Legislature(1999 - 2000)
03/08/2000 02:20 PM House FIN
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE BILL NO. 378
"An Act eliminating certain taxes under AS 21.09 on
premiums from the sale of workers' compensation
insurance; relating to the establishment, assessment,
collection, and accounting for service fees for state
administration of workers' compensation and worker
safety programs; establishing civil penalties and
sanctions for late payment or nonpayment of the service
fee; and providing for an effective date."
PAUL GROSSI, DIRECTOR, DIVISION OF WORKERS' COMPENSATION,
DEPARTMENT OF LABOR testified in support of the legislation.
He explained that the legislation eliminates the premium tax
on workers' compensation insurance polices, enacts a user
fee and establishes a special account for funding workers'
compensation and safety programs. Currently, all employers
are required to cover their employees for workers'
compensation. Employers can use a workers' compensation
insurance policy, which requires a premium tax. Larger
employers could also self-insure. A self ensured employer
does not pay a fee or tax. Public entities can form a Joint
Insurance Arrangement to cover their liabilities. The
legislation eliminates the premium tax. The premium tax
collected $3.5 million dollars in 1998. The fee that the
legislation would enact is designed to collect approximately
$3.5 million dollars. This would be used to fund the
Division of Workers' Compensation and the Occupational
Safety and Health Division (OSH). The fee will start at 3.3
percent and graduate down to 2.6 percent. Self-insurers
would be phased in. Eventually everyone would pay at the
same rate, according to their use of the system. Employers
would pay according to their amount of injuries. He stressed
that the legislation would provide an incentive for a safer
work place and requires all employers to pay at the same
rate. He added that the legislation would reduce the
dependence on general funds.
Mr. Grossi pointed out that Alaska is one of only six states
that fund their programs through general funds. Thirty-four
states pay for their programs through special accounts. Ten
states use a combination. Sixteen states have a similar
mechanism to the legislation.
Mr. Grossi acknowledged that there is opposition to the
legislation. He pointed out that the opposition has come
from employers that have not had to pay under the current
system.
Vice Chair Bunde questioned if school districts oppose the
legislation. He noted that self-insurers pay for the
liability on claims. Mr. Grossi responded that self-insurers
don't pay for administration of the workers' compensation
system: hearings to resolve disputed cases and work place
safety programs.
In response to a question by Representative Phillips, Mr.
Grossi explained that employers pay based on their number of
claims times the multiplier.
Discussion ensued regarding support for the legislation. Mr.
Grossi acknowledged that the Alaska Municipal League and the
city of Anchorage have testified against the legislation.
Representative Austerman questioned what the affect would be
of exempting the public sector.
Mr. Grossi explained that the total liability for
municipalities is approximately $270 - $300 thousand dollars
or 10 percent of the total.
Co-Chair Therriault observed that the administrative cost
would be shared over a wider pool. He questioned the impact
on small business. Mr. Grossi stated that small business
should pay less because the pool is larger.
Vice Chair Bunde concluded that the cost of administration
would be spread but that the Division would not receive more
funding. He recounted testimony that the Division of
Workers' Compensation is not supportive of workers. He
questioned the net gain of the legislation. Mr. Grossi
responded that if workers' compensation remains a general
fund program it would be subject to reductions. The Division
has received $500 thousand dollars in cuts over recent
years. Combined with inflation this is approximately 40
percent less than what was available in 1998. He
acknowledged that service has been reduced but pointed to
budget reductions as the cause. The legislation was not
designed to increase revenue.
Representative Austerman questioned the cost to
municipalities. Mr. Grossi responded that municipalities
would pay 2.6 percent of claims. Single employers currently
pay their workers' compensation liabilities.
DWIGHT PERKINS, DEPUTY COMMISSIONER, DEPARTMENT OF LABOR AND
WORKFORCE DEVELOPMENT provided information on the
legislation. He noted that the city and borough of Juneau
had $716,490 dollars in workers' compensation claims in
1998. Based on a phased in approach the city and borough of
Juneau would pay $5,911 dollars the first year and $18,629
thousand dollars on the fourth year, if their safety record
did not change. He emphasized that the Division is having a
hard time keeping their doors open due to budget reductions.
