The Crime That Makes You Pay

Due to the economic downturn, our government is spending billions of taxpayers' dollars to solve the financial crisis. But did you know insurance fraud, the second largest white-collar crime, also costs the American public approximately 96.2 billion dollars per year in increased premiums alone? A study in 2001 by Conning and Company estimated that insurance fraud increases the average American household costs by over $5000.00 per year when the rise in premium, and goods and services are taken into consideration. Insurance Fraud is a crime that makes you pay.

Frauds have been detected in almost every type of insurance: healthcare insurance, automobile insurance, life insurance, or even workers' compensation insurance. In the Medicare industry, some physicians achieve their financial gain by scheduling extra visit for patients or providing and subsequently billing for treatments that are not medically necessary. These fraud activities cost seniors and other taxpayers to pay up to $1 billion a year in inflated drug prices due to potential fraud and loopholes in Medicare. For the workers' compensation insurance, a case from Pennsylvania Insurance Fraud Prevention Authority (IFPA) indicates that an owner of a insurance agency fraudulently placed five of his employees on unemployment status to decrease his agency's wage expense. He only paid his employees partial wages in addition to the unemployment fund from the State government. There are many more insurance fraud cases that you can find in the news.

Cases reported by the news media in 2008

Go Figure: Fraud Data. (2009). Retrieved January 10, 2009, from Coalition Against Insurance Fraud: http://www.insurancefraud.org/stats.htm

This article is part of the Insurance Fraud Educational Campaign launched by Students In Free Enterprise (SIFE) at University of Nebraska - Lincoln (UNL). The campaign aims to educated college students and the general public regarding the consequences of insurance fraud. SIFE team members have produced an anti-insurance fraud commercial, created an educational website, and posted information across campus to increase awareness of the problem.

If you have any questions, please contact UNL SIFE at sife@unlnotes.unl.edu.

Resource: Coalition Against Insurance Fraud: www.insurancefraud.org.

Overview

"Why My Insurance Fee Increased?" - Insurance Fraud Impact

Generally, insurance fraud activities, from exaggerating claims to deliberately causing accidents or damage, affect the lives of innocent people, both directly through accidental or purposeful injury or damage, and indirectly as these crimes cause insurance premiums to be higher.

Insurance fraud loss is estimated per year to be $27.6 billion: Insurance fraud, the white collars second most costly offense, costs the American public approximately 96.2 billion dollars per year in increased premiums alone. A study in 2001 by Conning and Co. estimated that insurance fraud increases the average American household costs by over $5000.00/year when the rise in premiums, goods and services are taken into consideration.

What is Insurance Fraud?

Insurance Fraud - The intentional misrepresentation of material facts and circumstances to an insurance company to obtain payment that would not otherwise be made.

• Soft Fraud refers to policyholders exaggerate the legitimate claims.
• Hard Fraud happens when the policyholders deliberately invent a loss, such as a fire, an auto accident, or even a death, that is covered by their insurance policy to collect money illegally from an insurance company.

Medical Insurance Fraud

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)

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)

Property Insurance Fraud

According to estimates by the Insurance Information Institute, insurance fraud accounts for 10%, or about $30 billion, of losses in the property and casualty insurance industries in the United States Property insurance fraud occurs mostly because policyholders can obtain payment that is worth more than the value of the property destroyed. The majority of property insurance crimes involve arson.

Automobile Insurance

Auto insurance fraud always includes organized fraud crime. Organized crime rings in New York City .This practice has caused the cost of claims in New York City to raise by 32.1% in 2006, as opposed to only a 4.5% increase in 1998. Organized gangs involving recruiters, car "passengers," doctors, medical clinics, lawyers are involved in many of the largest staged-accident crimes. The gangs lure motorists into crashes, crash their own cars into each other, or invent "paper" accidents that never happened in order to make large volumes of bogus injury claims. These rings are widespread in several areas of the US, and often involve immigrants as street-level operatives. Many states have passed laws and regulations targeting staged-accident rings, and some have formed taskforces, hired special prosecutors and deployed other resources to shutting down the rings.

Life Insurance

The cheater may murder the policyholder to get payment from insurance company; or the policyholder may try to prove death to get payment. People will fake their deaths so they and their families can collect large life-insurance settlements.

