Workers’ comp rates rising again: Here’s why
May 8, 2009 by Fred HosierPosted in: Falls, Injuries, Special Report, Workers' comp, construction safety, cost of safety
California authorities have made massive allegations of workers’ comp fraud against an employer.
The Orange County District Attorney has charged the owners of three California roofing businesses with $38 million in workers’ comp fraud.
Michael Petronella and Devon Kile are accused of skirting comp payments by under-reporting the number of employees working for their companies and by discouraging their workers from filing claims. They both face between five and 102 years in prison.
Officials started an investigation when an employee of one of the companies fell off a roof and collected $6,000 in workers’ comp coverage.
The employee said he was working for Petronella Roofing, which had workers’ comp coverage. In fact, he was on a different company’s payroll, Western Cleanoff. Western had no comp insurance because it claimed it didn’t have any employees.
The indictment cites 41 other instances of employees who filed comp claims while on the payroll of uninsured companies owned by Petronella and Kile.
The district attorney accuses the two owners of playing a shell game of shuffling payrolls to make fraudulent claims for uncovered workers who were injured.
Why should other companies care?
Does comp fraud by some companies impact others who do the right thing and purchase proper insurance coverage?
One obvious reason it does: Companies without proper comp insurance have lower costs and can charge less than competitors.
Here’s another reason: Fraud is a key factor behind high comp insurance rates for other companies. When employers under-report the number of insured workers to reduce their comp premiums, it looks like there are fewer workers in a particular industry.
Comp premiums are based on injury rates in an industry. If the number of total workers is too low, but the number of injured workers stays the same, it appears that an industry has a higher accident rate than it actually does.
In California, where this case took place, the state Workers’ Compensation Insurance Bureau recently recommended a 24% average increase in comp premiums.
In a recent poll on Safety News Alert, only 19% of respondents said the current workers’ comp laws were just about right.
What do you think about the state of workers’ comp? Let us know in the Comments Box below.
The Orange County Register has more about this fraud case here and here.
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Tags: insurance premiums, Petronella Roofing, workers' comp fraud
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May 11th, 2009 at 11:52 am
Having worked in both the benefits and regulatory sides of government, I can say from experience that a benefit without regular monitoring and enforcement is an open invitation to thieves. And, if there are not enough regulators to ensure a high probability that violators will be caught, then there’s little point in having any rules at all.
May 11th, 2009 at 1:05 pm
Don’t insurers audit payroll in California. We are audited every year by our WC carriers and I would never be able to get away with that. I don’t care how creative I got with my payroll, the auditors walk the production floor, asks questions and audit all records.
May 11th, 2009 at 3:45 pm
I agree with Cheryl. Don’t know what state she’s in, but here in Maryland, the process is the same as she outlines. To try to get around it you’d have to be so “creative” that if you ever did get caught, they’d throw away the key. Although I guess if these guys end up with anywhere close to the max sentence of one-hundred two years, that key can certainly be considered to have been “thrown away”! I can’t imagine that it was worth it.
May 11th, 2009 at 3:52 pm
I agree with Cheryl. There is no way I can under report how many employees work for us. I also get audited every year by not only my Risk Control Company but also our Bank.
May 11th, 2009 at 3:57 pm
I agree with Cheryl. Here in Arizona, we have a choice of State Workman’s Comp or Workmans’ Comp provided by private companies. We choose a private company, and are audited every year. They are very thorough and we could not get away with any thing, as they take the figures from our Payroll Records. Maybe they don’t keep accurage payroll records either. But I guess that is what regulators are for, and if the State can’t handle the job, they should get out of it and turn it all over to private insurers. Or, perhaps this story isn’t even true, but just propoganda being spread to give the Feds cause to step in and handle it all. The Federal Government is a thing to be feared. I challenge you to study Hitler’s rise to power, and you will see so many parallels you will hardly believe it. The States better get together and claim their Soveriegn rights before it is tool late.
May 11th, 2009 at 4:05 pm
You mean that because of two people and five companies in one industry that ALL employers will take a 24% hit? I suppose that because of some people driving recklessly that all of us should pay more at the DMV? What of the high polluters in manufacturing? Should a bagel shop thereby pay more for waste disposal because of wrongful doings at an oil refinery?
How can it be that, once again, the purse strings are controlled NOT by the law abiding, doing-the-right-thing employer, but by unscrupulous “others” in this arena? If you pay your proper premiums, pass your audits for accuracy, keep your employees safe, send them to the proper doctors if there IS a covered accident … all of this … how is it that STILL the “good guy” can lose? And then there is the fraudulent claims side where the employer has NO say in what happens to the injured person in that side of the system. The primary doctor, who stands to make the most money in many cases, determines what procedures are applicable without respect many times to the injury at hand. If that same person went to his HMO doc, he’d get a bandaid and a kiss and be told to “get well”!
