Give health insurers a break from loss ratios

Move will help fight healthcare fraud — and help put downward pressure on premiums

A columnist for the Los Angeles Times recently skewered UnitedHealth for what he says was aiding and abetting a $43-million medical scam involving bogus weight-loss surgeries.

The health plan failed to scrutinize bad claims, the columnist says, until long after money was out the door.

Whether or not the harsh criticism is justified, we’ll leave to others to debate. But if UnitedHealth and others are not investing in expanded anti-fraud efforts, there’s likely a good reason:

Federal law discourages it.

One of the least publicized provisions of the Affordable Care Act is intended to make health insurance more affordable. Health reform governs the percentage of premiums health plans can dedicate to non-claims business expenses, such as marketing, salaries, administration, profit and yes — anti-fraud activities.

The so-called Medical Loss Ratio requires health plans to spend 80 to 85 percent of premiums they collect on claims.

In essence, anti-fraud expenses must be paid out of profit. That’s enough to discourage most health-insurance companies from growing their anti-fraud programs.

In some instances where insurer expenses are out of balance, paying suspect claims could boost profits — or at least not affect them. Now most health insurers wouldn’t intentionally pay suspect claims, but bad claims can be harder to detect when the anti-fraud efforts haven’t grown commensurate with the growth in policies and claims.

And thanks to Obamacare, policies and claims are growing. But anti-fraud efforts are not.

The Medical Loss Ratio is a good idea in theory. It prevents insurers from spending all the new-found premium money on frivolous expenses, such as corporate bonuses.

But good legislation also has unintended consequences — such as discouraging investment in fraud.

If fraud is allowed to increase — such as the $43 million that reportedly was spent on unnecessary and phantom stomach lap-band surgery — then upward pressure will continue on premiums, and everyone loses — except the fraudsters.

The time has come to rethink how the MLR is calculated.

What’s the correct sentence for faking a car theft?

Most scammers get off easy, but not this fellow from Boise

People who fake the thefts of their vehicles to collect insurance money usually never see the inside of a jail.

A review of 133 cases from the Coalition’s files since 2009 found that six of 10 people convicted don’t serve jail time for this crime. They’re usually ordered to repay the insurance company, perform some community service and be on their way.image

Of those who go to jail, the average sentence is just more than a year.

A big exception to the typical sentence unfolded in a Boise, Id. courtroom yesterday when Quincy Hoffman was sentenced for faking the theft of his 2003 pickup truck. He collected $4,700 from Allstate after reporting it stolen from the side of the road.

Police later learned that Hoffman sold his pickup for $1,000 a year earlier, and charged him with two counts of insurance fraud.

The judge sentenced Hoffman to five to 10 years in state prison.

While there may be extenuating circumstances here, if Hoffman serves the full 10 years, this will be the longest sentence dished out on record for faking a vehicle theft.

The widespread publicity of this sentence in Boise likely will deter others from committing similar crimes.

Technology coming of age as anti-fraud weapon

More insurers are using advanced tools, but success still relies on investigator instincts

Insurer use of anti-fraud technology has rapidly moved forward in the last few years. Time and time again, these weapons have proven to be game-changing tools for investigations of all kinds.

This is especially true of large and complex rings such as no-fault medical mills that pile up expensive and false crash-injury claims against auto insurers.

Tech software can quickly churn through imposingly large amounts of evidence and expose the structure and inner workings of often well-insulated fraud cartels. The door thus is opened to major busts, devastating prosecutions, and large-dollar savings that help control premiums for honest policyholders.

The maturation of technology use by insurers was confirmed by a study released this week by the Coalition, with assistance from the business analytics firm SAS.

Nearly all insurers (95 percent) said they use anti-fraud technology, compared to 88 percent when the study was first conducted in 2012.

Suspicious activity has increased, the responding insurers say. So the need for technological wingmen is stronger than ever.

Insurers also appear to be making a strong business case that technology returns a strong ROI. More case referrals, better ones and improved investigator efficiency were among the chief business benefits, large percentages of insurers asserted.

And more insurers are using advanced weaponry such as link analysis, predictive modeling and text mining.

Technology has moved miles ahead of the early days when it could only sift through basic clues for case leads. We’re now in the modern era. Advances in technology finally may be starting to get keep pace with America’s fraud wave, and possibly start getting ahead of the biggest offenders.