These scams often are committed by foreign nationals living in the U.S. A family member suddenly "dies" while "visiting" relatives in his or her native country - typically a Third World nation. The schemers may bribe local bureaucrats to issue phony death certificates and other documentation. They might even videotape mock funerals and create fake grave plots to support the phony insurance claim. Continued immigration to the U.S. makes this a persistent and costly crime.

Healthcare Insurance

One reason for health care insurance fraud is that the historically prevailing attitude in the medical profession is one of fidelity to patients. Another motivation for insurance fraud in the healthcare industry is a desire for financial gain.

For example, some physicians use several fraudulent techniques to achieve this end: Billing for more expensive treatments than those actually provided; providing and subsequently billing for treatments that are not medically necessary; Scheduling extra visits for patients; referring patients to another physician when no further treatment is actually necessary; Billing for services to family members or other individuals who are accompanying the patient but who did not personally receive any services.

Dishonest dentists will pull teeth, do root canals and drill cavities for people with perfectly healthy teeth. by charging insurers for painful, unneeded and invasive surgeries that often are botched and require more surgery to correct. Sometimes dentists charge insurers and government health programs for surgery and other treatments they never performed. They may also inflate bills by disguising routine procedures such as tooth polishing as more elaborate and expensive work. Dentists also are increasingly involved in drug diversion schemes.

Difficulties & Anti-Fraud Efforts

Due to the hidden nature of this crime, it's difficult, if not impossible, to accurately measure the amount of fraud. Much fraud goes undetected, although more people are getting caught all the time. Even when detected, a lot of fraud goes unreported. The lack of uniformity in reporting requirements and systems from state to state make the task of gathering good statistics that much harder.

• Criminal convictions increased 31 percent.
• Cases presented for prosecution rose 14 percent.
• Investigations initiated increased by nearly 18 percent.
• Referrals of suspected fraudulent actions were up 4.5 percent.

As Reported by State Insurance Fraud Bureaus 2007 (statistics are aggregate)

Source: Coalition Against Insurance Fraud (2004)

Statistics

• Received a total of 303 referrals
• 52 cases were sent to prosecution consideration
• 71 cases were closed due to insufficient evidence
• 65% of the referrals came from Douglas, Sarpy, and Lancaster Counties while the balance, 35%, were located in greater Nebraska.
• 82% of the IFPD referrals were property and casualty fraud.
• 11% of the IFPD referrals were life and health fraud.
• 7% of the IFPD referrals were internal and agent fraud.
• There was a total of more than $2.8 million dollars of actual and potential losses

Fraud Category	Insurance Type	Cases	Reported Losses
Total		303	$2,859,561.51
Agent	Internal	19	110,146.98
Arson	Property/Casualty	6	506,590.00
Auto Bodily Injury	Property/Casualty	33	90,238.55
Auto Property	Property/Casualty	90	137,841.14
Commercial Auto	Property/Casualty	12	27,635.03
Commercial Property	Property/Casualty	12	202,159.54
Credit	Property/Casualty	10	61,175.16
General Liability	Property/Casualty	14	20,729.67
Homeowner	Property/Casualty	28	1,194,802.03
Internal	Internal	1	0.00
Life	Life/Health	4	4,000.00
Medical/Health	Life/Health	28	359,029.50
Other	Unknown	3	0.00
Title	Internal	0	0.00
Workers' Compensation	Property/Casualty	43	145,213.91

Republished with permission of the Insurance Fraud Prevention Division.

Staged Auto Accidents

One type of staged accident involves "a vehicle that is positioned in front of an unsuspecting motorist and brakes suddenly, causing a rear-end crash". According to The National Insurance Crime Bureau, the top 10 cities with the highest numbers of staged auto accidents are the following:

1. Miami, FL
2. Los Angeles, CA
3. Houston, TX
4. Chicago, IL
5. Philadelphia, PA
6. Tampa, FL
7. Cleveland, OH
8. Orlando, FL
9. New York, NY
10. Boston, MA

