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Pentagon workers' comp plan blasted

  • Story Highlights
  • House panel chair blasts Pentagon's civilian employee pay program
  • Rep. Henry Waxman: "Flagrant abuse of taxpayer dollars"
  • Hearing held to to examine procurement of Defense Base Act insurance
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WASHINGTON (CNN) -- The chairman of a House panel says a Pentagon workers' compensation program for civilian employees in Iraq and Afghanistan is a "flagrant abuse of taxpayer dollars."

Rep. Henry Waxman, chairman of the House Committee on Oversight and Government Reform, said the program is inefficient and amounts to millions of dollars in "excessive profits" over the past five years for private insurance companies and defense contractors.

Waxman made the remarks Thursday, when a hearing began to examine "allegations of waste and abuse in the procurement of Defense Base Act insurance."

Waxman said the law requires contractors to purchase such insurance for their employees.

He said the State Department, the U.S. Agency for International Development, and the Corps of Engineers "have approached this requirement responsibly" by conducting "a competition to select an insurance carrier to offer this insurance at low rates to their contractors. "

But the Pentagon, or the Defense Department, he said, allows contractors to "negotiate their own individual insurance contracts." And that has "produced a boondoggle" and has "saddled the taxpayer with enormous costs."

"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 percent. That's almost $600 million in profits," Waxman said.

He cited an example: KBR, the defense contractor, paid AIG, the insurance company, $284 million for worker's compensation coverage.

"Since KBR's contract is a cost-plus contact, this $284 million premium, plus a mark-up for KBR of up to $8 million, gets billed to the taxpayer, bringing the total costs to the taxpayer to $292 million. Out of this amount, just $73 million actually goes to injured contractors, and AIG and KBR pocket over $100 million as profit," Waxman said.

He said the Pentagon won't revise its approach, even though other audits have shown that the "Defense Department model doesn't work."

"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," he said.

All About The PentagonU.S. Department of DefenseHenry Waxman

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