Employers work the workmens comp system, costing everyone
Companies are cheating on workers' compensation, costing billions in added premiums-and leaving their employees at risk
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I know that I'm gonna get slapped on this one and told that the problem is happening because we don't have enough regulators over-seeing employers and the insurance industry, but here goes anyway.
Headline is (as usual) linked.
Workers' Con
Companies are cheating on workers' compensation, costing billions in added premiums-and leaving their employees at risk.
Jorge Gomez was helping to build a two-story house on a Jacksonville, Fla.-area construction site owned by D.R. Horton in 2003 when a 24-foot wood beam fell and broke his neck. Gomez, who had crossed into the U.S. from Mexico illegally, was being paid $400 a week in cash from a subcontractor. Now a quadriplegic, the 23-year-old has amassed more than $1 million in hospital bills but has no way to pay them. Companies are supposed to cover all workers, even illegal ones. But his disability claims to the subcontractor and the home builder were denied. He is now suing $11 billion (sales) D.R. Horton, which insists it did nothing wrong and points the finger at the sub. Trial date: this fall.
Workers' comp is out of control again. Premium rates have risen 44% in the last three years, says the Insurance Information Institute, pushing total corporate costs to $80 billion annually. Along with rising medical costs, fraud is a swelling part of that bill, amounting to billions of dollars each year, says the institute's chief economist, Robert Hartwig. Some skulduggery still comes from people faking or exaggerating injuries. But employers cheat, too, using creative ways to underpay workers' comp insurance, driving up premiums for other businesses.
Judging by the number of suits by private and state insurers, the problem is getting worse. Fraud is particularly prevalent in the construction industry, especially among roofers, as well as in work-leasing companies and so-called professional employment organizations; PEOs collect a fee to coemploy and take responsibility for workers. The highest incidence of fraud seems to be among companies in California and Florida.
This month the U.S. attorney in Jacksonville plans to file indictments involving a PEO, according to sources familiar with the investigation, accusing it of pocketing $600 million or so, much of which was to have paid for workers' comp premiums. A federal grand jury in the Jacksonville case has heard evidence that the PEO collected fees and comp premium payouts from clients across the nation but never purchased insurance. Every state except Texas requires most businesses to insure all their employees. Some companies rely on their own ingenuity to cheat. Charles Yi, 62, stands accused of underreporting the number of employees on his payroll as a way of reducing his workers' comp premiums. According to a Los Angeles deputy district attorney, Yi committed fraud between 2000 and 2003, when his Natural Building Maintenance painted dorm rooms at UCLA and provided janitorial services at the Rose Bowl, claiming the work had been done by 18 employees when, in fact, it was the labor of at least 300. Yi pleaded not guilty in November and is awaiting trial.
A craftier way to avoid paying workers' compensation: Shift employees around phony companies. Miguel and Linda Delgado created a fake entity to hide staff at their San Antonio, Tex. janitorial outfit, Border Maintenance Services, thereby reducing workers' comp premiums, says a suit filed by its insurer, Texas Mutual. The allegedly bogus company, Del-Kleen, got fat state contracts by showing it had insured its workers against injury, a requirement for state government jobs in Texas. But, according to the complaint, the work was actually done by Border Maintenance's 450 employees. The company managed to avoid nearly $1 million in comp premiums. The Delgados were ordered to pay $1.6 million to Texas Mutual.
Another favorite trick: giving fake job titles to workers. James Duff pleaded guilty in January to fraudulently obtaining municipal contracts in Chicago. His Windy City Labor Service, which supplied temporary workers, ducked $3 million in workers' comp insurance premiums by reclassifying nearly all 2,100 workers toiling in warehouses and refuse centers as paper pushers, even though he knew they were temporary day laborers engaged in manual labor, says a federal indictment. Clerical jobs carried premium rates of near 35 cents per $100 of payroll, as opposed to $8 for muscle jobs, according to court papers. (The payroll used to calculate the rate can be capped as high as $84,500.) Duff is awaiting sentencing.
