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Lawmakers criticize federal insurance program for wartime contractors

A House subcommittee contends that private companies, such as AIG and CNA Financial, have reaped profits while providing inadequate medical care to civilian workers injured in Iraq and Afghanistan.

June 19, 2009|T. Christian Miller

WASHINGTON — Lawmakers on Thursday sharply criticized a federal program that relies on private insurance companies to provide medical care and benefits to civilians injured while working in support of the U.S. military effort in Iraq and Afghanistan.

Members of a House subcommittee charged that the insurance firms had exploited the taxpayer-supported program to reap enormous profits while shortchanging workers.

"We've got to straighten out this mess and we're going to do that," said Rep. Elijah E. Cummings (D-Md).

Testifying before a panel of the House Committee on Oversight and Government Reform, insurance executives, injured civilians and Obama administration officials all agreed that the program, created in 1941, is inadequate to meet the demands of modern-day warfare.

The Defense Base Act, a World War II-era law, requires federal contractors to purchase workers' compensation insurance for civilians working overseas. Taxpayers pay the premiums, which are built into contract costs.

The program grew dramatically after the U.S. sent tens of thousands of civilians into war zones in Iraq and Afghanistan. More than 1,500 civilian workers have died in the two countries, and more than 31,000 have reported injuries.

Injured workers testified Thursday that they had to fight insurers for months and sometimes years to receive medical care. The hearing included dramatic moments when workers confronted insurance executives sitting beside them.

John Woodson, 51, a truck driver from Oklahoma who lost a leg and most of his vision to a roadside bomb in Iraq, held up a magnifying glass and said American International Group Inc. had challenged his doctor's recommendation for prescription glasses.

"I ask why? Where has the oversight been? Who is in charge of this operation?" Woodson said.

Kevin Smith, 39, a Texas truck driver who was injured in a shooting in Iraq, said he struggled to persuade AIG to approve treatment for post-traumatic stress syndrome.

"We're not asking for millions in bonuses or lavish parties or even parades," Smith said. "We want what we're entitled to."

The hearing was prompted by an April report by the Los Angeles Times, ABC News and ProPublica.

Sen. Bernie Sanders (I-Vt) said he was outraged by evidence that insurers made windfall profits. Chicago-based CNA Financial Corp. earned as much as 50% profit on some of its war-zone policies, according to company records submitted to the subcommittee.

"What we're looking at is a horrendous situation," Sanders said. "There has been huge wartime profiteering."

Insurance executives said they had done their best to dispense benefits fairly under challenging conditions.

Charles Schader, AIG's president of worldwide claims operations, said his firm had increased its claims-handling staff from five to 70 people over the last seven years. AIG holds a near-monopoly on the war-zone insurance, handling about 85% of all claims.

"We do agree that there are many changes in this system that would help in administration and provide a better product," Schader said. "I want to make it very clear . . . that we really do owe [civilian workers] a debt. This is not anything vindictive or a corporate policy of denial."

George R. Fay, executive vice president of CNA Financial Corp., said his firm had worked hard to make sure that injured civilians received medical care and benefits.

But Fay, a retired Army Reserve general who served in Iraq, said the law required payment for injuries within 14 days, forcing carriers to issue denials to protect their legal rights.

"A regulatory scheme that creates such incentives can only produce unintended and sometimes tragic results," Fay said.

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t.christian.miller@ propublica.org

This report is published in cooperation with ProPublica, an independent investigative newsroom.

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