Why would plan members risk benefits fraud?

If someone believed there was very little chance of getting caught, would they submit a claim for $100 for a service they never received? For some, the answer is yes. Benefits fraud here in Canada is often rationalized as minor — more like speeding or jaywalking than theft. It can feel technical, harmless, even commonplace.

But benefit plan fraud is not minor. The well-known Toronto Transit Commission fraud case led to more than 200 employee dismissals and multiple criminal convictions including jail time.

In this case, an orthotics provider issued receipts to TTC employees for either inflated amounts or without delivering a product or service. The orthotics store then split the insurance payments with the plan member. It was only discovered through a tip to the TTC. The TTC even sued the insurance provider, blaming them for not discovering the fraud. The consequences can be serious and career-altering. So why do people do it?

Common reasons people commit benefits fraud include:

• They believe they won’t get caught. The amounts seem small and low-risk.
• They view it as minor, “not a big deal.” It doesn’t feel like real fraud.
• Others are doing it, and it seems commonplace.
• They feel entitled. A belief that they are “owed” something from the plan.
• They misunderstand who pays. Many don’t realize it’s ultimately their employer — not just an insurer — absorbing the cost.
• Ease of submission. Digital claims processes and providers that don’t require receipts can create a false sense of security and anonymity.

In reality, fraud detection systems are sophisticated, and any claim can trigger an investigation.

Who commits benefits fraud and what does this look like?

Fraud can be committed by plan members, by providers, through collusion between providers and claimants, or by third party bad actors.

Examples of Health, Dental and Disability Fraud

• Billing for services not rendered- the plan member never received the services, yet they submit a claim using a real practitioner’s details, in order to receive back funds
• Claims submitted under a licensed provider’s name when services were delivered by someone else (i.e. an unlicensed practitioner).
• Inflated procedure codes- the dental office bills the insurer for more time than they actually took, or more expensive procedure codes than the actual services.
• Coverage ‘stacking’- one member of a family has maxed out their annual limit, so the provider now submits the claim under a dependent’s name instead.
• Dual coverage abuse- submitting the same claim to multiple plans, without acknowledging payment from the other plan (i.e. being reimbursed twice for the same service). Not following COB rules.
• Ineligible dependents posing as eligible dependents (i.e. listing a niece, nephew as dependent child).
• Organized provider fraud rings- accessing benefits programs via employees at provider offices (i.e. the TTC incident)
• For disability claims, misrepresenting your ability to work, the extent of your injuries, or undisclosed employment while receiving disability benefits are all examples of benefits fraud.

How does benefits fraud negatively impact employee benefit program costs?

At the Immix Group, we spend a lot of time explaining pricing to employers in our Client Community, and coming up with strategies to provide comprehensive benefits, but with sustainable pricing. Our clients understand that claims (relative to premiums paid) are an important factor in pricing for most traditional SMB benefit plans.

In short, when money is paid out to people and practitioners for services and supplies that were not rendered or under other invalid circumstances, it drives program costs.

• Fraud increases claims costs, which drives the incurred loss ratios on the plan (ratio of the claims paid out, to the premiums collected)
• Higher incurred loss ratios result in premiums increasing.
• Less money is available to pay for true expenses. Employers must absorb increases or make plan design changes to reduce costs.
• The added cost of needing to audit, track, police, invest in technology etc. just to prevent and identify fraud additionally drives administrative costs industry-wide.

Ultimately, employers absorb much of the impact, as they are primary funders of benefit programs. Employees are also impacted if there is cost-sharing for the benefits premiums. Fortunately, the insurance industry has significantly strengthened its detection capabilities.

What are benefits insurance providers doing to prevent and detect fraud?

The good news is that benefits insurers are taking action. Fraud prevention technology has advanced significantly in recent years, with heavy investment in data analytics, artificial intelligence (AI), and collaborative industry initiatives to detect suspicious activity earlier and more accurately.

While digital claims submission may seem like it would make fraud easier, it actually strengthens detection efforts. Electronic claims create centralized, structured data that can be analyzed in real time. This allows insurers to identify unusual patterns, compare activity across providers, and flag concerns much faster than in paper-based systems.

Today’s fraud prevention efforts include:

• Advanced analytics and predictive modeling to detect unusual claiming patterns
• AI-based anomaly detection to flag claims that don’t align with typical behaviour
• Cross-provider and cross-carrier data comparisons to uncover duplication or coordinated activity
• Provider audits and verification processes to confirm services were actually delivered
• Collaboration across the industry, including initiatives led by organizations like the CLHIA to pool data and strengthen fraud detection
• Partnerships with law enforcement when criminal activity is identified

Insurers also monitor for practical warning signs such as:

• Unusual spikes in claims from a single provider or clinic location
• High-cost claims clustered in one geographic location
• Repeated maximum claims submitted early in the benefit year
• Consistent paramedical claims hitting annual limits
• Multiple employees at one organization using the same provider

At the same time, insurers recognize that fraudsters are becoming more sophisticated — using digital tools to fabricate receipts or manipulate systems. This is why fraud prevention is an ongoing investment. Overall, the industry’s approach is proactive, collaborative, and increasingly technology-driven — helping protect the long-term sustainability of employee benefit plans while ensuring legitimate claims are paid quickly and efficiently.

What can employers do to prevent benefits fraud?

The good news is employers do not need to initiate their own audits. Insurers are already monitoring plans at multiple levels. The most effective role employers can play is fostering a culture of honesty, awareness, and accountability. Employers can:

• Clearly communicate that benefits fraud is not victimless. It impacts plan sustainability and future costs
• Reinforce that fraud is a serious offence that can lead to termination and legal consequences
• Maintain a written policy outlining expectations and repercussions
• Educate employees on how benefits work and who ultimately funds the plan
• Encourage ethical decision-making and speak openly about integrity
• Ensure employees know how to report suspected fraud

Fraud often begins with the mindset that “everyone does it” or “it’s not a lot of money.” Leadership tone matters. When organizations consistently promote transparency and accountability, it strengthens the long-term health of the benefit plan for everyone.

Want to learn more about what you can do? CLHIA has excellent information, as do many insurance carriers including Pacific Blue Cross, Manulife Financial, SunLife Financial, and Canada Life.

At the Immix Group, we are happy to help employers craft communication pieces to distribute to staff, or to educate HR staff and employees on this topic. As always, please feel free to reach out.