Posts Tagged ‘defense based’

Risk Transfer without Risk

Monday, June 22nd, 2009

The Defense Base Act (DBA) was enacted in 1941, to cover the injuries to civilian employees – primarily a few hundred engineers – during the second world war. The act might have worked then, but it certainly is not working now, nearly 70 years later. As we have blogged in the past, the DBA is a boondoggle, generating huge profits for a small number of insurance carriers and routinely devastating both the civilian workers wounded or killed in war zones and their families. There are over 10,000 claims filed each year: the medical only claims are usually paid; the indemnity claims are dissected, inspected, detected, and ultimately, rejected. A handful of insurers (AIG, CNA among others) are making big bucks at the expense of the wounded and the dead.
NOTE: As bad as the situation is for U.S. citizens wounded and killed in Iraq, it is far worse for foreign nationals.
The Domestic Policy Subcommittee of the House Oversight and Government Reform Committee held a hearing last week on the DBA. The title of the hearing betrays an (understandable) prejudice: “After Injury, the Battle Begins: Evaluating Workers’ Compensation for Civilian Contractors in War Zones.” The hearing focused on the handling of workers’ compensation insurance for federal contractors working overseas, specifically on the inordinate delays in compensation running parallel to the enormous profits for insurers. Among those testifying were Deputy Labor Secretary Seth Harris; Timothy Newman, Kevin Smith and John Woodson, former civilian contractors in Iraq; Kristian Moor, president of AIU Holdings, Inc., a division of AIG; George Fay, executive vice president for Worldwide P&C Claims, CNA Financial; and Gary Pitts of Pitts and Mills Attorneys at-Law.
Kristian Moore defended AIG’s decisions and motives, pointing the finger at a lack of Labor Department oversight and a system overtaxed with cases. “We are doing everything we can do,” suggested Charles Schader, senior vice president and chief claims officer for AIU Holdings. Yeah, everything you can do to make money.
At the conclusion of the hearing, Dennis Kucinich (D-Ohio) warned AIG executives that he plans to demand copies of internal memos and documents that will link claims denials to the company’s profits. Most of us do not get terribly excited by the prospect of reading claim files, but these will undoubtedly provide some compelling reading. While I doubt that the subcommittee will find a direct, written link between denials and profits, the rationale for the individual claim denials – in the face of compelling evidence of compensability – should prove riveting. Was it incompetence or was it greed? Something cruel, heartless and cynical took place in the back rooms of carriers with responsibility for civilian claims. If you like Edgar Alan Poe, you’ll love the claims files of AIG and CNA.
Risky Job, Risky Work
Seth Harris, the new deputy secretary at the U.S. Department of Labor, is in charge of this mess for the government. He’s been on the job for 3½ weeks. Congratulations on the new job, Seth! (You might want to keep your resume circulating.) Seth has been working less than a month, but he has already figured out that the system is in need of fundamental change.
The work of insurers usually involves risk transfer. Under the perverse incentives of the DBA, the risk is absorbed by taxpayers, the pain falls on civilian workers and their families, and the profits – running from 37 to 50 percent of premiums – are pocketed by the carriers. Risk without transfer. It’s amazing that AIG can generate this level of profit in one division and still only trade at $1.40 a share. I guess that they have been looking for risk in all the wrong places.

Bosstown’s Health Wonk Review, and assorted other news briefs

Thursday, May 28th, 2009

Check out Health Wonk Review: Bosstown edition. Tinker Ready at Boston Health News makes her debut as host with an informative and entertaining edition of the biweekly roundup of the best of he health policy blogs.
News briefs
Michael Fox of Jottings By an Employer’s Lawyer offers a great rundown of Supreme Court Nominee Sonia Sotomayor’s opinions on labor and employment law.
More state AGs file against Chrysler bankruptcy – we’ve blogged about Michigan and Ohio; now Illinois and Indiana join the list of AGs that are attempting to protect both workers and their state workers comp systems from any adverse effects. The bone of contention is that under the terms of the proposed sale, Fiat would not be required to assume workers’ compensation liabilities of injured Chrysler workers and individual state systems would be forced to deal with these uncovered workers.
Joe Paduda of Managed Care Matters has completed his firm’s First Annual Workers Compensation Bill Review Survey.
Peter Rousmaniere’s article A Brutal Interpretation in Risk and Insurance tells the story of Taha Saad’s unfair treatment under the defense Base Act. Saad, an Iraqi translator, worked for the Army until he lost his legs in an IED explosion. A U.S. Department of Labor judge recently affirmed AIG’s weekly payment of $46.15 for his permanent disability.
Clamping Down on Claim Costs – nine practical tips for managing workers’ comp losses by Lori Daugherty of Claims Magazine
Safe Lifting Portal
Hearing Conservation Training That Works
Exotic Dancers Are Employees, Not Independent Contractors

