress.

Insurance companies and diverse state and federal agencies each gather fraud data related to their own missions. But the kind, quality and volume of data they compile vary widely.

Independent watchdogs, academics, insurance industry groups and other organizations also conduct research on a variety of fraud topics. Some is national in scope, and some is state-specific.

State insurance fraud bureaus

Fraud bureaus are state agencies charged with investigating suspected insurance schemes within their states. Most states have fraud bureaus, which investigate suspected schemes across most line of insurance. States without multi-line fraud bureaus include: Alabama, Illinois, Indiana, Maine, Michigan, Oregon, Vermont, Wisconsin and Wyoming.

The 2007 annual study of state fraud bureaus by the Coalition Against Insurance Fraud reveals this 2007 combined profile.

Budget		$147,738,214
Employees		1,694
Referrals		115,062
Cases opened		31,654
Arrests		4,848
Presentations to prosecutors		5,936
Convictions		4,228
Civil actions		7,672
Restitution ordered		$179,036,100

Cases reported by the news media so far in 2009.

By type of fraud

Auto insurance

Auto bodily injury claims: Staged-accident rings fleece auto insurers out of billions of dollars a year by billing for unnecessary treatment of phantom injuries. Usually these are bogus soft-tissue injuries such as sore backs or whiplash, which are difficult to medically dispute.

Fraudulent and abusive auto-injury claims are a costly problem. Fraud and “buildup”* added $4.8 billion to $6.8 billion in excess payments to auto injury claims in 2007. That means 13-percent to 18-percent increases in payments under private-passenger auto policies from 2002. (Insurance Research Council, Nov. 2008)

Bogus and abusive claims also are rising. They ranged between $4.3 billion and 5.8 billion in 2002, or between 11 percent and15 percent of total payments. (ibid)

Claims with apparent fraud or buildup were more likely than other claims to involve sprain and strain injuries, and periods of disability. These claimants also were more likely to receive treatment from physical therapists, chiropractors and other alternative medical providers. (ibid)

Buildup involves treatment that’s excessive but isn’t deliberately or criminally fraudulent.

Underwriting fraud : Dishonest drivers try to lower auto premiums by dishonestly lying on their insurance application or renewal. Among the ruses: registering their vehicles in locales where premiums are lower; low-balling their stated mileage; and saying a commercial vehicle is used mainly for personal use.

Auto insurers lost $16.1 billion due to premium rating errors in private-passenger premiums in 2007. Premium rating errors account for 10 percent of the $166 billion in personal auto premiums. Fraud accounts for a portion of these losses. Some drivers will seek to lower their premiums by schemes such as deliberately misrepresenting mileage driven, how the vehicle is used and where it’s registered. (Quality Planning Corporation, 2008)

Workers compensation

Some businesses illegally try to avoid paying full state-required workers compensation premiums. One scheme involves paying workers off the books because the number of employees is a factor in determining a business’s premiums. Another scheme involves misclassifying employees in high-risk jobs as holding lower-risk jobs.

At least 50,000 construction workers in New York City — one of four —are paid off the books or misclassified as independent contractors. (Fiscal Policy Institute, 2007)

Those schemes stole $489 million in workers compensation premiums, taxes and other expenses in 2005. That figure could reach $557 million in 2008. (ibid)

More than 39,500 employers misclassify 704,785 workers — or 10.3 percent of the workforce — throughout New York State each year. (Linda H. Donahue, James Ryan Lamare, and Fred B. Kotler,Cornell University, 2007)

In construction, 45,474 workers — or 14.8 percent of New York’s workforce — are misclassified as independent contractors. (ibid)

Employers in high-risk California industries may hide up to 75 percent of their payroll — or $100 billion — for the most-dangerous jobs. This forces honest employers to pay workers comp premiums as much as eight times higher than if everyone paid their fair share. (Frank Neuhauser and Colleen Donovan, University of California-Berkeley, 2007)

Every $1 invested in workers compensation anti-fraud efforts has returned $6.17, or $260.3 million total in 2006-2007. (California Insurance Department, 2007 annual report)

Workers comp insurers in Massachusetts lose $100 million a year in unpaid premiums to businesses that illegally pay workers cash under the table or falsely label employees as independent contractors. (Social and Economic Costs of Employee Misclassification in Construction, Harvard University, December 2004)

As many as one of seven construction workers in Massachusetts is hired off the books or illegally classified as independent workers. (ibid)

Consumer attitudes

Consumer tolerance of insurance fraud remains relatively high, public-opinion polls have consistently shown in recent years. The coalition’s study is the newest national research into what people think about this crime.

