By Tony Capaccio and David Evans in Bloomberg
A half-dozen members of President Barack Obama’s Cabinet sit on an advisory council overseeing life insurance for U.S. military forces, a program facing investigations of whether insurers are unfairly profiting from policies of dead soldiers and veterans.
The last time the Advisory Council on Servicemembers’ Group Life Insurance met, in November 2009, none of the Cabinet members attended. Aides accustomed to handling the issue for their agencies went as representatives.
Now three of those Cabinet members, Defense Secretary Robert Gates, Commerce Secretary Gary Locke, and Health and Human Services Secretary Kathleen Sebelius, have joined members of Congress and Veterans Affairs Secretary Eric Shinseki in calling for an examination or overhaul of the way death benefits are paid to the families of fallen soldiers.
Bloomberg Markets magazine reported on July 28 that Prudential Financial Inc. offers to hold lump-sum payments for beneficiaries in the company’s coffers. The insurer pays interest on accounts currently held for about 10,000 beneficiaries, and makes money by investing the funds. The accounts provide limited, checkbook-like access and aren’t federally insured.
Since the report, members of Congress are filing legislation and demanding action.
“It’s disgraceful on the part of insurance companies,” Senate John McCain, an Arizona Republican and onetime prisoner- of-war in Vietnam, said in an interview on Bloomberg Television yesterday. “We’ll obviously have to be looking into it.”
[Editor’s Note: Sen. John McCain is a tough reelection fight and has received some $2.9 million dollars in his political career from the insurance industry, according the the Center for Responsive Politics.]
The VA says it is examining life insurance practices, with backing by Cabinet members charged with overseeing the program.
“The families of servicemembers who sacrificed their lives to defend our country deserve our swift attention to this matter,” Locke said in a statement. “I support the VA’s efforts to take a hard look at these practices.”
Prudential, the second-largest U.S. life insurer, is the sole provider of life insurance for 6 million U.S. military personnel and veterans. Prudential spokesman Bob DeFillippo said the Newark, New Jersey-based company is “working with the VA to address concerns.”
Locke and the secretaries of Defense, Treasury, Health and Human Services, and Homeland Security, along with the Cabinet- level director of the White House Office of Management and Budget, serve on the advisory council. Treasury Secretary Timothy Geithner, by law, is the panel’s chairman.
The council held its last meeting on Nov. 19, 2009, at an Embassy Suites hotel in Washington. None of the Cabinet-level members attended, the meeting’s minutes show.
‘News to Me’
After Gates voiced concern about the insurance program — saying the magazine’s report was “news to me” — Pentagon spokesman Geoff Morrell said Gates wasn’t aware he was a member of the advisory group.
“We are disappointed so many administration officials appear to have been asleep at the wheel while Prudential stole hundreds of millions of dollars in secret profits from grieving families,” Paul Sullivan, executive director of Veterans for Common Sense, said in an e-mail.
As is customary for the federal government’s many advisory councils, a Veterans Affairs official said, the department heads routinely send representatives — in some cases aides who have served in this role for years.
“You want the experts on the panel,” said John Gingrich, Shinseki’s chief of staff. “The council, VA — all of us — remain committed to having the most knowledgeable people serving on the panel and working in the best interest of our veterans and their families.”
The council meets “at least once a year” to “review the program and advise the secretary on matters of policy and operations,” Gingrich said. “The advisory council gets briefed on what’s going on, how much money is going out, how many death benefits.”
Still, having insurers profit by investing death benefits looks like “sweetheart deals, and the lack of interest of the Cabinet members is a shame,” Robert Hunter, insurance director for the Consumer Federation of America, said in an e-mail.
Prudential executives, Veterans Affairs officials and staff aides from the House and Senate Veterans Affairs committees attended the council’s last meeting, the minutes show.
The Pentagon sent two staff members, including a colonel, minutes show. Homeland Security sent a Coast Guard official.
A spokeswoman for Sebelius, Jessica Santillo, said that department “supports the VA’s review of these accounts to ensure that the families of servicemembers and veterans are fully protected and treated fairly.”
The OMB didn’t respond to requests for comment about its former director’s role on the council. Peter Orszag, who has left the office as director to serve as a distinguished visiting fellow at the Council for Foreign Relations, said through a spokesman, research assistant Peter Tillman, that he isn’t fielding media requests for interviews at this time.
A spokesman for Geithner said he would have no comment on the matter. A spokesman for Homeland Security Secretary Janet Napolitano declined to comment.
Representative Debbie Halvorson, an Illinois Democrat, has filed legislation to require life insurers to tell beneficiaries how their money will be invested and how much the insurer stands to make from holding the funds. Charles Schumer, a New York Democrat, is drafting Senate legislation on government life insurance programs.
Representative Walter Jones, a North Carolina Republican, is seeking House and Senate hearings on the issue.
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