Legislature(2005 - 2006)CAPITOL 17

03/06/2006 03:15 PM LABOR & COMMERCE


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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ HB 445 ALTERNATIVE ENERGY GRANT FUND TELECONFERENCED
Moved CSHB 445(L&C) Out of Committee
+ HB 392 SOLID WASTE MANAGEMENT AUTHORITIES TELECONFERENCED
Moved CSHB 392(L&C) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
+= HB 51 EMPLOYER ASSN FOR WORKERS' COMP INS TELECONFERENCED
Heard & Held
+= HB 424 MORTGAGE LENDING TELECONFERENCED
Moved CSHB 424(L&C) Out of Committee
HB  51-EMPLOYER ASSN FOR WORKERS' COMP INS                                                                                    
                                                                                                                                
ACTING  CHAIR  KOTT announced  that  the  next order  of  business                                                              
would  be  SPONSOR SUBSTITUTE  FOR  HOUSE  BILL  NO. 51,  "An  Act                                                              
relating  to modifying  the qualifications  required for  workers'                                                              
compensation self-insurance  and permitting employers  in the same                                                              
trade  or industry  to  form  an  employer association  for  self-                                                              
insured  workers'  compensation  coverage;  and providing  for  an                                                              
effective date."                                                                                                                
                                                                                                                                
ACTING  CHAIR KOTT  informed the  committee  that it  was not  his                                                              
intent to move the bill at this time.                                                                                           
                                                                                                                                
MICHAEL  PAWLOWSKI, Staff  to Representative  Kevin Meyer,  Alaska                                                              
State  Legislature,  informed  the  committee  that  the  proposed                                                              
committee  substitute  (CS)  addresses the  issues  of  regulatory                                                              
oversight  of self-insured  groups  and  whether  or not  workers'                                                              
claims would  be paid in  the event of  an insolvency.   In regard                                                              
to  the regulatory  oversight,  he  said that  the  CS shifts  the                                                              
oversight  of self-insured  groups  from the  Department of  Labor                                                              
and  Workforce  Development to  the  Division  of Insurance.    In                                                              
regard  to  the  payment  of claims,  he  explained  that  several                                                              
sections were  added which  deal with  the rules the  self-insured                                                              
groups would be required to follow to ensure payment.                                                                           
                                                                                                                                
MR.  PAWLOWSKI   explained  that  Section  21.77.200   of  the  CS                                                              
requires the association  adopt a plan for payment,  which must be                                                              
approved by the  director of the Division of Insurance.   The plan                                                              
would include  an advance payment  of at  least 15 percent  of the                                                              
total, with the  remainder to be paid quarterly or  monthly.  This                                                              
will ensure, based on actuarial accounting, that the self-                                                                      
insured  group  has  appropriate   reserves  to  cover  costs  and                                                              
liabilities.   He stated that  "appropriate reserves"  are defined                                                              
on  page  12, Section  21.77.210.    These  are:   actual  claims,                                                              
claims  incurred  but  not  reported,   reserves  for  uncollected                                                              
debts,  and are  based on  the experience  of other  associations.                                                              
He said that  at least 65 percent  of the money collected  must be                                                              
placed  in  an  account  to pay  claims,  with  the  remaining  35                                                              
percent put towards operating costs.                                                                                            
                                                                                                                                
MR.  PAWLOWSKI  explained  that workers'  compensation  rates  are                                                              
determined by the  standard workers' compensation  system, and the                                                              
CS does not  change this.  He  said that the CS creates  a benefit                                                              
for  the  self-insured  groups  by allowing  the  groups  to  plan                                                              
actuarially  what  the  costs  will  be.   He  said  that  Section                                                              
21.77.230 of  the CS  requires the  self-insured group  to collect                                                              
an additional assessment  to make up for any short-fall.   If this                                                              
is  not done,  he said,  the director  can  require an  additional                                                              
assessment.   He referred  to page  11 and  explained that  if too                                                              
much  money is  collected,  the  self-insured group  must  receive                                                              
approval from  the director  before the  money is returned,  which                                                              
ensures that  there is enough money  to pay claims.  He  said that                                                              
the CS  attempts to build  in as much  oversight as possible.   He                                                              
stated  that  the  director  would determine  the  amount  of  re-                                                              
insurance or excess  insurance the group is required  to purchase.                                                              
He said:                                                                                                                        
                                                                                                                                
