Legislature(2005 - 2006)BUTROVICH 205
04/06/2005 08:30 AM Senate JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| SB128 | |
| SB130 | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| + | SB 128 | TELECONFERENCED | |
| *+ | SB 135 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| = | SB 130 | ||
SB 130-WORKERS' COMPENSATION
9:38:38 AM
MS. LINDA HALL, director, Division of Insurance (DOI),
introduced herself and offered to answer questions.
SENATOR GRETCHEN GUESS asked whether there was any reason to
believe the changes in SB 130 would result in reduced rates.
MS. HALL answered she had asked for analysis from the National
Council on Compensation and there were indications of a 5 to 7
percent savings.
9:41:57 AM
MS. HALL commented she has taken many calls from employers in
panic over raised insurance premiums. It is disheartening to
listen to employers who are deciding whether they can afford to
stay in business.
9:43:09 AM
SENATOR GUESS asked Ms. Hall to review how workers compensation
insurance rates are determined.
MS. HALL answered the National Council on Compensation collects
data and is the preliminary filer of rates in 39 states. The
data is collected from all insurance companies and the aggregate
data is updated and put together along with Alaska experience by
itself. The loss cost is one component based on claims cost and
what the losses cost. The average overall rate is based on the
overall costs in Alaska. They also look at trending of
anticipated changes of the various things that go into medical
costs. Those become the filing the National Council on
Compensation makes with the Division of Insurance.
9:46:24 AM
MS. HALL continued the analysis is not a total science. The
second component of rate making is a loss cost multiplier. The
DOI approves that for each individual company. From 1999-2003,
workers compensation lines for all insurers averaged in Alaska
were unprofitable.
9:48:39 AM
MS. HALL hoped the 2004 rate changes would positively affect the
unprofitable market because that is a huge part of what is
driving insurance companies from Alaska.
SENATOR GENE THERRIAULT said he has often heard that insurance
companies are raising rates in order to compensate for September
th
11.
th
MS. HALL responded the losses suffered on September 11 sparked
a load called a "terrorism rate", which is done in all the
states.
9:50:40 AM
MS. HALL continued Alaska historically has more highly hazardous
occupations. Fishing vessel claims are typically filed under the
federal system under the Jones Act. In general the cost of
claims in Alaska are 50 percent higher than the national
average. When claims numbers go down it masks the fact that
insurance costs are going up. Medical costs in Alaska are
significantly higher than the norm. The National Council on
Compensation estimates the Alaska fee schedule can range from
250 percent of what many states have capped.
9:52:40 AM
Prescription drugs have become a major component of the cost of
claims. The work force is getting older and they take longer to
recuperate. Hospital stays are longer than they were ten years
ago.
SENATOR THERRIAULT asked Ms. Hall why she said medical claims
never close in Alaska.
MS. HALL confirmed that is not the norm around the country. The
medical benefits in Alaska are open always.
9:54:40 AM
MR. PAUL LISANKI, director, Division of Worker's Compensation,
Department of Labor and Workforce Development (DOLWD), explained
Alaska keeps the medical benefits open indefinitely following
the recommendation by the National Commission on State Worker's
Compensation Insurance. They recommended there be no limitations
on medical benefits tied to the passage of time.
9:56:32 AM
MR. LISANKI advised the United States Department of Labor took
the essential recommendations of the Commission and they track
year to year each state that follows the recommendations. There
is an annual publication, which he offered to submit to the
committee.
SENATOR GUESS asked Ms. Hall whether insurance company
investments impact the workers compensation.
MS. HALL said she did not know. She has noticed it is more
acceptable to an insurance company to have an underwriting loss
if they are making money in market.
9:59:01 AM
SENATOR GUESS asked whether the definition of "reasonable rate
of return" changes with a director change.
MS. HALL answered the DOI would not base rates on investment
income. They look at various components of individual
multiplier, which would include their level of profit.
SENATOR GUESS said listening to the business community it seems
as if there have been dramatic changes in rates due to loss
ratios.
MS. HALL said in actuality the rates were not only level but
also decreased in the mid 1990s. The rate decreases were
national and they reflected a variety of practices we don't see
today. One of those is called "schedule crediting" where
insurance companies competed for companies with good safety
records.
10:04:18 AM
SENATOR GUESS asked whether self-employed companies were
included in the data of the National Council on Compensation.
MS. HALL answered no.
SENATOR GUESS asked whether they were included in the rate
making.
MS. HALL answered no.
