Military Fails to Collect From AIG for Care to Injured Contractors (ProPublica)

By T. Christian Miller, ProPublica

WASHINGTON—The Pentagon has failed to bill American Insurance Group and other major insurance carriers for millions of dollars in medical care provided to private contractors injured in Iraq and Afghanistan, according to a new federal report [1] (PDF).

The United States hired hundreds of thousands of civilians to work in the two war zones. When injured on the job, their medical care is supposed to be paid for by private insurance companies, primarily AIG.

The audit by the Pentagon's Inspector General [1] concludes that the military frequently failed to demand reimbursement when it treated injured contractors and the increased costs burdened front-line hospitals, cutting into resources that would otherwise be used to care for injured soldiers.

In one example, the main military hospital in Afghanistan at Bagram Air Base reported that one-third of all patients treated by military doctors were civilian contractors. This created an overwhelming burden for staff dedicated to delivering emergency care to wounded soldiers, the report said.

The auditors found that no single Defense Department agency is responsible for keeping track of costs, despite regulations requiring contractors to reimburse the government when their employees are treated at military installations.

"When health care is provided to contractor personnel, it places increased demands on (military treatment facilities) and precious resources that should be used in providing care to coalition military forces," the report said, quoting from a memorandum issued in 2007 by the military command in Iraq.

The report, released earlier this week, comes as Sen. Bernard Sanders, (I-Vt.), announced tentative plans Wednesday for a hearing later this month on the government's system of purchasing private insurance to cover contractor injuries and deaths in war zones.

Sanders called on Sen. Edward Kennedy [2] (D-Mass.), chairman of the Senate Committee on Health, Education, Labor and Pensions, to examine "the very costly and damaging problems that have resulted from the inadequate oversight of billions of dollars" paid to AIG and other companies for such coverage. Sanders also asked the Pentagon's Inspector General [3] to examine "potential irregularities and possible overcharges" in the system.

Rep. Elijah Cummings, (D-N.Y.), has already called for a similar hearing [4] in the House Committee on Government Oversight and Reform. Last year, the committee found that AIG and other carriers had charged the government $1.5 billion in premiums for workers compensation policies, while paying out $900 million in costs.

The calls for hearings follow reports by The Los Angeles Times, ABC News and ProPublica [5] on an obscure federal program designed to provide health coverage and benefits to civilian contractors working overseas. The program, set up by a World II-era law called the Defense Base Act [6], requires that all defense contractors purchase private workers compensation insurance for workers injured on the job in war zones.

Contractors now outnumber soldiers in the battlefield. As of January, there were about 209,000 soldiers deployed in Iraq and Afghanistan [7] and 220,000 contractors [8], according to Pentagon figures.

The investigations by the news organizations found that AIG and other carriers routinely denied claims from injured contractors, resulting in long delays and depriving injured civilians of basic medical care.

AIG holds a near-monopoly on the market for such insurance [9], covering nearly 90 percent of claims filed by workers in Afghanistan and Iraq, according to the joint investigation. Chicago-based CNA and a handful of other firms handle the rest. The insurance is usually paid for by taxpayers as part of the contract cost.

AIG declined Wednesday to comment on the audit or the new hearings. In the past, the company has said the "vast majority" of claims are paid without dispute "when the proper supporting medical evidence has been received." CNA did not return calls for comment.

Defense Department policy makes clear that defense contractors "shall ensure" that the government is reimbursed for medical care delivered to contractors. Military hospitals and clinics are generally required to treat contractors for serious injuries threatening life, limb or eyesight. Depending on the contract, some also provide contractors primary medical and dental care.

The report, however, found that no agency in the Defense Department enforces the policy. Insurance carriers or defense contractors are rarely charged when civilian contractors are treated at military medical facilities, the report found.

As a result, the Pentagon often pays twice for contractors' medical care: once in paying premiums to AIG and other carriers for insurance and a second time in failing to bill the companies for providing care to injured civilians.

The report said that military records were so badly kept that it was impossible to estimate the total lost. However, a survey of nine medical facilities found that the military provided an average of $1.2 million a month in medical care to civilian contractors.

If projected over the six years since war began in Iraq in 2003, that would mean the military has failed to bill $86.4 million in medical care.

It is unclear how much of the costs would be covered by Defense Base Act insurance or standard health care insurance. Since the start of the wars, more than 31,000 contractors have filed injury claims and 1,400 have died in Iraq and Afghanistan. Such claims include both workplace accidents and combat injuries and deaths.

In one case examined by the report, a private contractor suffered a blast injury, requiring 29 days in a military hospital. In another, a civilian contractor who shot himself in the foot spent 16 days in the hospital. In another, a private contractor with a history of high blood pressure and heart disease had to be stabilized and evacuated to a military hospital in Landstuhl, Germany.

The report noted that the increased burden of providing medical care for contractors has long been noted by field commanders. In May 2007, the military command in Iraq urged the Pentagon's Health Affairs division to address the issue. As of April 2009, the report said, the division had still not responded.

"We believe that billing for health care provided by (military treatment facilities) to contractors would provide additional resources to be used to support the troops," the inspector general report concluded.

In response to the report, the Pentagon's Comptroller has created a "working group" to determine how best to track billing.

The Pentagon's chief contracting division has also launched a pilot program at four locations to use contractor identity cards to track medical services.

"This working group has made huge steps toward developing a viable method for billing contractors for medical care received in military treatment facilities,"' wrote Maj. Gen. Walter E. Gaskin, a vice director in the Joint Chiefs of Staff.