Legislature(2005 - 2006)HOUSE FINANCE 519

04/07/2006 09:00 AM FINANCE

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* first hearing in first committee of referral
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Heard & Held
<Bill Hearing Postponed to 1:30 PM Today>
+ Bills Previously Heard/Scheduled TELECONFERENCED
Heard & Held
<Bill Hearing Rescheduled from 04/05/06>
                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 7, 2006                                                                                            
                         9:15 a.m.                                                                                              
CALL TO ORDER                                                                                                                 
Co-Chair Meyer called the House  Finance Committee meeting to                                                                   
order at 9:15:19 AM.                                                                                                          
MEMBERS PRESENT                                                                                                               
Representative Mike Chenault, Co-Chair                                                                                          
Representative Kevin Meyer, Co-Chair                                                                                            
Representative Bill Stoltze, Vice-Chair                                                                                         
Representative Richard Foster                                                                                                   
Representative Mike Hawker                                                                                                      
Representative Reggie Joule                                                                                                     
Representative Mike Kelly                                                                                                       
Representative Beth Kerttula                                                                                                    
Representative Carl Moses                                                                                                       
Representative Bruce Weyhrauch                                                                                                  
MEMBERS ABSENT                                                                                                                
Representative Jim Holm                                                                                                         
ALSO PRESENT                                                                                                                  
Representative   Peggy   Wilson;   Mike   Pawlowski,   Staff,                                                                   
Representative   Kevin  Meyer;   Linda   Hall,  Division   of                                                                   
Insurance,  Department of  Commerce,  Community and  Economic                                                                   
Development;  Paul Lisankie, Director,  Division of  Workers'                                                                   
Compensation, Department of Labor  and Workforce Development;                                                                   
John  Grummet,  Alaska  Independent  Agents  and  Brokers  of                                                                   
Alaska;  Rod  Betit,  President, Alaska  State  Hospital  and                                                                   
Nursing Home Association (ASHNHA)                                                                                               
PRESENT VIA TELECONFERENCE                                                                                                    
Robert Vogel,  Pro Group  Management; Ray Hickel,  President,                                                                   
Anchorage   Homebuilders  Association;   Richard   Cattanach,                                                                   
Association  of General Contractors;  Kenton Brice,  Property                                                                   
Casualty  Insurance Association  of  America; Rebecca  Logan,                                                                   
Association of  Builders and Contractors of  Alaska; Kathleen                                                                   
Gettys, President, Resident Hospital  Nurses Bargaining Unit,                                                                   
Anchorage;   Mike   Alexander,   Nurse,   Anchorage;   Dianne                                                                   
O'Connell,  Alaska  Nurses  Association;   Ron  Attler,  API,                                                                   
HB 51     "An Act relating to permitting employers in the                                                                       
          same trade to form joint insurance arrangements                                                                       
          for self-insured workers' compensation coverage."                                                                     
          CS SSHB 51 (FIN) was heard and HELD in Committee                                                                      
          for further consideration.                                                                                            
HB 271    "An  Act relating  to limitations  on overtime  for                                                                   
          registered nurses in health care facilities; and                                                                      
          providing for an effective date."                                                                                     
          CSHB 271 (HES) was heard and HELD in Committee for                                                                    
          further consideration.                                                                                                
HB 362    "An  Act  increasing  the base  student  allocation                                                                   
          used in the formula for state financing of public                                                                     
          education; and providing for an effective date."                                                                      
          HB 362 was POSTPONED until 1:30 pm.                                                                                   
9:15:38 AM                                                                                                                    
HOUSE BILL NO. 51                                                                                                             
     "An Act relating to permitting employers in the same                                                                       
     trade to form joint insurance arrangements for self-                                                                       
     insured workers' compensation coverage."                                                                                   
Co-Chair Chenault  MOVED to  ADOPT the work  draft to  HB 51,                                                                   
labeled  24-LS0233\C,   Bailey,  4/4/06.    There   being  NO                                                                   
OBJECTION, it was so ordered.                                                                                                   
MIKE PAWLOWSKI,  STAFF, REPRESENTATIVE  KEVIN MEYER,  related                                                                   
that in  the state  of Alaska,  a single  employer can  self-                                                                   
insure their  workers, compensation obligations  if they have                                                                   
at  least  100 employees  and  a  net  worth of  $5  million.                                                                   
Twenty-six  percent   of  Alaska's  employees   work  for  an                                                                   
employer  that   self-insures  their  workers'   compensation                                                                   
obligations.   CSSSHB 51  will allow  a group of  businesses,                                                                   
that  bind  themselves  together through  joint  and  several                                                                   
liability  and  in  the aggregate  meet  the  requirements  a                                                                   
single   employer  must,   to   self-insure  their   workers'                                                                   
compensation obligations.                                                                                                       
Mr. Pawlowski reported  that 37 states allow  small groups to                                                                   
form  to  self-insure  and  each   state  takes  a  different                                                                   
Mr.  Pawlowski referred  to  a handout  (copy  on file)  that                                                                   
compares the  requirements of a single  self-insured employer                                                                   
to a  group self-insured.   In  Alaska a single  self-insured                                                                   
employer is regulated  by the Department of Labor.   Under HB
51, it  would be a blend  of regulations from  the Department                                                                   
of Labor and the  Division of Insurance.  Both  would have to                                                                   
meet the minimum of 100 employees  before they can be granted                                                                   
a  certificate.   The net-worth  requirements  are the  same,                                                                   
