Can Employers Reduce Insurance Fraud?

Marketplace, Apr 20, 2004

Like employee theft, statistics for insurance fraud cases are difficult to estimate. National studies suggest that insurance fraud represents from three to five percent of the annual increase in health care costs. And like with embezzlement, many health insurance fraud cases are settled quietly out of court.

Health care fraud is the intentional presentation of false or misleading information used in determining what health care benefits are to be paid. Insurance claim fraud is an often overlooked culprit behind the skyrocketing costs of health care.

Costly Mistakes

According to Larry Sobal, president and CEO of Jabas Group, an employee benefits solutions company in Appleton, Wisc., the complexity of our health care system raises red flags of potential fraudulent activity, from simple billing errors to intentional and malicious fraud.

"No system is foolproof. There are about 15 thousand procedure codes for physician services, each linked to a billing service code. Additionally, many companies have their own claims monitoring software programs," Sobal says.

The Department of Health and Human Services reported coding errors alone cost nearly $1 billion in improper payments in 1999. And those were the unintentional costs. Last year an Annals of Internal Medicine survey reported 25 percent of the public had no qualms about a physician deceiving an insurance company for the sake of obtaining services for their patient.

Billing, But Not Receiving

As a result, health care fraud is an estimated $100 billion a year industry, equaling 10 percent of every health care dollar. Sobal says the most common types of fraud involve cases of medical services which are billed but never rendered by the health care provider. Other types of fraud isiclude misrepresenting the diagnosis to justify payment; "upcoding," or multiple treatment codes per diagnosis; kickback schemes, and falsifying treatment plans for preauthorization.

"Both employee fraud and provider fraud contribute to the problem. It ends up costing all of us by increasing the cost of benefit plans," Sobal says.

Something For Nothing?

Many smaller companies with just a handful of employees know how expensive health care coverage can be. That's why fly-by-night insurance scams appear so attractive. The usual too-good-to-be-true scam involves sellers who purport to offer cheap coverage - some plans as low as $150 per month when the industry standard is more than $500 - and then disappear with premium payments before claims are paid. Sobal says it's a smart idea to verify the authenticity of health care plans before implementing them.

Sobal's company has more than a thousand corporate clients large and small, most with ties to Wisconsin. The Jabas Group recently worked with a Wisconsin client to investigate some unusual charges generating from the client's West Coast location. An extensive audit revealed a case of provider fraud.

"We occasionally uncover fraudulent activity, and we find that prevention is the most effective method to deter fraud. More of our clients are learning to be good fraud detectives themselves by increasing their awareness and employing a sophisticated checks and balances system," Sobal says.

Clamping Down on Health Insurance Fraud

* Make sure your insurance company or third-party administrator uses a system to help prevent fraud abuse.

* Perform a health care audit for services to see if they actually took place.

* Educate all employees, especially minorities, so they understand their benefits plan and what to look for in comparing medical bills versus their actual treatment.

* Remind employees to regularly review employee benefits records to check for discrepancies.

* Explain to your employees that they never provide strangers with any personal information relating to health insurance.

* Make sure employees never sign blank insurance documents.

* Implement an employee awareness campaign on health care fraud.