Author: WorkCompAcademy

The Coalition Against Insurance Fraud was created in 1993 and remains the nation’s only consumer advocacy organization devoted to educating and protecting American citizens from the cost and damage of insurance fraud.

The Coalition consists of more than 260 organizations committed to the fight against insurance fraud. These organizations include federal and state agencies, insurance regulators, legislative and insurance trade associations, state attorneys general, prosecutors, law enforcement agencies, the majority of America’s leading insurance carriers across all lines of insurance, and select companies and law firms assisting in fighting insurance fraud.

In 1995, the Coalition released an estimate of the cost of insurance fraud in the United States as being $80 billion every year. The $80 billion impact has remained the most often cited insurance fraud statistic across the nation. An 81.5% inflation rate, would convert the 1995 estimate into a 2022 cost of fraud in the United States at $145 billion!

Thus the Coalition just published an updated study this month. Colorado State University Global’s White Collar Crime Task Force (WCCTF) was the research arm spearheading this new study.

The 2022 Coalition research project focused on two areas of workers’ compensation fraud to determine their final figure, premium fraud and claim fraud.

Workers’ compensation claim fraud was determined by first developing a cost of fraud in the state of California and then using census data to predict the cost of fraud countrywide.

The baseline used was a $3 billion estimate that was derived by Frank Neuhauser of the University of California Berkeley who performed a study on the Underground Economy and Payroll Fraud. The Coalition’s Workers’ Compensation Task Force used the $3 billion figure and then assumed California’s population is 12% of the total United States population (based on 2019 Census Data), the formula was developed to determine the final cost. According to the United States Census data, in 2019, the U.S. population was 328 million and California was 39.5 million; thus, California occupies 12% of the total U.S. population.

$3 billion (fraud in California) x 8.3 (California is 12% of the USA population), translates into a metric of 100 divided by 12 = 8.3. Thus $3,000,000,000 x 8.3 = $24.9 billion claim fraud in the United States.

The WCCTF concluded that workers’ compensation fraud totaled $9 billion in premium fraud plus $25 billion in claim fraud, for a grand total of $34 billion in workers’ compensation fraud in the United States.

The report continued to analyze the costs of fraud in other lines of insurance in the 46 page report and arrived at the following estimates:

– – Property and Casualty Fraud. The WCCTF estimates that the current cost of Property and Casualty fraud in the United States is $45 Billion.
– – Workers’ Compensation Fraud. The WCCTF estimates that workers’ compensation fraud totals $34 billion in the United States.
– – Premium Avoidance or Misclassification. The WCCTF estimates premium fraud in the United States is $35.1 billion.
– – Healthcare Fraud. The WCCTF estimates healthcare fraud in the United States is $36.3 billion.
– – Medicaid and Medicare Fraud. The WCCTF estimates Medicaid and Medicare fraud in the United States is $68.7 billion.
– – Life Insurance Fraud. The WCCTF estimates that life insurance fraud in the United States is currently $74.7 billion.
– – Disability Fraud. The WCCTF estimates that the current cost of disability fraud in the United States is $7.4 billion.
– – Auto Theft. The WCCTF estimates auto theft in the United States is $7.4 billion.

Using these estimates, the WCCTF estimated the total annual cost of insurance fraud in the United States to be $308.6 billion annually. Comparing that to the 1995 inflated adjusted estimate of $145 billion, the new estimate is more than a 100% increase in the costs of insurance fraud in the United States.

Alex Romero sustained fatal injuries as a result of a motor vehicle accident in which he was involved on October 26, 2016. It is alleged that, at the time, Romero’s attorneys claimed he was driving on an errand intended to benefit the alleged employer, Paul Story dba Kar Tunez.

Paul Story worked out of his home garage in Modesto. He engaged in auto stereo installation as a “side business” since he was 13 years old. Story also rented space at a warehouse on Bitritto Way in Modesto and stored tools there. He testified that Romero stored tools there as well. Prior to October, 2016, he had no employees, but that he “partnered” on projects with Romero.

