Insurance fraud or a good deal?
Severe hail storms are a way of life in north Texas. When they blow through, the damage to a home’s shingle roof is often severe enough to warrant complete replacement. That work can easily run over $10,000.
Homeowner’s insurance takes most of the burden, but it’s not unusual to have a 1%, 2%, or even 3% deductible (based on the price of the home, not the cost of the repair). That can often mean that the homeowner’s out-of-pocket costs for the covered roof repair/replacement can be $2,000 or more.
Many roofing companies will offer to perform the work on your home and “structure the charges” in such a way that you don’t have to pay a deductible… the homeowner’s out-of-pocket then being $0.
Other roofers – and the insurance companies – say that such schemes constitute insurance fraud. That it’s illegal and essentially that the point of the deductible is that’s what should be paid first and then the insurance company will cover whatever the remaining charges might be.
What I don’t understand is how so many roofers can so blatantly advertise illegal and unethical business practice. “You pay no deductible” is often emblazoned on the sides of trucks and on business cards. Why doesn’t the state attorney general crack down on such schemes? I’m sure the insurance companies can easily bring lobbying pressures to bear and stamp this out.
Or is it not really fraud? and not really illegal? As a consumer, why shouldn’t I be able to negotiate the best deal on my roof repair… especially if I can capitalize by bulking up the deal with other covered items, like skylights, paint, window screens, chimney tops, fence and deck stain, etc.?
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When I worked in medical billing we did this quite a bit in order to draw customers. How it works is, we ate the cost of the patient’s deductible if the deductible was low enough so that we still made a significant profit on the visits. According to my ex-CEO, insurances assume you’re not so stupid as to not collect money owed to you, so they don’t tend to make a big hullabaloo about it. I am not sure if he is correct about this, since it makes sense to me that the insurance companies would investigate – they are not required to pay the providers anything for their treatment until the provider collects the deductible and coinsurance/copay. But we never got audited, and every other physical therapy office we knew of also did this, so…
My guess is that this is common in industries like my old physical therapy company and roofing companies, where the potential profit in the work is so high that they consider eating the deductible a cost of doing business. It’s both light insurance fraud and a good deal.
I read where some roofers do this by “paying” you a sign allowance for allowing them to put their sign in your yard while they perform the work.
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Glass companies do the same thing. They will replace your broken windshield and you don’t have to pay your deductible. I don’t know how they do it, but I think they overcharge you for the windshield to make up the difference.
@Skaggfacemutt, some states are Zero Deductible States when it comes to replacing windshields. As long as you have comprehensive insurance on your vehicle, they are required by state law to cover the replacement of a windshield without a deductible. Florida, Kentucky, South Carolina and Massachusetts are Zero Deductible States. Also, some insurance companies will cover windshiled replacements under no-fault claims depending on the circumstances of the damage to the windshield.
@bkcunningham Thanks, BK. I have always wondered how that worked.
@bkcunningham I know that the glass companies work with the insurance companies to become a preferred provider. I had the windshield in our company van replaced 4 times, it’s a rock magnet. If I went to the company selected by the insurance company there was no charge. The glass company did excellent work and I would have chosen them anyway. I think the glass company and insurance split the deductible and the insurance company gets a bulk rate.
Many construction/repair companies make out contracts that show a larger final cost than they actually charge, by allowing various kinds of discounts as partial payment against it. That way, the insurance company is billed the amount shown before the discounts, and the homeowner pays the amount shown after the discounts, which magically equals the insurance deductible
This is legal and only counts as fraud if the insurance companies did not know about it. In the long run, it amounts to a form of marketing that all parties agree on.
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