Anti-Fraud Drive Proves Costly for Employees
Benefits: Ten-year crackdown on false injury claims in California is part
of a national trend to shift workers' comp costs from employers and
insurers to workers, experts say.
By TED ROHRLICH and EVELYN LARRUBIA, Times Staff Writers
A
decade-old campaign against workers' compensation fraud in California is
part of a much broader national effort to save money for employers and
insurers at the expense of workers, according to legal scholars and
researchers who specialize in the
field.
The effort to shift costs from
employers and insurers to workers took shape in the late 1980s, and
gathered steam in the early 1990s when the nation's economy was staggering
from a recession. It took different forms in different states, but it
almost always included an anti-fraud element around which popular and
legislative support coalesced for other, more technical changes that often
had far greater impacts.
"It was a
crisis, and the insurers needed ways to persuade the legislatures to
restrict their costs," said Edward Welch, director of the Workers'
Compensation Center at Michigan State University. "Fraud was one of the
images they used to justify narrowing eligibility, changing the way you
measure benefits and basically saving money for employers at the expense
of injured workers."
Spokesmen for
insurance associations deny any
conspiracy.
But the overall result has
been a boon for business and a burden for workers. Insurers and employers
have cut costs while workers have lost
benefits.
Today, many observers believe
that prosecutions and workplace practices have left some workers scared to
file legitimate claims. Many of those who do file get less than they once
would have: Benefits in some cases have shrunken, eroded either by
inflation or direct cutbacks. Some injuries are no longer covered at
all.
With the exception of Southern
California, where peculiar circumstances created a significant fraud
problem centered on medical-legal mills in the late 1980s and early 1990s,
no evidence has surfaced suggesting that workers lie very often about
their on-the-job injuries.
"Most
thoughtful people who do a lot of research in workers' comp would come to
the conclusion that there is not a lot of fraud in the system," said Rand
Corp. economist Robert Reville. "By making a claim that there was a lot of
fraud, I think they [insurance carriers] were benefiting at workers'
expense [and] discouraging workers from filing
claims."
Since the Alliance of American
Insurers announced that it was making workers' compensation insurance
fraud a legislative priority in 1989, more than two-thirds of the states,
including California, enacted laws that made insurance fraud a felony.
California and many other states also launched formal anti-fraud
enforcement efforts. Very little fraud--involving far less than 1% of all
cases--has been proven.
Meanwhile, other
legislative changes engineered by employers and insurers have stretched
the fundamental bargain behind America's system of compensating injured
workers. That bargain was forged nearly a century ago, when workers gave
up the chance to sue employers in court for huge sums for on-the-job
injuries. In return, workers got the certain ability to collect modest
sums regardless of who was at fault.
Over
the last decade, employers and insurance carriers have saved billions of
dollars as legislatures in many states rolled back benefits, more narrowly
defined workplace injuries and introduced impediments to collecting for
them.
Employer costs declined by more
than one-third as a percentage of payroll and by $8.5 billion in constant
dollars, according to the nonprofit, nonpartisan National Academy of
Social Insurance.
Insurers went from
losing eight cents on each dollar of premium to making 15 or 20 cents,
said John F. Burton Jr., dean of the Rutgers University School of
Management and Labor Relations.
Labor
"got handed our shorts," said Jim Ellenberger, assistant director of
occupational safety and health for the national AFL-CIO.
Major
Changes in the Law
Among the key
changes, according to workers' compensation economists and legal scholars,
were that:
* Some states reduced payments
for the partial but permanent disabilities that account for the majority
of workers' compensation benefits. Connecticut slashed these
benefits--which are intended to compensate for current and future lost
earnings--by 27%. Florida cut in half the length of time an injured worker
is eligible to receive them.
Texas
employed a much more conservative standard for calculating them. And
California let inflation do the work. For about half of injured workers,
those with relatively minor permanent disabilities, benefits were held
constant in the face of rising costs. The effect: Benefits dropped 40% in
value since 1984.
* Other states such as
Oregon, the Dakotas and Nevada changed standards of proof for workplace
injuries. They required that workers show that their injuries were mainly
work-related, not mainly the result of preexisting health
conditions.