When business improved, he had people helping out — which included Romero, Story’s wife, Patty, and several other individuals.Story testified that . . . when he did a job with Alex Romero, they would split the proceeds. When they worked together, it was because they wanted to “do something good for ourselves.” Alex Romero was “like family” and lived with Paul Story and his family off-and-on for “a few years.”

Text messages occurred between Romero and Story referring to Romer’s potential assistance to Story occurred two days before the accident On October 24 Story texted that he had “some pepole w anting to see some stufff” and offered to pay Romero “20 or better per person” for his help. Romero replied he was free for “about 2 hours.” Romero did not receive a reply so later he texted “Hey you want me to go or no.”
The final reply from Story on the topic was “ill take care of it thanks anyway.”

On the afternoon before the accident, Story noticed his jigsaw was missing. He assumed Romero had borrowed it. She sent Romero a text “Were the [ ] is m y jigsaw!!!!” but Romero did not reply. The jigsaw was discovered in Romero’s trunk after the accident, and Story later retrieved it at the police station.

Thereafter, none of the text messages between applicant and Story reflect any request or expectation that applicant would assist Story in any way. Story had no idea where Romero was going at the time of the accident and could not recall if they spoke before the accident.

Alex Romero’s mother, Margaret King testified that on the day he died, Romero was en route to the Kar Tunez shop, and that Romero was never self-employed. In fact, he refused to start up his own business even though she encouraged it. Romero’s older brother, Steven testified that his brother was working for Paul Story at the time he died and was not doing any work outside the work he had with Paul Story and Kar Tunez.

Anthony Miranda’s — an individual with no familial relationship with the Romero family, and at whose direction the speaker project was commenced — contradicted the testimony of Margaret King and Steven Romero that there was an employment relationship between Alex Romero and Paul Story.

The WCJ found that there is no evidence establishing that applicant’s accident occurred in the course of employment. The WCJ ordered that applicant take nothing on his claim. Reconsideration was denied in the panel decision of Romero v Story & UEBTF – ADJ10821128 (July 2022)

In his Opinion on Decision the WCJ said “No one credibly testified that Story summoned Nieves Romero to the shop. No one credibly testified that Romero was performing a special errand for Story at the time of his death on October 26, 2016. . . . Applicant, represented by Margaret King, had to make a showing of employment. No such showing was made here.”

On the credibility issue of the The WCAB panel said the WCJ determined that “Margaret King’s and Steven Romero’s testimony on that subject was not credible. We accord these determinations great weight because the WCJ had the opportunity to observe the witnesses’ testimony at trial and the record is otherwise without evidence of considerable substantiality that would warrant rejecting them.”

In terms of proof of an employment relationship the panel said “the applicant bears the burden of proving that he rendered service for the defendant, whereupon the burden shifts to the defendant to rebut the employment presumption.” In this case applicant contended the evidence raised this presumption. However the panel went on to say “we concur with the reasoning of the WCJ that the evidence fails to show that applicant was rendering service to Story when he sustained fatal injury.”

Following the California Northridge earthquake, California passed hospital seismic safety legislation.Senate Bill 1953. It was introduced on February 25, 1994 and signed into law on September 21, 1994. The law establishes a seismic safety building standards program for California hospitals built after March 7, 1973.

By January 1, 2030, owners of all acute care inpatient hospitals are required to demolish, replace, or change to nonhospital use, all hospital buildings that are not in substantial compliance, or seismically retrofit them so that they are in compliance with the standards. With roughly seven years left to comply, it is estimated that nearly two-thirds of California hospitals have yet to meet 2030 requirements, according to the Hospital Association.

