In recent years, the insurance industry's focus on cheaters and
malingerers helped push through national workers' compensation reform, a
profitable cost-cutting campaign supported by outrage over alleged abuse of
the system. The problem, however, is that the fraud image is false for the
vast majority of workers' compensation cases. Studies show that only 1 to 2
percent of workers' compensation claims are fraudulent. Certainly, the tens
of thousands of workers killed every year were hardly aiming for a free ride
on their employer's tab.
A national prime time television show aired a show on workers'
compensation fraud, opening dramatically with footage of an old man working
on a farm and a lawyer interviewing that same old man.
Announcer: This is DATELINE Monday, May
29th, 2000. Tonight. It's a crime that takes money out of your pocket, it
starts with a lie.
Unidentified Lawyer: Are you able to lift anything?
Mr. Emil Mentel: A cup.
Lawyer: A cup?
Mr. Mentel: This is how I am.
Announcer: Think he's a broken old man?
Here's what hidden cameras showed he was really doing while collecting money
from you.
Mr. Manny Pageler: The man can grip. I see the legs working, I
see the arms working.
John Larson reporting: When you first saw that videotape of
him throwing that bale of hay, what was your reaction?
Mr. Pageler: I was mad.
Announcer: John Larson, with lies, ripoffs and videotape.
One of the many incendiary messages in this show is in the announcer's very
first line when the viewer is informed that "money is taken right out of
their pocket." Seconds later, the announcer again informs viewers that the
supposedly injured man was throwing hay bales "while collecting money from
you."
Money does not mysteriously float out of viewer's pockets as portrayed by
the sensationalized lead into this segment. First, money paid to workers'
compensation claims, including fraudulent ones, comes directly from
insurance industry profits. Only after dipping into insurer profits does the
cost get passed onto employers purchasing workers' compensation insurance.
Then, the costs are spread over the entire group of policyholders; costs are
not charged back to each employer dollar for dollar with their injuries. If
employer rates do increase, the employer pays for it by one or more of the
following ways: taking it out of the company profits; reducing wages; and
passing it on to consumers. For the smaller number of companies that choose
to self-insure, they pay the claims directly rather than pay premiums for
workers' compensation insurance. Then, and only then, does it come out of
the general public's pocket IF the public chooses to purchase the
specific products made by companies with high workers' compensation rates.
In neither case does money flow out of unsuspecting people's pockets as
portrayed by the insurance industry. ...
The show neglected to mention that in 1998, workers' compensation costs were
only 1.35% of payroll down from a peak of 2.17% in 1993. It also failed to
explain that between 1992 and 1998, workers' compensation costs to employers
decreased 38% as a percentage of payroll while benefits to workers declined
35%.
Instead, in the middle of the segment, reporter John Larson asserts, "After
all, workers' compensation fraud is quite common. The industry estimates it
adds up to $5 billion a year." The American Federation of Labor and Congress
of Industrial Organizations (AFL-CIO) has heard this $5 billion claim
before. The union's workers' compensation newsletter explained, "These
allegations have absolutely no relationship to fact but are based on
'attitudes' about fraud (when respondents say they 'know' of someone
supposedly on workers' comp even though he or she might be capable of
working). A similar claim put workers' compensation fraud at 20 percent of
the total of all claims in California in 1996; the truth was that suspected
fraud that year, according to the state's Department of Insurance, was
three-tenths of one percent!"
In the summer of 2000, an independent team of experts -- J. Paul Leigh,
Ph.D., Steven Markowitz, M.D., Marianne Fahs, Ph.D., M.P.H., and Philip
Landrigan, M.D. -- published a book titled, "Costs of Occupational Injuries
and Illnesses." In it, they estimated the national price tag for fraudulent
claims to be 1.2 billion dollars, roughly one-fourth of the insurance
industry estimate. Conceding that $1.2 billion is still a lot of money, the
Leigh team put it into perspective by explaining that it was only about
two-percent of all workers' compensation dollars spent in their sample year
of 199[2]. Whether the true fraud rate is less than one-percent or as high
as two-percent, it is hardly "quite common."
