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  • Dean Smith

Opinion Piece: The Construction Industry is Workers’ Compensation’s Biggest Problem

While every single fraudulent workers’ compensation claim affects the billion-dollar industry, some believe that the small fries are not where the problem truly lies; such as the claimant who was injured during a flag football game on Sunday, but reported his injury as work-related on Monday, or the individual claimant who claims he is unable to work due to his injuries, but works under-the-table on the side. Some believe there’s a far bigger picture to consider than the sum of individual fraudulent claims.

Joseph Paduda, Principal of Health Strategy Associates, a national consulting group exclusively for the health care industry, discusses in an opinion piece what he feels is the workers’ compensation industry’s biggest problem: the construction premium fraud racket.

Paduda notes, “Moreover, by far the biggest problem is on really big projects – we aren’t talking about the local sub who builds decks and redoes bathrooms. Bridges, airports, office parks, malls, government buildings – all targets for fraudsters who under-report wages, fail to obtain valid workers’ comp insurance, and rely on horrendously short-staffed enforcement of laws that are often far too permissive.”

Here is a general step-by-step process to this type of fraud:

  1. Contractors/subcontractors work with “facilitators” for the purpose of obtaining workers’ compensation insurance from agents.

  2. They then provide insurance certificates to the labor brokers, who find, employ and pay the workers. Paduda notes that the insurance coverage is typically minimal and based off of false payroll data.

  3. Labor brokers cash the payments from the facilitators (who sometimes even receive a percentage as a kickback from check cashing stores).

  4. The broker may pay the workers in cash.

  5. The contractors then have documentation of insurance and low labor costs (Paduda also notes that the construction industry is a highly competitive business and the cost of labor is typically the deciding factor in contractors winning or losing business).

So who makes money? The facilitators, labor brokers, and check cashing stores.

Who’s left to pick up the pieces? First, the worker. The worker gets injured and THEN they find out there’s insufficient, inconclusive, or NO coverage at all and the worker and/or the taxpayers are left with the cost of care.

Next, Paduda says, “The original work comp insurer gets screwed too, with perhaps thousands of dollars of premiums foregone due to fraudulent reporting while the ‘insured’ is deemed covered by state law.”

We’re curious. What are your thoughts?

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