03/31/2017 01:00 PM House JUDICIARY
| Audio | Topic |
|---|---|
| Start | |
| Confirmation Hearing: Select Committee on Legislative Ethics | |
| HB79 | |
| Adjourn |
+ teleconferenced
= bill was previously heard/scheduled
| + | TELECONFERENCED | ||
| + | HB 79 | TELECONFERENCED | |
| + | TELECONFERENCED |
ALASKA STATE LEGISLATURE
HOUSE JUDICIARY STANDING COMMITTEE
March 31, 2017
1:05 p.m.
MEMBERS PRESENT
Representative Matt Claman, Chair
Representative Jonathan Kreiss-Tomkins
Representative Gabrielle LeDoux
Representative David Eastman
Representative Chuck Kopp
Representative Lora Reinbold
MEMBERS ABSENT
Representative Zach Fansler, Vice Chair
Representative Charisse Millett (alternate)
Representative Louise Stutes (alternate)
COMMITTEE CALENDAR
CONFIRMATION HEARING(S):
Select Committee on Legislative Ethics
Deborah Fancher - Anchorage
Lee Holmes - Anchorage
- CONFIRMATION(S) ADVANCED
HOUSE BILL NO. 79
"An Act relating to workers' compensation; repealing the second
injury fund upon satisfaction of claims; relating to service
fees and civil penalties for the workers' safety programs and
the workers' compensation program; relating to the liability of
specified officers and members of specified business entities
for payment of workers' compensation benefits and civil
penalties; relating to civil penalties for underinsuring or
failing to insure or provide security for workers' compensation
liability; relating to preauthorization and timely payment for
medical treatment and services provided to injured employees;
relating to incorporation of reference materials in workers'
compensation regulations; relating to proceedings before the
Workers' Compensation Board; providing for methods of payment
for workers' compensation benefits; relating to the workers'
compensation benefits guaranty fund authority to claim a lien;
excluding independent contractors from workers' compensation
coverage; establishing the circumstances under which certain
nonemployee executive corporate officers and members of limited
liability companies may obtain workers' compensation coverage;
relating to the duties of injured employees to report income or
work; relating to misclassification of employees and deceptive
leasing; defining 'employee'; relating to the Workers'
Compensation Board's approval of attorney fees in a settlement
agreement; and providing for an effective date." [Before the
House Judiciary Standing Committee was HB 79, Version O.]
- HEARD & HELD
PREVIOUS COMMITTEE ACTION
BILL: HB 79
SHORT TITLE: OMNIBUS WORKERS' COMPENSATION
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR
01/25/17 (H) READ THE FIRST TIME - REFERRALS
01/25/17 (H) L&C, JUD, FIN
02/20/17 (H) L&C AT 3:15 PM BARNES 124
02/20/17 (H) Heard & Held
02/20/17 (H) MINUTE(L&C)
03/01/17 (H) L&C AT 3:15 PM BARNES 124
03/01/17 (H) <Bill Hearing Canceled>
03/06/17 (H) L&C AT 3:15 PM BARNES 124
03/06/17 (H) Heard & Held
03/06/17 (H) MINUTE(L&C)
03/08/17 (H) L&C AT 3:15 PM BARNES 124
03/08/17 (H) <Bill Hearing Canceled>
03/15/17 (H) L&C AT 3:15 PM BARNES 124
03/15/17 (H) -- MEETING CANCELED --
03/17/17 (H) L&C AT 3:15 PM CAPITOL 106
03/17/17 (H) <Bill Hearing Canceled>
03/20/17 (H) L&C AT 3:15 PM BARNES 124
03/20/17 (H) Heard & Held
03/20/17 (H) MINUTE(L&C)
03/22/17 (H) L&C AT 3:15 PM BARNES 124
03/22/17 (H) Moved CSHB 79(L&C) Out of Committee
03/22/17 (H) MINUTE(L&C)
03/24/17 (H) L&C RPT CS(L&C) NT 3DP 1DNP 1NR 2AM
03/24/17 (H) DP: JOSEPHSON, STUTES, KITO
03/24/17 (H) DNP: KNOPP
03/24/17 (H) NR: WOOL
03/24/17 (H) AM: SULLIVAN-LEONARD, BIRCH
03/31/17 (H) JUD AT 1:00 PM GRUENBERG 120
WITNESS REGISTER
DEBORAH FANCHER, Appointee
Anchorage, Alaska
POSITION STATEMENT: As appointee to the Select Committee on
Legislative Ethics, discussed her qualifications and answered
questions.
