Cheap tricks - employers without workers comp insurance

Washington Monthly, Sept, 1998 by Rebekah Young

The courts eventually found that Bennett was indeed Christi's employer of record, that he should have purchased a workers comp policy for her, and that because he neglected to do so he was therefore liable for her medical expenses. But Bennett then turned around and declared bankruptcy, once again putting the financial burden of Christi's care on the taxpayers of California. The irony should be apparent: Because employers like Christi's refuse to spend just hundreds of dollars a year on a workers comp insurance policy, taxpayers end up spending millions of dollars a year on their employees' medical bills.

Risky Businesses

The Atkins are saddened that taxpayers have had to pay Christi's medical bills. "We find out that [Bennett] didn't have workman's comp and then what do you do? I mean we're not talking about a few hundred dollars a month. We're talking about thousands of dollars a month," says Sherri Atkins. "No family that I know of could assume that responsibility. We wish it wasn't like that but when they don't have workman's comp, what other ways do you have?" It's a raw deal for everyone. It's a raw deal for employees, who often have to litigate for benefits that should have come to them automatically. They are then faced with delaying treatment or skipping it altogether if they can't come up with the money needed to pay their medical bills while their case winds its way through the courts. It's also a raw deal for taxpayers, who may be forced to pay the medical bills that should have been covered by a workers comp insurance pool if an employer can't pay up even after the courts say he must. And it's a raw deal for honest businesses that are forced to pay more for their own workers comp insurance policies because dishonest businesses pay less. But there are many more consequences to this kind of fraud, many more ways for employers to cheat the system, and many things that could be done to crack down on these crooked companies--but aren't.

Employers commit premium fraud in a variety of ways. They may refuse to buy workers comp insurance at all or they may try to lower their premiums in fraudulent ways. Workers comp insurance premium rates are based on an employer's total payroll amount, the classification of his employees (which is based on how risky their jobs are), and the employer's accident record (much as your car insurance premiums are based partly on your driving record). As you might expect, companies with high-risk jobs and frequent accidents, like construction companies, pay the highest premiums and, subsequently, have the highest incidences of premium fraud. To lower their premiums, companies will underreport the number of employees they have on the payroll or they will underreport the wages they pay their employees. Some employers will pay employees in cash to get them off the books or they create affiliated companies on paper and use these fictitious companies to "hide" their employees. Or, at the start of a fiscal year, employers may purposefully underestimate the number of employees they plan to hire and what they will pay them in the upcoming year. If they are audited at the end of the year by their insurance carrier, the employer will often then pay the proper premiums. But in the meantime, the employer has received a low-interest loan for the year thanks to their reduced premium costs. If an insurance carrier drops an employer for scamming them this way--no problem. The employer can just get coverage through another carrier. Since insurance carriers don't usually share information about current or prior policy holders with other carriers, a shady employer can switch carriers many times, perpetrating this same scam over and over again.