Figure 1 is a color-coded pie chart that illustrates the distribution of the 2015 estimated costs for the workers’ compensation program. The largest pie slice—in teal—indicates that $8.2 billion (33 percent of total) were expenses, which consisted of loss adjustments, commission and brokerage fees, other acquisition expenses, general expenses, and premium and other taxes. The orange slice indicates that medical expenses were $7.5 billion (30 percent of total), which consisted of payments for medical benefits, including physicians, hospitals, pharmacies and interpreters. The red slice indicates that indemnity costs were $5.3 billion (21 percent of total), which consisted of disability and death payments, life pensions, and vouchers for rehabilitation and education. The green slice indicates that $3.8 billion (15 percent of total) was from changes to total reserves. Lastly, the yellow slice indicates that insurer profit/loss were $0.3 billion (1 percent of total).
- Figure 2 is a chart that describes the key participants in the California workers’ compensation system and gives examples of how they may commit fraud. The chart has four columns—each representing key participants—and two rows—representing workers’ compensation “activity” and “potentially fraudulent activities”. The following information describes each involved party and its corresponding information.
- An injured employee sustains injury or illness arising out of, and occurring in the course of, employment. The injured employee could commit a potentially fraudulent activity if the employee is not injured at work, not injured or ill, or no longer injured or ill.
- An employer provides workers’ compensation coverage for workplace injuries or illnesses. The employer could commit a potentially fraudulent activity if it is illegally uninsured, underinsured, or not reporting the correct level of risk.
- The insurance company, claims adjuster or administrator, or third party administrator provides full or partial payments to providers for services rendered to or on behalf of injured workers, or denies claims. The insurance company could commit a potentially fraudulent activity if it issues phony policies or colludes with employers to commit premium fraud.
- The service provider—such as medical personnel, attorneys, interpreters, and copy services—provides treatment to injured or ill workers, or other services related to the injuries or illnesses. The service provider could commit a potentially fraudulent activity if the provider claims payments for services not rendered or needed, overbills for costs, or accepts kickbacks for illegally referring injured workers.
Figure 3 is a flowchart that describes the process to initiate, investigate, and prosecute a fraud case in the workers’ compensation system. A reporting party creates a referral and submits the case referral to CDI, the local district attorney’s office, or both, for investigation. The reporting party may be a carrier/insurer, self-insured employer, third-party administrator, the State Compensation Insurance Fund, a district attorney’s office, a law enforcement agency, or some other entity. CDI and the district attorney’s office determine investigative responsibility and whether to pursue the referral. The referral could be closed for reasons that may include insufficient resources, insufficient evidence, or lack of information. If opened, the entity(ies) with authority on the case investigate the case. CDI, the district attorney’s office, or both entities in a joint effort may investigate the case. The process ends when the district attorney’s office prosecutes the case.
- Figure 4 is a map of CDI’s regional offices—and the counties associated with those regional offices—and of the district attorneys’ offices that were awarded fraud assessment funds for fiscal year 2016-17. The figure illustrates a map of California and each county within the State.
- The Golden Gate Office includes 11 counties in the north Bay Area and runs north along the coast from San Francisco to the state line.
- The Sacramento Office includes 25 counties from Stanislaus, Tuolumne, and Mono counties north to the state line.
- The Silicon Valley office includes five counties from San Mateo County south to Monterey County.
- The Fresno office includes nine Central Valley and Sierra counties from Merced south to Kern.
- The Inland Empire Office includes Riverside and San Bernardino counties.
- The Valencia Office includes Santa Barbara, Ventura, and northern Los Angeles counties.
- Southern Los Angeles County has its own regional office.
- Orange County has its own regional office.
- The San Diego Office includes San Diego and Imperial counties.