This just has to be cleaned up. I’m not one for “more” government, but if the industry has gotten to this point, then laws to govern this must be put into place. Punish the offenders, keep safe the good guys. It’s just like child rearing; negative reinforcement for a positive behavior will result in negative behavior.
Just my 27 cents worth …
May 11th, 2009 at 4:50 pm
The way they get away with it is by having workers at and shifting them around different job sites. They pay these people under the table form an excessive petty cash fund. At least that’s how my old boss did it.
May 11th, 2009 at 5:03 pm
Most of the fraud is done by employees not employers. With unscrupulous lawyers and doctors the scam insurance companies all day long. This why the rates are so high. Carpal syndrome, the usual backache or neck ache and thousands end up being paid. It is shameful.
May 12th, 2009 at 6:41 am
Here we go again. Instead of removing the infected limb, regulators shotgun the whole body. Go after the guilty parties and stop dumping on the legally operating (and audited) companies. With the economy down the tubes, no company needs to get hosed with a 24% rate increase.
May 12th, 2009 at 7:52 am
WC…I work with a company that have WC cover for the employee, but when comes to file compensation is because, some one gets hurt very badly. The doctor needs to claim the fact of what happening. Lawyers get involve, not only the owners or any other person…insurance carrier shall be notify in writting the cause of accident same as I do before send some empoloyee to be seeing by a doctor…Is manner of knows the job and responsibilities for every body. If is a Fraud, go ahead and do the right think!. I believe is more that only said FRAUD, how this happens? Before any moneis go some body pockets is lots of paper work and meetings to justify the payment for WC.
May 13th, 2009 at 9:29 am
[...] Workers’ comp rates rising [...]
May 13th, 2009 at 1:38 pm
I agree with Mr. Thomas, I work for a plating shop that has been in business for over 40 years. The owner’s are very good to their employees, they even provide no cost health insurance for them. I do some of the accounting for them and we have to pay incredibly high prices for WC. We’re at a 169% mod. because WC cases are not handled efficiently and with due speed. One guy even sued because he had a heart attack at home! Another hurt his hand playing soccer at home and he got $40,000. This is a small company. It’s not fair, like Mr. Thomas says, the good guys lose.
May 16th, 2009 at 1:55 pm
The problem as discussed is with SCIF and their inability to function properly. Since this incident happened in my neighborhood I took interest in this issue but having been on workers’ comp for over 5 years the problem falls on SCIF. SCIF on more than 3 occasions blatantly lied to me including in writing and in the presence of a D.o L. official. SCIF also still owes me approx. $1500 from a blotched flight, trip and P.D. when I was living out of state and had to attend a court ordered doctor evaluation and ended up paying for all these costs out of pocket. Was told when case was settled I would get these expenses. The problem with SCIF is accountability and a higher source to enforce accountability. Obviously individuals with attorneys seem to have an open avenue for screwing SCIF over while taking care of their clients costing us the taxpayers. I have heard these great attorneys tell their clients “take the offer, return back home to …., and you will live really well”. SCIF needs to be shut down and all outstanding cases need to be settled from oldest to newest regardless of State budget constraints. Incidently the oldest case that involves SCIF I personally know about is 22 years old (I did not think SCIF was that old) I also personally know of numerous cases that have not settled that are older than my 5 years. As a side note SCIF decided at the beginning of this year to go “paperless”- Another delay and taxpapyer cost.
June 22nd, 2009 at 1:47 pm
Anytype of employment related fruad effects usd all, when it comes to workers comp remitance especially for the varied State Funds in the construction industry were employees are very transit, illegal, “Independent contractors” ectera these guys sadly will do what they can to stay in the game, some are just dirt bags and would cheat anyone and everyone. Audits and Auditors are as varied as each one of us, I know many who will only examin the payroll records and be done…we undergo three very stringent audits a year, Loss Control which includes class code verification, Payroll & Risk anaylisis from the underwriter directly…but we are with a Private Carrier not a Goverment agency pretending to be “private”
December 4th, 2009 at 7:02 pm
I am just about ready to close up my business because of all the taxes. Workmans Comp is the worst because I have never had a claim and the fees just keep going up and up. My small business is a service and so employees are my biggest expense, over 60% of my income every year and so WC is also high. Cant we get these taxes down somehow? I think if the health care reform passes then workman’s comp should be reevaluated too.
March 9th, 2010 at 6:05 pm
Maria, your employor may be very good to the employees, but they also have to accept some responsibilty for the mod, which is hurting their business and in turn, the employees. You cannot let your carrier or TPA manage your claims on their own. You have to get actively involved from reporting to closure. If you don’t, you end up where you are.