although there  is a pending  amendment that would  raise the                                                                   
limits for single  self-insured.  He noted the  intent of the                                                                   
sponsor for a level playing field.                                                                                              
Mr. Pawlowski  addressed requirements of  single self-insured                                                                   
employers and  group self-insured:  number of  employees, net                                                                   
worth, minimum assessment, liability,  excess or reinsurance,                                                                   
surety bond, guarantee fund, and premium taxes.                                                                                 
9:22:17 AM                                                                                                                    
Mr. Pawlowski noted that in members'  packets are more than a                                                                   
dozen  letters of  support from  small  businesses and  trade                                                                   
groups expressing  their support for  HB 51.   A self-insured                                                                   
group is  not an  answer for  everyone, but  it should  be an                                                                   
option.  Alaska has the second  highest workers' compensation                                                                   
rates in the country  and this body has done a  lot to try to                                                                   
address  the issue.   HB  51 does  nothing to  deal with  the                                                                   
system - what it  does is give businesses another  way to pay                                                                   
for the cost.                                                                                                                   
Co-Chair Meyer commented  that the bill was  initiated at the                                                                   
request  of a  number  of small  businesses.   Mr.  Pawlowski                                                                   
listed the  agencies in support  of the bill:  Anchorage Home                                                                   
Builders   Association,  the   Alaska  State  Home   Builders                                                                   
Association,  the Associated  Builders  and Contractors,  the                                                                   
Associated   General  Contractors   of  Alaska,  the   Alaska                                                                   
Trucking  Association, Remax  of Eagle  River, the  Anchorage                                                                   
Board of Realtors,  Northern Trust Real  Estate Incorporated,                                                                   
the National  Electrical  Contractors Association,  Anchorage                                                                   
Char, the  State Chamber of  Commerce, the Anchorage  Chamber                                                                   
of Commerce, and Spenali Homes.                                                                                                 
Co-Chair  Meyer  requested  that  Mr.  Pawlowski  relate  the                                                                   
evolution  of the  bill.   Mr. Pawlowski  explained that  the                                                                   
bill began  as a  vehicle for  self-insurance.  It  developed                                                                   
into a larger  bill because of financial oversights  of these                                                                   
9:25:35 AM                                                                                                                    
Mr.   Pawlowski   referred   to  a   chart,   "How   Workers'                                                                   
Compensation  Claims  Are Paid"  (copy  on  file).   He  went                                                                   
through the steps depicted in  the handout.   The CS provides                                                                   
financial oversight  structures to  give the director  of the                                                                   
Division  of Insurance  the ability  to  oversee these  small                                                                   
9:27:43 AM                                                                                                                    
Representative  Weyhrauch noted  that all  of the letters  of                                                                   
support say  the same  thing.  Mr.  Pawlowski thought  it was                                                                   
the Anchorage Home Builders that organized the letters.                                                                         
Representative  Weyhrauch  asked about  Section  1 where  the                                                                   
Director of Insurance can issue  a self-insurance certificate                                                                   
to  associations   only  if   they  file  applications   that                                                                   
demonstrate that  the employers have a tangible  net worth of                                                                   
at least $5 million in the aggregate.   He wondered about the                                                                   
definition  of net  worth.   Mr.  Pawlowski  deferred to  the                                                                   
Division of Insurance.                                                                                                          
Representative Kelly  noted the amendments and  asked if they                                                                   
are included  in the new  CS.  Co-Chair  Meyer said  they are                                                                   
not included.   Representative Kelly asked that  the sponsors                                                                   
state an opinion on the amendments.   Mr. Pawlowski responded                                                                   
that the  amendments were not put  into the CS in  order that                                                                   
they could be discussed.                                                                                                        
9:30:54 AM                                                                                                                    
LINDA HALL,  DIVISION OF INSURANCE,  DEPARTMENT  OF COMMERCE,                                                                   
COMMUNITY AND  ECONOMIC DEVELOPMENT,  commented that it  is a                                                                   
public policy decision.   She testified in opposition  to the                                                                   
bill.  She stated appreciation  of the work done on the bill.                                                                   
Ms. Hall spoke  to financial oversight.  The  basic principle                                                                   
of  insurance regulation  is  financial  oversight to  ensure                                                                   
that claims get paid.  The CS  does include far more detailed                                                                   
requirements  than prior  versions, but  she voiced  concerns                                                                   
about  the adequacy  of the requirements  in  the bill.   She                                                                   
addressed tangible  net worth,  which has no definition,  and                                                                   
does  not  require  any  liquidity.     Insurance  regulation                                                                   
requires certain types of assets.   The quality of the assets                                                                   
is the primary regulatory oversight.                                                                                            
Ms.  Hall maintained  that the  $5 million  aggregate is  too                                                                   
low.   She reported  that  standardized financial  statements                                                                   
need to be filed  and reviewed by the Division  of Insurance.                                                                   
Insurance   financial  oversight   is   based  on   Statutory                                                                   
Accounting  not GAAP.   Investments  are  highly regulated  -                                                                   
NAIC even has an entire office  dedicated to the valuation of                                                                   
9:34:22 AM                                                                                                                    
Ms. Hall spoke  of the section regarding  insufficient assets                                                                   
and the circumstances  in which an association  is considered                                                                   
insolvent.  She  said there is no follow up  and no provision                                                                   
for receivership or wrap-up of the affairs.                                                                                     
Ms. Hall referred to a section  that deals with the retention                                                                   