Key State Laws Against Insurance Fraud

State	Insurance Fraud Classified As A Crime	Immunity Statutes	Fraud Bureau	Mandatory Insurer Fraud Plan	Mandatory Auto Photo Inspection
Alabama	✔(1),(2)	✔(3)
Alaska	✔	✔	✔
Arizona	✔	✔	✔
Arkansas	✔	✔	✔	✔
California	✔	✔	✔	✔
Colorado	✔	✔	✔(4)	✔
Connecticut	✔	✔	✔(1)	✔
Delaware	✔	✔	✔
D.C.	✔	✔	✔	✔
Florida	✔	✔	✔	✔	✔
Georgia	✔	✔	✔
Hawaii	✔(1),(5)	✔(5)	✔
Idaho	✔	✔	✔
Illinois	✔	✔
Indiana	✔	✔
Iowa	✔	✔	✔
Kansas	✔	✔	✔	✔
Kentucky	✔	✔	✔	✔
Louisiana	✔	✔	✔
Maine	✔	✔		✔
Maryland	✔	✔	✔	✔
Massachusetts	✔	✔	✔		✔
Michigan	✔	✔
Minnesota	✔	✔	✔	✔
Mississippi	✔	✔(3)	✔(4)
Missouri	✔	✔	✔
Montana	✔	✔	✔(6)
Nebraska	✔	✔	✔
Nevada	✔	✔	✔(4)
New Hampshire	✔	✔	✔	✔
New Jersey	✔	✔	✔(4)	✔	✔
New Mexico	✔	✔	✔	✔
New York	✔	✔	✔	✔	✔
North Carolina	✔	✔	✔
North Dakota	✔	✔	✔
Ohio	✔	✔	✔	✔
Oklahoma	✔	✔	✔
Oregon	✔(1)	✔
Pennsylvania	✔	✔	✔(4)	✔
Rhode Island	✔	✔(1),(3),(5)	✔(1),(4),(7)		✔
South Carolina	✔	✔	✔(4)
Tennessee	✔	✔		✔
Texas	✔	✔	✔	✔
Utah	✔	✔	✔
Vermont	✔	✔		✔
Virginia	✔	✔	✔(7)
Washington	✔	✔	✔	✔
West Virginia	✔	✔	✔
Wisconsin	✔	✔	✔(4)
Wyoming	✔	✔(3)

(1) - Workers compensation insurance only.
(2) - Healthcare insurance only.
(3) - Arson only.
(4) - Fraud bureau set up in the State Attorney General's office.
(5) - Auto insurance only.
(6) - Fraud bureau set up in the State Auditor's office.
(7) - Fraud bureau set up in the state police office.

Source: Property Casualty Insurers Association of America; Coalition Against Insurance Fraud. Republished with permission of the Insurance Information Institute.

Auto Insurance

Bodily Injury Claims:

In 2007, $4.8 billion to $6.8 billion were added in excess payments to auto injury claims.

Underwriting Fraud:

In 2006, auto insurers lost 10 percent of the $166 billion in personal auto premiums to premium rating errors.

Workers Compensation

In 2005 $489 million in worker compensation premiums, taxes and other expenses was being stolen due to the misclassification of New York construction workers.

In the U.S anti-fraud efforts have returned $6.17, or $260.3 million total in 2006-2007, for every $1 invested in workers compensation.

Consumer Attitudes

One out of five U.S adults thinks that it is acceptable to swindle insurance companies under certain conditions.

More Americans think that it is acceptable to misrepresent facts to lower the premium, down from 91% in 1997 to 82% in 2007.

Fewer than two out of five adult Americans have a positive opinion towards insurance companies.

Health Insurance

In the U.S, at least $68 billion on healthcare is lost to insurance fraud, annually.

Private Health Insurance

In 2007, there was an average of 363 open cases for each health insurer, while each insurer investigation unit processed an average of 791 cases over the course of the year.

Drug Diversion

Health insurers spend up to $72.5 billion a year on drug diversion.

Every year, private health insurers suffer $24.9 billion in losses due to drug diversion.

Whistleblower Lawsuits

There was a total of $13.2 billion in civil settlements from 3,665 cases from 1987 to 2007.

Medicare Fraud

An estimated amount of $60 billion or more was lost to Medicare and Medicaid fraud.

$10 in fraud would be stopped for every $1 spent on Medicare Fraud prevention.

29% of Medicare claims for durable medical equipment were fraudulent.

Up to $16 billion paid by Medicare and private health insurers annually for redundant doctor examinations.

Medicaid Fraud

In 2007, there were a total of 1,205 convictions from 50 states Medicaid fraud control units, and a total recovery of more than $1.1 billion.

