10 Laws You Should Know Related to Insurance Fraud

Posted December 17th, 2011
by Staff Writer (no comments)

Often, the prevailing attitude regarding insurance fraud is that no one gets hurt. Many people believe that the big insurance companies can easily absorb the cost, while they’re simply taking back money that they’ve been paying in premiums for years. In reality, insurance fraud costs American consumers upwards of $30 billion each year.

  1. Statutes Vary From State to State – Depending on where insurance fraud occurs, the same act can carry a penalty of restitution and community service or, at the other end of the spectrum, a jail sentence under a felony conviction.
  2. “Hard” and “Soft” Insurance Fraud Carry Different Penalties – “Hard” insurance fraud is defined as a willfully illegal and fraudulent scheme designed solely to obtain money from an insurance claim. “Soft” fraud occurs when someone doesn’t fully disclose pertinent information or “fudges” the details to profit from a legitimate claim. In most states, these types of fraud carry different penalties.
  3. Mail Fraud – Fraudulent schemes that involve the use of the U.S. Postal system can face fines and up to 20 years of prison time. In the event of fraud that targets a financial institution, fines can reach up to $1 million and be accompanied by a maximum prison sentence of 30 years. Using the U.S. mail system to mail a fraudulent insurance claim is in violation of this statute.
  4. Health Insurance Portability and Accountability Act – The HIPAA Act of 1996 made healthcare fraud a federal crime punishable to up to 20 years in prison. This law protects both private insurance companies and government programs, and prohibits the willful falsification of facts or failure to disclose pertinent information in connection with a health insurance claim.
  5. Wire Fraud – Using the telephone, internet or a fax machine to carry out fraudulent insurance schemes is, like mail fraud, a federal crime. The penalties can include up to $1 million in fines and imprisonment for up to 30 years.
  6. Medicare Fraud – Making a fraudulent Medicare claim can carry fines between $5,000 and $10,000, plus three times the amount of damages under the federal False Claims Act.
  7. Workers Compensation Insurance Fraud – Because worker compensation laws vary in each state, the penalties of workers comp insurance fraud vary as well. In some states, any payment at all received from a fraudulent workers comp claim is considered a felony offense and carries a maximum sentence of 30 years imprisonment.
  8. Conspiracy Laws – In some states, collusion or assisting someone in making a fraudulent insurance claim or application can carry fines and jail time.
  9. Injury Laws – Exaggerating pain or injuries sustained in a car accident for the purpose of receiving higher compensation is considered auto insurance fraud, and is punishable as such under various state laws and statutes..
  10. Felony Insurance Fraud – Staged accidents that involve the destruction of property for financial gain via an insurance claim is considered felony insurance fraud. Fines and maximum jail times vary from state to state, but can be up to $150,000 and 10 years imprisonment.

In conclusion, anyone who knowingly provides inaccurate information or doesn’t divulge pertinent details during the application, underwriting or claim-filing process can potentially face fraud charges. If fraud is discovered but charges are not filed, it almost always precludes the guilty party from obtaining insurance through traditional channels in the future.

Categories: Insurance Tips

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