of  security  deposits in  the  event  of termination.    She                                                                   
maintained  that  36  months is  not  enough  time.  Workers'                                                                   
compensation claims can take 20  years or more to close.  She                                                                   
suggested  it  would  be more  appropriate  to  conditionally                                                                   
release  a   deposit  upon  termination  of   liabilities  as                                                                   
determined by actuarial analysis.                                                                                               
Ms. Hall noted that the regulatory  authority to penalize for                                                                   
violations  has been added  to the  bill.   It is limited  to                                                                   
$100,000.  She  gave an examples both nationally  and locally                                                                   
of  major settlements  to  resolve allegations  of  deceptive                                                                   
accounting  practices.     She  maintained  that   there  are                                                                   
substantial deficiencies and there  has to be an ability of a                                                                   
regulator to have penalties to  enforce statutory provisions.                                                                   
Ms.  Hall  addressed  another  area  of  concern  in  HB  51,                                                                   
regulatory  oversight.   Chapter  36 of  the Insurance  Title                                                                   
provides  the   statutes  controlling  trade   practices  and                                                                   
frauds.  It  includes such things as oversight  of marketing,                                                                   
misrepresentation     and    false    advertising,     unfair                                                                   
discrimination,  and  unfair   claims  settlement  practices.                                                                   
None of  these provisions would  be allowed in  the oversight                                                                   
of   the  self-insured   group   associations.     The   bill                                                                   
specifically provides that no  other insurance law can apply.                                                                   
9:37:24 AM                                                                                                                    
Ms. Hall  noted that the CS  also provides for  a third-party                                                                   
administrator to  administer claims.  Today,  the Division of                                                                   
Insurance    licenses   adjusters    who   handle    workers'                                                                   
compensation claims.   Title 23  provides that  an individual                                                                   
self-insured  employer  may  have   either  their  own  staff                                                                   
approved by the  Department of Labor or  independent licensed                                                                   
third parties  to adjust  claims.   She explained that  third                                                                   
party  administrators  are  not allowed  to  adjust  workers'                                                                   
compensation claims  or property  casualty claims.   The bill                                                                   
does not require licensing of  third-party administrators and                                                                   
therefore  would  not provide  any  oversight  of the  claims                                                                   
handling practices.                                                                                                             
Ms. Hall reported that today the  Division of Insurance (DOI)                                                                   
is performing a  market conduct review of a  claims adjusting                                                                   
company  after  receiving  complaints  from  injured  workers                                                                   
about  the handling  of their  claims.  This  bill would  not                                                                   
allow for that type of authority  if claims adjustors are not                                                                   
licensed.      There  is   no   complaint  process   and   no                                                                   
accountability for the handling of claims.                                                                                      
9:38:46 AM                                                                                                                    
Ms. Hall spoke to the issue of  fiscal impact.  She addressed                                                                   
fees for  those regulated.  The  DOI operates as  a receipts-                                                                   
based entity as fees are charged  to those regulated to cover                                                                   
the costs of that regulation.   In general, a fee is required                                                                   
upon application  for authority to operate,  and then renewal                                                                   
fees  are   collected.    These   are  in  addition   to  the                                                                   
examination costs.   There is  no provision for  renewal fees                                                                   
to provide revenue for oversight.                                                                                               
Ms. Hall explained  the premium tax issue.  Once  there is no                                                                   
longer premium  collected on  insurance policies,  there will                                                                   
be  a loss  of revenue  to the  general  fund.   In 2004  the                                                                   
premium tax was  the second largest source of  revenue to the                                                                   
general   fund.     The  2004   premium   tax  for   workers'                                                                   
compensation alone was approximately  $8.1 million.  If these                                                                   
groups  were to  expand, it  is not  unrealistic to  estimate                                                                   
that  25 percent  of  the  current  premium would  no  longer                                                                   
provide taxes to the general fund  for a revenue loss of over                                                                   
$2 million.  The bill does make  provision for payment to the                                                                   
Division  of  Workers'  Compensation  on the  same  basis  as                                                                   
individual  self-insureds,  but  represents  a  loss  to  the                                                                   
general fund.                                                                                                                   
Ms. Hall  related that there  are provisions in  other states                                                                   
that  allow  self-insured  associations.    Both  Nevada  and                                                                   
Oregon have significant  provisions that are  missing in this                                                                   
bill.   There  are provisions  to  access other  self-insured                                                                   
associations  in cases of  insolvency, provisions  for excess                                                                   
insurance,  for working capital  requirements, for  improving                                                                   
accident  prevention,   and  for  disclosure   for  employers                                                                   
joining self-insured groups.                                                                                                    
9:41:31 AM                                                                                                                    
Ms. Hall  addressed Alaska statute  AS 21.75,  which provides                                                                   
for  the formation  of reciprocal  insurers.   It allows  the                                                                   
formation of a  regulated entity to provide  various lines of                                                                   
insurance for  the members of  the reciprocals.   It requires                                                                   
$1.5 million in capital and surplus  for an entity to provide                                                                   
coverage for workers'  compensation claims.   She opined that                                                                   
that amount is not at all far-reaching.   Reciprocal insurers                                                                   
are regulated in much the same  way as a traditional insurer,                                                                   
