|
Those costs - payments to contract workers injured or killed on the job - have ballooned since the start of the Iraq war
in 2003. Governmentwide, Workers' Comp costs for contractor employees supporting overseas operations shot up from $7.6
million on 430 claims in 2002 to $170 million on 11,887 claims in 2007, according to the Congressional Research Service
(CRS). The Defense Department accounts for 90 percent of those costs, while other agencies, such as the State Department
and the Agency for International Development, account for the remainder.
The 2009 Defense Authorization Act, which the president signed last week, directs the Pentagon to revamp its Workers'
Compensation insurance program within nine months to lower costs and risks. In the law, Congress recommended - but did
not require - that Defense choose a single, mandatory source of Workers' Comp insurance for its contractors as a possible
remedy.
"The main way to make insurance cheaper is if you pool it," said a congressional staffer for Rep. Jim Cooper, D-Tenn.,
who introduced the provision. "There is nothing but bureaucratic inertia keeping this from being done."
Contractors are required to provide compensation for workers injured or killed on the job supporting the government
abroad under the 1941 Defense Base Act. Although contractors pay for the insurance out of pocket, the costs are passed
on to the government through contracts.
Requiring Defense Department contractors to buy Workers' Compensation insurance from a single provider could save the
government $360 million over the next decade, the Congressional Budget Office estimates. Currently, Defense allows
contractors to choose their own insurers. Other departments require contractors to use a particular insurer and, as a
result, they pay lower premiums than Defense does, according to CRS.
Both the State Department and the Agency for International Development, which have the largest overseas contracting
operations aside from DoD , require vendors to buy insurance from a single carrier at a pre-negotiated rate. State has
required this since 1991. It pays between $4 and $7 per $100 of salary to insure contractor employees. AID pays $1.58 per
$100 of salary for AID contractors worldwide, CRS said.
A 2005 Government Accountability Office report found Defense paid between $10 and $21 per $100 in salary on the insurance.
Defense had considered and rejected requiring a single provider in the 1990s, CRS reported.
Defense contractors would likely welcome a single-provider program, said Alan Chvotkin, vice president of the Professional
Services Council. At the start of the war, companies told PSC they were concerned about the jump in Defense Base Act
insurance rates, Chvotkin said.
State and AID have been successful in keeping their prices low in spite of the war because the single provider can spread
the risk to all contracts performed overseas in places as divergent as Germany and Iraq, he said.
It may be more complicated for Defense to set up such a program because of the volume of its costs and the nature of its
work, said Sara Payne, senior vice president of Rutherfoord, an Alexandria, Va.-based insurance brokerage that helps
State and AID manage their contracts with insurance firm CNA.
Payne said she has handled cases where insurance companies were unwilling to underwrite a Defense contractors' Defense
Base Act insurance because of the risk associated with sending workers into a war zone.
This reluctance was seen in the stand-up of an Army Corps of Engineers pilot program in 2005 that copied the State and
AID models of Defense Base Act insurance. The Army Corps pilot program captured the same savings as the State and AID
programs with the rates as low as $3.50 per $100 spent on salary. But only one provider bid on the contract, according
to CRS.
Risk was a likely factor in insurance companies' decisions not to bid on the contract because of the volatile nature of
working in Iraq, Payne said. If Defense decided to pursue a single provider system, it might have difficulty finding an
insurance company to take on all that risk, she said. Smaller programs, broken down by military service, might be more
successful, she said.
In May, Richard Ginman, deputy director of the Defense procurement policy office, said the department is studying the
results of the Army Corps' pilot program to see if it should be made permanent and expanded. There is a worry that while
the government is saving money on insurance in the war zones, it is driving up the costs of insurance in safer overseas
locations, Ginman told the House Oversight and Government Reform Committee at the time.
DoD has not taken any action since May, as it is awaiting the results of an Army Auditing Agency report on the ongoing
Army Corps pilot, a department spokesman said.
|
Congress has ordered the Defense Department to rein in skyrocketing Workers' Compensation costs for contractors supporting
overseas operations.