Insurance? What Insurance?

May 2, 2008 • Commentary
This article appeared in United Press International on May 2, 2008.

Life in Iraq for private military contractors is dangerous. If they get killed their dependents in theory get insurance but there will be no letters from a military commander of the president, commending them for their service to the country. No chaplain shows up at their door to offer consolation.

And in reality getting benefits out of insurers is as hard, if not harder, than it is for former servicemen and women to get what they are entitled to from the Department of Veterans Affairs.

U.S. employers are required to provide limited insurance to all employees in war zones under the Defense Base Act.

DBA insurance is a workers’ compensation policy created by Congress as World War II loomed to insure workers at remote bases. At the time, no one envisioned a war where the number of contractors would nearly match the number of troops, performing jobs once handled by the military.

The DBA includes U.S. citizens, third‐​country personnel and local nationals. The contracting company must prove that it has purchased the mandatory insurance before it can be awarded the contract. The cost for DBA insurance can vary depending on the level of risk employees will be exposed to. DBA benefits cover the cost of medical treatment as a result of injuries received while a contractor is performing the job. It also reimburses wages lost because of injury and offers beneficiaries disability and death benefits.

Yet contracts from the Pentagon often excluded Defense Base Act clauses, the very clauses that provided the bare minimum of insurance protection for civilian contractors.

A little‐​noted fact is that workers’ compensation insurance is a hidden cost of the Iraq war for U.S. taxpayers.

The government reimburses contractors for the insurance premiums, but nobody breaks out this cost from other expenses submitted to the government for payment. But the government also reimburses the insurance company for any combat‐​related claims.

DBA policies also differ from conventional workers’ compensation in one major way: Domestic workers’ comp programs are heavily regulated and analyzed, but the contractors’ insurance is not. The U.S. Department of Labor monitors the number of claims and resolves disputes over benefits, but it has no authority over pricing or availability.

Whether DBA insurance is cost‐​effective remains unclear. A 2005 report by congressional auditors found it was “difficult to determine whether all DBA insurance is purchased in a cost‐​effective manner or if agencies’ implementation challenges hinder their effectiveness in providing workers’ compensation coverage.”

“Lack of reliable information on numbers of contractors and cost of DBA insurance restricts the ability of agencies to make informed decisions on purchasing strategies for DBA,” continued the report from the Government Accountability Office. The report also found that “confusion over when DBA applies and difficulty in enforcing DBA and processing claims remain largely unresolved problems.”

In June 2005 the Los Angeles Times reported that financial services giant American International Group Inc. repeatedly sought to derail an effort by the Pentagon that could save millions of dollars on reconstruction work in war zones like Afghanistan and Iraq. For more than a year, AIG and industry allies fought an initiative to cut the rates for workers’ compensation insurance that U.S. contractors operating overseas are required to carry. Rates had soared since the war in Iraq began, raising suspicions among government officials that the companies may be overcharging contractors and, ultimately, taxpayers who foot the bill. Pentagon officials said their suspicions grew after the insurance companies began charging rates in Iraq as much as 30 times higher than in other developing countries.

As the DBA reimburses any combat‐​related claims, the insurance companies don’t have to bear the risk of war injuries. The only claims they would be liable for would be those resulting from routine workplace accidents. Thus the rates shouldn’t be directly affected by the violence.

The Pentagon announced it planned to impose tighter discipline on the program by centralizing its administration under one prime contractor. In response the insurers threatened not to compete for the business.

Other insurance‐​related problems persist. In June 2007 another Los Angeles Times investigation found a pattern of repeatedly blocked claims for treatment of psychological injuries sustained by civilian workers in Iraq and Afghanistan.

Although insurance companies paid for counseling for many workers, they also fought claims for psychological treatment harder than for other types of injuries, according to data compiled from Department of Labor records. Though contractors claiming psychological problems made up about 4 percent of nearly 1,400 serious reported injuries from 2003 to 2005, such workers accounted for 13 percent of the cases that ended up being fought in court.

In fighting claims, the insurance companies have relied on doctors with questionable expertise, according to court records and claimants’ attorneys. In one case, an insurance company psychiatrist who specialized in pharmacological research broadly dismissed psychology as “baloney.” In another, a psychologist hired by AIG for his supposed expertise in PTSD had seen only 10 to 15 cases in a decade of practice.

Also, the federal government has not examined the issue of mental‐​health problems among private workers, according to Pentagon and VA officials. Contract workers who are wounded or disabled in the war zone are treated in military hospitals in Iraq and Germany, but once home, they are not eligible for care in the military or Veterans Affairs system. And unlike troops, they are not routinely evaluated for mental or stress disorders after their tours.

Liability and insurance concerns are one of those unglamorous but critical issues that greatly concerns PMCs. Alan Chvotkin, senior vice president and counsel of the Professional Services Council, testified to Congress that if commercial liability insurance was “insufficient, unaffordable or unavailable to contractors (and particularly to those performing fixed‐​price work) the number and quality of the contractors willing to accept such financial risks will decline.”

“Boards of Directors, corporate officers, and audit committees — particularly of publicly traded companies — will decide that they cannot assume the full risk of a potential catastrophic incident and may decline to pursue such work. As a result, the DoD will lack full access to the depth of experience and resources these contractors could otherwise provide.”

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