     So,  ...  not  only  do  we   ensure  [that  the  group]                                                                   
     collects  enough money,  but they  buy re-insurance  and                                                                   
     excess insurance  to limit the liability of  loss on the                                                                   
     upside.   So,  you can't  have  a claim  that will  ever                                                                   
     cost  you more  than  this, or,  you  cannot ever  incur                                                                   
     costs  in this  aggregate.   That's  the insurance  plan                                                                   
     that  you  require  of  the  backup.    Further,  that's                                                                   
     determined by the director.                                                                                                
                                                                                                                                
MR.  PAWLOWSKI said  that page  9  of the  CS states  that in  the                                                              
event of  a bankruptcy, the claims  are still payable.   He stated                                                              
that the  joint and several  liability provisions mean  people are                                                              
pledging  their  companies  that the  claims  will  be paid.    He                                                              
explained  that this  places the  impetus on  the members  and the                                                              
director to ensure that there are enough reserve funds.                                                                         
                                                                                                                                
MR. PAWLOWSKI  stated that  the CS includes  the requirement  of a                                                              
surety bond  that will  go to the  state.  In  the event  that all                                                              
the  "checks and  balances"  fail,  there is  a  bond  to pay  the                                                              
claims.     In  conclusion,  he   said  that  the   aforementioned                                                              
additions  are to  ensure that  workers'  compensation claims  are                                                              
paid.                                                                                                                           
                                                                                                                                
MR. PAWLOWSKI,  in regard to reciprocal  groups, stated that  if a                                                              
reciprocal  fails,  the  [debts]  are referred  to  the  guarantee                                                              
fund.  He  noted an instance  when this occurred, and  stated that                                                              
all the  payees in the  system were required  to "pay in"  to make                                                              
up  the balance,  which,  in  turn, caused  workers'  compensation                                                              
rates to  increase.  He stated  that if a self-insured  group were                                                              
to  fail, the  joint and  several liability,  reserves, and  bonds                                                              
would all  be available to  pay the claims,  and the costs  do not                                                              
fall back to the state.  He said:                                                                                               
                                                                                                                                
     The  point of self-insurance  is that  these groups  are                                                                   
     asking  for  the  ability to  take  ownership  of  their                                                                   
     costs  and obligations.   To  see a  direct benefit  for                                                                   
     the  loss  and  safety  programs they  put  in,  and  to                                                                   
     really control  the cost and their destiny.   And that's                                                                   
     what a self-insured  group allows them to do.   It won't                                                                   
     put  the burden  on  the rest  of the  state.   ...  The                                                                   
     attempt of the  committee substitute is to  come back to                                                                   
     the committee's  questions  and see if  we can't  get as                                                                   
     far  toward  the  regulatory   oversight  and  financial                                                                   
     oversight as possible.                                                                                                     
                                                                                                                                
5:20:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  CRAWFORD asked  what happens  to the  self-insured                                                              
group  and  the  remaining  employees  if  a  "dominant  employer"                                                              
retires.                                                                                                                        
                                                                                                                                
MR.   PAWLOWSKI  replied   that  five   employers  are   required,                                                              
therefore removal  of one employer  would lead to  the dissolution                                                              
of  the self-insured  group.   However,  he  said,  the bonds  and                                                              
obligations  would still  exist  to pay  for  the claims  incurred                                                              
under  the previous  self-insured group.   He  noted that  this is                                                              
beyond bankruptcy, selling or [any other issue that may arise].                                                                 
                                                                                                                                
