How Government Adds To Ranks of Uninsured
25 03 08 - 11:19
Many Outsourced Federal Jobs
Don't Offer Health Insurance;
Using Cash Allowance for Rent
By JANE ZHANG
March 25, 2008; Page D1
When William Rogers, a medical officer at the Department of Health and Human Services in Washington, noticed a cashier in the agency cafeteria was having trouble walking, he was blunt: "Fay," he said, "you need to get on a diet."
Fay Derricotte, then 289 pounds, took his advice and lost 55 pounds. Still, her walking got worse. Dr. Rogers urged her to go to the doctor.
Yet, unlike the federal workers who were her customers, Ms. Derricotte had no health insurance from her job. She worked for a private contractor hired by the federal government that didn't provide coverage -- and earning about $14,500 a year left her unable to afford good medical care on her own.
Only after she was laid off did Ms. Derricotte qualify for federal insurance programs. That is when she was diagnosed with multiple sclerosis, an often-debilitating disease that attacks the central nervous system. Today, two years after her MS diagnosis, the 44-year-old is confined to a wheelchair, is jobless and relies on Social Security disability payments and other public assistance.
Covering the uninsured is a central issue in this year's political campaign. Yet while politicians debate how best to cover the growing ranks of the uninsured, the federal government -- by outsourcing service jobs -- quietly is adding to those numbers. "As federal employees, we get great insurance," says Dr. Rogers, a physician who believes prompt treatment might have staved off Ms. Derricotte's disability. "People who work as contractors often don't enjoy those benefits."
Federal contract employees, including cafeteria workers, security guards and cleaning crews, work on Capitol Hill and in federal agencies across the country. Under a 1965 law, called the McNamara-O'Hara Service Contract Act, most contractors with service contracts of more than $2,500 are required to pay locally prevailing wages, plus fringe benefits or the cash equivalent -- $3.16 an hour this year, under a government formula.
Yet some contract employees don't get either the health insurance or the extra cash. Under the law, employers in industries where health insurance typically isn't offered are exempt. Other employers don't comply with the law because they don't understand it or assume they won't get caught, say lawyers and consultants who work in the field. The law doesn't allow contract workers to sue employers over alleged violations, but they can file a complaint with the Labor Department, which may investigate the claim.
Some contract workers who get the $3.16 in extra cash use it for rent, food or other things rather than health insurance. The extra $3.16 an hour -- at $5,587 a year, based on a Department of Labor calculation, for a typical full-time worker with a 15% tax bracket -- is usually enough to buy individual insurance policies on the open market. But such policies almost always are more expensive than the taxpayer-subsidized insurance offered to regular government workers and often hard for workers who have pre-existing illnesses to obtain. Federal contract workers -- even if they wanted to pay for it -- aren't eligible for coverage offered to regular federal employees.
Cutting Costs
Outsourcing of federal-government jobs reflects the same cost-cutting imperatives that drive private businesses to outsource. The U.S. government keeps tabs on how much it pays contractors, but no government agency keeps a tally of the workers who are employed or how many have health insurance. Paul Light, a political scientist at New York University's Wagner School of Public Service and a specialist on government employees, estimates that in 2005, there were 5.4 million federal service-contract workers, double the number in 1990.
About 80% of those, he says, are lower-wage workers, the ones less likely to be offered or to obtain health insurance. "A substantial number of lower-level white-collar and blue-collar contract workers do not have health insurance," Mr. Light says. "Either they don't purchase it or aren't provided it through their employer," he says. Higher-paid contract professionals are more likely to get health insurance from their employers or to have higher salaries and thus the wherewithal to buy it independently.
Big government contractors are more likely to comply with the law. Lockheed Martin Corp. and Sodexo Inc. usually provide benefits, but sometimes the $3.16 an hour in cash instead. Sodexo, one of the biggest food-service contractors in the U.S., offers limited benefits to the 90 workers at fast-food outlets in government buildings. The law doesn't require contractors to go beyond their private-sector counterparts, and most fast-food companies don't provide benefits.