AIG in Iraq: A Cruel Way to Make a Buck

Tuesday, April 21st, 2009

AIG has been in the news mostly for its ingenious method of losing money: insuring the riskiest possible financial transactions and tanking after these risks go bad. But give the biggest insurance company in the world some credit. They still know how to make money the old fashioned way: collecting premiums and denying claims. To be sure, this strategy is not easy to do in the states, where public scrutiny is never more than a phone call away. But it works rather effectively in Iraq.
T. Christian Miller from Propublica and Doug Smith from the LA Times have described in great detail how AIG transformed Iraq into a business opportunity with an enormous upside. AIG is the predominant workers comp carrier in the war-torn country, insuring civilian workers. When these workers are injured – and the injuries can be devastating – AIG has routinely denied their claims for basic medical care, artificial limbs and desparately needed counseling for post-traumatic stress syndrome. More than 1,400 civilian workers have died and 31,000 have been wounded or injured in the two war zones.
Insurers have collected more than $1.5 billion in premiums paid by U.S. taxpayers and have earned nearly $600 million in profit, according to congressional investigators. That’s nearly 40 percent profit after expenses – an unheard of loss ratio in the states.
Collect and Deny
The AIG strategy is deceptively simple: first, charge exorbitant fees for premiums, roughly 100 percent of a worker’s pay. (Don’t feel sorry for the companies paying these premiums; they are fully reimbursed by taxpayers.) Then, accept all the small claims and fight almost any claim involving lost time (more than four days of disability). Delay, delay, delay. Never make a payment until ordered to do so by a court.
The denial rate on serious claims is pretty astonishing: about 44 percent. How could you argue that any injury – let alone a serious one – is not work-related, as civilian employees are in Iraq for one purpose, supporting the war effort? In addition, fully half the claims for PTSD are denied. All this in the context of a war where catastrophic injuries are all too common and legitimate PTSD is as prevalent as cuts in a glass factory. How many state-side workers have watched co-workers blown to pieces by roadside bombs? Do you think that such incidents might qualify as PTSD?
AIG used the argument of extremely high-risk working conditions to boost the premiums. Then they turned around and used the strategy of denial to boost profits. Who says capitalism is dead?
I suppose you could argue that this reporting is just piling on poor AIG.The behemoth just cannot catch a PR break. Oh, well, dear reader, don’t waste too much energy feeling sorry for AIG. After all, you are paying for AIG big time: in the bailout that exceeds $200 billion; in the war-based premiums that generate profits nearing 40 percent; and in all likelihood, in the social costs of caring for devastated civilian employees, who have so much difficulty accessing the comp benefits to which they are entitled.
AIG may not know diddly about the risk in risky financial vehicles, but they certainly know how to make money in conventional comp insurance. Of course, it helps that the injured workers are so invisible, like obscure figures in a desert sand storm, struggling blindly to find some kind of shelter in a harsh and unsympathetic world.

