The abuse of benefits

So you think that fudging a benefit claim doesn’t hurt anyone? Think again. The cost of benefit plans rises as a result and that could mean a cut in quality of coverage for all.

In 2009, the province of Quebec’s health insurance board uncovered a flagrant abuse of the healthcare system. An investigation that followed 3,456 suspected individuals found 2,081 of them systematically obtained coverage by the province’s health insurance board — yet they did not reside in Quebec. (Of the 2,081, just 1,059 had actually received medical or health services. The others had obtained coverage but hadn’t taken advantage of it yet.)

This is how the scheme worked: immigrants would arrive in Quebec and obtain all the necessary documents to get coverage under the provincial health insurance plan. Once the individuals were deemed eligible, they would return to their native country. Since they were not residing in Quebec for the required amount of time, their coverage would have been nullified. However, according to the board, an immigration consultant produced documentation that "proved" they were still living in the province. The immigrants would return to Quebec when they needed medical treatment, which would then be covered by the provincial health insurance plan.

The Quebec Health Insurance Board has tallied the total cost of this medical services scheme at $573,178.

But public services and departments are not the only targets of scammers. Canadian corporations and employers are also victims. Fraud and benefit plan abuses add volumes of invisible charges to their insurance premiums. Attacking these costs can boost budgets and deepen profits.

According to a report by the Quebec Health Insurance Board, the sophisticated Quebec subterfuge, which went on for years, was devised by a former immigration consultant. The report says that he managed to convince provincial authorities that these individuals were Quebec residents by producing false proof of residence. Participants would come to Quebec for a short period, obtain official documents such as driver’s licences, credit cards and phone accounts, which would make them eligible for coverage, then return to their home countries for more than 183 days of the year.

Following that, all communications between the health insurance board and each "resident" would be filtered through the consultant, who produced the necessary documents "showing" that the individual resided in Quebec, says Marc Lortie, a spokesman for the insurance board.

This case is exceptional in that it involves mostly foreign citizens who succeeded in abusing Quebec’s health insurance system. But Canadians are also guilty of such schemes.

"We spend about $200 billion yearly on healthcare in Canada, of which $140 billion is in the public sector and $60 billion in the private one," says Joel Alleyne, executive director of the Canadian Health Care Anti-fraud Association in Toronto. "Fraud represents anywhere between 2% and 10% of that total, which translates to between $4 billion and $20 billion in dollar amounts."

In fact, the total cost to Canada is far greater because some misuse involves much more than healthcare, as the case in Quebec illustrates. It brought into play many provincial and federal ministries and departments, such as car insurance, social security and immigration services.

Private companies are also paying a price for abuse. "Employers who sponsor benefit plans are acutely aware of the rising costs of providing employee benefits," says Daniel Tourangeau, a director at forensic accountants LBC International Investigative Accounting Inc., who wrote a research paper on private healthcare benefits fraud. "However, what many sponsors may not appreciate is the extent to which fraudulent conduct on the part of some of the patients [their employees] and healthcare providers contributes to escalating premium levels."

Joseph Peter, Sun Life Financial Inc.’s vice-president of finance, operations, identifies five typical fraud schemes: one perpetrated by service providers, such as physiotherapists or dentists; one perpetrated by company plan members; one committed by both providers and members in collusion; schemes pulled off through identity theft, such as when a fake clinic falsely uses the name of a legitimate medical professional to justify a claim; and ones carried out by plan administrators themselves.

The only limit on the diverse forms of fraud seems to be the imagination of those who perpetrate them. Plan members, for example, will indulge in facial and spa treatments and claim the treatments as therapeutic massages. Others will submit similar claims when in reality they’ve received sexual favours in a "massage parlour." Others may submit claims for prescription glasses when in fact the invoice is for expensive designer sunglasses.

Fraudulent service providers will typically charge for expensive services or products when in fact they have dispensed much cheaper equivalents. In most cases, they are in collusion with plan members who give the provider a small commission in return.

Sometimes patients are perfectly innocent and unknowingly exploited by the service provider. Peter recalls a case in 2011 where a group of medical clinics operating in Mississauga, Ont., preyed on recent immigrants who had little knowledge of Canada’s health services. The clinics’ employees would pretend to be very helpful in assisting with claims forms the clients didn’t need and in the process obtained bank account identification and passwords to get onto insurance company websites. "They managed to appropriate bank accounts to which claim reimbursements were going to be paid," says Peter.

Fortunately, the authors of the scheme lacked foresight. Their patients were expecting reimbursement for the medical care they had received, but when they didn't get it, they reported it to Sun Life. "The scheme didn’t last very long, only a few months," says Peter.