One of five U.S. adults — about 45 million people — say it’s acceptable to defraud insurance companies under certain circumstances. Four of five adults think insurance fraud is unethical. (Four Faces of Insurance Fraud, Coalition Against Insurance Fraud, 2008)

Nearly one of four Americans says it’s ok to defraud insurers (8 percent say it’s “quite acceptable” to bilk insurers, and 16 percent say it’s “somewhat acceptable.”) (Accenture Ltd., 2003)

About one in 10 people agree it’s ok to submit claims for items that aren’t lost or damaged, or for personal injuries that didn’t occur. Two of five people are “not very likely” or “not likely at all” to report someone who defrauded an insurer. (ibid)

Consumer tolerance of specific insurance schemes has increased over the last 10 years, reveals the Four Faces study. There is a decline in the number of Americans who think it’s unethical to:

misrepresent facts on an insurance application to lower their premiums (82 percent today, down from 91 percent in 1997);

file a claim for damage that occurred before the damage was covered (85 percent, down from 91 percent);

inflate a claim to cover the deductible (84 percent, down from 91 percent); and

misrepresent an incident in order to be paid for an uncovered loss (84 percent, down from 92 percent).

Consumer attitudes toward insurance providers also have declined over the last 10 years, according to Four Faces:

62 percent of people have a positive attitude about insurance companies (down from 72 percent in 1997); and

Fewer than two of five adults feel positively about the insurance industry as a whole (down from slightly more than 50 percent).

Health insurance

In general

(National Health Care Anti-Fraud Association, 2008)

Private health insurance

Every $2 million invested in fighting health-care fraud returns $17.3 million in recoveries, court-ordered judgments, plus bogus claims that weren’t paid and other anti-fraud savings. (National Health Care Anti-Fraud Association, 2008)

The average health insurer’s anti-fraud investigative unit has an annual budget of slightly more than $1.9 million and 19 fulltime employees. (ibid)

The average health insurer has 363 open cases in 2007, and each insurer investigation unit handled an average of 791 cases total for 2007. (ibid)

More than seven of 10 insurer investigative units use fraud-detection software. (ibid)

Drug diversion

Insurance fraud is a major financier of America’s epidemic diversion of addictive prescription drugs such as OxyContin, according to Prescription for Peril, a December 2007 report by the Coalition Against Insurance Fraud.

Drug diversion costs health insurers up to $72.5 billion a year in bogus claims involving opioid abuse alone;

Private health insurers lose up to $24.9 billion annually;

Diversion costs individual private insurance plans up to $857 million annually;

Nearly half of Aetna’s member/pharmacy anti-fraud team’s caseload involved prescription benefits in 2006;

Expenses of suspected doctor-shopping members of Medco Health Solutions were nearly seven times higher than the monthly cost of members without excessive prescription claims; and

Abuse suspects incurred $41 in claims for office visits and outpatient treatment for every $1 in narcotic prescription claims against WellPoint.

Whistleblower Lawsuits

The federal False Claims Act allows whistleblowers to obtain a portion of any federal civil recoveries stemming from the whistleblower’s efforts to expose fraud against programs. Whistleblowers account for a major portion of healthcare convictions because they tend to be insiders at the offending healthcare organizations, and thus have unique access to information needed to charge and convict.

$1.55 billion in civil settlements and judgments from 218 cases in 2007 in which the Department of Health and Human Service was the primary client agency. (U.S. Department of Justice)

$13.2 billion in total civil settlements from 3,665 cases from 1987 through 2007. (ibid)

Whistleblowers received an average of 16.84 percent of recoveries when the federal government intervened. (Taxpayers Against Insurance Fraud, 2008)

The federal government recovers $15 for every $1 invested in False Claims Act health-care investigations and prosecutions. (Taxpayers Against Fraud, 2008)

Medicare Fraud

Medicare’s annual anti-fraud budget is $465 billion. (Miami Herald, August 11, 2008)

Medicare and Medicaid made an estimated $23.7 billion in improper payments in 2007. These included $10.8 billion for Medicare and $12.9 billion for Medicaid. Medicare’s fee-for-service reduced its error rate from 4.4 percent to 3.9 percent. (U.S. Office of Management and Budget, 2008)

