Journalism in the Public Interest

News Analysis: Broad Agreement That Workers’ Comp Program for War-Zone Workers Needs Fixing

Daniel Brink, a South African, applied to Chicago-based insurer CNA for his medical benefits but said CNA declined some benefits owed to him. (Francine Orr/ Los Angeles Times)
Congressional hearings generally follow a script. Lawmakers publicly vent their outrage, administration officials offer plausible defenses, and the outcome is inconclusive. But last week's airing of complaints about the government's system for taking care of civilian workers injured or killed while on the job in Iraq and Afghanistan was notable for its unanimity.

Republicans and Democrats, Obama administration officials, private insurance companies and injured contractors all agreed that there are serious flaws in the Defense Base Act, a 70-year-old law that requires federal contractors to purchase special workers' compensation insurance for employees working in war zones.

The Labor Department, which oversees the system, acknowledged that it had failed to consistently provide for the needs of the injured. Insurance carriers complained that tight deadlines and paperwork requirements were outmoded for the complexities of a war zone. Injured civilians recounted long, painful battles to get prosthetic legs, prescription eyeglasses and other basic medical needs.

"We are trying to meet a complex, 21st century challenge with a program from World War II," Seth Harris, the Labor Department's deputy secretary, told a panel of the House Committee on Oversight and Government Reform on Thursday. "It simply isn't up to the task."

Harris took issue with lawmakers who suggested that the program could be fixed by adding resources or making administrative changes.

"The program is not designed for the circumstances we're in," Harris said. "The most productive thing we can do is to work with you to fundamentally change the program."

And so the battle is turning to how, exactly, to remake the system. At the heart of the fight will be money—the billions of taxpayer dollars that now flow to AIG and a handful of other carriers that dominate the market.

The stakes are high. Tens of thousands of wounded men and women and the families of those killed depend on the system for medical care and income. And while none of the carriers rely heavily on the business from battlefield workers' compensation, the policies are notably profitable. One company, Chicago-based CNA Financial Corp., reported earning as much as a 50 percent profit on some policies.

Rep. Dennis Kucinich, D-Ohio (Getty file photo) "This committee is adamant about making sure that the Department of Labor reforms its position on this matter to make sure that those who were insured receive the compensation they were entitled to," said Rep. Dennis Kucinich, D-Ohio, the chair of the Domestic Policy panel, which held the hearing.

His Republican counterpart joined in: "In a program as vast as the Defense Base Act, there are going to be failings," said Rep. Jim Jordan, the panel's ranking minority member. "We are going to correct those failings."

But with Congress focused on intractable issues like the economy, health care reform and the wars in Afghanistan and Iraq, the question is whether lawmakers will have the stamina to enact changes this year.

Sen. Bernie Sanders, I-Vt., said they would.

"We've got to make sure that we're not continuing to waste billions of dollars in taxpayer money," said Sanders, who has taken a keen interest in the issue.

At this early stage, it appears that the battle lines will resemble in miniature those of the debate over the reformation of the U.S. health care system.

Sen. Bernie Sanders, I-Vt, said he wanted to reform the contractors' compensation system this year. Harris outlined several suggestions in his written testimony. Though the Labor Department has not officially endorsed any plan, Harris' remarks seemed to favor some version of federalizing the program.

Under such a scenario, the government would provide insurance to war zone workers in the same way it insures federal workers: by self-insuring, rather than purchasing policies from private carriers. Such a proposal, Harris said, would save money by eliminating carriers' profit mark up. It would also reduce the potential for disputes arising from claims, since carriers would no longer worry about maximizing earnings.

The hearing was prompted after investigations by ProPublica, the Los Angeles Times and ABC News found that private carriers had routinely denied requests for medical care and disability benefits from injured workers.

Last weekend, the Los Angeles Times and ProPublica reported that foreign workers fared worse, with widows and children never receiving benefits, and injured workers settling claims for miniscule amounts while under pressure by insurance adjusters.

Putting the program in federal hands would, of course, take money out of other hands: the private insurance industry and the brokers who sell such policies. With AIG no longer able to lobby lawmakers because of its acceptance of taxpayer bailouts, expect to see CNA and the brokers leading the charge against any effort to put the business in the hands of the government.

Chicago-based insurer CNA reported earning as much as a 50 percent profit on some policies for battlefield contractors. Three players, in particular, would be most affected. AIG holds a near monopoly, with about 85 percent of the business. CNA and Bermuda-based ACE Group are the second-largest providers, each handling about 7 percent of claims in Iraq and Afghanistan.

AIG and CNA officials both had their own recommendations at the hearing—reflecting the two firms' different business models.

Several U.S. agencies, including the State Department and the U.S. Agency for International Development, bid out insurance coverage, with the winning carrier providing a blanket policy for all agency contractors. CNA holds every such contract with the U.S. government. AIG did not even participate in the most recent bid for such work, conducted by the U.S. Army Corps of Engineers.

AIG, on the other hand, has focused on selling policies to individual firms, mostly those who contract with the Defense Department. CNA's share of that market has actually declined over the years, according to George Fay, the company's executive vice president for worldwide property and insurance claims.

Predictably, CNA urged the Obama administration to consider expanding the number of agencies that hold bidding competitions. "CNA is part of the solution, not the problems," Fay said.