According to a 2007 RAND study, the law was very controversial. Because of the age and engineering of the California hospital infrastructure, it is projected that the seismic safety goals will require reconstruction of about 50 percent of the current hospital floor space.The 2007 report said that the “pace of SB1953 compliance has been slow. Based on historical rates of construction and permit filings with the California Office of Statewide Health Planning and Development (OSHPD), about half of the SPC-1 hospital infrastructure will not comply with the 2008/2013 deadlines for SB1953, and many may not be able to comply with the final 2030 deadline.“

This backstory leads to a story just published by the Los Angeles Times about a “Backroom deal broken to change earthquake standards in California hospitals collapses.”

According to the Times, a secretive deal between a group of hospitals seeking to weaken seismic upgrades at medical centers and an influential union looking to increase the pay of employees collapsed on Tuesday, just days after it was made public.

“The last-minute alliance between Service Employees International Union-United Healthcare Workers West and the California Hospital Assn. infuriated other unions, which accused the unlikely pair of making a backroom deal that skirted the legislative process and put patients, healthcare workers and communities at risk.”

In a hospital association memo obtained by The Times, the group said the deal with SEIU-UHW came together quickly and followed years of stymied attempts to delay a state law that requires hospital buildings to have earthquake upgrades by 2030. Hospitals estimate that those upgrades will cost $100 billion, a tab they say is likely to result in closures across the state.

Before the deal emerged, the hospital association and SEIU-UHW had been locked in a fierce battle over raising the minimum wage in Los Angeles County for hospital workers. The agreement between the two would have required lawmakers to sign off on the deal before the end of the legislative session Aug. 31.

The California Hospital Assn. sought a seven-year delay to the 2030 requirement and to limit the standards to hospital buildings that provide emergency services, according to a draft of the proposal obtained by The Times.

In exchange, unions would see the minimum wage for healthcare workers raised to between $19 and $24 an hour beginning Jan. 1, with the higher pay going to workers in counties designated as urban or semi-urban. Pay would have increased by $1 an hour in 2024, bringing the hourly minimum wage for some workers to $25.

SEIU-UHW on Tuesday accused the hospital association of walking away from “a conceptual agreement” over labor-related provisions. In response, the union announced that it would instead pursue the statewide minimum wage for healthcare workers that it sought in the deal through the state Legislature or a ballot measure.

In 1935, Presient Franklin Delano Roosevelt created the first federal unemployment insurance program via the Social Security Act. The program created a national lending pool for states with insolvent unemployment relief accounts. It began by ‘incentivizing’ states to join the program and of course is now a required federal tax on all employers.

Called the FUTA tax, it’s levied on business owners directly for each employee they have. The IRS makes clear on its website, “Only the employer pays FUTA tax; it is not deducted from the employee’s wages.”

Recent news reports illustrated problems with the California Employment Development system such as phony pandemic jobless claims, and frantic callers jamming phone lines with questions that the state’s employment agency struggled to answer.

California’s unemployment system was on dicey footing even before the pandemic, rated as the least financially stable system of all 50 states in February of 2020 by the U.S. Department of Labor in its Unemployment Insurance 2020 Trust Fund Solvency Report.

But there’s yet another problem with the Golden State’s unemployment system that’s been brewing quietly during the pandemic: California now bears the unhappy distinction of having about as much unemployment debt as all other states combined.

The state’s unemployment insurance trust fund, a pool of cash funded by a tax on employers supposedly pays for the benefits claimed by workers. Employers put money into the trust fund on a regular basis via FUTA taxes. Workers receive money from it when they get unemployment benefits.

The federal government loaned money to many states early in the pandemic to shore up their unemployment funds. But two years later, several states have paid off their federal loans, while California’s debt balance remains the highest of any state. Millions have used unemployment benefits during the pandemic, draining existing reserves, and now the state is in debt to the tune of nearly $20 billion. Most states have no debt.

According to a report published by CalMatters, none of the few states with negative trust fund balances come close to California’s negative $19 billion balance. To put it into perspective, the second most indebted state is New York at negative $9 billion. And third is Illinois with nearly $4 billion in debt. And some states have surplus balances, such as Arizona at $1.2 billion and Iowa at $1.3 billion.  