Medicare and Medicaid lose an estimated $60 billion or more annually to fraud, including $2.5 billion in South Florida. (Miami Herald, August 11, 2008)

Every $1 spent on Medicare fraud prevention would stop $10 in fraud. (U.S.Department of Health and Human Services) (Miami Herald)

Medicare spends less than 0.2 cents of every $1 of its $456 billion annual budget combating fraud, waste and abuse. (Miami Herald, August 11, 2008)

Medicare paid dead physicians 478,500 claims totaling up to $92 million from 2000 to 2007. These claims included 16,548 to 18,240 deceased physicians. (U.S. Senate Permanent Committee on Investigations, 2008)

Nearly one of three claims (29 percent) Medicare paid for durable medical equipment was erroneous in FY 2006. (Inspector General report, Department of Health and Human Services, August 2008)

Medicare and private health insurers pay up to $16 billion a year for needless imaging tests ordered by doctors. (American College of Radiology, 2004)

Medicaid Fraud

The 50 state Medicaid fraud control units obtained a collective 1,205 convictions, and claimed total recoveries of more than $1.1 billion in court-ordered restitution, fines, civil settlements, and penalties in FY 2007. (annual report, Office of Inspector General, U.S. Department of Health and Human Services)

Of the 3,308 persons and entities excluded from participation in Medicare, Medicaid and other federal health care programs in FY 2007, 805 were based on referrals made by state Medicaid fraud control units. (ibid)

The number of successful civil actions totaled 607. (ibid)
More than 61 percent of medical providers (4,319 total) banned from state Medicaid programs in 2004 and 2005 didn’t show up in the federal database of state-banned providers. This makes it easier for banned providers to set up shop in other states and continue doing business with federal health-insurance programs. (Office of Inspector General, U.S. Department of Health and Human Services, 2008)

FBI Enforcement (FY 2007)

The FBI investigates persons and organizations that defraud public and private health-insurance programs. The FBI combats fraud and abuse jointly with other federal, state, and local law-enforcement agencies, plus the Centers for Medicare and Medicaid Service, private health insurers and other organizations.

2,493 health-fraud cases investigated, resulting in 839 indictments and 635 convictions. Other cases also are pending plea agreements and trials. (FBI Financial Crimes Report to the Public, FY 2007)

$1.12 billion in court-ordered restitution, $4.4 million in recoveries, $34 million in fines, and 308 seizures valued at $61.2 million. (ibid)

Medical Identity Theft

Medical identity theft is the fastest-growing form of identity theft. (World Privacy Forum, 2006)

Between 250,000 and 500,000 Americans have been victimized by medical identity theft. (World Privacy Forum, 2006)

Medical identity theft comprises about 3 percent (249,000) of 8.3 million overall victims of identity theft. (Federal Trade Commission, Identity Theft Survey Report, 2007)

Nine million adult Americans (4 percent) believe they or a family member has been victimized by medical identity theft. Just under half (47 percent) believe computerized health records are stolen most often. (Harris Interactive, 2008)

75 percent of Americans age 18-49 and 78 percent of Americans age 50-plus are concerned about being victims of identity theft in general. 25 percent of Americans aged 18-49 aren’t concerned and 22 percent of Americans age 50-plus aren’t concerned. (AARP public opinion poll, 2008)

36 percent of Americans age 18-49 and 43 percent of Americans age 50-plus carry their Social Security card in their wallet. (ibid)

40 percent of Americans age 18-49 carry and 57 percent of Americans age 50-plus carry their insurance or Medicare card in their wallet with an ID number that is their or their spouse’s ID number. (ibid)

IRS enforcement

The IRS combats criminal tax and money laundering violations involving insurance claims and fraud against insurance companies. Agent/broker premium diversion and re-insurance fraud are among the internal fraud schemes. Phony insurance companies, offshore/unlicensed Internet insurers and staged auto accidents are among the external fraud schemes.

30 insurance-fraud investigations initiated
21 prosecutions recommended
21 indictments
12 sentenced
83.3 percent incarceration
19-month average to serve

Slip & fall injuries

Swindlers will pretend to slip or trip and injure themselves to fraudulently collect insurance settlements or other payouts. Often the swindlers threaten an expensive lawsuit to extort fast payouts. Businesses are frequent targets.

Three percent of slip-and-fall injuries are fraudulent. (National Floor Safety Institute)

Bogus injury claims and related costs such as litigation amount to nearly $2 billion a year. (ibid)

ANTI-FRAUD LEGISLATION

Insurance fraud is a specific crime in every state except Alabama, Oregon and Virginia.

