Insurance fraud: The crime
you pay for
Coalition Against Insurance Fraud
— insurance crooks are picking
your pocket in order to line theirs. These thieves are
committing insurance fraud, one of America’s
largest criminal industries. Insurance fraud is a crime, and one
way or another, honest consumers and businesses pay the price.
Insurance fraud occurs every day and in every state. People of
all races, incomes and ages are victimized. Insurance fraud
costs Americans at least $80 billion a year, or nearly $950 for
each family, the Coalition Against Insurance Fraud estimates.
But look beyond the high dollar costs...
also see honest, hardworking Americans whose lives, businesses,
careers and families are damaged or even ruined by insurance
lose their savings.
Trusting citizens are bilked out of thousands of dollars, often
their entire life savings, by insurance investment schemes. The
elderly are especially vulnerable.
People’s health and lives are endangered by swindlers who sell
nonexistent health policies or perform quack medical care to
illegally inflate health insurance claims.
Premiums stay high.
homeowner insurance prices stay high because insurance companies
must pass the large costs of insurance fraud to policyholders.
Consumer goods cost more.
Prices of goods at your department or grocery store keep rising
when businesses pass higher costs of their health and commercial
insurance onto customers.
businesses lose money.
Businesses lose millions in income annually because fraud
increases their costs for employee health coverage and business
Innocent people are killed and maimed.
People die from
insurance schemes such as staged auto accidents and arson —
including children and entire families. People and even animals
also are murdered for life insurance money.
Employees lose jobs.
People lose jobs, careers and health coverage when insurance
companies go bankrupt after being looted by fraud thieves.
What is Fraud?
Insurance fraud occurs when people deceive an insurance company
or agent to collect money to which they aren’t
entitled. Similarly, insurers and agents also can defraud
consumers, or even each other. Insurance fraud can be "hard" or
Someone deliberately fakes an
accident, injury, theft, arson or other loss to collect money
illegally from insurance companies. Crooks often act alone, but
increasingly, organized crime rings stage large schemes that
steal millions of dollars.
Normally honest people often tell "little white lies" to their
insurance company. Many people think it’s just harmless fudging.
But soft fraud is a crime, and raises everyone’s insurance
A car owner inflates a fender bender claim to
cover her deductible, or she understates how many miles she
drives annually to lower her auto premium.
A homeowner inflates the value of his stereo equipment stolen
during a robbery.
Or a printing
business lists fewer employees than it really has in order to
pay lower workers compensation premiums.
Fraud is Big
Insurance fraud is hard to measure because so
much goes undetected, and complete research has yet to be done.
Still, we have enough evidence to know that fraud is widespread
Healthcare fraud alone costs Americans $54
billion a year, the Coalition Against Insurance Fraud estimates.
More than one third of people hurt in auto
accidents exaggerate their injuries. This adds $13-$18 billion
annual insurance bill, notes a study by the Rand Institute for
Nearly one third of doctors exaggerate the
severity of a patient’s
illness to help the patient avoid early discharge from a
hospital, according to the Journal of
the American Medical Association.
Why Is Fraud So Big?
Insurers sometimes back off.
Most insurance companies take a
tough stand against fraud, but some companies unwittingly
encourage fraud by paying suspicious claims too easily. These
companies believe it’s
cheaper to pay some smaller suspect claims than fight in court,
and a quick payoff also may avoid multimillion-dollar lawsuits
for bad faith.
system is an easy target.
health care system is huge and vulnerable. The sheer number of
patients and treatments plus complexity of billing attract cons
who are skilled at looting our overworked health care system.
The pressure to control costs also encourages many doctors or
health firms to cheat so they can recoup lost profits or meet
rigorous treatment quotas.
Immigrants are vulnerable.
Insurance cheats consider
America’s large and growing immigrant groups easy targets. Asian
and Hispanic communities, for example, report extensive
insurance fraud as con artists prey on immigrants’
lack of English skills and ignorance of how insurance works.
cheaters view insurance fraud as a low-risk, high-reward game,
and far safer than drug trafficking or armed robbery. Consider:
states still don’t
have specific insurance fraud laws, thus discouraging
many prosecutors from tackling tough fraud cases.
are getting tougher on convicted schemers, but too often
jail sentences still are light, with courts often
reserving space in overcrowded prisons for people
convicted of more-violent crimes.
Professional societies overseeing doctors and lawyers
often are reluctant to discipline peers convicted of
Prosecutors often give top priority to combating drugs, violence
and other high-profile crimes. Though prosecutors are tackling
more fraud cases than in the early 1990s, too many prosecutors
still believe insurance crimes often are too complex and
technical to successfully prosecute.