The Dateline show provoked a response from the AFL-CIO Department of
Occupational Health and Safety, which wrote:
On May 29th NBC Nightly
News and its program Dateline chose again to focus on an instance of worker
fraud in workers' compensation. Despite the fact that studies show that
claimant fraud in this system is minimal -- in California, worker fraud is
less than 3 tenths of 1 percent of all claims; and in Wisconsin, it is less
than 1 tenth of 1 percent of all claims, these exposés, encouraged by
irresponsible allegations from the insurance industry, feed the myth that
workers injured on the job are frauds, cheats, and malingerers.
From the opposite side of the country, Robert Stern of the Washington State
Labor Council, AFL-CIO also sent a letter to Dateline reporter Tom Brokaw.
He received no response.
Dear Mr. Brokaw:
Approximately a week and a
half ago, you broadcast a report on fraud by an injured worker in
California. I frankly do not know whether or not this worker in fact
committed fraud. I have no sympathy for workers who defraud the Industrial
Insurance system. What is astonishing to me is that your report focused on
what is acknowledged by the vast majority of academic experts to be, by far,
the source of the lowest amount of fraud in the Industrial Insurance system.
In every study that has been done on fraud in Workers' Compensation,
employer, insurer, and provider fraud are found to be a dramatically greater
problem than claimant fraud. At a time when injured workers throughout this
nation are suffering enormously from "deform" of the system driven primarily
by insurance providers, your report gave a seriously skewed presentation on
the problems with the system.
I do not believe you have a
serious interest in what is happening to injured workers, but if by chance
you do, I urge you to take a look at the recommendations that were made by
the National Commission on Workers' Compensation during the Nixon
administration (an administration not particularly sympathetic to workers),
then have your staff compare those recommendations to today's reality for
injured workers. We should be ashamed of what we are doing to injured
workers throughout this nation.
I wish I did not feel
cynical about sending you this e-mail. I am sorry that you have bitten the
insurance industry bait, hook, line and sinker.
-- Robert Stern, Special
Assistant to the President,
Washington State Labor Council, AFL-CIO
In the 1970s, benefits to injured workers sunk so low that President Nixon
appointed the National Commission on State Workmen's Compensation Laws to
study the issue. It recommended that all states pay totally disabled workers
at least two-thirds of their salary up to a maximum of the state's average
weekly wage. Still, 17 states have not complied with the Commission's
recommended standard wage.
Studies support Stern's assertion that employer fraud is much greater than
claimant fraud. In Florida, a 1995-1996 compliance audit found that of
22,758 employers contacted, 13.1% were operating without legally required
workers' compensation insurance. In just the next year, the auditors found
the rate grew another half percent. Stating that 13.6% is probably an
underestimate, the audit report explained that in addition to the large
number of employers making no attempt to buy the insurance, still others
cheat the system by intentionally under-reporting or misclassifying its
payroll and by falsely representing employees as independent contractors.
In a 1997 press release, the Wisconsin Department of Workforce Development
stated that workers' compensation fraud in the state was less than
six-tenths of one percent. As recently as November 1, 2000, the same
department reported on fraud from 1994 to 1999 concluding, "The public
perception of workers' compensation fraud is exaggerated," and "The
documented level of workers' compensation fraud in Wisconsin is minimal."
A few months after the Dateline show aired, the LA Times printed,
"Anti-Fraud Drive Proves Costly for Employees," and found, "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."
And the J. Paul Leigh team concluded, "The dollar amount of fraudulent
workers' compensation claims submitted by workers pales in comparison to the
amount for claims never filed and, more importantly, the overall small
amount of total costs paid by workers' compensation systems. Moreover, fraud
committed by insurance companies at workers' expense is likely to be
significant."
The Leigh team further estimated that workers' compensation covers only 27
percent of all occupational illness and injury costs and that taxpayers bear
a financial burden of 28.5 billion dollars -- close to six times the
estimate of workers' compensation fraud -- through Medicare, Medicaid, and
Social Security. Further, they discovered that costs were borne by injured
workers and their families, by all workers through lower wages, by employers
with lower profits and by consumers with higher prices. Specifically, they
estimated that injured and ill workers and their families absorbed about 44%
of the costs. Now that is an injustice worthy of outrage. .
