How Government Adds To Ranks of Uninsured

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The Wall Street Journal

How Government Adds To Ranks of Uninsured
Many Outsourced Federal Jobs Don't Offer Health Insurance; Using Cash Allowance for Rent
By JANE ZHANG
March 25, 2008; Page D1

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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.

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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 , '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.

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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.

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