At least 61% of medical providers, which were banned from state Medicaid in 2004 and 2005, did not enter the federal database.

FBI Enforcement

In 2007, out of 2,493 health-fraud cases being investigated, there were 839 indictments and 635 convictions being conducted

In 2007, there were court-ordered compensation of $1.12 billion, recoveries of $4.4 million, fines of $34 million, and a total of $61.2 million in 308 seizures

Medical Identity Theft

3% of 8.3 million victims of identity theft fall under the category of medical identity theft

40% of 18-49 year-old Americans as well as 57% of Americans aged 50 and above have their insurance or Medicare card but with their spouse’s ID number

Republished with permission of the Coalition Against Insurance Fraud, www.InsuranceFraud.org.

Recent Cases

Medical Insurance Fraud - "Let Me Help You Up"

A man got more than monetary compensation when he filed claims for injuries from a fall in front of a Philadelphia check cashing business in 2007. He got arrested on criminal charges.

The insurance company investigators discovered the claim was fake when one witness said the man never fell. Further investigation revealed this was only the tip of the iceberg. They discovered that the man's attorney had filed a large number of false insurance claims on behalf of his clients over a 25 year period.

The attorney had recruited almost 100 people, called "runners," to help him find claimants and fake injuries for false insurance claims. What's more, he even gave instructions to these recruited clients to obtain medical care from multiple physicians and to seek more expensive medical treatment so the larger medical bills would generate greater insurance compensation.

Over the past 25 years, four runners alone were responsible for over 300 claims, generating over $2.5 million in payouts from insurance companies. The attorney, four of his runners, and 10 claimants were arrested and others have criminal charges pending.

Workers' Compensation - "Who did I pay insurance to?"

"Thomas Hurd, a former Bucks County insurance broker, was arrested in May after taking advantage of four insurance premium finance companies and the Commonwealth's Bureau of Unemployment Compensation out of a total of more than $1 million between 2001 and 2003."

Thomas Hurd owned his own insurance agency business, which acts as a middle-man between four premium finance companies and his clients. He sold insurances and acted as a broker to transportation companies. He asked these clients from the transportation businesses to follow his insurance policy. He would then collect all the insurance payments that were meant for the four premium finance companies and put them in his own pocket. After a period of time, the contracts with the finance companies were canceled because of unpaid premium, which left his clients uninsured.

In addition, Hurd fraudulently placed five of his employees on unemployment status to decrease his agency's wage expense. He only paid his employees partial wage in addition to the unemployment fund from the State government. By doing so, the employees got the same payment while Hurd saved lots of money because the Department of Unemployment Compensation paid part of his employee's salary.

Hurd received 11.5 to 23 month in prison and a consecutive seven years probation and court costs. In addition, he needs to pay back $1,019,757.98 to the four finance companies and the Department of Unemployment Compensation.

Property Insurance - "Please steal my computer"

A previous employee of a Delaware County pizza shop asked its owner George Zarganakis to pay his salary for past work. Since he was short on cash, George came up with a plan to earn some extra money. He asked this employee to break into his house and steal his Dell computer, and promised to pay him with the insurance compensation.

After the employee take the computer away, George reported it stolen and filed a claim not only for the computer, but some jewelry and cash. His insurance company paid him more than $8000 for what he claimed to be stolen. When the police started to investigate the theft, they overheard a tie which directed the Police to the employee who stole from George's house. The police began to put the real story together during the investigation. By getting a tip, the police talked to this employee, who told the police of the burglary plan without much effort. His claim was supported when the detectives found a voice message in the employee's cell phone from George saying that they needed to work on getting the story straight to deceive the investigators.

"George Zarganakis negotiated a guilty plea, and since then has served time in jail and was ordered to pay restitution".

Automobile Insurance - "Who crashed into whom?"

While cruising along in their Harley Davidson, a man and his friend claimed that a mini-van swerved into them, causing them to crash into three parked cars.

After his face was cut by a truck mirror and his body hit the pavement, one man was badly injured. Instead of calling 911, his friend helped him onto his motorcycle and they arrived at the nearest hospital an hour later. The man later filed a claim to State Farm, which stated that he invested over $30,000 into his motorcycle in addition to the medical treatment.