REPRESENTATIVE LEDOUX  made a motion  to adopt CSSSHB  51, Version                                                              
24-LS0233\S,  Bailey,  3/3/06, as  the  working document.    There                                                              
being no objection, Version S was before the committee.                                                                         
                                                                                                                                
REPRESENTATIVE  LEDOUX   asked  if  a  self-insured   group  would                                                              
receive a refund  if it did not receive any  workers' compensation                                                              
claims and dissolves.                                                                                                           
                                                                                                                                
MR. PAWLOWSKI  replied that  any refunded money  would need  to be                                                              
approved by  the director.   He surmised  that the money  would be                                                              
refunded in  this scenario.   He said that  the director  may hold                                                              
onto  a potion  of  the money  for  a time,  as  not all  workers'                                                              
compensation claims are immediately filed.                                                                                      
                                                                                                                                
5:23:42 PM                                                                                                                    
                                                                                                                                
ROBERT VOGEL, Pro  Group Management, stated that he  is in support                                                              
of HB 51,  which provides the state  and employers in  the state a                                                              
broader opportunity  to provide  workers' compensation  insurance.                                                              
He  stated that  this  would give  the  employers  the control  to                                                              
provide  a  safe working  environment  and  take care  of  injured                                                              
employees.    He  opined  that  this is  to  the  benefit  of  the                                                              
employers and employees  in the state, and added that  this is not                                                              
a mechanism  to save money, but  is intended to  provide long-term                                                              
stability and continuity.                                                                                                       
                                                                                                                                
REPRESENTATIVE  ROKEBERG  asked  if, in  Mr.  Vogel's  experience,                                                              
groups have voluntarily dissolved.                                                                                              
                                                                                                                                
MR. VOGEL  replied that  no groups  have dissolved voluntarily  or                                                              
involuntarily.                                                                                                                  
                                                                                                                                
REPRESENTATIVE   ROKEBERG  asked   if  any   groups  have   become                                                              
insolvent.                                                                                                                      
                                                                                                                                
MR.  VOGEL replied  that  no groups  have  become  insolvent.   He                                                              
stated  that the  "key" issue  is that  the actuarial  projections                                                              
are designed to  collect enough money, based on  payroll exposure.                                                              
He  explained  that  losses  are  projected  over  the  amount  of                                                              
exposure,  with  the  intent  of paying  all  losses,  claims  and                                                              
expenses  with this  amount.   He  said  that in  the  event of  a                                                              
bankruptcy or  dissolution, the  money has already  been collected                                                              
to cover  the losses and  expenses that  were created.   He stated                                                              
that the  actuarial projections  which are  required yearly  is to                                                              
collect enough  money based on experience.   He explained  that it                                                              
can take time for  all of the costs and expenses  to be known, and                                                              
added that  if the  projection is less  than was actually  needed,                                                              
small adjustments can be made to collect the money over time.                                                                   
                                                                                                                                
MR.  VOGEL, in  response to  an  earlier question,  said that  the                                                              
self-insured  group is  pooling  funds to  cover expenses,  rather                                                              
than  paying  on  an  individual   basis.    He  stated  that  the                                                              
actuarial analysis  considers all  losses for  all of  the members                                                              
during  the time  that they  were active  in the  group.  He  said                                                              
that  if, when  the  group dissolves,  the  director approves  the                                                              
return of funds,  the division will retain a pool  of money to pay                                                              
claims.    He   stated  that  the  joint  and   several  liability                                                              
agreement  obligates  each member  for  the liability  during  the                                                              
time they were  in the group.   If the amount retained  for claims                                                              
is not  enough, the division will  approach the member(s)  who are                                                              
no longer a part of the self-insured group to ensure payment.                                                                   
                                                                                                                                
5:30:41 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  what the  premiums are for  surety                                                              
bonds and "stop loss" insurance.                                                                                                
                                                                                                                                