Some contractors complain that some federal procurement officers don't understand the service-contract law -- and award contracts to low-bid competitors that don't follow it. "We sit down with them [and say], 'Judge us fairly and make sure everybody uses the same methodology,'" says Joseph Morway, chief financial officer at MVM Inc., a Vienna, Va.-based contractor in security services, translation and intelligence. In the past five years, MVM has taken over four or five contracts from contractors that failed to comply with the 1965 law, he says.
"A lot of contractors are playing games," says Al Corvigno, a Smithfield, Va., consultant who trains contractors and Labor Department employees on the McNamara-O'Hara Act. He estimates that 40% of service contractors may not be providing the required benefits or cash, or paying the right amount.
"The fringe-benefit provisions [of the law] are essentially a black hole," says Daniel Abrahams, an attorney who specializes in government contracts at Brown Rudnick Berlack Israels LLP in Washington.
Alex Passantino, acting administrator at the Labor Department's Wage and Hour Division, says the department hasn't heard of growing concerns about violations of the service-contract law. "It's not a national-crisis issue by any stretch," he says. His division has 750 investigators, he says, down 22% from 10 years ago, yet has a bigger workload.
Punishing Violators
In fiscal-year 2007, the Labor Department initiated more than 650 investigations under the statute and found that in 80% of those cases, the employer failed to pay proper wages or benefits or both. Employers who violate the law may be required to make cash payments to employees and may be barred from government contracts for as many as three years.
Ms. Derricotte moved to Washington in 2003. Her sister, a manager for a food-service vendor, helped her get a cafeteria job at HHS's headquarters. In April 2003, Ms. Derricotte started working at the cafeteria salad bar, earning $7 an hour. She says she didn't get health insurance, benefits or extra cash payments.
Her former employer, Roy K. Patten Sr., who is blind, says he wanted to provide insurance but that such a decision had to be approved by all the vendors in the program, and they didn't want to do it.
Under the federal Randolph-Sheppard Act, blind vendors get priority in winning certain federal contracts. In an illustration of the thicket that contract workers face, there is disagreement over what benefits blind vendors who participate in a government program that gives them preferences, are required to offer employees. The Labor Department says blind vendors must comply with the Service Contract Act and provide benefits. But the Education Department, which administers the Randolph-Sheppard program in conjunction with states, says that is decided on a case-by-case basis. The District of Columbia administrator of the program says the blind vendors aren't required to provide benefits.
Seeing the 'Barriers'
Dr. Rogers, director of the physician-regulatory-issues team at HHS's Medicare and Medicaid agency, also practices emergency medicine and often treats uninsured patients. "I knew the barriers Fay was confronting before she ever told me," he says. As she got worse, "I was concerned that she wasn't getting good care," says Dr. Rogers. After she was laid off in 2005, Dr. Rogers made calls to find someone who would treat Ms. Derricotte. Eventually, Yash Mehndiratta, a neurologist at Howard University Hospital, agreed. He diagnosed her with multiple sclerosis and prescribed a drug for MS that can cost $19,000 a year or more. At Dr. Rogers's urging, Ms. Derricotte applied to the drug's maker for assistance and has since gotten the drug free.
Still, her condition worsened. Today, Ms. Derricotte can't write, suffers from memory loss and needs help taking care of herself. Dr. Rogers says Ms. Derricotte's lack of insurance led to a delay in treatment, which contributed to her disability. Dr. Mehndiratta says there is no way to know how the delay affected her, but if he had seen her earlier, he would have treated her with steroids and physical therapy, among others, to attempt to slow the progress of the disease.
In January, Ms. Derricotte qualified for Medicare, the federal health program for the elderly and disabled. People younger than 65 often have to wait for two years after being certified as disabled by the Social Security Administration before getting Medicare. "She'll have great coverage, just two years too late," Dr. Rogers says. "Once the damage was done, it's largely irreversible," he says.
Write to Jane Zhang at Jane.Zhang@wsj.com