His story was proven false by a young couple who witnessed the accident. They saw him driving at a high speed, losing control on his own, and crashing into three cars. The couple ran to help after this accident but the man's friend threatened them and told them to go away. The young couple called the police after getting the license plate numbers from both motorcycles. In addition, the investigation showed he had a Blood Alcohol Content of .074, which is over the legal limit. Sentence to this biker is pending.

Healthcare Insurance - "Attorney got sentenced"

A Texas attorney, Eric Amoako, was sentenced to prison in November 2008 because his participation in a life insurance fraud scheme.

From 2005 to 2006, Amoako was involved in a million dollar life insurance fraud case. The case involved paying brokerage to The Hartford Insurance Company claims adjuster for causing checks to be mailed to Amoako and others for services never rendered. Amoako received $236,711 in fraudulent insurance checks from Johnson, a Hartford employee who authorized payments from The Hartford to medical clinics Johnson sent a total of $1,717,737 in checks to four of her clients, including Amoako. Amoako has paid $65,000 in restitution to The Hartford.

Amoako was sentenced 18 months in federal prison to be followed by a three year term of supervised release. More seriously, he has voluntarily surrendered his Texas law license and is ineligible to practice law. (Case is from Insurance Journal website)

Other - "Are you really a lawyer?"

A man stole over $439,000 in total from over 38 clients by establishing phony law firms and pretending to be a lawyer in Philadelphia. The man was never licensed to practice law in Philadelphia, as the investigators found out later after a complaint from one of his clients, that he is hired to perform.

From 1999 to 2005, the man registered 6 companies, including 3 law firms in order to steal goods and services. At least 4 people paid him money for legal services that were never performed. For one case, he was hired by a grocery store owner to resolve an insurance claim. The store was crashed into by an uninsured driver. The fake lawyer convinced the owner to give the insurance payment to him so that he could use it to generate more insurance reward for the store owner. The owner ended up paying over $43,000 in retainer fees and insurance payments to the fake lawyer. However, the owner didn't receive any promised insurance reward.

In addition, the man opened fraudulent banks to generate bank deposits. He signed contracts with various companies for goods and services that he never paid for. "To do so, he used various fake and stolen identities, bad checks, and multiple credit card accounts secured with fraudulent businesses". In addition, he registered five cars with fake insurance information, which led these uninsured cars to operate on the road. He also registered two cars as ambulances for a phony ambulance service.

The sentence for this man is pending.

Prevention

Six Ways to Reduce Insurance Fraud:

1. Drive Defensively
   • Stay a safe distances from other vehicles, so you don't become the victim of a "swoop and squat" forced collision.
2. Keep Your House Safe
   • Lock your doors and don't hide keys outside.
   • If you travel, use timers for lights and appliances and have a friend or neighbor pick up your mail and newspaper.
3. Keep Your Car Safe
   • Keep information out of your car that can be stolen to be used for identity theft, such as insurance card, registration card, credit cards, and spare house or other car keys.
   • "Carry a disposable camera in your glove compartment. If you're in an accident, take as many pictures of the damage and all the people in the other car(s) as you can. Get the passengers names and telephone numbers along with the drivers."
4. Make Sure the Company is Real
   • When you want to buy insurance from a company, "contact your state insurance department to make sure the insurance company is licensed and covered by the state's guaranty fund."
   • Never sign a blank insurance claim forms.
5. Don't Keep Quiet!
   • If you think someone is trying to trick you and that you may be a victim of insurance fraud, then fill out the Fraud Report form on www.naic.org.
6. Watch Out!
   • Be aware of the different types of Insurance Fraud out there, such as: Automobile Accidents, Commercial, Doctor/Lawyer Collusion, General Insurance, Life Insurance, Medical Provider and Workers' Compensation.

Works Cited

• www.InsuranceFraud.org Republished with permission of Coalition against Insurance Fraud (2009, January)
• Wikipedia: Insurance Fraud (2009, January)
• Insurance Fraud Prevention Division. (2009). Retrieved January 10, 2009, from Nebraska Department of Insurance: http://www.doi.ne.gov/fraud/ifpdindex.htm
• Insurance Information Institution. (2007). Retrieved January 11, 2009, from Insurance Fraud: http://www.iii.org/media/hottopics/insurance/fraud/
• Go Figure: Fraud Data. (2009). Retrieved January 10, 2009, from Coalition Against Insurance Fraud: http://www.insurancefraud.org/stats.htm