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By Stephen Mason, PhD
Insurance fraud is rarely a crime of impulse. Although I am not signifi- cantly closer to thoroughly understanding what drives criminal behavior now than I was when I began seeing patients long ago, I believe what lies at the foundation of such behavior is just a few questions.
Why am I doing this?
Who is the victim?
What are the chances of getting caught? What are the possible consequences? Is the prize worth more than the risk?
There is nothing new about this sequence of questions and asking them. In one form or another they run through the mind of the perpetrator(s) of any planned criminal act.
Why Am I Doing This?
Early in my career, I worked with prisoners in the Federal Correctional system. I had two sessions with an inmate named Eddie who had been convicted for his part in a Madoff-like Ponzi scheme and was soon to be eligible for parole. While most convicts in such a situation are low-keyed and agreeable, this man was different. He made excuses, had no remorse for the victims and exuded what struck me as pride that he’d almost gotten away with it. His feeling was one of entitlement, and he boasted that he was more intelligent than any of his counterparts. His file included both psychological tests and an IQ test. The results indicated that he was a borderline sociopath, meaning that he had some personality traits that would earn him that label, and his IQ was barely over 100, falling in the dead center range of average.
Eddie’s in-prison job assignment included infirmary work, and supervisors indicated that the inmate exhibited both patience and kindness when assisting individuals who were — because of health issues — in positions of weakness. Since many of the victims of the Ponzi were elderly, I tried to explore this inconsistency in our sessions. There was no clear answer other than Eddie did not see or think about individual victims — he saw instead only two strong motivators: money and opportunity. “Those people had it all. Fancy houses, boats, hundred dollar bills coming out of their ears, and Cadillacs. I was driving a ten-year-old Ford with bad tires. I needed money and they had plenty; so I took some. They’ll make it back. Those people always do because they gouge the guys like me to get it.” If Eddie’s reasoning was accurate, it was not just money and opportunity; it was also a perverse sense of justification.
I never saw Eddie again. I don’t know if he earned an early parole or not. Time and exposure are the real teachers in Medicine of the Mind and my encounter with Eddie was shortly after my licensing. Had I known then what I know now, if asked, “In your professional opinion will this prisoner offend again?” I would have answered the question with a loud and definitive YES. In hindsight I believe that Eddie’s criminal bent was fueled by that high- octane fallback of entitlement and justification.
Who Is The Victim?
Having counseled countless Eddies over the past four decades, I believe that victims fall into three categories: individual, institutional and faceless. The concept of conscience is a strong deterrent in matters of individual vs. individual.– with the exception of fraud criminals who are devoid of conscience. Insurance fraud falls into the institutional or faceless categories because a large brick building full of worker bees, computers, and well-paid men in suits is not the same as somebody’s grandmother.
Nick, a more recent patient, was an honest business owner who came to me for situational depression after a particularly nasty divorce. Nothing too unique; he’d had an affair, gotten caught, and his long-time lov- ing wife of 30 years became (in his words) rabid and went for the jugular to assuage her own pain. Mrs. Nick spared no punches in her quest for vengeance, and one of those punches was an accusation of insurance fraud against her seemingly straight-laced husband. It was a small enough matter that there was never any follow-up; however, the strain of having his past sins aired in public was a huge contributor to his depression. “It’s true. I did it,” he told me.
Everything else about Nick was upstanding: volunteer, churchgoer, visited his mother twice a week, never cheated on his income taxes and remembered birthdays and anniversaries. Insurance fraud struck me like an elephant in the living room. “Why, Nick?,” I asked. “That does not seem to be you.”