which  is  intended  to  protect  the  public.    The  Timber                                                                   
Exchange  and  Alaska  Rural  Energy  Authority  (ARECA)  are                                                                   
examples  of trade  groups that  are operating  successfully.                                                                   
She  maintained  that  a  different  vehicle  is  not  needed                                                                   
because the reciprocal,  as provided in Alaska  statute, is a                                                                   
viable  entity  for  trade associations  to  form  their  own                                                                   
Ms. Hall concluded that she is  pleased to see the efforts to                                                                   
include  more accountability  in the  CS.   She continued  to                                                                   
have serious reservations about  the viability of these small                                                                   
plans  when  the  down  side potential  of  there  not  being                                                                   
sufficient  monies  to  pay the  claims  of  injured  workers                                                                   
exists.   She  expressed  sympathy about  the  high costs  of                                                                   
workers' compensation insurance  today.  Many are looking for                                                                   
less expensive  ways to provide  the mandatory coverage.   As                                                                   
long as  the benefit  system continues  to be expensive,  the                                                                   
cost of providing benefits will  not change regardless of the                                                                   
source  of payments.   She  referred to  a California  study,                                                                   
which  showed  reforms that  reduced  insurance  rates by  46                                                                   
percent  from July  1, 2003, to  January 2,  2006.   Alaska's                                                                   
system costs continue to escalate.   Just changing the entity                                                                   
paying for the system will not change the cost.                                                                                 
Ms. Hall  urged members  to carefully  consider the  possible                                                                   
effects of this legislation.   An Alaskan trade group crafted                                                                   
this bill  with great care, time,  and expense in  an attempt                                                                   
to find  a viable  alternative and  remain responsible.   The                                                                   
bill,  however, would  apply  to any  group  that decides  to                                                                   
participate  and  might  not  have  the  same  principals  of                                                                   
accountability,  but would  merely be  looking for  a way  to                                                                   
skimp on workers'  compensation costs.  As we  research self-                                                                   
insured groups  in other states,  it appears that  what began                                                                   
as  trade  association  groups  with  common  interests  have                                                                   
morphed  into  some very  broad  groupings  of  substantially                                                                   
unrelated  types  of  risks. In  New  York,  while  certainly                                                                   
having  a far  greater  population base,  there  are 63  such                                                                   
self-insured  trusts.   There  is  a  potential for  a  large                                                                   
number of  groups in Alaska  so adequate protections  need to                                                                   
be  in place  from  possible impacts  down  the  road on  the                                                                   
overall  insurance market  place.   Spreading the  risk to  a                                                                   
smaller group would impact groups  that are left.  She voiced                                                                   
concern that  the bill does  not contain protections  for the                                                                   
work force.                                                                                                                     
9:46:41 AM                                                                                                                    
Co-Chair Meyer  noted that  the bottom line  is that  DOC has                                                                   
the final say  in self-insurance certificates.   He mentioned                                                                   
that there is no  fiscal note.  Ms. Hall stated  that she has                                                                   
submitted an indeterminate fiscal note.                                                                                         
Representative  Weyhrauch asked  if  the required  "reserves"                                                                   
could be cash.   Ms. Hall replied that the  insurance company                                                                   
would  be  required  to have  cash  and  approved  investment                                                                   
vehicles for reserves.  Representative  Weyhrauch asked about                                                                   
the reference  on page 4 to  "tangible net worth of  at least                                                                   
$5 million".   He asked if Ms.  Hall said that $5  million is                                                                   
not  adequate.   Ms. Hall  replied  that it  is not  adequate                                                                   
because there  is no liquidity  requirement.   Representative                                                                   
Weyhrauch asked  if any  entity has a  bond greater  than, or                                                                   
equal  to, $5  million on  deposit.   Ms.  Hall replied  that                                                                   
there are  no bonds at  all today.   There are deposits,  but                                                                   
they  are   not  in  that   amount.    Individual   financial                                                                   
statements are analyzed for adequacy;  there is no deposit of                                                                   
that  amount.     She  addressed  solvency  bonds   and  bond                                                                   
underwriters.  She  did not know if the bond  requirement was                                                                   
9:51:23 AM                                                                                                                    
PAUL LISANKIE,  DIRECTOR, DIVISION OF WORKERS'  COMPENSATION,                                                                   
DEPARTMENT OF  LABOR AND WORKFORCE DEVELOPMENT,  spoke of the                                                                   
regulation requirement, not statute,  regarding self-insurers                                                                   
and  security  bonds.   Recently,  the Division  required  an                                                                   
entity to post  security because, in the  single self-insurer                                                                   
program, the  financial ability  to pay  is scrutinized.   He                                                                   
spoke to  net worth  provisions in  the current  self-insurer                                                                   
program.   He discovered that  the regulations were  23 years                                                                   
old.   If $5  million applied  in 1984, it  would need  to be                                                                   
inflated today.   He  suggested a $10  million minimum.   The                                                                   
statute  does  not  require  a bond  for  security,  but  the                                                                   
regulations  do  address that  issue.    When a  securing  is                                                                   
required  of a  single entity  self-insurer,  the minimum  in                                                                   
regulations is $300,000  and it should be raised  to $600,000                                                                   
in the near future.                                                                                                             
9:55:32 AM                                                                                                                    
Mr. Lisankie  addressed excess insurance  requirements, which                                                                   
regulations mandate.   He said  there are 31 single  entities                                                                   
that are currently  authorized to self-insure  their workers'                                                                   
