Legislature(2003 - 2004)
2004-06-22 House Journal
Full Journal pdf2004-06-22 House Journal Page 4451 HB 1002 HOUSE BILL NO. 1002 by the House Rules Committee by request of the Governor, entitled: "An Act providing for a special deposit for workers' compensation insurers; relating to assigned risk pools and workers' compensation insurers; relating to the board of governors of the Alaska Insurance Guaranty Association; stating the intent of the legislature, and setting out limitations, concerning the interpretation, construction, and implementation of workers' compensation laws; relating to restructuring the Alaska workers' compensation system; eliminating the Alaska Workers' Compensation Board; establishing a division of workers' compensation within the Department of Labor and Workforce Development and assigning certain Alaska Workers' Compensation Board functions to the division and the Department of Labor and Workforce Development; establishing a Workers' Compensation Appeals Commission; assigning certain functions of the Alaska Workers' Compensation Board to the Workers' Compensation Appeals Commission and the office of administrative hearings; relating to agreements that discharge workers' compensation liability; providing for administrative law 2004-06-22 House Journal Page 4452 judges in workers' compensation proceedings; relating to workers' compensation awards; relating to an employer's failure to insure and keep insured or provide security; providing for appeals from compensation orders; relating to workers' compensation proceedings; providing for supreme court jurisdiction of appeals from the Workers' Compensation Appeals Commission; providing for a maximum amount for the cost-of-living adjustment for workers' compensation benefits; providing for administrative penalties for employers uninsured or without adequate security for workers' compensation; relating to fraudulent acts or false or misleading statements in worker's compensation; and providing for an effective date." was read the first time and referred to the Labor & Commerce Committee. The following fiscal note(s) apply: 1. Indeterminate, Dept. of Administration 2. Fiscal, Dept. of Administration 3. Fiscal, Alaska Court System 4. Fiscal, Dept. of Labor & Workforce Development The Governor's transmittal letter dated June 21, 2004, follows: "Dear Speaker Kott: Under the authority of article III, section 18, of the Alaska Constitution, I am transmitting a bill relating to the workers' compensation system. This bill is based on the many discussions and hearings conducted during the Second Session of the Twenty-Third Alaska State Legislature on Senate Bill 311. The bill preserves lay participation in the workers' compensation system, while increasing consistency in decision making and strengthening enforcement. It seeks to improve the market for existing workers' compensation insurers and attract new insurers, without immediate reductions in benefits to injured Alaskan workers. Despite the Legislature's best efforts over the years, our current workers' compensation system has not proven responsive to the 2004-06-22 House Journal Page 4453 pressures caused by a growing, changing workforce and increasing costs. In order to respond to complaints about the delay in hearings, the Legislature has steadily increased the number of members of the current Alaska Workers' Compensation Board (board) to make up more hearing panels, and removed the requirement that a fully balanced panel be available for hearings. What was originally a three- member board has grown to include 14 volunteer members residing around the state. The original three-member board heard all claims; now panels, whose composition can vary in as many as 300 combinations, hear claims. As a result, the consistency of a single three-member board has been lost. The increased size of the board makes it difficult to assemble as a body for holding meetings and adopting regulations. While I appreciate the dedication, public service, and hard work that the board members and division of workers' compensation (division) staff provide, many members of the board lack legal training or background, and division hearing officers are not required to be lawyers. The division is also hampered by the design of the "unified board" system. The division has no authority to respond aggressively and quickly to non-compliance and fraud -- and the board itself is now too unwieldy to take such action in any but singular cases. This bill would replace the current system with one more like the most common form of workers' compensation system in the rest of the United States. Three new components of the system will bring more consistency and predictability in decisions, and more agility and power of enforcement: (1) a Workers' Compensation Appeals Commission (commission); (2) qualified and experienced administrative law judges; and (3) an accountable division director with additional administrative authority and duties. The only change to benefits remains the cap on the cost-of-living adjustment paid to out-of-state claimants. While claimants who reside in areas with a lower cost of living than Alaska's would continue to receive an adjustment, those residing in a higher cost-of-living area would be capped at the amount paid to in-state claimants. Otherwise, the bill does not alter benefits available to injured workers or the method of delivering them. Under the bill, an administrative law judge in the office of administrative hearings in the Department of Administration would conduct initial hearings on disputes. Last session the Legislature 2004-06-22 House Journal Page 4454 overwhelmingly approved