LEE HOLMES, Appointee
Anchorage, Alaska
POSITION STATEMENT: As appointee to the Select Committee on
Legislative Ethics, discussed his qualifications and answered
questions.
COMMISSIONER HEIDI DRYGAS
Department of Labor & Workforce Development (DLWD)
Juneau, Alaska
POSITION STATEMENT: Presented HB 79 on behalf of the House
Labor and Commerce Committee, Representative Sam Kito, chair.
MARIE MARX, Director
Workers' Compensation Division
Department of Labor & Workforce Development (DLWD)
Juneau, Alaska
POSITION STATEMENT: During the hearing of HB 79, offered a
PowerPoint sectional analysis, and answered questions.
ACTION NARRATIVE
1:05:30 PM
CHAIR MATT CLAMAN called the House Judiciary Standing Committee
meeting to order at 1:05 p.m. Representatives Claman, Reinbold,
Kopp, LeDoux, and Eastman were present at the call to order.
Representative Kreiss-Tomkins arrived as the meeting was in
progress.
^CONFIRMATION HEARING: Select Committee on Legislative Ethics
CONFIRMATION HEARING: Select Committee on Legislative Ethics
1:06:09 PM
CHAIR CLAMAN announced that the first order of business would be
a confirmation hearing for the Select Committee on Legislative
Ethics, Lee Holmes and Deborah Fancher nominees.
CHAIR CLAMAN opened invited testimony.
1:06:55 PM
DEBORAH FANCHER, Appointee, advised she is a life-long Alaskan
with her parents arriving in Bush Alaska when she was three
years old, and she grew up in Gukona. Ms. Fancher stated that
she received a degree in chemistry from the University of
Washington, returned to Alaska, began teaching three years
later, and after 23 years retired, she is married with two grown
sons. She said she in a season of her life where learning is
fun and she has free time to serve.
1:10:38 PM
LEE HOLMES, Appointee, advised he has been in Alaska since 1983,
has three sons, has been on social and parks-related committees,
is a mechanical engineer with Support Services of Alaska, and
currently performs commissioned work, starting up buildings and
making them work correctly. Mr. Holmes stated his firm belief
that Alaska gave him the opportunity to succeed, to create a
life for his family, and it is important for individuals to give
back to their communities. On a state level, he said that he
would like to help the state by volunteering on the Select
Committee on Legislative Ethics.
1:12:18 PM
REPRESENTATIVE EASTMAN asked Mr. Holmes to speak to being a
member of the National Fire Protection Association (NFPA).
MR. HOLMES responded that the National Fire Protection
Association (NFPA) was originally created by fire chiefs and
fire marshals around the country and throughout the years it
evolved into the de facto codes for all fire protections in
various states. Membership into the NFPA allows access to all
of its documentation and he readily knows whether something is
being built incorrectly, he explained.
1:13:48 PM
REPRESENTATIVE EASTMAN asked whether Mr. Holmes specifically
chose the ethics committee, and whether he was familiar with
members of the legislature.
MR. HOLMES answered that the appointment opening was pointed out
to him and after investigating the position, decided to commit.
He then related his background with various legislators.
[CHAIR CLAMAN closed invited testimony.]
1:16:34 PM
REPRESENTATIVE KREISS-TOMKINS advised that the House Judiciary
Standing Committee reviewed the qualifications of appointees
Deborah Fancher and Lee Holmes, to the Select Committee on
Legislative Ethics, and recommends that their names be forwarded
to the joint session of the Senate and House of Representatives.
He advised that this does not reflect the intent of any members
to vote for or against these individuals during the joint
session for purposes of ratification.
HB 79-OMNIBUS WORKERS' COMPENSATION
1:17:28 PM
CHAIR CLAMAN announced that the final order of business would be
HOUSE BILL NO. 79, "An Act relating to workers' compensation;
repealing the second injury fund upon satisfaction of claims;
relating to service fees and civil penalties for the workers'
safety programs and the workers' compensation program; relating
to the liability of specified officers and members of specified
business entities for payment of workers' compensation benefits
and civil penalties; relating to civil penalties for
underinsuring or failing to insure or provide security for
workers' compensation liability; relating to preauthorization
and timely payment for medical treatment and services provided
to injured employees; relating to incorporation of reference
materials in workers' compensation regulations; relating to
proceedings before the Workers' Compensation Board; providing
for methods of payment for workers' compensation benefits;
relating to the workers' compensation benefits guaranty fund
authority to claim a lien; excluding independent contractors
from workers' compensation coverage; establishing the
circumstances under which certain nonemployee executive
corporate officers and members of limited liability companies
may obtain workers' compensation coverage; relating to the
duties of injured employees to report income or work; relating
to misclassification of employees and deceptive leasing;
defining 'employee'; relating to the Workers' Compensation
Board's approval of attorney fees in a settlement agreement; and
providing for an effective date."