Measuring progress with precision is impossible. Nor is technology alone the solution. Insurers need to continue supporting the acquisition of modern tech pistons for their investigative units. Investigators, in turn, are challenged to keep making a strong business case for these tools.

Software developers must deliver viable tools — and make them as affordable as possible. The best weaponry must be within reach of as many insurers of all sizes and diverse investigative needs as possible.

Breaking open fraud crimes of all stripes still comes down to the keen instincts and training of investigators. They must properly interpret and doggedly track down the evidence that tech uncovers.

Human and digital boots on the ground can be an imposing team, one that more fraudsters will come to fear in the years ahead.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Insurance industry’s anti-fraud efforts looking up

Upbeat attitude at IASIU’s annual seminar signals growing strength for the fraud fight

IASIU logoWhen anti-fraud professionals gathered just a few years ago, the talk typically centered on lack of job security, reduced budgets and perhaps even the lack of respect by senior leaders at insurance companies.

How quickly times change. The upbeat attitude expressed at the opening of today’s annual seminar of the International Association of Special Investigation Units is yet more evidence that the anti-fraud community is strong and growing.

Investigators are smiling again. Insurers seem to be loosening their belts on funding for staffing, anti-fraud technology and even sending more fraud fighters to IASIU’s annual seminar. The 700-plus attendance here in Greensboro, N.C. is the best in several years.

The anti-fraud community seems to be maturing nicely. IASIU is now 30 years old. The old guard of investigative managers combined with the influx of young, tech-savvy analysts and investigators gives insurers the best-trained and best-equipped army of insurance fraud fighters the industry has ever deployed.

Add to that the strength of organizations such as NICB, ISO and a growing cast of insurers that support anti-fraud efforts, and there’s good reason for optimism that we’re finally getting a handle on combating fraud.

That’s hardly to say we’re turning the corner and seeing widespread declines of insurance crime. But the fraud fight definitely is looking up compared to just a few years ago.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Consumer education key to combating home contractor fraud

New book gives homeowners step-by-step details on dealing with contractors

contractor bookThis time of year historically has not been kind to insurers and property owners. In the past we have seen Hurricanes Andrew and Katrina as well as Superstorm Sandy wreck havoc on everywhere from South Florida, the Gulf Coast and the Jersey Shore, New York and Connecticut. This year we have the Napa, California earthquake, plus tornados and hail storms in the Midwest.

These and other events underscore the importance of helping homeowners prevent becoming victimized a second time by crooked contractors. Many of these fraudsters are fly-by-night operators who prey on vulnerable property owners desperately wanting to get their lives back to normal again.

The Coalition partners with insurers, consumer groups and government agencies in targeting shady contractors. We support strong legislation giving consumers the ability to rescind a contract if the repairs are deemed unnecessary by their insurer. The contract also must clearly state that the consumer has the right to rescind the agreement within a specified number of days.

We also want to make sure that contractors do not act as unlicensed adjusters to 
act as a “go-between” with the homeowner and their insurer, as well as stopping adjusters from acting as contractors for the repair. Contractors also should be penalized for offering any inducement including waiving an insurance deductible to get a consumer to sign a contract.

Anti-fraud legislation helps a lot, but just as vital is public education. Consumers need to equip themselves with information on preventing contractor fraud — and that needs to happen long before the loss occurs.

A good place to start that education is with a just-published book, Don’t Even Think About Ripping Me Off. It’s a step-by-step guide to help consumers navigate the often-confusing process of dealing with contractors and home repair.

The book was published by Phae Moore, executive director of the National Center for the Prevention of Home Improvement Fraud, who became an advocate after her grandmother was badly victimized by a shady contractor.

The books makes for a good gift, especially for seniors and young homeowners. Insurance professionals should also consider distributing the book to their policyholders and clients. You can order the book online at NCPHIF’s website.

I have one on my bookshelf. Shouldn’t you?

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Medical marijuana as a strategy to reduce prescription drug deaths

New study contains strong evidence that painkiller alternatives can save lives and insurers money

After visiting a medical marijuana outlet in Colorado in May, I wrote about the possibility of medical marijuana replacing addictive opoids to help chronic pain sufferers.

A new study says that states that allow medical marijuana consistently had fewer overdoses than other states.

Medical marijuana states reported an overdose death rate of nearly 25 percent less than states without the laws, according to an analysis of data from the John Hopkins Bloomberg School and the Philadelphia Veterans Affairs Medical Center. The correlation between death rates and the availability of marijuana for medical purposes seems very strong.