of the use of independent administrative law judges centrally located in an office of administrative hearings and supervised by a chief administrative law judge to hear and adjudicate administrative hearings. Among other qualifications, all administrative law judges must be admitted to practice law in Alaska, and have been admitted in Alaska for at least two years. They are subject to a code of hearing officer conduct. The bill requires that the administrative law judges who are appointed to conduct workers' compensation hearings have specific expertise in the area of workers' compensation. The commission would replace the Superior Court at the appeals level. The commission is composed of five members: one attorney experienced in the practice of workers' compensation law (who will be an employee of the Department of Labor and Workforce Development) and four lay, volunteer members. The lay, volunteer members would be appointed from both labor and industry and for any given matter, one from each side would sit on the appeal together with the attorney member of the commission. The commission's decisions would be binding legal precedent unless and until overturned on appeal to the Alaska Supreme Court. This bill also adds new duties and accountability to the administration of the system. Currently, the director has little authority to act because all power rests in the board. This bill would establish a division of workers' compensation in the department. The director, appointed by the commissioner, would be personally accountable for the performance of the division. The director would have expanded authority to administer the second injury fund (AS 23.30.040), obtain stop work orders, investigate uninsured employers, seek civil penalties for an employer's failure to insure workers, investigate complaints of fraud in workers' compensation, propose regulations to the commissioner, intervene in cases and file appeals, supervise rehabilitation of injured workers, and administer the Alaska Workers' Compensation Act. The director's formal decisions may be appealed to the commission. The bill also provides a powerful tool to further the department's current approach of "zero tolerance" for employers that fail to carry legally required workers' compensation liability insurance. Under this 2004-06-22 House Journal Page 4455 bill, the department gains authority to levy civil penalties against employers whose choice to operate without the required insurance coverage places their employee's financial and physical well being at risk. Such employers also gain an unfair competitive advantage over employers who act responsibly by complying with the law and purchasing insurance. The bill also authorizes, for the first time, the director to investigate fraud in workers' compensation. Until now, Alaska has relied on insurers to investigate fraud in workers' compensation claims, with the result that investigations are not necessarily consistent with the public's interest is preventing workers' compensation fraud, as opposed to an insurer's monetary interest in a particular case. The cost of fraud is borne by the public in the increased cost of the system--it has an interest in preventing a range of fraudulent acts, such as obtaining payments beyond the benefit amount allowed, kickbacks, and threatening witnesses, that is not limited to obtaining reimbursement of benefits from a single dishonest claimant. The bill would also revise AS 21, the insurance code, regarding how the state regulates the workers' compensation insurance industry. Under the bill, insurers that transact workers' compensation insurance would be required to maintain in this state special deposits of cash or securities for the protection of persons covered by workers' compensation insurance. In addition, insurers must provide collateral in this state for their assumed share of the assigned risk pool. This revision provides additional protection in the event of insurer insolvency. The Alaska Insurance Guaranty Association's Board of Governors would be modified to include representatives from employers, labor, and insurance licensees. This change will expand the expertise of the Board of Governors to better address workers' compensation market issues. Finally, the assigned risk pool is altered to ensure that it is self- funding, instead of relying on periodic assessments against insurers 2004-06-22 House Journal Page 4456 and consumers. The current pool is unable to generate sufficient premium to pay the claims made against it. The additional burden on insurance companies is a factor making the Alaska workers' compensation insurance market unattractive to insurers. Eliminating the cap on the assigned risk pool surcharge, and mandating a self- funding pool, should increase deposits available to protect insureds, improve the market for Alaska insurance companies, and ensure that employers have access to workers' compensation insurance. This bill represents a major step forward in modernization of the Alaska workers' compensation system and addressing the significant workers' compensation crisis in Alaska. This bill would professionalize the hearing process through the use of administrative law judges located in the office of administrative hearings. This will improve the process of making workers' compensation decisions, increase predictability in the hearings, and strengthen enforcement powers of the division. These features should make Alaska more attractive for businesses to remain here or to relocate their operations to this state. I urge your prompt and favorable action on this measure. Sincerely yours, /s/ Frank H. Murkowski Governor"