compensation liability.  Their  average net worth in 2006 was                                                                   
$4.9 billion.   The seven smallest have an  average net worth                                                                   
of  $55.6  million.    Net  value  is  not  an  indicator  of                                                                   
financial  responsibility.     The   smallest  entity   is  a                                                                   
regulated  public utility,  which  is publicly  traded,  with                                                                   
transparency  requirements, and  with capitalization  of $250                                                                   
million.   Although  it is  true  that self-insurers  operate                                                                   
under a statute that mentions  $5 million as net worth, there                                                                   
are not many in Alaska.                                                                                                         
9:58:00 AM                                                                                                                    
Representative  Weyhrauch  inquired  if excess  insurance  is                                                                   
required by regulation and not  by statute.  Mr. Lisanke said                                                                   
that  is correct.    Representative  Weyhrauch  asked if  the                                                                   
regulations  are authorized  by  the legislature  to  require                                                                   
excess insurance.  Mr. Lisanke  responded that the touchstone                                                                   
is that the statutory mandate  is to ensure financial ability                                                                   
to pay, which is broad enough.                                                                                                  
9:58:36 AM                                                                                                                    
Representative  Weyhrauch  asked about  limits  on cease  and                                                                   
desist fines and whether they  are imposed on other entities.                                                                   
Mr. Lisankie  asked if Representative Weyhrauch  is referring                                                                   
to Title 21.  Representative Weyhrauch  clarified it is under                                                                   
the compensation provision on page 13.                                                                                          
Ms. Hall responded  that there are different  levels of fines                                                                   
under  Title  21 for  different  entities.   There  are  "per                                                                   
instance and  aggregates".   The example previously  referred                                                                   
to was the  first time a fine  of that size was imposed.   It                                                                   
does  not  happen   on  a  regular  basis.     Representative                                                                   
Weyhrauch summarized  that the concern  is that there  is not                                                                   
enough  transparency  to  ensure   that  claims  on  workers'                                                                   
compensation  can be  paid because  of undefined  parameters.                                                                   
He  asked  Ms.  Hall  if she  would  be  comfortable  if  the                                                                   
entities would  allow transparency  of financial  statements.                                                                   
Ms.  Hall  responded  that  the bill  does  provide  for  the                                                                   
Division  to  receive financial  statements  from  individual                                                                   
members.    There  is  a  provision  for  those  to  be  kept                                                                   
confidential.    The concern  is  not transparency,  but  the                                                                   
ability to require liquidity.   The Division has no authority                                                                   
to  require liquidity  to ensure  adequate money  to pay  the                                                                   
10:01:46 AM                                                                                                                   
Representative  Kelly  asked  about  protection  in  the  re-                                                                   
insurance area.   Ms. Hall  said the requirements  for excess                                                                   
layers are  adequate.   The concern  is what underlies  that.                                                                   
There are some very large retentions  in those excess layers.                                                                   
A multitude  of claims would  stress the financial  resources                                                                   
for those  underlying  pieces that the  group is  responsible                                                                   
10:03:36 AM                                                                                                                   
JOHN  GRUMMET,  ALASKA  INDEPENDENT  AGENTS  AND  BROKERS  OF                                                                   
ALASKA, testified  against HB 51.   He maintained  that there                                                                   
are no  safe harbors  for the  employees.   He referred  to a                                                                   
position  paper,  "Alaska Independent  Insurance  Agents  and                                                                   
Brokers"  (copy   on  file.)  He  voiced  concern   about  no                                                                   
guarantee fund and an unfair claims  settlement practice.  He                                                                   
spoke  highly of  the  current director  of  the Division  of                                                                   
Insurance.    He  agreed  with  Ms.  Hall's  testimony.    He                                                                   
concluded  that  previous  bills  have  not  been  successful                                                                   
because the  homebuilders did not  have the liquidity  or did                                                                   
not want to secure the liquidity.                                                                                               
10:06:50 AM                                                                                                                   
Representative Weyhrauch  asked for a definition  of personal                                                                   
indemnity.  Mr.  Grummet said the association  is supposed to                                                                   
provide for  the liquidity  to its membership.   There  is no                                                                   
evidence that the members are tied into that.                                                                                   
Representative  Kelly  spoke  to the  liquidity  problem  and                                                                   
higher workers'  compensation rates.  Mr.  Grummet maintained                                                                   
that by  going this  route, it  would cost  them more  in the                                                                   
Representative  Kelly  asked how  "Ms.  Hall  does with  cost                                                                   
control and looking out for the  employer".  Mr. Grummet said                                                                   
that she does a good job.                                                                                                       
10:09:05 AM                                                                                                                   
RAY HICKEL,  PRESIDENT,  ANCHORAGE HOMEBUILDERS  ASSOCIATION,                                                                   
related that his  organization took the lead  role to support                                                                   
HB  51.   The bill  is modeled  after  30 other  states.   He                                                                   
maintained that the current system  is in trouble.  He stated                                                                   
a need  to change  the way  insurance does  business, and  he                                                                   
suggested that the committee give the bill a fair hearing.                                                                      
Mr. Hickel added that self-insurance  is a good model to use.                                                                   
10:11:46 AM                                                                                                                   
ROBERT  VOGEL, PRO  GROUP  MANAGEMENT,  CARSON CITY,  NEVADA,                                                                   
said his  company is  a plan  administrator for  self-insured                                                                   
groups.   He related  that self-insured  groups are  not new.                                                                   
He  cautioned not  to confuse  trade  association with  self-                                                                   
