c o m p
w i
s e
|
by frank t. white
Subsidizing Fraud
It's one of the economic facts of life that many choose to forget: when
government directly or indirectly increases the cost of doing business, consumers end up
paying more because businesses just pass the cost on through. Taxes are one of the costs
directly imposed by government; insurance fraud is one the costs indirectly imposed. When
anti-fraud laws are not effectively enforced, insurance cheats get rich at the consumers'
expense.
Earlier this year, the statewide grand jury empaneled to investigate insurance fraud
issued a report on workers' compensation premium fraud. The report honed in on the
magnitude of the problem, the lack of adequate enforcement by the compliance arm of the
Division of Workers' Compensation, and the fact that "the burden falls not so much on
the insurer, but on the legitimate business that is paying its fair share."
How do we pay for fraud? Let the grand jury count the ways.
Unscrupulous employers who either do not buy any insurance whatsoever or buy
inadequate coverage by engaging in premium fraud secure a tremendous economic advantage
over their competitors. This advantage manifests itself in one (or more) of three ways.
First, if a business sells products, it will be able to undersell its competitors. Second,
if it bids on contracts, it will be able to underbid its competitors. Finally, the
business can afford to pay higher salaries and thereby lure away competitors' more
experienced employees, albeit without offering compensation coverage. Eventually,
legitimate businesses will face a difficult and depressing choice. They will either be
driven out of business or join the ranks of the unscrupulous and stop paying all or part
of the workers' compensation insurance in order to compete. As more and more businesses
stop paying insurance, the rates eventually will be driven up even further for those
remaining legitimate businesses, thereby increasing the pressure on them to also stop
buying insurance so that they may survive. This then becomes a vicious cycle.
Spurred by these findings, the Legislature enacted further anti-fraud legislation this
year, in part based upon some of the grand jury's recommendation. The new law aims at more
clearly defining an independent contractor and requires an independent contractor to
execute a sworn affidavit to that effect. Furthermore, an employer who coerces his
employees to classify themselves as independent contractors will now be guilty of criminal
offenses.
Additional responsibilities and powers were given to the Division of Workers'
Compensation to enforce coverage requirements, including investigation and subpoena power.
The division may also issue stop-work orders should an employer fail to show proof of full
compliance within 24 hours of a division order to do such.
Associated Industries of Florida applauds these efforts and only hopes that the
division now feels empowered to detect and deter fraud. It is estimated that workers'
compensation premium fraud is costing the legitimate businesses of Florida over $400
million per year in otherwise higher premiums. This figure doesn't even account for the
lost business opportunities to the honest employer.
As a final note, suspicions of premium fraud should be reported to the division on its
toll-free fraud hot line, (800) 378-0445.
Frank T. White is executive vice president and COO for
Associated Industries Insurance Services, Inc.
March/April 1998 -- Florida Business Insight,PO Box 784, Tallahassee
Fla. 32302
(850)224-7173, insight@aif.com |