Cavalcade of Risk, plumbers, illegal immigrants, cranes, contractors, and more

Wednesday, October 22nd, 2008

Cavalcade of Risk #63:The WABAC edition hosted by John Cogan at Regulating Health Insurance. John is the Executive Counsel-Executive Assistant for Policy and Program Review for the Rhode Island Office of the Health Insurance Commissioner. He’s a first time host of Cavalcade so you might kick the tires at his blog after catching up on the news.
One of this week’s posts we found noteworthy is from Louise at Colorado Health Insurance Insider entitled Business 101 For Joe the Plumber, in which she analyzes how Joe’s business would fare under the Obama and the McCain tax health care reform plans.
In other news:
Illegal immigrants and workers comp – Peter Rousmaniere posts about a new analysis of workers comp laws and illegal workers recently issued by the Independent Insurance Agents and Brokers. His post summarizes some of the key issues in the report but the bottom line is that 38 states offer at least some type of benefits to illegal aliens. The report is available in chart form (PDF) from WorkCompCentral.
High comp costs for defense-based contractors – The Pentagon is looking to curtail workers compensation costs for overseas defense-based contractors. Costs went from $7.6 million on 430 claims in 2002 to $170 million on 11,887 claims in 2007, according to the Congressional Research Service, with the Defense Department accounting for 90% of those costs. One of the ways that they are looking to cut costs is to consolidate to a single insurer.
Van pool risks – Nick Whitfield of Workforce looks at the risks involved with company-sponsored van pools. In response to skyrocketing gas prices, many employers adopted measures to help defray their employees’ costs of commuting, with van pools being one of the options. A van pool can have potential workers comp exposure depending on the way the pool is established. While injuries sustained during a commute would not normally be compensable under workers compensation laws, many state laws treat employer-sponsored transportation differently so injuries sustained in a commute might indeed be compensable. Many employers turn to third party contractors to run van pools and while this would generally mitigate the risk, experts suggest that employers who sponsor programs first consult with their broker, insurer and state workers’ comp authority.
OSHA and cranes safety – Celeste Monforton of The Pump Handle looks at the OSHA proposed rule on crane safety, which was published in the Federal Register on Oct 9 and will be in public comment phase until December 8. She notes that, curiously, the estimated 55 lives saved annually with the improved standard is not mentioned in the proposal.
Health & safety blogsThe Pump Handle referred to above does a great job covering health and safety issues in the workplace. We’d like to do a shout-out to a few other blogs that are on the health and safety case: long-time blogger rawblogXport; Tammy Miser at Weekly Toll; the vigilant folks at OSHA Underground; GotSafety Blog and The Safety Blog.

News Roundup: Health Wonkery, DBA, NLRB ruling, and more

Thursday, October 5th, 2006

Health Wonk Review – Joe Paduda hosts Health Wonk Review – the Harvest Moon Edition – a meaty issue with lots ‘o links to substantive posts. With 57 percent of the claims dollar going to medical costs, we are inextricably linked to the larger health-care market. HWR is a good way to keep an eye on the trends.
Additions to the blogroll We’re adding a few links to our blogroll in the sidebar: Labor and Employment Law Blog by George Kittredge and The HR Lawyer’s Blog by Texas labor and employment attorney Christopher J. McKinney – both are worth checking out.
Absolute Shocker of the Week – Worksafe Victoria’s construction safety program publishes weekly photos of dangerous construction work sent in by inspectors and subscribers so that they can be used for safety training or tool-box meetings. hosts and archives these Weekly Shockers and Bodgey Scaffolding photos.
Defense Base Act (DBQ) – The Defense Base Act extends workers’ compensation benefits to employees working for private employers affiliated with the military or certain government-related business outside the continental. Learn more about coverage and 10 Things You Should Know About the DBA. Actually, the article lists 17 things you should know. Regardless of the number, it’s a good overview.
Topical funThe Drugs I Need – an amusing animated music video clip about prescription drugs by the Austin Lounge Lizards.
NLRB rulings – Jordan Barab provides an in-depth analysis of the National Labor Relations Board’s recent Kentucky River rulings from the labor perspective. The rulings set parameters about who is considered a manager and who is considered an employee. Jordan discusses how this ruling excludes millions of workers – notably nurses – from union membership. He quotes extensively from the dissension offered by two Board members. Wilma Liebman and Dennis Walsh.

“Liebman and Walsh point out that the legislative history of the act distinguished between real supervisors “vested with such genuine management prerogatives as the right to hire or fire, discipline, or make effective recommendations with respect to such action ” and “straw bosses, leadmen, set-up men, and other minor supervisory employees.”

“… Walsh and Liebman note that unlike real supervisors, charge nurses do not have the ability to hire, fire or discipline, nor do they have any formal role in the employee grievance process. In addition, they spend the vast majority of their time in line work “a fact that strongly tends to establish their status as s minor supervisory employees.”

“… Today’s decision threatens to create a new class of workers under Federal labor law: workers who have neither the genuine prerogatives of management, nor the statutory rights of ordinary employees. Into that category may fall most professionals (among many other workers), who by 2012 could number almost 34 million, accounting for 23.3 percent of the work force.”

