The Definition of Insurance Fraud

Negative attitudes toward insurers are blamed for making consumers more likely to commit fraud.

Deceiving insurers to gain additional money or benefits is the essence of insurance fraud. About $80 billion per year results from false insurance claims, making it one of America's most profitable white collar crimes. With one in four people showing some willingness to bilk insurers, industry groups and police agencies worry about how to mobilize the public. This concern has gained new life in light of a recession blamed for sharp spikes in fraud cases.

Consumer Attitudes

The Coalition Against Insurance Fraud argues that Americans are more tolerant of fraud. In a 10-year update of its 1997 survey, "Four Faces of Fraud," the coalition found that one in five adults might bilk an insurance company, if the conditions seemed right. This group represented about 45 million people. By contrast, the number of adults with no tolerance of insurance fraud declined from one-third, in the 1997 survey, to one-quarter.

Defining Characteristics

America's economic implosion has been blamed for an upsurge in insurance fraud crimes, led by bogus health plans, McClatchy Newspapers stated in March 2010. Complaints rose by 38 percent, according to a survey of 37 state insurance bureaus, the report said. Many complaints focused on discount plans being marketed as full insurance coverage. One woman who bought such a plan paid $419 in monthly premiums -- yet her policy paid just $1,168 of an estimated $28,000 hospital bill.

Federal Responses

In September 2010, federal regulators proposed new regulations against Medicare and Medicaid fraud. Improper billing in both programs costs an estimated $55 billion annually, "USA Today" reported. Key proposals included provisions to immediately cut off payments after a complaint, and rating all types of health care providers for their potential to commit fraud. The rules were designed to show a renewed commitment to weeding out fraud and waste, a centerpiece of President Obama's health care overhaul.

Industry Issues

Not all insurance fraud starts with consumers. According to McClatchy's report, 69 percent of the state agencies surveyed noticed a significant upswing in fraud committed by agents. Notable scams included those allegedly committed by former agent Emil Feduniec, accused of collecting $15,000 in premiums on properties he failed to insure. Other complaints focused on contractor fraud -- such as questionable hail damage claims, which increased by 200 percent between 2008 and 2009.

Legal Considerations

The concept of intent is an important element in defining and prosecuting insurance fraud, according to an analysis by the North American Training Group. If a chiropractor charges $100 per patient visit -- and the customary price is $60 -- an observer might conclude that fraud has been committed. This situation may suggest abusive billing practices. However, if the clinic billed for services it never provided, that practice could be called fraudulent, according to the analysis.

References

• Coalition Against Insurance Fraud: Four Faces of Insurance Fraud
• Fraud Education: Insurance Fraud Red Flags
• McClatchy Newspapers: Recession Is Fueling a Boom in Insurance Fraud
• USA Today: Feds Gain Power Over Billions in Medicare Fraud

Resources

• ABC News: More Auto and Car Inusrance Fraud Cases in Bad Economy
• Coalition Against Insurance Fraud
• International Association of Insurance Fraud Agencies, Inc.
• National Insurance Crime Bureau