Over the course of your career as a benefits manager, there’s a good chance that you’ll eventually run into an employee with a paid disability claim that doesn’t seem to be on the up and up.

On a nationwide basis, fraudulent long-term disability claims are a $5.5 billion drain on employers.  The cost includes claim payouts, subsequent premium increases, lost productivity and staffing problems.

The good news: There are legal ways to fight back.

Common red flags

None of the following factors automatically justify a full-scale investigation. But they add up. The more factors in place, the greater the likelihood of a false disability claim:

• The worker is a new hire and has a history of short-term employment
• He or she was recently demoted or clashed with a supervisor
• The employee is unusually aggressive about the claim (e.g., hires a lawyer as a first step) and/or
• The story about the cause or severity of the injury keeps changing.

According to benefits attorney Sally Taborman, either of the first  two factors in combination with either one or both of the latter two is usually solid legal grounds to probe a little deeper into the claim.

Go through your carrier

What should you do if think you smell a rat?  Alert your plan carrier about your suspicions and let the insurer’s investigation department handle it.

The biggest mistake that employers make in these circumstances is to simply take matters into their own hands, says Taborman.

Why? Because even if you uncover evidence of fraud, the information might not hold up in court. For instance, in one recent case, a company had good reason to suspect an employee was lying about a chronic illness that allegedly left him too weak to work.

The tip-off: The company got a traffic citation in the mail. Driving a company car, the employee had blown through an out-of-state tollbooth on the same day he allegedly had an appointment with a local specialist.

The employee’s supervisor was understandably furious. But he overstepped his boundaries, and blew the case for the company.

Over the next three days, the supervisor called the employee’s house at least a dozen times (caller ID records confirmed it). On the final day, he even drove over and caught the employee coming home with a suntan and gardening tools.

But the overeager supervisor blew the case for the company. The judge ruled the evidence of the employee’s fraud was obtained illegally.

On the flip side, your carrier has greater legal rights to probe the medical legitimacy of a suspected false claim or even contract a detective to place the person under surveillance.

What’s more, these official investigations are often much more thorough than anything most employers can muster on their own.

Example: It’s common for an employee suspected of fraud to claim (and get a doctor to vouch for) that he or she has “good days and bad days” with a long-term disability. Most employer-conducted investigations are too short-term to disprove this claim.

But the insurer’s fraud division is much more likely to compile evidence over a longer period of time.

Upfront action is your best defense

Education is the most effective way to nip fraud in the bud. Supervisors should be trained yearly on what to do if they suspect an employee lies about or exaggerates the need for disability leave: Tell HR/benefits to help them to take it through the investigation channels.

Honest employees, meanwhile, need to know that legit disability will always be paid. It also may be in your interests to reward employees who alert the company to bonafide fraud.

Tags: Disability