Employment & education

Employment of insurance fraud investigators, claims adjusters, appraisers and examiners, is expected to grow by 9 percent from 2006 to 20016. This growth is consistent with the average for all occupations. (U.S. Department of Labor, Occupational Outlook Handbook, 2008-09 edition)

The education of fraud investigators, adjusters, appraisers and examiners is divided as follows:

— High school or less: 22 percent
— Some college, no degree: 17 percent
— Associate’s degree: 12 percent
— Bachelor’s degree: 45 percent
— Graduate degree: 5 percent.
(ibid)

Older statistics

People's Attitudes About Fraud

Consumers

Nearly one of four Americans say it’s ok to defraud insurers, says a survey by the consulting firm Accenture Ltd. Some 8 percent say it’s “quite acceptable” to bilk insurers, while 16 percent say it’s “somewhat acceptable.” About one in 10 people agree it’s ok to submit claims for items that aren’t lost or damaged, or for personal injuries that didn’t occur. Two of five people are “not very likely” or “not likely at all” to report someone who ripped of an insurer. Click here for the complete study. Accenture Ltd. (2003)

Nearly one of 10 Americans would commit insurance fraud if they knew they could get away with it. Nearly three of 10 Americans (29 percent) wouldn't report insurance scams committed by someone they know. Progressive Insurance (2001)

More than one of three Americans say it's ok to exaggerate insurance claims to make up for the deductible (40 percent in 1997). Insurance Research Council (2000)

One of four Americans says it's ok to pad a claim to make up for premiums they've already paid. Insurance Research Council (2000)

One of three Americans says it's ok for employees to stay off work and receive workers compensation benefits because they feel pain, even though their doctor says it's ok to return to work. Insurance Research Council (1999)

Seven of 10 Americans say workers comp fraud is a widespread problem, and 45 percent say fraud is increasing. Insurance Research Council (1999)

One of five employed workers says they've been aware of fraud in their workplace. Insurance Research Council (1999)

Four of five Pennsylvanians reviewed their medical bills for accuracy in 1999 (seven of 10 in 1997). Insurance Fraud Prevention Authority of Pennsylvania (1999)

Nearly 16 percent of Pennsylvanians say they're willing to receive bogus workers comp payments (25 percent in 1997). Insurance Fraud Prevention Authority of Pennsylvania (1999)

Three of four Americans aren't willing to pay more for their auto coverage to allow bad-faith third-party lawsuits. Insurance Research Council (2000)

Physicians

Nearly one of three physicians say it's necessary to game the health care system to provide high quality medical care. Journal of the American Medical Association (2000)

More than one of three physicians says patients have asked physicians to deceive third-party payers to help the patients obtain coverage for medical services in the last year. Journal of the American Medical Association (2000)

One of 10 physicians has reported medical signs or symptoms a patient didn't have in order to help the patient secure coverage for needed treatment or services in the last year. Journal of the American Medical Association (2000)

Fraud Losses & Costs

Personal Injury Protection (PIP)

More than one of every three bodily-injury claims from car crashes involve fraud. Insurance Research Council (1996)

17-20 cents of every dollar paid for bodily injury claims from auto policies involves fraud or claim buildup. Insurance Research Council (1996).

Fraud adds $5.2-$6.3 billion to the auto premiums that policyholders pay each year. Insurance Research Council (1996)

Claims for bodily injuries under the Personal Injury Protection portion of New York's no-fault auto coverage rose 79 percent between 1999 and 2000, compared to 25 percent in all no-fault states. Insurance Research Council (2001)

Insurers increased auto premiums up to 25 percent for New York City in 2001. Insurance Information Institute (2001)

The average PIP claim is $7,950 in New York State — 47 percent higher than the national average. Insurance Information Institute (2001)

Fraud costs each insured driver in New York State $75-$115 per year. Insurance Information Institute (2001)

PIP claims in New York State rose nearly one third in 2000, more than twice as fast as second-place Florida. Insurance Information Institute (2001)

The average PIP claim in New York State jumped 19 percent over the first nine months of 2000, and 64 percent between 1995 and 3Q 2000. This compares to a 33-percent increase for other states. Insurance Information Institute (2001)

Auto insurers in New York pay out nearly twice as much in PIP claims as they collect in premiums. For every $100 auto insurers received, they paid $177 in claims through 3Q 2000. Insurance Information Institute (2001)