insured entities.   Trade associations  can be  sponsors, but                                                                   
are   not   responsible   for   payments.     There   is   no                                                                   
distinguishing feature  between members and  the association.                                                                   
The goal is to grow the liquidity requirements.                                                                                 
Mr. Vogel addressed the solvency  bond issue.  Other forms of                                                                   
securing  net liquidity  are allowed  to be  posted, such  as                                                                   
certificates for deposit, cash, or letter of credit.                                                                            
Mr. Vogel  clarified the  issue of tangible  net worth.   The                                                                   
new entity is  required to have audited  financial statements                                                                   
under  generally   accepted  accounting   principals.     The                                                                   
underlying companies  that join these  groups may or  may not                                                                   
have  audited financials.   Trade  receivables are  generally                                                                   
included  in tangible  net worth  calculations and  unsecured                                                                   
receivables are generally excluded.   He defined tangible net                                                                   
10:16:48 AM                                                                                                                   
Mr. Vogel  said the entities  are putting their  companies on                                                                   
the line  to make  sure their  claims are paid.   If  a group                                                                   
were to have problems, the bill  provides ways to solve them.                                                                   
Section  21.77.230,  on  page  12,  allows  for  transfer  of                                                                   
surplus funds  from previous years  to the current year.   It                                                                   
provides  for setting  aside 65  percent to  pay for  claims.                                                                   
The  bill  provides  for  the   claims  administrator  to  be                                                                   
licensed and accountable.   Mr. Vogel concluded  that this is                                                                   
about businesses  taking responsibility  and it is  different                                                                   
than insurance.   It is about a long-term change.   Financing                                                                   
losses over time will see a savings.                                                                                            
10:21:45 AM                                                                                                                   
RICHARD CATTANACH, ASSOCIATION  OF GENERAL CONTRACTORS (AGC),                                                                   
spoke  to the  bill from  his  organization's perspective  of                                                                   
safety and  controlling claims  costs.   He urged passage  of                                                                   
the bill.                                                                                                                       
10:23:49 AM                                                                                                                   
Representative   Kelly  thought   that  employers   would  be                                                                   
interested in getting  involved with the safety  aspect.  Mr.                                                                   
Cattanach  addressed  problems  involving  lack of  a  safety                                                                   
program.     He  pointed  out   a  concern  about   financial                                                                   
liability.   He opined that if  AGC is a self-insured  group,                                                                   
if one member fails, the others can rely on the rest.                                                                           
KENTON  BRICE,  PROPERTY CASUALTY  INSURANCE  ASSOCIATION  OF                                                                   
AMERICA,  spoke  to  Ms.  Hall's   comments  and  echoed  her                                                                   
concerns.   He suggested  taking a  closer look at  oversight                                                                   
requirements in other states.   He said an amendment would be                                                                   
forthcoming from PCIA.  He gave  an example of the amount set                                                                   
aside  for claims  and said  $5  million is  inadequate.   He                                                                   
maintained  that $10 million  would also  be inadequate.   He                                                                   
voiced  concern that entities  that form  would be  operating                                                                   
under similar rules and regulations  that insurance companies                                                                   
must   operate  under,   in  terms   of   fees,  taxes,   and                                                                   
regulations.     He  agreed   with  Ms.   Hall's  idea   that                                                                   
legislation must be drafted toward  the lowest standard, both                                                                   
for solvency and for claims payment.                                                                                            
Mr.  Brice  expressed  concern  that  there  is  a  difficult                                                                   
insurance  market in  Alaska.   He observed  that an  outside                                                                   
company  had come  to  the state,  as  a result  of  recently                                                                   
passed legislation  and the hope  that the market  place will                                                                   
improve.  He concluded that competition  improves the market.                                                                   
System costs  cannot be ignored.   He expressed  concern that                                                                   
if individuals are  drawn out of the pool  into self-insured,                                                                   
then the market will not be improved.                                                                                           
10:33:23 AM                                                                                                                   
REBECCA  LOGAN, ASSOCIATION  OF BUILDERS  AND CONTRACTORS  OF                                                                   
ALASKA, testified  in support of HB 51.  She  maintained that                                                                   
similar programs  have done  well.  They  see it as  a viable                                                                   
option    for   trade    associations   regarding    workers'                                                                   
compensation.   She  clarified that  accounts receivable  are                                                                   
not included in  tangible net worth.  It is common  to have a                                                                   
72-month retention rate.                                                                                                        
HB  51   was  heard  and   HELD  in  Committee   for  further                                                                   
10:36:47 AM                                                                                                                   
HOUSE BILL NO. 271                                                                                                            
     "An Act relating to limitations on overtime for                                                                            
     registered nurses in health care facilities; and                                                                           
     providing for an effective date."                                                                                          
REPRESENTATIVE  PEGGY  WILSON,  sponsor, introduced  HB  271.                                                                   
She  reported that  this is  not  an overtime  issue. It's  a                                                                   
safety issue  for both  patients and  nurses.  Truck  drivers                                                                   
have  a  limit   to  the  number  of  hours   they  can  work                                                                   
consecutively  for safety  reasons.   Pilots can  only fly  8                                                                   
hours within a 24-hour period.   Air traffic controllers work                                                                   
a limited number of hours per  shift.  Railroad engineers are                                                                   
also  limited in  the number  of hours  they can  work.   The                                                                   
