House Panel's Chairman Rips Comp Costs for Civilians Working in Iraq

The U.S. House Oversight and Government Reform Committee, chaired by U.S. Rep. Henry Waxman, D-Calif., held a hearing Thursday to examine the cost of workers' compensation insurance covering civilians who are working in the Iraq war zone. Waxman's opening statement indicated his committee will continue to probe the matter this week and also criticized nearly $600 million in profits made by four private insurers. The State Department, USAID, and the Army Corps of Engineers sensibly conducted a competition to select an insurer that would offer low rates, but the Defense Department allows contractors to negotiate their own individual contracts. Te result, said Waxman, has been "a boondoggle for the insurance companies and the private contractors" that has "saddled the taxpayer with enormous costs."

The Defense Base Act of 1941 requires contractors operating in Iraq and Afghanistan to purchase  comp insurance for their employees. Waxman noted that comp insurers typically pay out as much in claims and expenses as they take in through premiums, making their money off investment returns. The company that won the State/USAID/Corps contract, CNS, has paid out 8 percent more in claims and expenses than it earned in premiums, but its contracts are only 10 percent of the insurance  market in the two countries, Waxman said.

"And the experience in the DOD market has been completely different," the chairman said. "Under the DOD approach, private contractors negotiate with private insurers but bill the taxpayer for the costs. This arrangement has been exceptionally lucrative for the private insurers and the contractors. Over the last five years, the four largest private insurers have made underwriting profits of nearly 40 pecent. That’s almost $600 million in profits." He said KBR paid insurer AIG $284 million for comp coverage in the largest contract, which is a cost-plus contact that also afforded a mark-up to KBR of up to $8 million. Yet only $73 million of the $292 million actually is going to injured contractors.

"This is disgraceful," the congressman said. "The taxpayer is paying nearly $300 million to deliver less than $75 million in benefits to injured contractors. Rube Goldberg could not design a more inefficient way to help employees wounded or injured in Iraq. The Defense Department has argued that the fact that Iraq is a war zone justifies the high costs of the insurance program. But under the Defense Base Act, the taxpayer -- not the insurance companies -- has to pay the costs when a contractor is wounded in action. The insurance companies only pay for the types of injuries that could occur at any worksite. What makes the situation even worse is the people this program is supposed to benefit -- the injured employees working for contractors -- have to fight the insurance companies to get their benefits. Delays and denials in paying claims are the rule."

"We need to stop this flagrant abuse of taxpayer dollars. And this hearing is an important step in this process," Waxman concluded.

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