The Psychology of Benefits Fraud: Why We Lie to Ourselves

Have you ever told a white lie? Would you cheat on your taxes? What if you knew you wouldn’t get caught?

A panel at our Fraud Prevention Institute—featuring David Asselstine, senior vice president and chief financial officer/chief risk officer with the Teachers’ Retirement Allowances Fund (TRAF); Shannon DeLenardo, director, anti-fraud and electronic claims, with the Canadian Life and Health Insurance Association (CLHIA); and Suzanne Solven, associate vice president, audit, investigations and quality assurance, with Pacific Blue Cross—explored the psychology and impact of benefits fraud.

The Psychology of Benefits Fraud: Why We Lie to Ourselves

Rationalizing our Behavior

According to Asselstine, our level of honesty is directly related to our ability to rationalize our conduct in a given scenario. “The one thing that I learned over my career is that people can rationalize, and it’s easier to rationalize bad conduct if everyone’s doing it or it seems to be accepted,” he said.

He cited the Matrix Experiments as an example. In this study, 40,000 people were given a 20-question test and were told they would get $1 for each correct answer. The questions were simple; however, the test was set up so there wouldn’t be enough time to answer them all correctly. The participants were then asked to grade their own tests and shred them, meaning no one else would know how many questions they got right.

But what they didn’t know was that the shredder was rigged, and the tests weren’t destroyed. Ultimately, 70% of participants cheated, receiving an average of $2 they didn’t earn.

The same psychology explains why people commit benefits fraud. “Rationalization can empower them to do something they wouldn’t otherwise do,” Asselstine explained.

Workforce Mental Health 2021

Impact on Benefits Plans

There’s a difference between fraud and abuse, explained DeLenardo. Fraud is when someone intentionally submits false information for financial gain, while abuse is about exploiting the plan. These actions can result in higher costs, impact benefits plan sustainability and create a need for plan design changes. “Most people are acting appropriately; the issue is, the impact of fraud and abuse on benefits plans can be far-reaching,” she said.

In fact, billions of dollars are being diverted into fraudsters’ hands from those who really need the services, Solven explained. Collusion is “actually quite rampant”, she added, with employees receiving cash, gift cards and other rewards in exchange for their benefits plan information.

The largest percentage of benefits fraud is provider fraud, either by providers on their own or in collusion with plan members, said Solven. Other common types of fraud include:

  • Miscoding – e.g., billing for physiotherapy when the person is getting personal training;
  • Upcoding – billing for a greater or more complicated service than what was provided; and
  • Unbundling – separately billing services to increase revenue.

Solven has also seen scenarios where clinic owners steal the identities of people who are no longer working at the clinic and use their legitimate credentials to provide falsified receipts, without their knowledge.

How the Industry Is Responding

From an insurer’s perspective, the focus is on eliminating fraud opportunities through robust claiming systems and controls, and shifting from a reactive “pay and chase” model to a more proactive one, said Solven. Better technology, including the use of artificial intelligence, has been a game-changer for the industry in helping to identify risky transactions and patterns of behaviour, she added.

DeLenardo explained how the CLHIA is working to educate and build awareness around benefits fraud—including how to recognize and report it—through its Fraud=Fraud program. This multi-year program includes a website with FAQs, quizzes, videos and a tool to report fraudulent activity; advertising through billboards, transit ads and social media campaigns; and a special initiative to target healthcare providers. Currently in its fourth year, the program is now expanding its offering for healthcare providers with industry one-pagers and training videos.

Learn More About Benefits Fraud

The Fraud Prevention Institute for Employee Benefit Plans Virtual Conference is available on-demand through August 19, 2021. Access the entire conference to learn more about emerging trends in fraud prevention, the latest in cybersecurity and deterrence of data breaches, and guidance for internal controls and risk prevention.

[Related Reading: Four Key Steps for Tackling Fraud in Health Benefits]

Alyssa Hodder
Director, Education and Outreach – Canada


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Alyssa Hodder

Director, Education and Outreach – Canada Favorite Foundation Product: Conferences and blogs on what’s new and interesting in the industry Benefits Related Topics That Interest Her Most: Benefits communications and how to engage plan participants Personal Insight: The proud mother of two lovely and challenging girls, Alyssa enjoys travelling and experiencing different cultures. In her spare time, she loves to read and write, but her most unusual hobby is participating in a competitive axe-throwing league (nothing more rewarding than hitting that bullseye!)

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