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The Disability Fraud Myth

By Scott B. Elkind, Esq.

The insurance industry consistently publicizes how much fraud there is in disability claims made. This is done for several reasons. This consistent propaganda campaign serves to dissuade workers from applying for benefits due to an artificially created social stigma. The insurers want workers to feel guilty when they apply for disability benefits and to feel lesser of themselves. Further, it serves to create peer pressure in which healthy workers will scorn ill workers for filing for disability. It is common for healthy workers to say that ill workers are “scamming the system” or are “not willing to do what is necessary,” and the like. This phenomenon is reinforced by the videosurveillance footage shown on some television programming catching workers “caught in the act” of committing a fraud.

The National Insurance Fraud Forum, a large body of parties affiliated with the insurance industry, held a meeting in October, 2000 in which the concerns of the insurance industry were voiced. This group believes that efforts to combat fraud are fragmented and inconsistent. To this end, they have invested in well-funded and well-researched public awareness campaigns by which to deploy different strategies, tactics and messages in order to have a national impact on fraud reduction. A primary goal is to dissuade consumers and borderline criminals that fraud doesn’t pay. This is done by instilling the concepts that insurance fraud is a crime, getting caught has heavy consequences, and that there is a strong likelihood of getting caught. This campaign is necessary due to this group’s tightly held belief that large numbers of normally honest consumers still tolerate fraud and will commit fraud themselves. This is encompassed by the statements that:

  • The public views insurance fraud as a crime of easy money with little risk of getting caught
  • People believe they are entitled to commit fraud after paying high premiums with no or few losses for many years
  • People lack a strong sense of outrage over insurance fraud as a crime, and view fraud as a victimless crime at worst

This group admits that despite the efforts of its “army of dedicated fraud fighters” still can be defeated by new crime techniques. The group was perplexed by its own performance indicators which were believed to be “misleading” since they were uncertain as to whether an apparent increase in fraud was the product of a higher incidence of this activity or because of better detection. Further, they questioned more efficient claims processing techniques as allowing for greater fraud possibilities.

Given this information, you can understand why insurers invest millions into convincing the public that fraud is a moral wrong which requires harsh penalties and great vigilence.

Recently, a new alert has been sounded concerning persons receiving disability benefits who have retired outside of the United States, especially those residing in central or South America. It is alleged that these persons have moved there due to a lack of resources that insurers have in these countries by which to investigate their fraudulent claims. No statistics are offered to back up this claim. It is just another tactic by which to dissuade people from making claims and recruiting insurers to hire agencies to perform even more investigation of claimants.

What is truly surprising is the very little fraud that takes place in the disability area and the reasons why it could never occur in substantial numbers.

First, it is very difficult to defraud an disability insurer. Any time you file for disability, you have to produce voluminous information and allow insurers complete access to your personal health care and work information during the claim review process. It is very common for insurers to employ background checks, land record and court searches as well as videosurveillance to check on persons applying for disability benefits. This investigation process tends to defeat most fraud attempts.

The reality is that there is little disability claim fraud at all. The Coalition Against Insurance Fraud reviewed all fraud cases in 2010. This Coalition found 24 cases of fraud in disability cases reported. Whereas, there were far more fraud cases involving Medicare (391), medical claims (146), drug diversion (124), insider insurer (106), insider agent (95), auto giveup (93), padding auto claims (69), stage auto accidents (65), homeowner arson (119), business owner arson (46), and life insurance claims (35).

This point is reinforced by the Florida Department of Financial Services, Division of Insurance Fraud Statistics for 2008 – 9 which cited that 12,084 referrals were made on fraud cases resulting in 532 convictions with only 60 referrals for disability cases and 2 convictions (both for fictitious claims). The gross majority of cases involved personal injury, worker’s compensation, vehicle, homeowner, mortgage fraud, and healthcare cases.

Fraud in the Social Security system primarily involves false or counterfeit social security numbers, converting benefits payments made to another, false endorsement of treasury checks, concealing evidence of a continued right to payment, and making false statements or representations in a claim application.

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