His answer, though enlightening, was not much of a surprise. Nick was a small business owner who’d worked very hard to achieve his success. He had four locations at the time of the divorce (Mrs. Nick got two of them); but as he was building his small empire there had been a claim of injury by a customer. Nick wanted his company to fight it — the lady claimant reported that her jeans had been ripped and she sustained a scratch on her leg due to a protruding metal object on the door of a dressing room. The problem for Nick was that it was bogus from the start — he didn’t believe it had happened — because the lady had stormed out of the store after trying to return a dress that had very obviously been worn, perfumed, and stained. “It was a get even claim,” he said, “a fake from the get-go.” Nick took pictures of every dressing room, told the adjuster the story, and had two employees complete sworn statements to back it up. “The com- pany paid the woman $10,000. I would have been upset if they’d even covered her $20 pair of jeans, but ten thousand? You’ve got to be kidding me…”
When the renewal rolled around, the premium had considerably increased. There’d been two claims: one was valid and the other was the lady with the ripped jeans. “Those guys are fat cats. They took my money for years, and suddenly they want to double my premiums over a stupid claim that never happened? I didn’t think that was right, so I evened the score by making my own claim to get back what they were adding to my bill. Three years worth. Right is right. Fair is fair. You play like a crook, you get treated like a crook.” It was quite an outburst, one that revealed why an honest- to-a-fault guy would cross the line to become an insurance fraud perpetrator. Justification was linked to perception of the victim. In the case at hand, Nick felt that he was only stealing back what had been stolen from him. “Just because they label it a crime doesn’t make it wrong,” he added.
This entire concept may be the worst enemy of the insurance world. It’s even got its own Facebook page entitled “Insurance Companies = Crooks.” A few years ago Michael Moore, appearing on Larry King Live, labeled insurance companies as “thieves and jackals.” Allegations abound and the average man on the street has not much good to say about insurers. If the mere emotion of justification counteracts the morality issues of committing insurance fraud, insurers have a far larger problem than trying to catch bad claims.The industry must change its public image to one of honesty.
What Are the Chances of Getting Caught?
Nobody likes punishment. Nobody likes negative labels. Nobody thrives on fear. It’s a well-known fact that a high percentage of white collar criminals are never caught. It’s also become abundantly clear that when they are caught, sentencing is not in keeping with the crime. The system is broken; and the would-be criminals know it. In their minds, the police entities are chasing mur- derers, rapists and drug cartels — and there are not enough prosecutorial hours or dol- lars left over to devote time to insurance frauds that cost less to settle than to prose- cute. In most jurisdictions, the criminals are correct. There aren’t.
Just when I think that my rotation of patients is an endless line of depression or anxiety complaints, behavioral problems with adolescents, or addiction and depend- ency issues, an occasional surprise walks in the door. It makes me feel like a medical doctor who treats runny noses, routine childhood diseases, colds and sore throats, plain old aches and pains and complaints of twitches, tingles or ingrown toenails. Every day is a repeat of the day before — until a new patient walks in and really challenges the boundaries of medical knowledge because the eventual diagnosis turns out to be Chagas disease (spread by the bite of a South American insect) or bovine spongiform encephalopthy (mad cow disease) or Loa loa (the one where you can actually see the worm crawling across the eye- ball).
My own variant, although not so extreme, was Al, a middle-aged man, wearing tinted glasses, who listed his occupation as accountant. His true reason for becoming a patient was not what was shown on his intake sheet; of that I am certain. He paid cash for the visit, was well above the intel- ligence norm, and — I’d bet dollars to donuts — was not who he professed to be. Al — or Sam or Phillip or David — wanted only to ascertain if and how a lie-detector could be beaten. I gave him some sketchy information, only enough to validate the charge for my time, and he left. Curiosity got the best of me and I watched him get into his car in the parking lot. A Mercedes 560 with a five letter out-of-state vanity plate that ended in MD.
If my hunch was right, here was a well-edu- cated doctor who’d been caught with his hand in the cookie jar. My own first question was if he — the person he was — was trapped in a serious mess because of nature or nurture? Studies suggest that there is a strong genetic tie to the criminal personality type, although a family of four siblings might have three kind and gentle children and one who is “mean as dirt.” Parents often feel self blame and are inconsistent in discipline, and the self-entitled child becomes a self-entitled adult. Serial fraudsters have no moral issue or boundaries — every one and every institution is fair game. They perceive insurance companies as open money sacks and salivate at the chance to grab handfuls of cash.
