Fraudulent health insurance claims, from little white lies to large-scale white-collar crime schemes, steal at least $1 million a day from the health care system.

"And it's getting worse," says James Garcia, who directs the "fraud squad" at Aetna Life & Casualty, the nation's largest provider of group health insurance benefits.

The direct victims are insurance companies, employers and government programs such as Medicare and Medicaid. But consumers, employes and taxpayers ultimately pay the price in higher premiums and higher taxes.

"The insurance industry has always been a sitting duck for fraud," says Jim Dorsch, Washington counsel for the Health Insurance Association of America. "People see us as big pot of money sitting there."

"The problem has been that in the past we've provided a blank check to the medical community," Garcia says.

Phony or inflated claims can come from either patients or providers. But insurance companies increasingly are targeting the latter, because fraud by a single doctor or other practitioner can involve many customers and cost hundreds of thousands of dollars.

Health insurance fraud, says Garcia, cuts "across the board" of health practitioners, including doctors, dentists, pharmacists, chiropractors, podiatrists and every other type of provider.

"It's a small percentage that's doing it," he says, "but every profession has bad apples, and what we want to do is get rid of those bad apples."

"What we're talking about is a few who taint the whole barrel," agrees Larry Morey, a former FBI investigator who now is assistant inspector general in the Department of Health and Human Services.

Here are some examples turned up by Aetna's fraud sqaud:

*A chain of pharmacies in Illinois billed the insurance company for brand-name prescription drugs while dispensing cheaper, generic substitutes to customers. The pharmacies also double-charged the insurer, claiming 100 pills were dispensed, for example, when the patient's bottle contained only 50. To disguise the overcharge, the pharmacy never listed the number of pills on the bottle but used a code based on the word "NOPAY" -- "N" standing for 10, "O" for 20 and so on. That enabled the druggist to know how many pills to include in a refill without contradicting the records.

*A group of podiatrists in Ohio billed Aetna for more than $1 million in foot surgery that never took place. Whenever a patient came in with foot pain, the podiatrist would diagnose it as "tendinitis" and prescribe "corrective surgery" in the office. The "surgery" consisted of a tiny incision next to the big toe, closed by a single stitch, covered with a Band-Aid. The charge: about $300 per case. Investigators caught on to the scam because of an extraordinarily high rate of identical foot-surgery claims from the same area.

*Two dentists billed the insurer for care of up to 75 patients a day, including some dental work never done. Each dentist kept a drawer of "generic" X-rays, which could be matched with any patient if an auditor demanded to see documentation of treatment. The dentist would tape the patient's name on the X-ray corresponding to that patient's purported "treatment." Investigators were alerted by the unreasonably high volume of claims -- and by complaints from the dentists' colleagues.

*One doctor panicked after learning that investigators were on his trail for charging for services he could not document. To fabricate the documentation, he X-rayed his office staff. The scheme backfired when he submitted an X-ray of a female staff member to document "treatment" of a male patient.

While some insurance companies used to regard health insurance fraud as a regrettable but inevitable cost of doing business, they aren't any longer. In the increasingly competitive market for health care, insurers cannot afford to overlook any multi-million dollar opportunity to cut costs.

Consumers also have a growing incentive to monitor their own bills. Most employe health insurance plans now include deductibles or coinsurance provisions that require employes to foot at least part of their medical bills.

"Employes themselves are much more interested now in checking to see exactly what's on that bill," says Dallas Salisbury, president of the Employee Benefit Research Institute.

"Our key source is the patient," says Aetna's Garcia. "The patient knows whether the service was rendered or not."

Aetna's fraud squad, established two years ago with a staff of one, today includes 10 people at the company's headquarters in Hartford, Conn., and about 100 investigators around the country.

Last year, Aetna's fraud squad uncovered 1,026 cases of bogus billing among claims filed by its policyholders -- totaling $12.1 million in preventable losses. Garcia expects the 1985 total to double.

"We're just at the tip of the iceberg now," he says.

Exactly how big the iceberg is, no one knows, although Garcia's $1-million-a-day estimate is generally considered conservative. Representatives from the insurance industry, medicine, government and law enforcement will convene next Monday and Tuesday at the Capital Hilton hotel to discuss the problem and possible solutions during the first national conference on health insurance fraud.

Private insurers are catching up to a problem that government recognized in the late 1970s when health costs rocketed, says Don Zerendow, director of the Massachusetts Medicaid fraud control unit, one of 36 such units set up since 1978.

"The fee-for-service system is fraught with all kinds of opportunities for providers to take advantage of," Zerendow says. "They can bill for services that were never rendered, or bill for a more expensive service than was rendered."

But sorting out potential fraud among the avalanche of claims filed is not easy.

Obvious discrepancies in billing are automatically "kicked out" by the insurance companies' increasingly sophisticated computerized claims reviews: "repeat" hysterectomies, for example, or delivery of a baby two years after a hysterectomy, or extraction of the same tooth twice.

Such discrepancies are immediately checked to determine whether they are inadvertent billing errors or possible fraud.

"If a provider goes absolutely off the charts and starts billing for 600 hours a day, the computer would kick it out, and it would be called aberrant and someone would point that out," says Zerendow. "But if a provider bills for 10 and 12 hours a day for services that were never rendered, that could go undetected.

"Moderation," he says, "is the key for success."

More than just getting their money back, insurance companies are interested in getting the case prosecuted, to prevent the defendant from causing further losses and to deter others, says Julia Eisenstein, payment management consultant for the Blue Cross and Blue Shield Association.

"What they want," she says, "is to get that provider or that subscriber out of the system."

"Our approach is very simple: prosecute and publicize," says William Huston, who runs the fraud squad at Blue Cross/Blue Shield of Northern Ohio.

Fraud is a felony punishable by up to five years in prison.

Although Aetna refers all documented cases of potential fraud to local law enforcement agencies, that's no guarantee they will be prosecuted.

To build a well-documented $3,000 fraud case against a doctor, an insurance investigator might have to interview as many as 200 patients, each of whom was overbilled $15, Zerendow says. Even then, prosecutors may decline to pursue the case, given limited resources and the political pressure to give priority to cases involving more visible, violent crimes.

"As a government prosecutor, I'll take a $3,000 case and recognize that it's only the tip of the iceberg," says Zerendow. "But a U.S. attorney's office or a D.A.'s office might not."

The Massachusetts Medicaid fraud control unit that Zerendow heads has prosecuted more than 130 people in the past six years, recovering more than $7 million in fraudulent Medicaid overpayments. Like other investigators, he says he can't begin to estimate how much fraud takes place.

"I can tell you," he says, "I find no dearth of business here in this office."