common denominator  is that lives  are at stake if  a mistake                                                                   
is made.   Nurses  who monitor  our health  should be  in the                                                                   
same category.                                                                                                                  
Representative Wilson related  that mandatory overtime causes                                                                   
significant  problems   for  both  patients   and  healthcare                                                                   
workers.   Forcing  nurses  to  work beyond  their  regularly                                                                   
scheduled shift has  been linked to increased  error rates in                                                                   
providing patient  care, and increased injury  rates for both                                                                   
patients and health  care workers.  For nurses,  these errors                                                                   
or mistakes  may cause  life-threatening situations  for both                                                                   
the patient and  the nurse, from back injuries  to medication                                                                   
errors to  client deaths.   With  these mistakes and  errors,                                                                   
there is  also the chance of  lawsuits with loss  of licenses                                                                   
and increases in malpractice insurance rates.                                                                                   
Representative Wilson  reported that surveys have  shown that                                                                   
the exodus  of registered nurses, therapists,  technologists,                                                                   
technicians and  service and maintenance workers  is directly                                                                   
attributable  to  difficult  working   conditions,  including                                                                   
inadequate  staffing,  mandatory  overtime  and  insufficient                                                                   
compensation.  Mandatory overtime  is one of the main reasons                                                                   
nurses leave  nursing.  Recent  studies indicate that  one in                                                                   
five nurses are considering leaving  nursing.  When polled on                                                                   
their  reasons  for leaving,  mandatory  overtime  is  always                                                                   
listed  in the  top ten reasons.   In  the face  of a  severe                                                                   
nursing shortage, nurses need to be kept at the bedside.                                                                        
Representative Wilson  observed that as baby  boomers retire,                                                                   
more nurses  will retire, which  will cause further  problems                                                                   
with shortages.   She stated that eleven states  have enacted                                                                   
legislation   to   prohibit   mandatory   overtime.   Similar                                                                   
legislation has been proposed in 19 other states.                                                                               
Representative  Wilson  related that  HB  271  has two  major                                                                   
components.    The first  is  that  the growing  shortage  of                                                                   
nurses in the workforce is escalating,  which empowers nurses                                                                   
to evaluate  their own  limitations.   She cited two  studies                                                                   
that show  that mandatory overtime  is detrimental  to worker                                                                   
performance  and  contributes  to  medical errors.    HB  271                                                                   
requires a semi-annual report  that will provide insight into                                                                   
how both  private and public  institutions are  responding to                                                                   
the shortages.   This report  will document the  total number                                                                   
of  overtime  hours  worked  broken  down  by  voluntary  and                                                                   
mandatory, the number of on-call  hours worked broken down by                                                                   
voluntary and  mandatory, and also  the number of  hours used                                                                   
by contract nurses.                                                                                                             
10:41:22 AM                                                                                                                   
Representative  Wilson   informed  the  committee   that  the                                                                   
evidence  is  very  strong  that  prolonged  work  hours  and                                                                   
fatigue affect worker performance.   A study by the Institute                                                                   
of Medicine provides compelling  evidence that nurses working                                                                   
long hours  has an  adverse effect  on patient's safety.  The                                                                   
Institute  of Medicine  estimates between  44,000 and  98,000                                                                   
hospital  deaths can  be attributed  to  medical errors  each                                                                   
year.   Mandatory overtime is  a serious contributing  factor                                                                   
to  medical  errors.     The  final  recommendation   of  the                                                                   
Institute Of  Medicine is that  all overtime -  voluntary and                                                                   
mandatory - should be curtailed.                                                                                                
Another  study titled  "The Working Hours  of Hospital  Staff                                                                   
Nurses  and  Patient  Safety" published  in  the  July/August                                                                   
issue  of Health Affairs  found  that the risk  of making  an                                                                 
error was three  times higher when nurses had  to work shifts                                                                   
that were longer than 12 hours,  when they worked significant                                                                   
overtime, or when they worked more than 40 hours in a week.                                                                     
10:44:33 AM                                                                                                                   
Representative  Stoltze  expressed support  for  nurses.   He                                                                   
questioned   the   affects   of    employment   displacement.                                                                   
Representative  Wilson observed  that some institutions  that                                                                   
are  having trouble  attracting  nurses,  have forced  nurses                                                                   
into overtime.                                                                                                                  
Representative  Stoltze  suggested that  displacements  would                                                                   
put  pressure   on  overtime   requirements  for   nurses  in                                                                   
Anchorage.   Representative  Wilson  responded  that she  was                                                                   
assured that would not happen.                                                                                                  
Representative  Weyhrauch  questioned   if  suggestion  boxes                                                                   
would be  mandated so that  patients could voice  complaints.                                                                   
Representative Wilson was unsure.                                                                                               
10:48:15 AM                                                                                                                   
Representative Weyhrauch  questioned if lunchtime  is counted                                                                   
in the 12 hours.  Representative  Wilson noted that the clock                                                                   
stops when a nurse leaves the  floor and it begins again when                                                                   
they return.                                                                                                                    
Representative  Weyhrauch questioned if  coercion is  a state                                                                   
of  mind and  how  it could  be quantified.    Representative                                                                   