What Are the Possible Consequences?
The more accomplished and/or intelligent fraudsters — generally those who are dealing in the millions rather than in the hundreds or thousands — have a feeling of invincibility. The one thing that makes them think twice about their behavior is when someone else gets caught, has their life turned upside down and inside out, pays through the nose, is publicly shamed by the press and eventu- ally ends up in prison garb. Then the others take notice and their crimes cease to escalate. The less accomplished or the first- timers may be in dire enough financial straits to forge ahead even if they sense a risk. Consider fires set by those with upside-down mortgages, thefts arranged by those with high-dollar automobiles and payments they cannot afford to make, or injury claims made by employees who are about to be laid off or shoppers looking for a quick $10K for a bogus slip and fall.These are the cases where the decision can be heavily influenced by stories of success or failure around them. If a financially strapped individual has three friends who got away with big bucks and no questions were asked, chances are that person will take the chance. On the other hand, if his or her brother is incarcerated for a similar crime attempt, the insurance company will receive one less claim. A frightening example of what can happen is a fine deterrent in the initial consideration process.
Is the Prize Worth More Than the Risk?
Would you kill your best friend for ten dollars? Or course not. Would you kill your best friend for ten billion dollars? I hope not. But what if your best friend had just run off with your spouse and car? Would an insurance agent sell his mother a worthless policy if his commission was a hundred dollars — or might he do it if he was going to get an up-front commission of 120% so he could pay his mother back and still net 20%? Justification and circumstance are everything, and seldom are any two cases alike. Sometimes it’s difficult to quantify in dollar sense. An example of this might be the physician who is very free with his prescrip- tion writing; if he gives a patient a one month script for (for instance) oxycodones, that patient will (1) tell his friends and (2) be a repeat patient. If the same doctor orders diagnostic tests, reviews the results and writes necessary reports, there is more income coming into the practice. At what point does professed pain control become abusive and fraudulent?
If the owner of a small family-owned phar- macy has a 200-bed nursing home for a client, those 1,000-plus prescriptions per month pay the pharmacy rent, the bills, the help, the family house payment, the car pay- ment, and the cost of the new 3-carat dia- mond ring for the wife. If the pharmacist suspects nursing home operators or physi- cians of wrongdoing, at what point will he slit his own financial throat and make that “tip” call for an investigation? His prize may indeed be his own demise. Is it worth it?
The summary for this section is simple.The system itself is broken.
Fraud is not publicized much at all. The blonde newscaster does not appear on the six o’clock news with a lead story about the 65-year-old retiree who got a good (?) deal on a bad (?) driveway paving. Even in small towns, the City Council meeting is consid- ered more newsworthy. And there sits the would-be fraudster, thinking, “Hmmmm. I know it’s happening. I hear about these scores all the time; but nobody is getting caught. Sounds like it’s worth the chance …”
There are few billboards bringing it to the forefront of attention. Speeding tickets can run hundreds of dollars, so drivers have an incentive to obey the posted limits. Not fas- tening your safety belt can cost you a bun- dle, so most drivers have developed a before-turning-the-ignition-on routine that includes grabbing the belt, pulling it across and clicking it into place. Still I’ve yet to see a politician run for office on a platform of fraud reform.
Researchers have concluded that most people are at least capable of behaving in profoundly unethical ways. Practice makes perfect and each succeeding crime becomes easier on the conscience. This is especially true in business — any business. Twelve years of intense study and total dedication does not grant immunity to a doctor. Similarly, dedicating one’s life to the law does not come with a guarantee of honesty. Not only do medical and legal professionals swing to the other side; so do body shop owners, sales people, service providers, accountants, adjusters, researchers, factory employees, mechanics, caregivers, nursing home owners, education peddlers, data providers, manufacturers, lawmakers — every level of worker from those in charge of lives to those in charge of disposing of cow manure.