He pointed out that the change would take $1.5 million
dollars off budget in FY01 and an additional $2 million
dollars the following year. Payment is only on services.
Most other states require users to pay.
Representative Phillips clarified that the state of Alaska
has never charged for processing workers' compensation
claims. Mr. Perkins suggested that businesses take advantage
of the consultation side of the OSH program.
Co-Chair Therriault referred to the fiscal notes. He
observed that there would be a decrease in revenues from the
deletion of the insurance tax. This would be offset from OSH
and workers' compensation funds. He questioned the cost for
an assessment fee under Risk Management.
REMOND HENDERSON, DIRECTOR, DIVISION OF ADMINISTRATIVE
SERVICES, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT
explained that the state of Alaska would also pay the fee.
Mr. Grossi explained that the cost would be spread across
agencies as interagency receipts. Mr. Perkins explained that
the estimated cost from state employee claims is $75.8
thousand dollars in FY01. After the phase in (forth year)
this would be $238.9 thousand dollars. He added that this
amount would be charged off proportionately to federal
receipts that the state receives.
Representative J. Davies questioned if interagency receipts
would be based on each department's claims.
Tape Change, HFC 00 - 68, Side 2
Representative Foster noted that municipalities and schools
pool together for self-insurance. He questioned if air taxis
are combined into self-insured pools. Mr. Grossi clarified
that there are no self-insurance pools of air taxis.
In response to a question by Representative Foster, Mr.
Grossi acknowledged that there would be an additional cost
to the state of Alaska, but emphasized that there would also
be a reduction of $1.5 million dollars in general fund
support.
LEANDRA ESTEP, MANAGER, JOINT INSURANCE ASSOCIATION (JIA),
ALASKA MUNICIPAL LEAGUE, ANHCHORAGE spoke in support of a
municipal exemption. She stressed that municipalities have
already take substantial cuts in state support. She
expressed concern that a user fee would be assessed on every
dollar paid on claims. This would include medical benefits,
attorney fees, defense costs, and contractual fees. Every
employer pays into the Second Injury Fund. The city and
borough of Anchorage paid between 5 and 6 percent into the
Second Injury Fund over the last several years. She proposed
that the user fee only be paid on indemnity claims. Medical-
only claims should be exempted, since they are not generally
denied or litigated.
In response to a question by Vice Chair Bunde, Ms. Estep
explained that the municipalities pay injured employees.
State support is given when cases are litigated and through
hearing officers. The state also receives notice of claims
and assigns a case number.
Vice Chair Bunde questioned why the claim would be filed
with the state. Ms. Estep explained that there is a
statutory requirement that the state be notified of all
injuries.
GLEN SMITH, RISK MANAGER, MUNCIPALITY OF ANCHORAGE provided
information regarding self-insurance. He pointed out that
the Alaska Municipal League was created in response to
increased insurance costs. He gave a brief history of self-
insurance legislation and activities. The 45 percent loss
ratio for the Alaska Municipal League is lower than any
other industry in Alaska. He discussed the loss ratio. The
premium an individual pays is based on the combined loss
ratio. Self-insured entities do not make a profit on their
programs. The municipality of Anchorage pays for third party
administration of claims. He maintained that it should not
cost as much to litigate a claim as to process a claim.
In response to a question by Representative J. Davies, Mr.
Smith noted that there are 3,900 municipal employees. There
were 453 workers' compensation claims and $1.9 million
dollars in claims payments in 1998. He estimated that $3.4
million dollars in claims would be paid for 1999.
In response to a question by Representative Foster, Mr. G.
Smith observed that the municipality of Anchorage would pay
$30 thousand dollars a year based on the legislation. He
estimated that there would be a proposal to cap property tax
on the November ballot.
KEVIN SMITH, RISK MANAGER, ALASKA MUNICIPAL LEAGUE stated
that the League opposes the bill and wishes to have the
public sector excluded. He noted that the JIA was created in
1986 to allow public entities to self-insure. There are a
number of cities and schools within the JIA program.
Mr. K. Smith pointed out that self-insurers buy insurance
with a large deductible. There is a premium payment on the
reinsurance. He explained that an additional amount is paid
to the Second Injury Fund.
Mr. K. Smith stated that the legislation represents a cost
shift from private insurance companies to the public sector.
The state represents the largest portion of the shift.