Too many consumers believe insurance fraud is justified. This
environment of tolerance makes it much easier for con artists to
operate safely. Research by the Coalition Against Insurance
three Americans tolerate insurance fraud to varying
five Americans want little or no punishment for
insurance cheats; they blame the insurance industry for
its fraud problems because they believe insurers are
All Shapes and Sizes
Insurance fraud comes in all shapes and sizes.
Here are several examples¼
Juan and Maria Lopez and their 2-year-old daughter Joanna were
burned alive during an auto accident two men staged on the Long
Beach (Calif.) freeway to collect insurance money in 1997. The
scammers suddenly stopped in front of a tractor trailer the
Lopezes were following. A gravel truck then rammed the Lopezes
from behind, killing the young family instantly. Isidorio Medina
Gomez and Esteban Galves Solano each received 11 years in state
prison in 1998.
Helen Tidwell hired two local teenagers to torch her Tampa
Country Kitchen, so she could collect insurance money in 1996.
But fumes from the gasoline the boys poured in the restaurant
accidentally ignited, causing an explosion. One boy died and the
other was permanently scarred. Tidwell received 30 years in
prison in 1999.
Insurance Fraud (corporate).
Healthcare has agreed to pay at least $754 million after
overbilling taxpayer-funded Medicare for years. If the deal
stands, it will be the largest healthcare fraud settlement in
U.S. history. The chain (now named HCA) billed Medicare for
unneeded lab tests, improper diagnoses to make patients seem
sicker than they were, and disguising unreimbursable expenses as
reimbursable. Criminal charges still are pending.
Insurance Fraud (individual).
surgeon Harold Goodman routinely gave patients potentially
harmful X-rays and steroid injections they didn’t
need so he could falsely bill Medicaid. Goodman spent as few as
five minutes with each patient, giving one patient 74 X-rays and
112 steroid injections in less than three years. Goodman
received six months in prison in 2000.
Bonnie McCaslin bought 78 life insurance policies on her
ex-husband Timothy, who knew nothing about the policies. She
then tried to collect $11 million from dozens of life insurance
companies by claiming he died in an earthquake in Mexico in
1995. McCaslin received two years in jail in Nebraska, but
blames Timothy for not cooperating with her ruse. "He’s such a
jerk. If it weren’t for him, I wouldn’t
be in here," she told Forbes magazine.
suffocated her seven-week-old daughter Tara to collect $200,000
in life insurance money to feed her gambling addiction in 1995.
Jobless and on welfare, the Illinois resident was deeply in debt
from riverboat gambling. Tara died in her crib just two weeks
after Abdelhaq took out a life policy on the child. Abdelhaq
received 21 years in prison for insurance fraud in 2000.
Thousands of investors, many of them retirees left almost
penniless, were financially devastated when National Heritage
Life Insurance Co. collapsed in 1995 after being looted of $450
million by company insiders. The insiders lived lavish
lifestyles while retirees who invested in the company lost their
entire life savings. Four major players were convicted in 1999,
and dozens more are charged in America’s
largest insurer insolvency caused by fraud.
California software distributor Irwin Bransky had a lot of
useless merchandise on his hands. So when the Northridge
earthquake struck California in 1994, Bransky ordered employees
to jump on the software packages and bend them with their hands
to inflate an insurance claim. Bransky filed a $5-million claim,
and the insurer paid $840,000 before an employee blew the
whistle. Bransky received 51 months in prison in 1998.
Insurance Companies Respond
Most insurers have made fighting fraud a priority, more than
tripling anti-fraud spending in recent years. Most insurers have
created special fraud-busting units, often staffed by former
detectives and police officers.
Many insurers actively educate consumers how to detect and
protect against fraud, and often sponsor active fraud hotlines
so people can phone in tips.
Most insurers train employees and alert insurance agents to spot
Insurers also sponsor the
National Insurance Crime Bureau (NICB). The NICB is increasing
the number of fraud convictions by gathering detailed data about
suspected fraud crimes, and referring them for prosecution. The
NICB also runs a national consumer fraud hotline.
States Increase Pressure
State insurance regulators have created 37 fraud bureaus in 45
states, whose job is to investigate and hunt down fraud.
scrutiny of companies.
regulators have created a model law that makes it harder for con
artists to set up fake insurance companies. Many states also are
scrutinizing insurance company finances and market practices
Tougher fraud laws.