Workers’ Comp in Iraq

Monday, June 13th, 2005

A fascinating article by staff writer T. Christian Miller in today’s Los Angeles Times (registration required) focuses on the cost of providing workers comp insurance to non-military employees in Iraq. Under a WW II era program called the Defense Base Act, private insurers charge the government for comp premiums. These private carriers are at risk only for the non-combat related injuries, illnesses and deaths. The government reimburses the carriers for all combat-related incidents, plus a 15% admin fee. Overall, costs for comp in Iraq are somewhere around $ 1 billion, but no one seems to know for sure.
Currently, two carriers dominate the market: AIG and ACE. The Pentagon is talking about awarding all the business to a single carrier, in order to contain the escalating costs. The counter argument seeks a continuation of the “free market approach.” I’m not sure how “free” the current market is and as for the rates, they appear to be headed in the wrong direction.
Comp in Iraq
There are about 30,000 Americans and third-country nationals and more than 40,000 Iraqis working on U.S. contracts in Iraq. To date, about 300 contractors have been killed and 2,700 injured. When the program began, insurance rates ran between $4 and $8 per hundred dollars of payroll. Now they are up to $20 per hundred — a pretty hefty rate by most measures.
Salaries in Iraq, as you would expect, are much higher than those in the states. It’s not unusual for workers to pull down $100,000. (The pay is good, but you would have to characterize the working conditions as marginal.) Comp premiums at the $20 rate would average about $20,000 per employee — a very high rate indeed. Because of the high salaries, death claims are averaging between $1.2 and $1.8 million — significantly higher than death claims for workers in the states.
How do rates for insurance in Iraq compare to other locations in the world? Here’s one striking example cited by Christian: In Colombia, a contractor flying helicopters in support of State Department drug interdiction programs is charged at $3.87 per $100 of payroll — less than a truck driver in the states. In Iraq, however, a contractor flying helicopters runs $90 per $100, with comp payments almost the equal of payroll (only iron workers above the 6th floor reach anywhere near comparable rates in the states). Keep in mind that if the helicopter pilot dies in a combat-related incident, the carrier is not on for the loss. The carriers respond by saying they have to establish these high rates, because even if they are eventually reimbursed for a combat-related incident, it could take several years to actually get the money and there is no guarantee that the government will accept the liability.
Conventional Cost Control, Unconventional Conditions
Employers in the states have learned the hard way that the best way to control comp costs is to contain losses. Cost containment means committing to good safety programs and setting up a system for immediately responding to injuries. You need to establish a relationship with an occupational medical provider and set up a comprehensive return-to-work program that uses temporary modified duty to speed recovery. That’s all well and good stateside, but I have to wonder how well that kind of a system will work in Iraq. Is anyone motivated to implement modified duty? Do employees really want to go back to work, or would they prefer to collect 2/3 of their (inflated) average weekly wage at a safe distance from the turmoil? If you were an Iraqi national, would you risk your life going back to work on temporary modified duty? With U.S. taxpayers ultimately footing the bill, does anyone over there really care if an injured employee goes back to work? When you think about it this way, you wonder why carriers would want any of the risk.
Where’s OSHA?
I wonder what OSHA would say about the working conditions in Iraq. (Given the reduced number of inspectors, they probably haven’t gotten there yet.) Under the General Duty Clause, employers must provide a workplace free from the risk of injury and illness. How does Iraq stack up? As a spokesman for one of the carriers stated, in response to questions about the high rates, “it’s 130 degrees. There is a lot of dust. There is a lack of hospitals.” Not to mention the fact that strangers are constantly trying to kidnap or kill you. Stress claim, anyone?
Ubiquitous AIG
It is indeed interesting to find AIG in the middle of this high-risk mess. Just as they were challenged by New York Attorney General Elliot Spitzer for “risk transfer” transactions that apparently involved no risk at all, it appears that here in Iraq they are collecting possibly inflated premiums where, once again, a substantial portion of the risk lies with others (you and me, to be exact).
Ultimately, my sympathies here are with the workers. I can hardly imagine a more difficult place to work. Here in America it’s rare to dress for work with a prayer that you will survive another day (rare but certainly not unheard of). In Iraq, every breath in that hot, dusty place is accompanied by just such a prayer. Here’s wishing a safe return to our civilians and a lasting peace for the Iraqi people themselves.