SENATOR HOLLIS FRENCH commented there is nothing in SB 130 that
says cost reductions to the insurance company must be passed on
to small businesses, yet the Division of Insurance seems to be
charged with making that happen. He asked Ms. Hall when she
could begin to see cost savings occur and then when would she be
able to issue a ruling to insurance companies regarding rates.
10:06:08 AM
MS. HALL replied the 2004 data will be filed end of July 2005
and will determine the 2006 rate. There will be a long wait
before an effect is seen.
SENATOR FRENCH asked whether SB 130 should contain an
accelerated rate-setting mechanism.
MS. HALL said she is not sure how that would be done. There is a
data collection process that requires time. There are timelines
in statute for both a beginning and an end so that the DOI is
allowed time to get the rates done. It is a fairly complex
process.
10:08:47 AM
SENATOR FRENCH expressed concern that a law passed in July 2005
takes until January 2007 for the small businesses to see relief.
MS. HALL replied that is a distinct possibility.
SENATOR GUESS asked whether the problem is due to the fact there
are only large companies and small companies in Alaska, and no
medium-sized companies. The large companies are mainly self-
insured.
MS. HALL deferred the question to Mr. Paul Lisanki.
MR. LISANKI said 22 percent of employees in Alaska are working
for an employer who is self-insured.
10:11:01 AM
SENATOR GUESS commented SB 130 proposes to phase out the second
injury fund. Future claims will be paid through workers
compensation. She asked whether that would result in an increase
in rates.
MS. HALL said the second injury fund assessment would continue
so long as there are claims to be reimbursed. That could put the
cost back into the system and could potentially provide for a
one percent increase.
10:14:29 AM
MR. LISANKI said the Division of Worker's Compensation
internally estimates the contribution to the second injury fund
will go down from 6 percent to 5 percent.
CHAIR SEEKINS asked Ms. Hall to comment on insurance reform.
MS. HALL said she has not heard talk of insurance reform. She
offered to provide statistics on loss data and loss ratios.
Alaska lost ratios was higher than the national average from
1998-2003. She doubts that insurance companies are making a
profit on workers compensation.
10:16:25 AM
CHAIR RALPH SEEKINS asked why Alaska is higher than the national
average.
10:18:56 AM
MS. HALL said she does not have the answer. Rates last year were
back to 1992.
10:20:24 AM
MS. HALL commented California has done major reforms that appear
to be effective but they don't have the rate regulatory to
control rates.
10:22:00 AM
SENATOR FRENCH said it is hard to believe medical costs were cut
by 30 percent between 1992 and 2000. There has to be some other
reason rates are back to 1992 in the face of increasing costs.
10:23:33 AM
MS. HALL offered to share a 15-page analysis from the rating
organization on various components that make up claim costs.
SENATOR THERRIAULT commented a combination of things like the
boom years in the stock market allowed insurance companies to
use that profit to cover losses and inadequate rates.
10:26:05 AM
CHAIR SEEKINS asked Ms. Hall whether there were structural cost
controlling changes in SB 130, which could have an effect on
premiums.
MS. HALL said the majority of SB 130 deals with the workers
compensation system, which is not her area of expertise.
10:28:30 AM
CHAIR SEEKINS asked if the costs associated with workers
compensation go down, whether that becomes a part of the DOI's
ratemaking process.
MS. HALL answered yes.
SENATOR GUESS asked the number of providers Alaska has for
workers compensation.
MS. HALL explained the DOI lists 96 licensed to write workers
compensation but only five are active. Three of them have 60
percent of the market.
10:30:44 AM
SENATOR CHARLIE HUGGINS asked Ms. Hall to comment on controlling
insurance costs.
MS. HALL said the environment was in a crisis, bordering on a
train wreck. Alaska has limited markets. Alaska is in a position
where the insurance companies support an assigned risk pool. If
there is a deficit in the assigned risk pool that burden goes
back to insurance companies. If the insurance companies decide
to pull out, the state would have to form a state fund or not
have mandatory workers compensation.
10:33:34 AM
MS. HALL referenced California where two years ago 25 percent of
the businesses were uninsured. As rates escalated businesses
opted out leaving injured workers at huge risks.
10:35:32 AM
MR. ROD BETIT, president, Alaska State Hospital Nursing Home
Association (ASHNHA), commented on SB 130. ASHNHA is concerned
that SB 130 would impose unacceptable medical practice
guidelines on physicians. ASHNHA requested to roll back to 2004
rates be replaced with a freeze at 2005 rates. ASHNHA requested
a hospital representative be included on the Review Committee.
ASHNHA requested an independent actuary do any financial
analysis provided to the Review Committee.
10:38:45 AM
CHAIR SEEKINS advised Mr. Betit the committee would consider the
advice offered by ASHNHA.
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