How You Pay for Insurance Fraud

Without a doubt, insurance premiums are costly. You may feel as if fees are constantly increasing with no end in sight. Worse, you may have no idea why insurance costs as much as it does. In previous articles, The Pinnacle Page has addressed auto-related costs as well as the high cost of prescription drugs. In this issue, we look at how fraud affects your rates.

According to the Coalition Against Insurance Fraud, insurance fraud costs Americans at least $80 billion a year, or nearly $950 for each family. Why is this bill so high?

Companies must employee a cadre of professionals to investigate fraudulent claims. Investigation cost are incorporated into your premium. Investigations include accountants, auditors and legal professionals to review claims, private investigators to make on-site visits and health care professionals to evaluate medical procedures. In addition, companies have research facilities to test products and conduct their own “crime scene” investigations. Investigating insurance fraud requires specific training and expertise with companies frequently relying on retired police investigators. Finally, once fraud is detected, there is a lengthy legal process to gain redress.

Everything which applies to companies also applies to the government. Medicare, Medicaid, Social Security, even FDIC, are all forms of government-provided insurance. Many criminals, thinking the government inept, file fraudulent claims thinking they will not get caught. Your taxpayer dollars pay for necessary prevention and for all the illegal claims which slip through. The United States General Accounting Office estimates that $1 out of every $7 spent on Medicare is lost to fraud and abuse.

Despite all the prevention efforts, Best's Review, a leader in insurance issues and analysis, reported in November 2003 that insurance fraud is so profitable that organized crime syndicates and drug traffickers are becoming increasingly involved. Even without this structured criminal activity, individuals are more than able to put a drain on the system, sometimes in truly egregious ways.

The Manhattan district attorney has prosecuted 358 people for claims made after the 9/11 tragedy. There have been nearly 300 convictions, and other cases are still being processed. For example, a millionaire making renovations to her penthouse prior to 9/11 claimed the renovations as needed repairs due to the explosions. Another couple filed a fake death claim while the “dead” spouse continued entertaining at her home in Georgia.

A minister faked accidents and paid the premiums for parishioners who also faked accidents, splitting the illegal proceeds. One man lost 4 homes to fire in 9 years, a losing streak auditors claim to have a 1 in a trillion chance. He was caught, fortunately, but not before he murdered his first wife for the life insurance money. One couple relied on the bad reputation of a destitute island country to cover their tracks. Fortunately, Haitian cops are just as observant as cops around the world. The man was caught for murdering his wife when she refused to continue with the illegal scheme.

What can you do? First and most obvious, resist the urge to fudge your own claims. Several large insurance companies have joined forces through the National Health Care Anti-Fraud Association to develop sophisticated computer systems to detect suspicious billing patterns. The Federal Bureau of Investigation (FBI) and the Office of the Inspector General (OIG) each have assigned hundreds of special agents to health-fraud projects. State and local governments have hundreds more investigating fraud related to arson and life insurance claims. Even the most professional and creative offenders get caught. The layman scoundrel is an easy catch.

Second, report any suspicions you may have to your agent or law enforcement. For example, a medical office may charge an insurance company for procedures never performed. Or, you may feel an auto accident was staged. If you are ever a witness called to court, don't try to “help”; just report your observations as accurately as possible. A lead from you might trigger a software program to detect many types of fraud by comparing payment reports to records of services rendered. Suspicious practices involving Medicare or other federal programs should be reported to the OIG Hotline (1-800-368-5779).

Finally, protect yourself from fraud. Many scams include offering supplemental coverage with generous benefits for premiums 25% or more below the norm. The companies pay minor claims for several months, but as soon as a major claim is made, they close, leaving customers without coverage and with large medical bills. To protect yourself, purchase insurance coverage from reputable agents with long-term standing in the industry and your community.