Humankind has, somehow along the way, lost the ability to consider the ethics of a situation before they jump into it. In the past few decades, psychologists have document- ed many different ways that people fail to see the big picture — a concept called “bounded ethicality.” Fraudsters, having become fraudsters, see the gratification aspects of a situation and are generally blind to the ethical aspects. It’s the result of the dog- eat- dog mentality that fuels perceived survival — as long as the fraudster gains something, he has little moral issue with the other end of that spectrum — that someone loses something.
The difference between a business-motivated decision and a fraud-motivated decision is this:
Business: What will I gain? How will it affect my future?
Ethical: Is it fair? Will anybody get hurt?
Fraudsters are not born (exclusive of a true psychopath with a few loose chromosomes); they evolve. Bernie Madoff may have been a nice little boy at one time. His first dishonest act may well have been to steal a piece of candy or take a nickel from his mother’s purse. But he’s like a dry seed soaking up its first water; the boundaries grow like vines and leaves. If no life event brings ethics into the decision-making process, that seed can eventually produce a tree and then a forest. And so it is that a fudged expense report can morph over time into a full-on case of embezzlement. Some researchers surmise that criminals are unaware of their own lack of ethics because they genuinely do not see it for what it is. Does every fraudster consciously know that his actions are wrong? Or do some of them have a different set of moral values based on, “well, this is the norm. Everybody is doing it.” …?
The Robin Hood Syndrome of Justification
When “the system” is the victim, justifica- tion often comes into play. Instead of look- ing at a potential crime of the fraudster doing it to “them,” they instead see it as an unfair system perpetrating a fraud onto the populace. In one very interesting study, an associate professor at Washington University teamed up with a Harvard Business School psychologist and analyzed hundreds of thousands of emission test results. They found that more than 20 per- cent of “pass” results were, in reality, fails.When they expanded the study to track individual inspectors, they found that new fancy cars that failed … failed. But a failed older vehicle that appeared to have a strug- gling owner … passed. Empathy and/or self identification fuels fraud. Stick it to the rich; help the poor.
And so it is with insurance companies or large institutions of any kind (even government). All of the industry surveys report that the high percentage of consumers who either participate, would be willing to participate or turn their back on fraud have this same mind set. They do not see the overall harm in the commission of what is a crime, albeit a seemingly small one. They see instead a road to equality and ultimate jus- tice for the little guy. Cognitively, they do not see the consequences of their fraud because many humans, by nurture, are not designed to do that. Then, too, there is the fact that tough economic times can make a person do things they would not normally do, while justifying to themselves, “I deserve this.”
Insurance and financial fraud is a combo meal of motivation, opportunity, rationalization and identification with a group. It’s important to realize that unethical behav- ior can be contagious. Why do gang mem- bers tend to more often participate in wrongdoing? Because if all of your friends (and/or relatives, neighbors, colleagues, etc.) are doing it, somehow it’s more okay that you do it, too. Being surrounded by a specific morality, be it right or wrong by definition, tends to increase the acceptability of that behavior.
Criminologist Donald R. Cressey developed a theory in the 1950’s to explain why people commit fraud. He proposed a triangle, one corner of which illustrated a need or pressure to lead one toward a fraudulent act. It might be financial in nature, a desire for recognition, or anything in between. To answer this need, the fraudster will look for opportunity — the second corner — the break in the system that allows him to commit his crime. The third aspect is rationalization, convincing himself that it’s somehow okay (e.g. “I’m just borrowing it …”) or that they have a right to do what they are doing.
Stephen B. Mason is a psychologist and a former university professor. His magazine articles have appeared through the New York Times Syndicate and his newspaper column was carried by Knight-Ridder. He hosted the long running Mind of Man radio show and was a contributing editor for the popular NPR feature Check Up From the Neck Up. A comedy writer for Joan Rivers and a director at The Lifestyles Organization, he once appeared in PLAY- GIRL magazine. Mason is a member of MENSA and a recipient of CSICOP’s Citizen Sane Award for promoting reason and skepticism in the media. An accom- plished sailor and pilot, he lives with his wife Sheilah in Southern California.