MR.  VOGEL replied  that typically,  the  excess insurance  market                                                              
charges 12-15  percent for excess  and aggregate reinsurance.   He                                                              
noted that this  is dependent upon the deductible  layer the group                                                              
selects.    Generally,  he  said,   the  deductible  is  $500,000-                                                              
$750,000 with  an aggregate  of 100-110 percent  of premiums.   He                                                              
noted that this  is not charged to the members in  addition to the                                                              
premiums,  but is  what the  group  pays to  the excess  insurance                                                              
company.                                                                                                                        
                                                                                                                                
MR.  VOGEL,  in  response  to further  questions,  stated  that  a                                                              
surety  bond is  an amount  to cover  expected claims  and is  not                                                              
equal to the premiums.   He said that the director  would give the                                                              
amount  and  this  would  be  negotiated  based  on  the  members'                                                              
experience level.                                                                                                               
                                                                                                                                
REPRESENTATIVE  ROKEBERG asked  if surety  bonds are available  in                                                              
the market.                                                                                                                     
                                                                                                                                
MR. VOGEL  said yes, and added  that generally, these  are through                                                              
the excess carriers.                                                                                                            
                                                                                                                                
5:33:10 PM                                                                                                                    
                                                                                                                                
RAY  HICKEL,   President,  Anchorage  Home   Builders  Association                                                              
(AHBA),  stated that  the  AHBA, the  Alaska  State Home  Builders                                                              
Association  (ASHBA), and  the  Associated  General Contractors  -                                                              
Board  of Realtors  support the  legislation.   He  said that  the                                                              
AHBA  and  the  ASHBA  would like  to  have  "control  over  [its]                                                              
destiny."   He said  that this will  enable the  AHBA to  keep and                                                              
reward capable employees.                                                                                                       
                                                                                                                                
REPRESENTATIVE ROKEBERG  asked if the  $1 million net  worth would                                                              
be affordable.                                                                                                                  
                                                                                                                                
MR. HICKEL  replied that he does  not believe the $5  million will                                                              
be a problem.                                                                                                                   
                                                                                                                                
MR.  HICKEL,  in  response  to   questions,  said  that  the  AHBA                                                              
initiated  the bill  in an  effort to  keep the  ASHBA from  being                                                              
burdened by  the time  and cost of  working on it.   He  said that                                                              
the Fairbanks  Home Builders  Association is  welcome to  join the                                                              
[self-insured] group  at any time.  He stated that  while the AHBA                                                              
asked for support from the ASHBA, it did not ask for money.                                                                     
                                                                                                                                
5:35:36 PM                                                                                                                    
                                                                                                                                
LARRY PARTUSCH,  Anchorage Home Builders Association  (AHBA), said                                                              
that he is in  support of the legislation.  He  said that the AHBA                                                              
has been  working on the  bill for two  years and has  worked with                                                              
the [Division  of Insurance] to  address its concerns.   He stated                                                              
that being  industry specific  allows the  self-insured groups  to                                                              
police themselves better  than other groups would be  able to.  He                                                              
said that the intention  is to get injured employees  back to work                                                              
as soon as possible.                                                                                                            
                                                                                                                                
5:37:37 PM                                                                                                                    
                                                                                                                                
ACTING CHAIR KOTT,  referring to page 1, line 9,  of the CS, noted                                                              
that  it   reads  "the   director  may   issue  a   self-insurance                                                              
certificate;"  however,  on  page  5, lines  4-5,  it  reads  "the                                                              
director shall issue a certificate of self-insurance."                                                                          
                                                                                                                                
MR. PAWLOWSKI  surmised that this  is an incongruence  that should                                                              
be fixed  and added  that if this  is not the  case, he  will look                                                              
into the reasoning behind the difference.                                                                                       
                                                                                                                                
ACTING CHAIR KOTT  stated that any issues with the  bill should be                                                              
discussed before  the next  committee hearing.   Therefore,  HB 51                                                              
was held over.                                                                                                                  
                                                                                                                                
5:39:11 PM                                                                                                                    
                                                                                                                                

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