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Congressional Hearing: Officials Admit Major Flaws in Program to Aid Wounded War-Zone Workers

June 19: This post has been updated.

This story was co-published with the Los Angeles Times.

Injured war contractors, from top left, Tim Newman, Kevin Smith and John Woodson confronted their insurers, from bottom left, CNA's George Fay and AIG's Kristian Moor and Charles Schader in a hearing held by the Domestic Panel of the House Oversight and Government Reform Committee.

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 injured workers.They promised action to improve the delivery of benefits to civilians, who now outnumber U.S. soldiers in Iraq and Afghanistan.

"We've got to straighten out this mess and we're going to do that," said Rep. Elijah 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 government also reimburses insurance carriers in full for combat-related injuries and deaths.

The program grew dramatically after the U.S. sent tens of thousands of civilians into war zones in Iraq and Afghanistan to cook, clean and translate for U.S. troops, among many other tasks. 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 basic medical care. The hearing featured several dramatic moments when workers confronted insurance executives, who sat beside them in the hearing room.

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. He 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. He turned to face insurance executives as he described his experience.

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

After hearing the workers' testimony, Rep. Dennis Kucinich, D-Ohio, asked AIG executives if they had acted appropriately. "Do you feel any sense of regret or concern about what Mr. Woodson has gone though?" he asked.

"You're going to walk out of here with your two natural legs. You're going to walk out of here not needing assistance to see where you're going,'' Kucinich said. "You don't have to contend with what these gentlemen have to.''

Seth Harris, deputy secretary of the U.S. Labor Department, which oversees the insurance program, acknowledged "systemic problems." The list of flaws, he said, is "extensive and troublesome."

"Tinkering around the edges is not going to work here," said Harris, recently confirmed as the second-highest official at the Labor Department. "I think we need to look at fundamental reform."

Thursday's hearing was prompted by an investigative report by the Los Angeles Times, ABC News and ProPublica, which found that AIG and other insurers routinely denied basic medical care for injured contract workers.

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 percent profit on some of its policies for war zone workers, 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. That is an abuse of taxpayer money that is not acceptable."

Insurance executives said they had done their best to dispense benefits fairly under challenging conditions. They said it was difficult to verify claims from a war zone, where medical and employment records were elusive.

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 past seven years. AIG holds a near monopoly on the market for the war-zone insurance, handling about 85 percent 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. It's a question of the administration of a program under an act that is ill suited" to modern demands.

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.

A retired U.S. Army Reserve general who served in Iraq, Fay called the war-zone insurance program "a flawed statutory and regulatory scheme." He noted that the law requires payments for injuries within 14 days — a timetable he said required 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.

Update: This post has been updated to include Rep. Dennis Kucinich's comments after hearing the injured contractors' testimony.

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