Hiding wages is a clever way to go-until you get caught. That, according to a suit filed by the California State Compensation Insurance Fund, was the intention behind Ideal Payroll Plus and Ideal Management, two Rancho Cucamonga, Calif. PEOs run as limited partnerships by David Clancy. The complaint alleges that by disguising half of the paid-out wages as distributions to partners, Clancy skirted $1.3 million in premium payments.
How did it work? The partnerships hired and leased employees to a Buick dealership and a local roofer, among others, says the suit, and paid some wages legitimately. An associate, Telma Moguel, set up a trust that was financed by the partnerships to funnel the rest of employee wages through the trust as "partnership income," as if it were a payout from an investment. A California court hit the PEOs with a $14.6 million default judgment in late December. Suits against Clancy and Moguel are pending; both deny wrongdoing.
"Premium scams milk workers' comp insurers out of untold millions," says James Quiggle at the Coalition Against Insurance Fraud, "depressing profits and forcing comp premiums higher for honest businesses." But there aren't enough cops to nab crooks. Jeffrey Korte, head of Florida's workers' comp fraud bureau, says his 26 investigators can't keep up.
... more at linked article
So many possible targets in this article and so little time.
First, for Mr. Jorge Gomez (first paragraph mentioned), sympathies for the injury, but also some anger at the idea that he was in the country illegally, and partly because of that, allowed himself to be taken advantage of by these crooked employers who weren't covering his insurance needs. Now, of course, others will pay for his needs in higher costs across the board.
For these employers, a wish that many would be crammed into some federally funded space with nice bars for doors and windows. Gaming the system in these manners costs everyone, and leaves the innocent unprotected. Many people are not able to question potential employers in advance to find out about a companies history in this area. Even if someone is inquisitive and checks on a company before going to work for them, this isn't necessarily information that would be easily available.
Perhaps the answer is more public disclosure of this information. More filing of the number of employees that are covered by workmens comp, and information like that so that public watchdog groups can cross reference information and help the government regulators keep these problems from occuring -- without having to employ thousands more in enforcement roles for the government.
Headline is (as usual) linked.
Workers' Con
Companies are cheating on workers' compensation, costing billions in added premiums-and leaving their employees at risk.
Jorge Gomez was helping to build a two-story house on a Jacksonville, Fla.-area construction site owned by D.R. Horton in 2003 when a 24-foot wood beam fell and broke his neck. Gomez, who had crossed into the U.S. from Mexico illegally, was being paid $400 a week in cash from a subcontractor. Now a quadriplegic, the 23-year-old has amassed more than $1 million in hospital bills but has no way to pay them. Companies are supposed to cover all workers, even illegal ones. But his disability claims to the subcontractor and the home builder were denied. He is now suing $11 billion (sales) D.R. Horton, which insists it did nothing wrong and points the finger at the sub. Trial date: this fall.
Workers' comp is out of control again. Premium rates have risen 44% in the last three years, says the Insurance Information Institute, pushing total corporate costs to $80 billion annually. Along with rising medical costs, fraud is a swelling part of that bill, amounting to billions of dollars each year, says the institute's chief economist, Robert Hartwig. Some skulduggery still comes from people faking or exaggerating injuries. But employers cheat, too, using creative ways to underpay workers' comp insurance, driving up premiums for other businesses.
Judging by the number of suits by private and state insurers, the problem is getting worse. Fraud is particularly prevalent in the construction industry, especially among roofers, as well as in work-leasing companies and so-called professional employment organizations; PEOs collect a fee to coemploy and take responsibility for workers. The highest incidence of fraud seems to be among companies in California and Florida.