Hopefully, this new evidence will spur Congress to allow researchers to test of efficacy of marijuana as pain medication. Good studies are lacking because of current law outlawing the possession of pot makes it nearly impossible for researchers to conducted this needed study.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Comp benefits too low for injured Fla. workers, judge rules

Focusing more on preventing fraud reduces need to cut benefits

A judge in Florida delivered a wake-up call to insurers and employers last week in ruling that workers compensation in its present form violates the state constitution. Current benefits aren’t enough to balance workers giving up their legal rights to sue, the court ruled.

Is this the result of a wayward judge, or more mischief by the trial bar trying to throw out a no-fault system that limits lawsuits?

Perhaps.

But business-friendly legislatures in many states have cut benefits for several years, to where some contend that injured workers are being shortchanged. Especially in Southern states, critics say it’s too easy to deny benefits and that the ability to appeal has been sharply curtailed.

At one time, benefits were so rich in some states that it encouraged workers to fake injuries and malinger once they started receiving benefit checks. Remember California in the 1990s with the spike in stress claims? Or Pennsylvania, where you could make more on comp than your regular job because benefits weren’t taxed?

The political pendulum has swung far and wide. Sooner or later it will begin turning back toward increased benefits, especially if more states deem their comp systems are out of balance.

Insurers and employers should prepare for that day because pressure will increase to hold the line on premium hikes. A good start is to beef up anti-fraud measures and go after schemes by claimants and medical providers, as well as premium scams by businesses. Better prevention programs like this one would help as well.

A hostile environment for fraudsters will best serve the interests of insurers, employers and workers who are legitimately injured.

About the author: Dennis Jay is executive director of the Coalition Against Insurance Fraud.

Insurers lodging uncivil civil suits against rings

Court actions can disrupt crash rings, send positive signals to public

A federal judge whacked a Las Vegas-area chiro this week with an order to pay Allstate more than $1.2 million involving 78 bogus crash claims. The insurer’s RICO civil suit alleged that Rit Charette inflated medical reports, gave unneeded treatments, prepared fraudulent bills and made illegal referrals to other healthcare providers.

The recovery speaks to a larger and welcome trend of insurers taking down fraudsters with civil suits. Much of the action centers around networks of crooked no-fault doctors, chiros, attorneys and others. They stage car wrecks, or simply invent medical records of phantom passengers and crashes.

Sometimes crashes are real, involving real victims who are recruited unknowingly for shoddy treatment. Whatever the business model, the crime rings bombard insurers with lavish and false treatment claims.

Crash rings are soaking up billions of dollars in false injury claims a year. They’re hiking auto premiums for honest drivers.

Fed-up auto insurers are striking back with increasing force by lodging civil actions against brazen fraud rings in federal and state courts.

State Farm has sued the heavily promoted clinic network called “1-800-ASK GARY” accident-referral service in Florida. The insurer alleges the large outfit illegally referred crash victims only to medical providers controlled by owner Gary Kompthecras in Florida, Minnesota and Kentucky.

Farmers Insurance is going after more than 40 New York medical providers for an alleged illegal scheme involving unlicensed laypeople who made false claims for treating crash victims.

Geico sued the owners of an Orlando chiro practice in March. The insurer alleges that the practice stole $2.3 million from false claims involving real and staged crashes.

Other auto swindles feel the weight of civil suits. Allstate last week earned a judgement of more than $1.4 million against a firm that billed the insurer for false windshield repairs. Part of that money will also go to the State of California as a co-plaintiff in the case.

Insurers may or may not recoup their typically large investments in attorney fees, staff time and other expenses. Often these suits are financial break-even propositions, at best. Frequently the crooks have spent or laundered the money, or don’t have enough assets to pay off the judgements.

But forcing ringleaders into protracted suits with large-dollar judgments can disrupt rings and drain their finances — thus undermining or putting them out of business.

Civil suits also emit a loud signal to the public that a given insurer takes a no-nonsense approach to crime rings that are driving up premiums and endangering motorists.

Word also spreads in the criminal underworld that certain auto insurers are too dangerous to try and defraud. Some rings avoid insurers that are known to make trouble with civil actions.

Crash rings must come to fear the large prospects of courts gaveling them into ruin. For fraud rings, there’s nothing civil about civil suits.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.

Fighting fraud starts with the basics

States need fraud law and fraud unit to have an impact

fraud bureau

This week I spoke to the Insurance Regulatory Examiners Society on state fraud bureaus and why they are integral to any state’s anti-fraud effort.