Increased crackdowns in the
1990s uncovered far more insurance fraud than anyone realized
existed. To give prosecutors better legal tools to convict
crooks, the Coalition Against Insurance Fraud developed a tough
model state fraud law. Some 15 states have adopted or
strengthened their insurance fraud laws based on the coalition’s
model. Among other provisions, this model:
creates state fraud bureaus that help hunt
down fraud artists and build strong cases against them. Many
fraud bureaus even have power to subpoena and fine crooks.
requires insurance companies to develop
thorough plans for preventing and detecting fraud.
requires insurance applications and claim
forms to warn that fraud is a serious crime.
provides immunity to insurers when sharing
fraud information with other insurers, investigators and law
Feds Tighten Up
Tougher health fraud penalties.
widespread Medicare and Medicaid fraud is a special focus of
federal efforts. Congress has enacted tougher penalties and
expanded current federal health insurance fraud laws to cover
pressure on white-collar crooks.
Federal law imposes stiff prison terms and fines for
white-collar criminals who loot insurance companies. The law
also heavily penalizes anyone who gives false financial
information to state insurance regulators, and forbids convicted
insurance felons from returning to insurance without permission.
government and health insurers share fraud info on a large
scale, thus helping them discover hundreds of hidden schemes and
build stronger cases for prosecution. The Justice Department
began sharing with health insurers its own field intelligence
about health frauds with health insurance companies in 2000. The
federal government further tightens the net by collecting and
sharing vast amounts of data covering convictions and other
actions against health providers under a landmark 1996 federal
Report Card: Progress?
improved fraud-fighting efforts are working. More insurance
crooks are being convicted every year, and billions of dollars
stolen from honest citizens and businesses are being recovered.
Precise figures aren’t
available, but growing evidence shows real progress on many
fraud prosecutions have tripled over the last three years,
according to a new study of state fraud bureaus by the
nine of 10 fraud cases lead to convictions in Massachusetts.
Healthcare insurers have saved policyholders more than $11 for
every dollar spent fighting fraud, a 50-percent increase over
1995, notes the Health Insurance Association of America.
people believe it’s
ok to inflate insurance claims by small amounts to recoup their
deductible or premiums, according to the Insurance Research
The Future: Still Dangerous
Despite the encouraging progress, insurance fraud
will remain a vast and dangerous criminal enterprise. Here are
several fraud trends consumers should know about:
The Internet will hatch new insurance swindles as
computer-savvy consumers buy from online insurance companies
that may be virtually untraceable. Young people raised on the
Internet will be the vanguard of this crime wave.
The global economy is igniting huge insurance
money-laundering schemes, often involving fake insurers that
bilk people out of millions. Tracking them across international
borders will pose a big problem for U.S. law enforcement.
The large population bulge of aging Boomers
needing more medical attention will keep health fraud near the
forefront of the largest and costliest fraud crimes.
Insurance fraud against immigrants will remain a
serious problem as diverse ethnic groups continue migrating to
the U.S. Many fraud crimes will be committed by fraud rings or
organized mafias of immigrants themselves.
The elderly will remain one of the largest
targets of insurance swindles. Investment schemes are among the
newest approaches: Thousands of seniors are investing in bogus
– life insurance policies that
exist or were obtained illegally. Many seniors also are
investing in fake promissory notes sold by insurance agents and
guaranteed by non-existent insurance companies.
Everyone pays for insurance fraud, and so
everyone must join in stamping out these swindles. Consumers,
lawmakers, insurance companies, doctors, lawyers and many more
must be part of the answer. Insurance fraud will disappear only
when criminals realize fraud is a fast highway to jail, not an
easy road to riches.
Protect Yourself: Stay Alert
You can protect yourself against insurance
scams: Stay alert, ask questions, and go slow or back out if an
insurance transaction seems suspicious.
state insurance department and the National Insurance Crime
Bureau (1-800-835-6422) if you think you’re being scammed or
someone asks you to take part in a fraud.
Never sign blank insurance claim forms.
Demand detailed bills for repair and medical
services. Check closely for accuracy.
Make sure "free services" aren’t
actually hidden in your insurance bill.
Be wary of buying insurance from door-to-door
or telephone sales people.
Be suspicious if the price of insurance seems
too low to be true.
Contact your state insurance department to
make sure the agent and company are licensed.
Keep your insurance identification number
secret; insurance crooks can steal it and involve you in
Be wary if a car suddenly pulls in front of
you, forcing you to follow dangerously close. You may be set
up for a staged accident.
After an auto accident, be careful of
strangers who offer you quick cash or urge you to see a
specific medical clinic, doctor or attorney. They could be
part of a fraud ring.