This month the U.S. attorney in Jacksonville plans to file indictments involving a PEO, according to sources familiar with the investigation, accusing it of pocketing $600 million or so, much of which was to have paid for workers' comp premiums. A federal grand jury in the Jacksonville case has heard evidence that the PEO collected fees and comp premium payouts from clients across the nation but never purchased insurance. Every state except Texas requires most businesses to insure all their employees. Some companies rely on their own ingenuity to cheat. Charles Yi, 62, stands accused of underreporting the number of employees on his payroll as a way of reducing his workers' comp premiums. According to a Los Angeles deputy district attorney, Yi committed fraud between 2000 and 2003, when his Natural Building Maintenance painted dorm rooms at UCLA and provided janitorial services at the Rose Bowl, claiming the work had been done by 18 employees when, in fact, it was the labor of at least 300. Yi pleaded not guilty in November and is awaiting trial.
A craftier way to avoid paying workers' compensation: Shift employees around phony companies. Miguel and Linda Delgado created a fake entity to hide staff at their San Antonio, Tex. janitorial outfit, Border Maintenance Services, thereby reducing workers' comp premiums, says a suit filed by its insurer, Texas Mutual. The allegedly bogus company, Del-Kleen, got fat state contracts by showing it had insured its workers against injury, a requirement for state government jobs in Texas. But, according to the complaint, the work was actually done by Border Maintenance's 450 employees. The company managed to avoid nearly $1 million in comp premiums. The Delgados were ordered to pay $1.6 million to Texas Mutual.
Another favorite trick: giving fake job titles to workers. James Duff pleaded guilty in January to fraudulently obtaining municipal contracts in Chicago. His Windy City Labor Service, which supplied temporary workers, ducked $3 million in workers' comp insurance premiums by reclassifying nearly all 2,100 workers toiling in warehouses and refuse centers as paper pushers, even though he knew they were temporary day laborers engaged in manual labor, says a federal indictment. Clerical jobs carried premium rates of near 35 cents per $100 of payroll, as opposed to $8 for muscle jobs, according to court papers. (The payroll used to calculate the rate can be capped as high as $84,500.) Duff is awaiting sentencing.
Hiding wages is a clever way to go-until you get caught. That, according to a suit filed by the California State Compensation Insurance Fund, was the intention behind Ideal Payroll Plus and Ideal Management, two Rancho Cucamonga, Calif. PEOs run as limited partnerships by David Clancy. The complaint alleges that by disguising half of the paid-out wages as distributions to partners, Clancy skirted $1.3 million in premium payments.
How did it work? The partnerships hired and leased employees to a Buick dealership and a local roofer, among others, says the suit, and paid some wages legitimately. An associate, Telma Moguel, set up a trust that was financed by the partnerships to funnel the rest of employee wages through the trust as "partnership income," as if it were a payout from an investment. A California court hit the PEOs with a $14.6 million default judgment in late December. Suits against Clancy and Moguel are pending; both deny wrongdoing.
"Premium scams milk workers' comp insurers out of untold millions," says James Quiggle at the Coalition Against Insurance Fraud, "depressing profits and forcing comp premiums higher for honest businesses." But there aren't enough cops to nab crooks. Jeffrey Korte, head of Florida's workers' comp fraud bureau, says his 26 investigators can't keep up.
... more at linked article
So many possible targets in this article and so little time.
First, for Mr. Jorge Gomez (first paragraph mentioned), sympathies for the injury, but also some anger at the idea that he was in the country illegally, and partly because of that, allowed himself to be taken advantage of by these crooked employers who weren't covering his insurance needs. Now, of course, others will pay for his needs in higher costs across the board.
For these employers, a wish that many would be crammed into some federally funded space with nice bars for doors and windows. Gaming the system in these manners costs everyone, and leaves the innocent unprotected. Many people are not able to question potential employers in advance to find out about a companies history in this area. Even if someone is inquisitive and checks on a company before going to work for them, this isn't necessarily information that would be easily available.
Perhaps the answer is more public disclosure of this information. More filing of the number of employees that are covered by workmens comp, and information like that so that public watchdog groups can cross reference information and help the government regulators keep these problems from occuring -- without having to employ thousands more in enforcement roles for the government.
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