The vast majority of states (and District of Columbia) have fraud bureaus, with most housed inside the insurance departments. Several states have placed these bureaus within the state attorney general’s office, and a couple are housed inside the state police. Still, a handful of states led by Illinois, Michigan and Wisconsin do not have a fraud unit. And Oregon has neither a fraud bureau nor a specific crime of insurance fraud. It is the only state with that distinction.

After working on diverse fraud issues for more than two decades, I feel strongly that a full state infrastructure is essential to effectively fighting this crime. That means a strong insurance-fraud law, insurers doing their part, supportive and alert consumers, and the state having a bureau with prosecutors willing to take on cases. 

States with fraud bureaus have their hands full trying to keep up with the flood of case leads. So you can imagine how much scamming is going untouched in states without a functioning anti-fraud infrastructure. 

A Wisconsin regulator at my session said fraud cases usually are referred to the U.S. attorney’s office. The western part of the state is more likely to take cases, she said.

But that’s hardly the most efficient way to combat fraud. First, cases that go to the U.S. attorney invoke charges of mail or wire fraud. That’s because  insurance scamming is not a federal crime, except for health-insurance scheming. So the feds must find an unrelated law to charge someone. Most U.S. attorneys also have a fairly high threshold before they even consider trying a case. Not efficient at all.

Fraud bureaus help complete the state infrastructure. Where does an insurer or consumer go with a case lead unless the state has a fraud bureau? Should a local police or sheriff’s office be relied upon to investigate a case? Would a local prosecutor take a case? That’s far from certain. 

A state created a fraud law and fraud bureau several years ago. A legislator there said his state didn’t have much of a fraud problem until the law and fraud bureau were activated. He understood that the crime exists but goes unreported without the infrastructure. He was joking, but legislators in states without an anti-fraud apparatus can’t afford the luxury of joking.

Common sense tells us that we must spend enough time, budget funds and political will to have an impact on this crime. And that begins with an insurance-fraud law and a fraud bureau. The return will be a large benefit for consumers, and the state itself. 

Ultimately, everyone — except fraudsters — comes out ahead with a broad, well-funded anti-fraud infrastructure. Most states seem to “get it.” Now we need the remaining states to realize this commitment is in everyone’s best interest. 

About the author: Howard Goldblatt is director of government affairs for the Coalition Against Insurance Fraud.

Subsidies with fake IDs prompt premature howling

Fraud a needless political football, give Obamacare time to succeed or fail

Critics of Obamacare were handed another case of ammunition with the revelation that undercover federal investigators used fake identities to obtain taxpayer-subsidized health coverage.

Operatives slipped through the system in 11 of 18 tries, the nonpartisan Government Accountability Office says.

Republicans jumped all over the findings, contending this is more evidence that Obamacare is a mismanaged boondoggle that’s wide open to fraud and abuse.

Six of the GAO’s fake online applications were blocked by eligibility checks built into computer systems at HealthCare.gov. But the GAO says its undercover agents evaded that and enrolled anyway.

GAO investigators created fake identities using invalid Social Security numbers and falsely claiming citizenship or legal residence. Some operatives invented income levels that should’ve disqualified them from obtaining subsidies.

Some contractors handling the applications told the GAO that they weren’t hired  to root out fraud, the GAO found.

In the bigger picture of things, Republicans and Democrats are trading blows over whether nearly 3 million inconsistencies found in consumers coverage applications suggest rampant fraud.

Republicans are predictably squealing with apocalyptic rhetoric. Yet nobody knows how deeply the revelations about Obamacare subsidies and application inconsistencies suggest deeply rooted and possibly fatal fraud. These are initial findings, not wrote truths.

Yes, football season is approaching, but let’s not make fraud such a political football. Obamacare is a new program. Any program of this size and complexity will leak some water at first. America itself was an experiment after the Civil War. The nation was untidy and full of deep structural problems as it rebuilt during the Reconstruction period. Critics could’ve easily howled that the America was a doomed train wreck of a nation.

Let’s allow the followup findings to paint a more-accurate picture of fraud in Obamacare. If there’s a lot, then work to fix the system at its leakage points. Obamacare and consumers are better-served by intent problem solvers. Give it a chance to succeed or fail on its merits, not on premature and single-minded badmouthing for political gain.

About the author: Jim Quiggle is director of communications for the Coalition Against Insurance Fraud.