Health benefits fraud: How it happens – and how your business can avoid it

You provide health benefits to attract, reward and retain good employees. And it works. The majority of your employees recognize and appreciate the health, dental and other benefits they enjoy at your company. They live up to your expectations. They work hard.

But even at the best companies, health benefits are fertile grounds for fraudsters. Yes, you have wonderful employees overall. However, health benefits fraud could be happening at your business. According to the Canadian Health Care Anti-Fraud Association, fraudulent claims cost the industry anywhere from $1.2 to $6 billion every year.

Canada’s private sector spends about $60 billion annually on health benefits. Estimates of fraudulent claims and billings range from two to 10% of that total. Ultimately, employers bear most of the cost of fraud, either by unknowingly reimbursing employees for these claims, or through the subsequent increased premiums caused by high claims.

In July 2015, national headlines blared about health benefits fraud. Stories detailed how both health providers and Toronto Transit Commission (TTC) employees had colluded to defraud the TTC benefits plan of \$4 million through false claims made to a medical supply store. Since the fraud’s exposure, three people have been charged with fraud and money-laundering offences, 12 have been fired and another 600 are under investigation.

The TTC is a large organization, with over 13,000 employees. But benefits fraud also hits hard at smaller companies. For example, Sun Life Financial, a leading benefits provider, estimates that a company with 100 employees typically spends between \$300,000 and \$400,000 on a benefits plan. If 10% of the claims are fraudulent, that could represent a $40,000-per-year cost to the company.

Types of benefits fraud

Not every occurrence that wrongfully costs a benefits plan stems from fraud. Fraud is the intentional submission of false or misleading information for the purpose of financial gain. Abuse occurs when those covered by a health plan – or those providing services to plan members – exploit the plan by overusing plan services, resulting in excessive billings. Abuse can also occur when people provide and bill for treatments for which there is no proven medical need.

No question that outright fraud is the most important threat to benefits programs. There are three main types of fraud that you should be aware of:

• • Provider fraud: A health care service provider exploits the plan by, for example, submitting false claims for procedures they never performed for a plan member. Usually the plan member knows nothing about the fraud until it is discovered by the benefits advisor, the plan sponsor or by the underwriter. 
  • 
    Plan-member fraud. Some plan members exploit their plans by fabricating claims and producing false receipts. They may also add fake dependents to their plan, or make claims through both their own plan and a spouse’s plan without proper co-ordination of benefits. 
  • 
    Collusion between providers and plan members. Sometimes healthcare providers and plan members work together to exploit the plan, splitting their fraudulent gains. Usually these collusions involve obtaining receipts for insurable expenses when there actually was no expense. For example, a plan member and an optical store employee might create a Vision Care billing for expensive prescription lenses when the member only bought a pair of uninsured designer sunglasses. In other cases, the collusion might be to inflate the cost or scope of a procedure, or otherwise falsify treatment details to increase the reimbursements received from the health plan.

Fraud’s other consequences

As noted earlier, the obvious consequences of fraud are rising premiums and the reluctance of employers to continue offering generous plans in the face of rising costs. But there are also serious consequences for those committing the fraud or abusing the system.

Fraudsters run the risk of being convicted of a criminal offence, which will permanently affect their lives. Even if they spend no time in jail they will face fines. They may be required to pay back the money they have effectively embezzled. They will likely be fired. Meanwhile, service providers committing fraud run the added risk of being driven out of business as their reputations disintegrate.

Innocent benefits-plan members then face the possibility of diminishing benefits and higher deductibles as plan providers seek to recover their costs.

How to stop benefits fraud

First, you should know that plan providers use random audits. They have sophisticated systems in place to detect suspicious or irregular claiming patterns. For instance, on detecting an unusual spike in claims for leg braces, Sun Life determined that a particular facility was fraudulently providing receipts.

Employers & insurers can help diminish fraud by taking a few precautionary steps:

• Ensure that reasonable limits and maximum are in place.
• Use deductibles and co-pay features to ensure members are financially engaged, which reduces their incentive to abuse or defraud their benefits plan.
• Assess claims against the coverage the plan was designed to provide.
• Verify the eligibility of plan members and their dependents.
•  Verify that services charged for are in-line with best practices.
• Communicate with regulatory bodies and specialists to understand treatment protocol and costs.
• Validate provider credentials.
• Educate plan members in the role they play in controlling costs, and the legal ramifications of fraudulent claims.
• Encourage members to carefully review their receipts, and to ask questions of their providers.
• Encourage employees to keep their claiming information and coverage confidential.
• Engage employees in an anti-fraud culture.

Benefits plans are an ideal way to incentivize and retain employees. At the same time, preventing fraud is in everybody’s interest.

Want to read more about benefits fraud? Check these sources:

Canadian Life and Health Assurance Association: https://www.clhia.ca/antifraud

Manulife Financial Fraud Prevention: https://www.manulife.ca/wps/wcm/connect/76dc2e3b-749f-464f-ac81-e1de86f91192/preventinge.pdf?MOD=AJPERES&CACHEID=76dc2e3b-749f-464f-ac81-e1de86f91192

CBC: TTC fires 12 in connection with benefits scam, 600 more being investigated: 
http://www.cbc.ca/news/canada/toronto/ttc-city-fraud-1.3466473

Sun Life:https://www.sunlife.ca/static/canada/sunlifeCA/Products%20and%20services/Group%20Benefits/Fraud/Plan%20Member%20Anti%20Fraud%20Tips.pdf

http://www.sunlife.ca/static/canada/Sponsor/About%20Group%20Benefits/Focus%20Update/2015/512/SponsorFraud%20IntelligentResponse%20June%202015%20ENGLISH.pdf