Mr. K. Smith disagreed that claims would be reduced by the
legislation. He emphasized that there is sufficient
incentive to reduce costs under the current program. He
maintained that the legislation would provide a
disincentive. He suggested that the Workers' Compensation
Board would have a conflict since it would be supported from
payments to claimants. He maintained that safety incentives
do not work.
Mr. K. Smith suggested the addition of language on page 3,
line 20: "except a municipality, a municipal school
district, or regional education attendance area". He added
that subsection 6(g) on page 4 should be deleted:
(g) Notwithstanding AS 21.76.020(a), a joint insurance
arrangement established under AS 21.76 is subject to
the provisions of this section and regulations adopted
under this section and, if self-insured, shall pay the
annual service fee on behalf of its members.
Vice Chair Bunde asked how many communities are uninsured.
Mr. K. Smith clarified that workers' compensation is
required by the state of Alaska. There are communities that
are having difficulty making payments. The number that is
not purchasing some protection is small at this time. He
estimated that the number would increase with reductions to
municipalities.
Representative Foster questioned who would be covered by the
legislation if public entities were exempted. Mr. K. Smith
explained that private entities would still pay. He
maintained that the public sector runs efficiently.
Representative Phillips noted that $17,000 - $56,000 dollars
a year would be assessed to the Alaska Municipal League. She
asked how the additional fee would be assessed to the
communities and school districts in the JIA. Mr. K. Smith
noted that there are 141 members, of which 20 are school
districts. He noted that rates for the coming year have been
established and did not know how the increase would be
addressed. He spoke in support of a delayed effective date.
Representative Phillips observed that the effective date is
January 1, 2001.
Co-Chair Therriault pointed out that the JIA has a
significant reserve and assets of $15 million dollars.
Since, JIA is never exposed to more than $250 thousand
dollars on any loss; it would take more large losses in a
single year than have been experienced in the past twelve
years to exhaust their resources.
Representative J. Davies questioned the number of employees
covered by JIA. Mr. K. Smith responded that there are
approximately 2,500 employees covered by the JIA.
DON SHANNON, ALASKA SAFETY ADVISORY COUNCIL, FAIRBANKS
testified in support of the legislation. He noted that
Alaska's on the job injury rate is 4 to 5 times higher than
other states. He stressed that the legislation would reduce
injury. He stated that he was not concern with the Workers'
Compensation Board's ability to settle claims fairly if the
legislation is in affect.
DON ETHERIDGE, LOBBYIST, AFL/CIO testified in support of the
legislation. He maintained that the legislation would
stabilize the Divisions of Workers' Compensation and OSH.
The only way public employees can be covered is through the
state Division of Occupational Safety and Health.
ANDREW (BEAR) PIEKARSKI, BUSINESS MANAGER, DISTRICT COUNCIL
OF LABORS, AND MEMBER, WORKERS' COMPENSATION BOARD,
ANCHORAGE spoke in support of the legislation. He observed
that funding is going down and there is a large turnover in
state hearing officers. He observed that many companies do
not have workers' compensation. He maintained that a lot of
out-of-state companies operating in Alaska do not have
workers' compensation programs.
Vice Chair Bunde questioned if the legislation would capture
entities that do not have workers' compensation. Mr.
Piekarski responded that a stable funding source would help.
Co-Chair Therriault noted that the Office of Management and
Budget provided members with a fiscal note (copy on file.)
Mr. Henderson explained that the fiscal note shows the cost
to each state agency by funding source.
Vice Chair Bunde questioned the cost per agency. Mr.
Henderson reiterated that the cost per agency is based on
injuries.
Mr. G. Smith stressed that each municipality would be
considered as several employers.
Representative Phillips MOVED to report CSHB 378 (L&C) out
of Committee with the accompanying fiscal note. Vice Chair
Bunde OBJECTED for purpose of discussion.
There being NO OBJECTION, it was so ordered.
CSHB 378 (FIN) was REPORTED out of Committee with "no
recommendation" and five fiscal impact notes: one by the
Office of the Governor; one by the University of Alaska; two
by the Department of Labor and Workforce Development, dated
2/16/00; and one by the Community and Economic Development,
dated 2/16/00.
| Document Name | Date/Time | Subjects |
|---|