Figure 5 is a timeline that describes the process for the collection and distribution of fiscal year 2017-18 workers’ compensation assessment funds. The process begins in September 2016 and ends in November 2018. In September 2016, the Fraud Commission held a meeting and voted on the aggregate assessment amount to be collected for fiscal year 2017-18. In January 2017, the insurance commissioner and the Fraud Commission each updated their goals and objectives for the Workers’ Compensation Insurance Fraud Program for fiscal year 2017-18. CDI issued the request for application document to all district attorneys’ offices in February 2017. The Fraud Commission informed Industrial Relations by March 15, 2017, of the aggregate assessment amount to be collected, as Industrial Relations is responsible for collecting the assessment funds from employers. County applications were due to CDI by the last week of April 2017; CDI must provide copies to the Fraud Commission and the review panel. In June 2017, the review panel analyzed the applications and submitted its funding recommendation for each county to the insurance commissioner. The insurance commissioner submitted the funding distribution to the Fraud Commission for approval. The Fraud Commission approved the insurance commissioner’s recommendation and the funding for fiscal year 2017-18 was enacted. Alternately, in the event that the Fraud Commission does not consent to the insurance commissioner’s recommendation, the insurance commissioner reconsiders and issues a second recommendation to the Fraud Commission for consent. From July 2017 to May 2018, Industrial Relations begins collecting the assessment from employers and transfers the funds to CDI. CDI disburses the funds to the district attorneys’ offices and to its fraud division. Lastly, by November 2018, district attorneys’ offices are required to submit independent audit reports certifying that expenditures were made for the purposes of the program.
Figure 6 is a color-coded bar chart that illustrates the fraud referral rates by 21 large insurers for 2015 and 2016. Teal bars indicate the number of fraud referrals per $10 million in earned premiums for 2015, while yellow bars indicate the same information for 2016. The horizontal axis shows each of the 21 insurers with greater than $150 million in earned premiums, which are indicated by the letters A through U. The vertical axis represents the number of fraud referrals each insurer submitted per $10 million in earned premium. The insurers are organized from left to right from the highest number of fraud referral per $10 million in earned premiums to the lowest. The rates range from a high of between 11 and 12 fraud referrals per $10 million in earned premiums to a low of zero fraud referrals..
Figure 7 is a color-coded bar chart that illustrates the number of fraud referrals that CDI received and the number that CDI closed due to insufficient resources for fiscal years 2013-14 through 2016-17. Yellow bars indicate the number of fraud referral received by CDI. Green bars indicate the number and percentage of fraud referrals CDI closed due to insufficient resources, based on fiscal year received. The horizontal axis represents each fiscal year 2013-14 through 2016-17, with the totals for 2013-14 through 2016-17 on the far right of the bar chart. The vertical axis represents the number of fraud referrals in increments of 5,000 up to 25,000. In total, CDI received 21,178 fraud referrals over the four fiscal years and closed 8,500 (40 percent) due to insufficient resources.
Figure 8 is a color-coded pie chart that illustrates the number of fraud investigators that CDI lost from fiscal years 2013-14 through 2016-17 and the positions they accepted. In total, CDI lost 98 fraud investigators, 57 of whom accepted other State positions. The largest pie slice—in teal—indicates that 41 employees left state service. The blue slice indicates that 31 employees accepted positions at the California Department of Justice. The green slice indicates that 14 employees accepted positions at the California Department of Corrections and Rehabilitation. The red slice indicates that seven employees accepted positions elsewhere within CDI. The orange slice indicates that two employees accepted positions at the Department of Consumer Affairs. The remaining three slices indicate that one CDI employee accepted a position with each of the Department of Toxic Substances Control, the Office of the Inspector General, and the State Board of Equalization. .
Figure 9 is a line chart that illustrates the number of fraud investigators CDI hired and the number of fraud investigators that separated from CDI for fiscal years 2013-14 through 2016-17. The horizontal axis represents each fiscal year from 2013-14 through 2016-17. The vertical axis represents the number of fraud investigators, ranging from zero to 35 in increments of five. The top line indicates the number of fraud investigators that separated from CDI, showing the numbers 20, 29, 22, and 27 for fiscal years 2013-14 through 2016-17 respectively. The bottom line indicates the number of fraud investigators that CDI hired, showing the numbers 7, 14, 15, and 18 for fiscal years 2013-14 through 2016-17 respectively..