Congressional hearings generally follow a script. Lawmakers publicly
vent their outrage, administration officials offer plausible defenses,
and the outcome is inconclusive. But this month's airing of complaints
about the government's system for taking care of civilian workers
injured or killed while on the job in Iraq and Afghanistan was notable
for its unanimity.
Republicans and Democrats, Obama administration officials, private
insurance companies and injured contractors all agreed that there are
serious flaws in the Defense Base Act, 
a 70-year-old law that requires federal contractors to purchase special
workers' compensation insurance for employees working in war zones.
The Labor Department, which oversees the system, acknowledged that
it had failed to consistently provide for the needs of the injured.
Insurance carriers complained that tight deadlines and paperwork
requirements were outmoded for the complexities of a war zone. Injured
civilians recounted long, painful battles to get prosthetic legs,
prescription eyeglasses and other basic medical needs.
"We are trying to meet a complex, 21st century challenge with a program from World War II," Seth Harris , the Labor Department's deputy secretary, told a panel of the House Committee on Oversight and Government Reform  a week ago. "It simply isn't up to the task."
Harris took issue with lawmakers who suggested that the program
could be fixed by adding resources or making administrative changes.
"The program is not designed for the circumstances we're in,"
Harris said. "The most productive thing we can do is to work with you
to fundamentally change the program."
And so the battle is turning to how, exactly, to remake the system.
At the heart of the fight will be money—the billions of taxpayer
dollars that now flow to AIG and a handful of other carriers that
dominate the market.
The stakes are high. Tens of thousands of wounded men and women and
the families of those killed depend on the system for medical care and
income. And while none of the carriers rely heavily on the business
from battlefield workers' compensation, the policies are notably
profitable. One company, Chicago-based CNA Financial Corp ., reported earning as much as a 50 percent profit on some policies.
"This committee is adamant about making sure that the Department of
Labor reforms its position on this matter to make sure that those who
were insured receive the compensation they were entitled to," said Rep.
Dennis Kucinich, D-Ohio, the chair of the Domestic Policy panel, which
held the hearing.
His Republican counterpart joined in: "In a program as vast as the
Defense Base Act, there are going to be failings," said Rep. Jim
Jordan, the panel's ranking minority member. "We are going to correct
But with Congress focused on intractable issues like the economy,
health care reform and the wars in Afghanistan and Iraq, the question
is whether lawmakers will have the stamina to enact changes this year.
Sen. Bernie Sanders, I-Vt., said they would.
"We've got to make sure that we're not continuing to waste billions
of dollars in taxpayer money," said Sanders, who has taken a keen
interest in the issue.
At this early stage, it appears that the battle lines will resemble
in miniature those of the debate over the reformation of the U.S.
health care system.
Harris outlined several suggestions in his written testimony. Though
the Labor Department has not officially endorsed any plan, Harris'
remarks seemed to favor some version of federalizing the program.
Under such a scenario, the government would provide insurance to
war zone workers in the same way it insures federal workers: by
self-insuring, rather than purchasing policies from private carriers.
Such a proposal, Harris said, would save money by eliminating carriers'
profit mark up. It would also reduce the potential for disputes arising
from claims, since carriers would no longer worry about maximizing
The hearing was prompted after investigations by ProPublica, the Los Angeles Times and ABC News found that private carriers had routinely denied requests for medical care  and disability benefits from injured workers.
Last weekend, the Los Angeles Times and ProPublica reported that foreign workers fared worse ,
with widows and children never receiving benefits, and injured workers
settling claims for miniscule amounts while under pressure by insurance
Putting the program in federal hands would, of course, take money
out of other hands: the private insurance industry and the brokers who
sell such policies. With AIG no longer able to lobby lawmakers because
of its acceptance of taxpayer bailouts, expect to see CNA and the
brokers leading the charge against any effort to put the business in
the hands of the government.
Three players, in particular, would be most affected. AIG holds a
near monopoly, with about 85 percent of the business. CNA and
Bermuda-based ACE Group are the second-largest providers, each handling
about 7 percent of claims in Iraq and Afghanistan.
AIG and CNA officials both had their own recommendations at the hearing—reflecting the two firms' different business models.
Several U.S. agencies, including the State Department and the U.S.
Agency for International Development, bid out insurance coverage, with
the winning carrier providing a blanket policy for all agency
contractors. CNA holds every such contract with the U.S. government.
AIG did not even participate in the most recent bid for such work,
conducted by the U.S. Army Corps of Engineers.
AIG, on the other hand, has focused on selling policies to
individual firms, mostly those who contract with the Defense
Department. CNA's share of that market has actually declined over the
years, according to George Fay, the company's executive vice president
for worldwide property and insurance claims.
Predictably, CNA urged the Obama administration to consider
expanding the number of agencies that hold bidding competitions. "CNA
is part of the solution, not the problems," Fay said.
AIG has focused more on making changes to the existing system. The
company called for lifting deadlines that require payments to be made
in 14 days and more consistent rules on the amount of such payments.
"Inconsistency has converted what should be an efficient
compensation system into an unpredictable, prolonged lottery," a
company statement said.
Aside from ideological debates over free market versus government,
there are practical arguments on both sides. Placing the system under
government control would address the issue of excessive profits earned
by insurance carriers, but it remains unclear how the Labor Department
would administer claims in far distant lands. AIG has offices around
the world and a staff of interpreters. The Labor Department has nobody
on the ground in the Philippines or Nepal.
Insurance industry officials have argued that issuing individual
policies to contract companies creates an incentive for safer working
conditions. The safer the workplace, the fewer accidents there are. And
the fewer accidents, the lower the premiums. In the case of Defense
Base Act policies, however, this incentive is diminished. Taxpayers are
already billed for the premiums under contracts for, say, truck drivers
or security guards. Those premiums make up a small percentage of the
overall contract price.
One enormous player in the debate has yet to weigh in. The Defense
Department, which pays more in premiums than any other agency, is
scheduled to release recommendations for reforming the system later
Pentagon officials have so far not offered any hint of their
findings. But the agency was instructed by Congress last year to
examine all options, including the idea of federalizing the system.
When those recommendations arrive, the battle will begin in earnest.
T. Christian Miller is a correspondent for the ProPublica News Service.