AIG has focused more on making changes to the existing system. The company called for lifting deadlines that require payments to be made in 14 days and more consistent rules on the amount of such payments.

"Inconsistency has converted what should be an efficient compensation system into an unpredictable, prolonged lottery," a company statement said.

Aside from ideological debates over free market versus government, there are practical arguments on both sides. Placing the system under government control would address the issue of excessive profits earned by insurance carriers, but it remains unclear how the Labor Department would administer claims in far distant lands. AIG has offices around the world and a staff of interpreters. The Labor Department has nobody on the ground in the Philippines or Nepal.

Insurance industry officials have argued that issuing individual policies to contract companies creates an incentive for safer working conditions. The safer the workplace, the fewer accidents there are. And the fewer accidents, the lower the premiums. In the case of Defense Base Act policies, however, this incentive is diminished. Taxpayers are already billed for the premiums under contracts for, say, truck drivers or security guards. Those premiums make up a small percentage of the overall contract price.

One enormous player in the debate has yet to weigh in. The Defense Department, which pays more in premiums than any other agency, is scheduled to release recommendations for reforming the system later this summer.

Pentagon officials have so far not offered any hint of their findings. But the agency was instructed by Congress last year to examine all options, including the idea of federalizing the system.

When those recommendations arrive, the battle will begin in earnest.

Marcie Hascall Clark

June 23, 2009, 6:32 p.m.

The Labor Department’s acknowledgment certainly comes as a welcome change of attitude to the injured contractors and their families.  We’re hoping that this attitude expressed at the top is made to trickle down to the good old boys (and girls) who are still overseeing the DBA.  A little housecleaning might be in order.
AIG and CNA’s blathering amounts to nothing more than CYA.  They haven’t missed a denial or a trick since this situation was allowed to seep out from under the door that has been closed on it.
As for creating a safer workplace, that will not happen until there is some responsibility placed on the employer themselves, liability for their actions or inactions.
Whether these policies are individually written or put out for bid or not the taxpayer still foots the whole bill.
As long as the “Exlusive Remedy” remains in place profit will rule the workplace, or for now the war zones, with little value placed on human lives.

I hope that when Seth Harris from the DOL stated “It simply isn’t up to the task.” that he will make it a priority to bring the DOL up to the task of taking care of these injured contractors and that this will eventually have a trickle down effect that stops the shennigans of the insurance companies in furthering the agony of the injured and ill waiting for treatment or benefits. 

The DOL regulations definitely need to be updated to reflect the work conditions of the contractors in the war zones, and realistic time frames for reporting injuries need to be addressed, along with updating the medical record requirements.  Too many injured contractors come home not knowing what is required to file for benefits and this is the employer’s responsibility, but the DOL needs to understand that once the contractor leaves the theater with injuries it is about impossible to get medical records from the employers.  If there is documentation from licensed medical providers that should be enough to let the claims go forward from the informal hearing stage, instead of being denied due to not enough medical documentation from the employer.  Too many of the injuries coming out of this war are not immediately apparent, so there may not be documenation within 30 days of the actual incident that caused the injury, and this in turn denies medical treatment to many who have justified physical injuries from working overseas. 

PTSD needs to be addressed because this is a serious mental illness that can be treated and cured if caught in time, but there is no way to document this illness while working, most of the symptoms don’t manifest until the contractor returns home, and sometimes it takes more than a year for symptoms to get severe enough to seek treatment.  So is everyone who works overseas just supposed to automatically file a DBA claim just in case something comes up after the 12 month deadline??

Barry Schmittou

June 23, 2009, 11:28 p.m.

I greatly appreciate all of Marcie’s hard work and effort seeking justice !!

I have no trust in the DOL. Deputy Secretary Harris wrote the DOL found no intent on the part of the insurance companies.

That is one of the most absurd statements I have ever heard.

If a huge miracle occurs and the DOL quits allowing the insurance company crimes against war zone contractors, there will still be rampant crimes committed against injured U.S. workers and employees covered by U.S. Title 29 ERISA disability policies.

If you want to see massive evidence of insurance companies intent to violate laws please go to


The Longshore Act and its extensions have no teeth unlike other workers compensation schemes.  Bad faith laws under other state workers compensation programs cause non-benevolent self insured employers and insurance carriers to exercise extreme caution when they fail, refuse or neglect to pay benefits.  For ever and a day insurance carriers have operated under the philosophy take in as much money(premium) in the front door and keep it as long as possible.  The Defense Base Act provides the perfect forum for non payment.  For all intense purposes there is never a penalty for non payment and interest is at 1/2 percent.  An enforceable order from a judge to pay compensation may not appear until a year after the injury.  I would suggest Congress pass bad faith legislation and provide a punitive element. 

The Government cannot provide insurance to war zone workers.  Workers compensation is a cost of doing business.  Private industry has landed lucrative contracts from the Government to do business in war zones.  Their bids should include those costs.

Marcie Hascall Clark

June 24, 2009, 4:04 p.m.

.....or you may not get your day in front of a judge for six years….while the lawyers rack up the fees by dragging your claim out so long…..

A 1/2 hour for talking to you on the phone one day, a 1/4 another day, an hour for responding to something they did on someone else’s claim…....

This article is part of an ongoing investigation:
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