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At a premium Print

Dec 29, 2006
The Pentagon pays exorbitant prices to provide health and life insurance to civilian contractors. This system needs review

A combination of outdated laws and insurance companies taking advantage of those laws during wartime is acting to put American taxpayers over a barrel. The issue is coverage for private contractors who work for the U.S. Department of Defense. Oversight is so lacking that no one can say how much the federal government is paying, The News & Observer's Joseph Neff reported in Sunday editions. Congress' watchdog agency, the Government Accountability Office, attempted an audit of spending for contractors' insurance in 2005 and couldn't even arrive at a figure.

It's real money, though, by even a cursory look, and it creates an appearance of profiteering on the part of insurance companies that do this kind of business. After all, the companies also can apply for reimbursement by the government of benefits paid under the insurance policies.

The laws are relics of World War II, meant to ensure that contractor personnel at remote military bases were adequately covered for medical expenses, work-related disabilities and death benefits.

In World War II, of course, the nation relied mainly on a military in uniform to carry out defense activities. A relative handful of contractors were covered in the 1940s. But the use of private companies to perform duties once done strictly by the military -- feeding the troops, for instance, and transporting fuel to tank staging areas -- is ubiquitous in Iraq and other modern war zones.

In the 1991 Persian Gulf War, the U.S. hired 9,200 people as contractors. In Iraq today, there are about 100,000, not too far from the number of American troops on the ground. Most work for the Defense Department. In the first Gulf War, seven contractors were killed. Since the start of Gulf War II, 646 of these personnel have died. One of the pertinent laws, the Defense Base Act, requires all contractors for the federal government to be covered with insurance, whether they are American, Iraqi or otherwise.

And the cost of the insurance for the Defense Department is eye-popping. The GAO study says premiums for contractors are $10 to $21 for every $100 that a worker is paid. It's not out of line for contractors in Iraq to make $100,000 a year, which equates to as much as a $21,000 bill for that worker's annual premiums.

Other federal agencies use private contractors, and also are bound by insurance laws. Yet they don't pay nearly as much as the Pentagon, good news because they offer models for providing reasonable insurance coverage at affordable prices. The State Department and the U.S. Agency for International Development (USAID) put their contractors' insurance up for bid. Presumably that is one reason why divers hired by USAID to remove mines from Middle Eastern waters are insured at a cost of $2.15 per $100 in salary.

The Defense Department, with far more contractors, ought to be able to bargain for even better prices. Meanwhile, Congress owes it to the public to pay closer attention to spending on contractors. Members also should revisit the insurance laws, and rewrite them for the modern era. 

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