Under the current system, it’s going to take years of higher taxes on employers, who fund the benefits, to pay it back. Gov. Gavin Newsom proposed using $3 billion of the state’s projected $21 billion surplus to take a bite out of that debt, in addition to hundreds of millions to cover the loan’s interest payment, when he unveiled his budget proposal in January.

While that proposal is intended primarily to help businesses, there’s no guarantee businesses will reap a benefit directly, especially in the short term. If these debts are not repaid “states may face interest charges and the states’ employers may face increased net FUTA rates until the loans are repaid.”

This isn’t the first time California’s unemployment trust fund has had to turn to the federal government for loans.

In the wake of the Great Recession, the fund went into about $10 billion of debt, and it took California employers roughly a decade to dig the fund out. Taxpayers wound up footing a roughly $1.4 billion dollar bill for interest payments on that loan. In fact, in 2016, when California employers were still paying down the Great Recession debt, analysts at the nonpartisan Legislative Analyst’s Office warned that the fund could go into debt again during the next recession.

The plaintiff in the case, Affiliated Temporary Help, is an employment agency, providing temporary staffing services and handling payroll, workers’ compensation and human resource services for the temporary employees it places.

The defendants include Infiniti HR, LLC a professional employer organization (PEO), a full-service human resources firm that assists businesses on an outsourced basis. CTK North American, LLC, doing business as CTK North American Insurance Services, a licensed insurance broker. HR Map LLC an administrator of PEO services and worked in that capacity for Affiliated.

In February 2015 Affiliated entered into a one-year contract with Infiniti HR to provide PEO services, including payroll, human resources, benefits administration and workers’ compensation services. Affiliated also elected to be covered under Infiniti HR’s workers’ compensation policy.

New management discovered that Infiniti HR had “deceptively” switched Affiliated from a no-deductible workers’ compensation policy to one with a $200,000 deductible, which, Affiliated alleged, effectively meant Affiliated was paying Infiniti HR to self-insure. Affiliated terminated the contract in writing in January 2020 after this discovery.

Affiliated sued CTK, and HR Map,, among other parties, for violation of California’s unfair competition law (UCL) (Bus. & Prof. Code, § 17200et seq.) and financial elder abuse in violation of the Elder Abuse and Dependent Adult Civil Protection Act (Elder Abuse Act or Act) (Welf. & Inst. Code, § 15600 et seq.).

The trial court dismissed CTK and HR Map after sustaining their demurrers to the complaint without leave to amend. On appeal Affiliated contends it pleaded facts sufficient to constitute causes of action against CTK and HR Map and, at the very least, the court erred in denying leave to amend the complaint.

The Court of Appeal affirmed the trial court in the unpublished case of Affiliated Temporary Help v. CTK North American – B308558 (August 2022).

Under certain defined circumstances, the Elder Abuse Act covers the deprivation of property not held directly by an elder or dependent adult, the Act’s scope is not nearly as broad as Affiliated contends. It cannot be read to cover the facts of this case, and in any event Affiliated is not a protected party that can recover under the provisions of this Act.

Unfair Competition Law prohibits, and provides civil remedies for, unfair competition, which it defines as “any unlawful, unfair or fraudulent business act or practice.”

Affiliated contends that unlicensed insurance sales (Insurance Code section 1631) can serve as the basis for a UCL claim.

Section 1633 makes unlicensed insurance sales a misdemeanor. Although Affiliated’s UCL cause of action alleged CTK violated those provisions, it failed to plead sufficient facts to support that conclusory claim.

“As Affiliated acknowledged in its complaint, CTK is a licensed insurance broker. Even accepting as true the allegation that CTK somehow induced Affiliated to hire Infiniti HR without disclosing that Infiniti HR was not licensed, if that was transacting insurance business, CTK was licensed to do so.”

Moreover, Affiliated failed to allege any factual basis for its assertion that CTK had a duty to disclose the license status of Infiniti HR.