That was a big change,
particularly for older workers who were more likely to have chronic,
underlying conditions aggravated by work. Under the new standard, an
Oregon court found that a worker who had occupationally caused lung
disease was not eligible for benefits because his preexisting breathing
problem left him susceptible to the
disease.
* Other states reduced or
eliminated compensation for certain types of hard-to-validate injuries.
Virginia, Montana and Louisiana tightened rules on compensating workers
for the fastest-growing type of ailment, involving musculoskeletal
problems from repetitive stresses of activities like scanning prices on
grocery checkout lines and typing all day at computer
keyboards.
Kentucky, Florida, Oklahoma,
Wyoming and West Virginia barred mental stress claims arising from work
unless the stress arose from a physical injury at
work.
California required an employee to
prove that work, rather than some other aspect of life, was the
predominant cause of the stress, and it outlawed payments for any stress
case in which the employer didn't intend to cause
harm.
The changes amounted to a major
retrenchment, reversing decades of rising benefits and expanding coverage,
and profoundly altering the understanding of how society would come to the
aid of workers who were hurt on the
job.
State legislatures enacted the
changes after a period of rising costs in the 1970s and 1980s. Despite the
rising costs, many insurers were still able to make handsome profits. They
passed on increased costs to their employer clients and enjoyed large
profits from investing in high-yield
bonds.
But as those investment
opportunities disappeared in a period of low inflation, the industry
declared itself in a crisis. When recession hit, employers joined
them.
In state after state, employers
warned legislatures that they would have to pull up stakes and leave if no
solutions to skyrocketing premiums were
found.
"This whipsawing between states"
fed "the benefits-cutting frenzy," said Timothy Morse, a workers'
compensation researcher at the University of
Connecticut.
As benefits were cut,
reported on-the-job injuries
plummeted.
The big question, even today,
is: Why?
There are a number of
possibilities. Some point to the healthy economy. Claims tend to fall off
in good economic times, economists say, when workers apparently would
rather keep working, even if it hurts, than lose money collecting workers'
compensation. Others cite safer workplaces or the anti-fraud campaign
itself.
Fear
of Filing Insurance Claims
Since
fraud, by its nature, involves deceit, no one knows how much of it there
is or was. But that hasn't stopped people from speculating. At the height
of anti-fraud fever in California, then-Gov. Pete Wilson came in at the
high end, asserting without proof that 30% of all claims were
bogus.
"We cringe when we hear the
industry say 30% of workers' comp claims are fraudulent," said Dennis Jay,
director of the national Coalition Against Insurance Fraud. "But is it
10%? Eight percent? Five percent?"
Jay
said he did not know.
Assuming that even
the highest estimates are correct, recent academic studies strongly
suggest that American workers are more likely to be stoics than
cheats.
In a nationwide survey of 26,000
households containing 70,000 people conducted in 1989, Rand found that
one-quarter of the households contained people who had been injured on the
job.
But only half of those with
workplace injuries that required doctor or even hospital care filed
workers' compensation claims. Even among those who reported missing more
than seven days of work, fewer than half said they filed
claims.
More recently, studies in
Michigan, Connecticut and Maryland have found that only one out of four
workers being treated for work-related musculoskeletal problems filed
claims.
Many said they did not file
because they did not think their injuries were serious enough or because
they could get coverage through group health
insurance.
But 20% of the workers in the
Michigan study who did not file also cited fears that they would be fired,
or denied promotions, or thought ill of by their colleagues or
bosses.
The insurance industry says it is
sure that the anti-fraud campaign has worked. Economists working for the
industry did a study concluding that without the campaign, costs would be
nearly 20% higher.
But, if that is
correct, is that a good thing? Have only fraudulent claimants been driven
from the system?
The anti-fraud campaign
has also grafted a kind of social stigma onto the filing of a claim, said
Boston University professor Leslie
Boden.
Recipients of workers'
compensation are now widely viewed as malingerers or cheats, said Boden,
not as hard workers who have been injured yet will receive meager
benefits.