California EDD freezes 345,000 disability insurance claims

SACRAMENTO, Calif. - The California department that distributes workers' disability benefits has frozen 345,000 claims to battle suspected organized fraud rings and fake applications.

There has been an unusual amount of new disability claims made to the Employment Development Department in the past month, the EDD said. 

That prompted the department to freeze 27,000 suspicious medical provider registrants and claims associated with those providers while it investigates which are legitimate. They're now required to verify their identities.

The action, taken in recent weeks, has left some in limbo.

"It is amateur, irresponsible and just downright wrong," said Nick Lagusis who had his claim frozen just before the holidays. "Without warning, nothing to plan for, boom, they withheld the money."

He filed a disability claim last fall for ongoing pain and problems following a car crash where he was hit head-on by a districted driver. Lagusis is one of the 345,000 claims flagged by EDD as part of a widespread identity theft scam.

"As EDD has put in new filters to prevent fraud in unemployment insurance, some of the same groups have moved to disability insurance," former EDD director Michael Bernick said. "It's another large, government program."

The state's disability insurance program is not typically a target for fraud. Workers pay into it and there are nearly 900,000 claims filed each year.

But for a month and a half, several workers who filed disability insurance claims tell KTVU they've been unable to pay bills, rent and make ends meet.

"I am angry," said Theresa Holt who has faced medical issues requiring inpatient care and not received a dime. "I'm stuck in this loophole that they've created. I feel it's unacceptable."

The EDD said it is working to verify legitimate claims and weed out those filed by fraudsters.

The situation is reminiscent of problems the EDD has faced with unemployment claims. In October, state officials said that the EDD was bilked out of $20 billion from applicants filing phony jobless claims.

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The EDD had tried freezing unemployment payments while it sought to sort out the deserving cases from the fraudulent applications. But the EDD agreed to abandon that tactic when it settled a class-action lawsuit and instead agreed to send checks while it investigated potential fraud.

"The challenge is balancing paying people quickly and preventing against fraud," Bernick said. "I think what we'll see is that EDD will move quickly to unfreeze these accounts. They're acutely aware of the criticism."

In a statement EDD said clearing legitimate claims is its top priority.

But for those who are desperately waiting for their benefits to be paid, they're on the losing end.

"I went down to negative $34 in my account," Lagusis said. "We want to work. We can't work. And they're on the verge of making us homeless."

Brooks Jarosz is an investigative reporter for KTVU. Email him at brooks.jarosz@fox.com and follow him on Facebook and Twitter: @BrooksKTVU