Arson

Arson and suspected arson account for nearly 500,000 fires a year, or one of every four fires in the U.S. National Fire Protection Association (1998)

Only 2 percent of arson or suspect arson fires result in convictions. National Fire Protection Association (1998)

Arson and suspected arson are the largest causes of property damage in the U.S. National Fire Protection Association (1998)

Anti-Fraud Efforts

State Fraud Bureaus (2001-2002)

Criminal convictions increased 31 percent. Coalition Against Insurance Fraud (2004)

Cases presented for prosecution rose 14 percent. Coalition Against Insurance Fraud (2004)

Investigations initiated increased by nearly 18 percent. Coalition Against Insurance Fraud (2004)

Referrals of suspected fraudulent actions were up 4.5 percent. Coalition Against Insurance Fraud (2004)

Property-casualty insurers

Fraud is a serious problem, half of all property-casualty insurers say. Insurance Research Council-Insurance Services Office (2002)

The amount of fraud their company has experienced has increased over the last three years, more than one of three insurers say. Nearly half say fraud has stayed the same. Insurance Research Council-Insurance Services Office (2002)

About 11-30 cents — or more — of every claim dollar is lost to "soft" fraud (smalltime cheating by normally honest people), nearly half of property-casualty insurance companies say. Hardcore scams steal only a small fraction of that money. Insurance Research Council-Insurance Services Office (2002)

Only one of four insurers thoroughly investigate cheating on insurance applications. Even fewer insurers investigate insiders such as employees and agents who commit premium fraud. Research Council-Insurance Services Office (2002)

More than two of five property-casualty insurers have increased spending to fight fraud over the last three years. More than four of five insurers have formal anti-fraud programs. Insurance Research Council-Insurance Services Office (2002)

Nearly three of five insurers say their efforts to combat are only moderately effective, or lower. Research Council-Insurance Services Office (2002Fraud-control spending by property-casualty insurers rose from $200 million in 1992 to $650 million in 1996. Insurance Research Council (1997)

98 percent of property-casualty insurers have a fraud-control program, and most insurers have special investigation units. Insurance Research Council (1997)

Half of property-casualty insurers have broad, public-information programs directed against fraud. Insurance Research Council (1997)

Workers Compensation

Without workers compensation anti-fraud laws, claims would've been 10.4 percent higher in 1997, the average claim would've been 7.3 percent larger and system costs per worker would've been 18.5 percent higher. National Council on Compensation Insurance (1999)

Healthcare

In 1996, Congress funded an added $548 million over seven years for health-care fraud enforcement. FBI (2001)

Health insurers save $11 for every $1 they spend fighting fraud – an average of $5.5 million per company in 1998. Health Insurance Association of America (1999).

Federal convictions for health fraud, waste and abuse rose 57 percent between 1999 and 1998. U.S. Department of Health and Human Services (2000)

More than nine of 10 health insurers (95 percent) have anti-fraud training for employees, and nearly three of five (56 percent) have fraud hotlines. Health Insurance Association of America (1999)

The FBI secured 560 convictions for healthcare fraud in 2001, a four-fold increase from 1992. The bureau also racked up 741 indictments in 2000, up from 615 in 1999. FBI (2001)

Medicare lost $11.9 billion to waste, fraud and mistakes in 2000, half of what was lost five years ago from improper payments to doctors and hospitals. U.S. Department of Health and Human Services (2001)

Fraud amounts to 10 percent of U.S. healthcare expenditures. Government Accounting Office (1992), National Health Care Anti-Fraud Association (2001)

Seniors and other taxpayers pay up to $1 billion a year in inflated drug prices due to potential fraud and loopholes in Medicare. The overpayments represented 1/5 of Medicare spending in 2000. Government Accounting Office (2001)

80 percent of healthcare fraud is by medical providers, 10 percent is by consumers and the balance is by other sources. Health Insurance Association of America (1998)

The U.S. government recovered more than $8 for every dollar spent fighting health care fraud and abuse by using the False Claims Act. New Directions for Policy (2001)

Identity Theft

Thieves stole the identities of 700,000 Americans last year. The Privacy Clearinghouse (2000)

Identity theft in general cost $745 million in 1997, up from $450 million in 1996. U.S. Secret Service (1998)

Abuse of Social Security numbers nearly tripled between 1998 and 1999, and four of every five calls to the Social Security Administration's fraud hotline involve identity theft. Social Security Administration (1999)

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