..
Exclusive Remedy
Workers' compensation is hardly the gold mine insurers portray it as. Fat
lawsuits and big settlements are usually completely out of the question.
"When I tell distraught families who just lost someone in a workplace
fatality that they cannot sue the employer, they are shocked. Sometimes it
takes attorneys to tell them the same thing until they believe it," says Ron
Hayes, founder of Families in Grief Hold Together (The FIGHT Project). "I've
had families go to three or four attorneys until they would accept it. It
depends on how angry they are."
The National Academy of Social Insurance, a private non-profit, non-partisan
resource center explains the workers' compensation arrangement this way:
Under the exclusive remedy
concept, the worker accepts workers' compensation as payment in full,
without recourse to an additional tort suit. Employers are responsible for
benefit payments as prescribed by workers' compensation laws, thereby ending
their liability.
In other words, exclusive remedy safeguards employers from large punitive
awards but impedes justice in the many cases that might be better served in
court. The bottom line is that in all but the most willfully negligent
circumstances, injured and ill workers cannot sue their employer for making
them injured or ill.
Discussing exclusive remedy in an online article, the law firm of Boxer &
Gerson explained a California case this way:
The survivors of three
workers killed by the Tosco refinery explosion were awarded a total of $21
million in damages. The workers were not employees of Tosco but of a
subcontractor at the site; thus they had the right to sue Tosco for
negligence. In contrast, Steve Duncan was a Tosco employee. He survived by
jumping off the tower while ablaze from the blast. His sole remedy is
workers' compensation. As a result of falling some 60 feet, Duncan broke
almost every bone in his body. He has had 24 surgeries to date, numerous
skin grafts, and amputation of his fingers and a thumb on one hand. He is
confined to a wheelchair; and has numerous metal pins sticking out from his
knee and thigh.
He was earning more than
$1,000 per week. Now, he gets $490 a week in temporary disability benefits.
Even if he is totally, permanently disabled, this is the most he will ever
get -- no cost of living raise and no lump sum payment. If he is found to be
less than 100% permanently disabled -- even if marginally less, such as
99.75% disabled -- he will receive just $230 per week in permanent
disability benefits -- and not for life, but for a finite period of time.
Hayes explains, "In a handful of states, there are certain exceptions that
let people sue, such as when a person behaves criminally. But usually, they
cannot sue their direct employer. Instead, they have to sue other employers
that were involved (like on a multi-employer construction site) or they can
sue under product liability, like when someone killed by a drill rig sues
the manufacturer of the equipment rather than the employer who did not
maintain it or train workers on it."
"But," cautions Ron, "what people don't realize is that if they win these
lawsuits, they then have to return all money received under workers'
compensation because winning the suit will actually prove someone else was
at fault. So here are these families that fight to win in court and then
they discover that of any award they received, they have to pay the lawyers
30-40% off the top, return any workers' compensation they have received back
to the insurance company (sometimes a lump sum of $20,000 or more) and they
won't receive any more payments under workers' compensation. The employer's
insurance company actually ends up getting their money back." Ron describes
the whole mess, saying "It's like the lawyers need to hire economists to
figure out if the families will end up with anything." ...
The flip side of the exclusive remedy coin is that workers are paid even if
an injury was partially their fault. If a person missteps and falls off a
ladder, for instance, he or she is still compensated. The exclusive remedy
trade-off works for many short duration injuries and illnesses where the
system achieves the goal of prompt compensation without lawsuits. For most
seriously injured and ill workers, however, the system does not work fairly.
After lengthy investigation, Executive Director Greg
Tarpinian from Labor Reseach Associates concludes, "The presumption of
widespread malingering and dishonesty undercuts any meaningful discussion of
the adequacy of benefits and provides a convenient response for those
opposed to the benefit increases that are so critically needed in many
states. Until the misplaced focus on claimant fraud is overcome, district
attorneys will continue to fry the small fish while the big fish go free,
and the voting public will remain distracted by anecdotes. The emphasis on
fraud and costs also distracts the public and lawmakers from the workplace
hazards and flagrant safety violations that are the real cause of the
problem of worker injuries and workers' compensation costs."
