Benefits fraud is often discussed in abstract terms. A compliance issue, an actuarial risk, a predictable cost. The human cost is harder to see, but it’s real.
When a fraudulent provider inflates billing, everyone in the plan absorbs the cost. Premiums rise. Employers weigh whether to cut benefits or raise deductibles. Employees who depend on their coverage for genuine medical needs find that coverage reduced or eliminated.
“Simply put, fraud makes the cost of providing group benefits more expensive. Fraud can lead to higher insurance premiums, reduced coverage for plan members — or both. The result is that fraud adversely will affect plan members who legitimately need health benefits,” said Shelley Frohlich, AVP of fraud risk management at Sun Life.
The numbers behind the problem
The scale of the problem in Canada is not small. According to the Canadian Life and Health Insurance Association, benefits fraud costs Canadian plans hundreds of millions of dollars every year.
Small business bears disproportionate burden
Fraud incidents can disproportionately affect small businesses, since the relative size of a financial loss makes up a much bigger portion of revenue compared with larger organizations.
“Collusion schemes involving organized crime can pose a serious risk to organizations of all sizes. The impact intensifies as more plan members become involved and the longer the scheme goes undetected. Such schemes can result in significant financial and reputational risks,” Frohlich said.
For a small employer whose group benefits plan is a meaningful recruitment and retention tool, a fraud-driven premium increase can force difficult choices when it comes to maintaining comprehensive coverage.
The health consequences
The financial impact of benefits fraud is measurable. The health impact is less so, but potentially significant.
“Some healthcare service providers who commit fraud or abuse may place their patients’ health at serious risk by not providing the proper treatment their patients require. At the same time, if an inaccurate or false health record is created, it may affect plan members’ future ability to be insured and may be difficult to correct,” Frohlich said.
In practical terms, a plan member who is unknowingly enrolled in a fraudulent billing scheme may find their claims history contains records of treatments they never received.
The employment consequences
Benefits fraud also puts employees’ livelihoods at risk. “If a plan member submits fraudulent claims on their own or colludes with a service provider or another party, their job could be in jeopardy. They also run the risk of police involvement,” Frohlich said.
This is a consequence that plan members recruited into fraud schemes by providers — — rarely consider when they agree to participate.
What disappears without prevention
Frohlich described what would happen to the benefits landscape if fraud prevention efforts were removed: loss of plan integrity, increasing fraud schemes, greater victimization of plan members and sponsors, and unchecked cost spirals as fraudulent providers go undetected.
“More plan members and sponsors would become victims, without prevention and detection efforts,” she said.
Canada in a global context
Compared internationally, Canada’s approach to benefits fraud prevention is relatively proactive. According to Frohlich, there is a cross-insurer data-sharing initiative in place.
By comparison, the United States faces the largest absolute fraud losses of any developed market, with estimates ranging from $68 billion to $230 billion annually in healthcare fraud alone. European countries report fraud rates of between three and 10 per cent of total insurance claims. Australia and the United Kingdom face similar challenges with organized fraud networks.
Plan sustainability
Ultimately, the question of benefits fraud is a question of plan sustainability. A benefits plan that is systematically defrauded becomes more vulnerable to cuts that fall hardest on the employees who need it most.
The employers best positioned to protect their plans are those who understand their role in prevention and that it doesn’t fall solely on the insurer.
It belongs to the entire chain — employers, employees, HR professionals, and plan administrators — all of whom have something to lose when fraud goes unchecked, and something to gain when it doesn’t.