According to Tourangeau, there are many signs that indicate fraudulent behaviour. For example, there are the pressure tactics of an aggressive claimant who repeatedly inquires about the status of his claim shortly after submitting the forms, demanding immediate payment, or a claimant who goes directly to the plan administrator to ensure the claim is paid. Another sign is a claimant who takes a passive approach, letting months go by after he or she is asked for additional information, then filing a complaint, pretending he or she forwarded the additional information months ago.

Unexpected events can unravel the best-planned schemes. Sometimes, says Alleyne, fraudsters get caught "because they break up with a spouse who knew, or they fire a receptionist who was in on the plan. Hell hath no fury like a lover scorned."

Very often, a scheme starts quite modestly with only one or two individuals. As they experience success, they feel encouraged and gradually extend their circle. That's probably how, in one case Tourangeau unravelled when he worked for a Canadian insurer, a company ended up with 45 of its 65 employees participating in the same deception. These employees were not only supplying themselves with free high-end nonprescription sunglasses through the company’s insurance plan, but they were also providing them for their immediate family. Getting expensive nonprescription sunglasses in place of regular glasses by supplying false receipts is fraud.

No doubt if these employees were asked if they condoned stealing from a neighbour they would be shocked and say no. Yet many do not see defrauding an insurance plan as stealing. "Rationalization can take many forms and an individual might say the insurance company makes so much money anyway, or I am entitled to it," says Tourangeau. "There is an impression — and a strong belief — by a small proportion of plan members that benefits are there to be used, regardless of medical necessity. For those, the benefits are perceived as a supplementary source of income."

In Tourangeau’s paper, he refers to a 2003 Accenture survey on insurance fraud that revealed nearly one in four US adults say it’s acceptable to defraud insurance companies, more than one in 10 approve of submitting claims for treatments that were never provided and about half say that people commit insurance fraud because they can get away with it.

To a large extent, says Tourangeau, people get away with it because certain insurance plans allow them to and because some provincial regulations are too lax. For example, the 45 employees who were getting designer sunglasses for free were exploiting a provision of their insurance plan "that gave them access to unlimited lenses," he says. So members abused the plan by disguising receipts for nonprescription sunglasses as receipts for expensive prescription eyeglass lenses.

"You want a plan design that has some controls," says Alleyne. "If your plan allows unlimited physiotherapy, then you become vulnerable."

Some provincial rules and regulations also allow for major weaknesses. "Each province has different rules that show holes that fraudsters can exploit," says Tourangeau. In Ontario, for instance, the legislation surrounding the manufacturing and dispensing of orthotics is problematic, he says.

In his research paper, he describes how claims for orthotics treatments are nearly two times higher in Ontario than in Quebec. The difference arises from the way the sector is regulated in each province. "In Quebec, a laboratory must have governmental approval to devise a plantar orthotic. Not in Ontario, where just about any practitioner can produce one: chiropractors, physiotherapists, etc. That’s why some insurance companies have started to limit the number of practitioners on some of their benefit plans and only authorize certain practitioners."

The forensic accountant can play a role in fraud prevention as well as detection and deterrence. In prevention, says Tourangeau, he or she can use his or her experience and credibility in educating and providing supporting evidence to effect modifications to benefit plan designs.

As for detection, the investigation of health claims may at first appear to be outside the forensic accountant’s scope. "After all, forensic accountants are not medical experts," Tourangeau says. "However, transactions involving healthcare practitioners and patients are normal accounting transactions that should leave traces."

Finally, thanks to a forensic accountant’s knowledge and skills, he or she is in a great position to prepare the evidence required by legal counsel, regulatory bodies and law enforcement authorities.

Fraud costs everyone. And because the costs of health benefit plans are escalating for plan sponsors, they will eventually seek ways to reduce those costs. "The result," Tourangeau says, "could be a reduction in the quality of coverage for everyone."


Companies can take a few steps to protect themselves from fraud. For example, Joseph Peter, Sun Life Financial’s vice-president of finance, operations, points out they can work with insurance companies to build healthcare benefit plans with appropriate maximums and definitions of eligible expenses. They can also provide fraud awareness education to employees, showing how abuse and fraud lead to higher costs for everyone. One measure of protection against overuse of a plan is to include co-insurance factors and deductibles, says Daniel Tourangeau, a director at LBC International Investigative Accounting Inc. "Although not always popular with employees, they provide incentives to plan members to agree to only medically necessary procedures."

Other measures insurance companies could take:

  • Set up dedicated teams of investigators with experience in healthcare, data analysis and police services;
  • Provide "red flag" training for customer service employees to help them identify and refer suspicious situations to an investigator;
  • Implement data analysis software to screen for suspicious transactions and patterns across millions of transactions;
  • Enforce claims system controls to decline unreasonable transactions;
  • Provide fraud awareness education to benefit plan sponsors and their employees, including the characteristics and consequences of fraud; and
  • Encourage plan sponsors to have an employee code of conduct that outlines the employee’s responsibilities in the use of the benefit plan and the consequences of committing fraud.