Wilson responded  that it  would be  coercion if they  feared                                                                   
job loss and added that they should be able to say no.                                                                          
10:49:51 AM                                                                                                                   
Representative  Weyhrauch  questioned  how a  facility  could                                                                   
respond to  allegations of  coercion.  Representative  Wilson                                                                   
responded that  the intent is  to allow the nurse  to decline                                                                   
extra hours.   In response to  a question by  Co-Chair Meyer,                                                                   
she  observed that  hours vary.   Some  have 12-hour  shifts,                                                                   
with rotating schedules.                                                                                                        
10:52:17 AM                                                                                                                   
Representative  Kerttula noted  that  problems with  overtime                                                                   
are at state facilities, not at private hospitals.                                                                              
10:52:54 AM                                                                                                                   
ROD BETIT, PRESIDENT, ALASKA STATE  HOSPITAL AND NURSING HOME                                                                   
ASSOCIATION   (ASHNHA),  testified   in  opposition   to  the                                                                   
legislation.   He maintained that  the need for the  bill has                                                                   
not been documented and that mandatory  overtime reporting is                                                                   
not required.   He  provided members  with a chart  detailing                                                                   
the results  of a  survey by  ASHNHA.   The survey  looked at                                                                   
critical  access, nurses  union, shortage,  length of  shift,                                                                   
nurse vacancy,  mandatory overtime,  on-call policy,  the use                                                                   
of temporary nursing services  used to fill the gaps, and the                                                                   
number of grievances filed by  nurses.  ASHNHA also looked at                                                                   
the  starting  nursing  salary.   He  concluded  that  higher                                                                   
salaries  at  private  intuitions  were  a  factor  in  API's                                                                   
inability  to hire  staff.  He  added that  API receives  the                                                                   
hardest cases and that they have  no choice in the cases they                                                                   
take.  He did  not think that overtime is being  used to fill                                                                   
the nursing  gap.  Their members  want to be able to  come up                                                                   
with local solutions to their problems.                                                                                         
11:02:03 AM                                                                                                                   
KATHLEEN   GETTYS,   PRESIDENT,  RESIDENT   HOSPITAL   NURSES                                                                   
BARGAINING  UNIT,  ANCHORAGE,  testified  in support  of  the                                                                   
legislation.   She provided  members with written  testimony.                                                                   
She  observed   that  healthcare  is  exempt   from  overtime                                                                   
limitation.   She questioned  why you would  want a  nurse to                                                                   
work  for you  when  it has  been clearly  demonstrated  that                                                                   
overtime contributes  to medical errors and  compared nursing                                                                   
to  piloting.   Mandatory  overtime  contributes  to  greater                                                                   
costs in hiring and training.   She observed that the cost of                                                                   
serious  care  adds  approximately  $22,000  to  $28,000  per                                                                   
patient from mandatory overtime.                                                                                                
She noted that  they anticipated a loss to  the Mat-Su Valley                                                                   
with the option of transportation.                                                                                              
11:07:02 AM                                                                                                                   
Ms.  Gettys  addressed  coercion   and  grievances  filed  at                                                                   
Providence  Hospital.   There is no  clear delineation  about                                                                   
whether  overtime  is  voluntary  or forced.    Full-time  at                                                                   
Providence  equals 36  hours per  week,  in any  combination.                                                                   
There have been no grievances  filed at Providence, but there                                                                   
is  a  report  that  is  filed   called  "Assignment  Despite                                                                   
11:08:20 AM                                                                                                                   
Representative  Kerttula asked what  the report shows  and if                                                                   
it could be made public.  Ms.  Gettys responded that it could                                                                   
be made  public without  using  names.  Most  of the  reports                                                                   
involved assignment  to a unit without  adequate preparation,                                                                   
or wrong patient placement.  The  purpose of the report is to                                                                   
increase  the  quality  of  care.    Working  conditions  are                                                                   
excellent.    Representative  Kerttula  asked if  the  report                                                                   
shows incidences  of overtime.   Ms.  Gettys replied  that it                                                                   
does.    Representative  Kerttula  requested a  copy  of  the                                                                   
11:10:56 AM                                                                                                                   
MIKE ALEXANDER,  NURSE, ANCHORAGE, testified  about mandatory                                                                   
overtime at  API, which is  clearly stated  up front.   It is                                                                   
difficult to work a 16-hour shift  and it puts the patient at                                                                   
risk.  Having a choice to work overtime is important.                                                                           
11:13:34 AM                                                                                                                   
DIANNE  O'CONNELL, ALASKA  NURSES  ASSOCIATION, testified  in                                                                   
favor of  the bill, as revised,  for the sake of  patient and                                                                   
community safety,  for protection  of the nursing  staff, and                                                                   
for the purpose of gathering data  about the use of mandatory                                                                   
and voluntary overtime.                                                                                                         
11:15:51 AM                                                                                                                   
RON ATTLER, API, ANCHORAGE, testified  about compensation and                                                                   
incentives.   He  maintained  that the  state's  compensation                                                                   
plan needs a serious overhaul  in order to retain and recruit                                                                   
nurses.  He applauded Representative  Wilson's hard work.  He                                                                   
testified in opposition to HB 271.                                                                                              
Co-Chair   Chenault   stated   that   amendments   would   be                                                                   
HB  271  was   heard  and  HELD  in  Committee   for  further                                                                   
The meeting was adjourned at 11:20 AM.                                                                                          

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