1:18:36 PM
COMMISSIONER HEIDI DRYGAS, Department of Labor & Workforce
Development (DLWD), advised that the bill will speed up
resolution of disputes, improve the delivery of benefits to
injured workers, deter workers' compensation fraud, reduce
administrative costs, and provide adequate funding for the
administration of the workers' compensation system. The
legislature has consistently endeavored to create a workers'
compensation system that delivers benefits quickly, efficiently,
fairly, and predictably, to injured workers at a reasonable cost
to employers as mandated by statute, and this system has not
been significantly reformed in more than ten years. The
improvements in this bill address rising costs, recent legal
developments, and new approaches in improving the system's
efficiency, fairness, and modernization. Commissioner Drygas
advised that the department does recognize that benefit issues,
such as reemployment benefits and medical costs, require
attention and the department is committed to addressing those
issues in another legislative session. This legislation has
undergone improvements since its introduction after working with
many stakeholders to clarify the definition of independent
contractor which, she remarked, is a critical piece of this
legislation, and it aims to provide a level playing field for
employers to operate and provide fairness to workers.
1:20:23 PM
MARIE MARX, Director, Workers' Compensation Division, Department
of Labor & Workforce Development (DLWD), offered a PowerPoint
sectional presentation titled "Workers' Compensation: HB 79" and
read as follows [original punctuation provided]:
Good afternoon Chair Claman and committee
members. For the record, my name is Marie Marx, and I
am the Director of the Division of Workers'
Compensation.
I want to start with the intent of the Act set
out in statute and highlight again the pillars of
Alaska's workers' compensation system.
As the Commissioner stated, it is to ensure the
quick, efficient, fair, and predictable delivery of
benefits to injured workers at a reasonable cost to
employers.
Balancing of these pillars guides the Division's
administration.
CORE SERVICES:
Ensure compliance with the Workers' Compensation
Act
Conduct workers' compensation hearings
Operate an appeals program
Process Fisherman's Fund claims
Administer a vocational rehabilitation benefits
and training program for injured workers
As the Commissioner stated, the Governor's bill
addresses all of the statutory pillars, but especially
focuses on fairness, quickness and efficiency in the
workers' compensation process.
Because the Governor's workers' compensation
"efficiencies" bill is a large one with changes for
each topic made throughout the bill, I thought it
would be more helpful to the committee members if I
instead conducted the sectional analysis by topic
instead of in numerical order.
1:21:47 PM
MS. MARX turned to slide 4, and read follows [original
punctuation provided]:
Sections 8-10, 16-18, and 36 speed up dispute
resolution in various ways.
HB 79 simplifies and quickens the hearing process
by letting the Board schedule a hearing shortly after
a claim is filed, instead of waiting for an employee
to request a hearing
It also ends the practice of permitting non-
attorneys, who are not bound by rules of ethical and
professional conduct, from representing parties before
the Alaska Workers' Compensation Board
I would like to clarify a parent of a minor,
guardian, or other court-appointed representative may
still represent a party in Board proceedings.
Additionally, the Board will continue to consider
a company, employer or medical provider to be self-
represented when acting through an authorized
employee, a member, a partner, or a corporate
executive officer.
This change does not affect a party's ability to
be represented by an attorney, including an attorney's
ability to employ the services of paralegals and
delegating functions to them in accordance with the
Alaska Rules of Professional Conduct.
However, any other non-attorney may not represent
a party in matters before the Board
1:23:19 PM
REPRESENTATIVE REINBOLD requested clarification as to her
statement that "non-attorneys may not represent parties" because
it sounded like there were exceptions.
MS. MARX clarified that this PowerPoint presentation was offered
as a guide without much detail, and Representative Reinbold was
correct in that currently non-attorneys can represent parties
before the Alaska Workers' Compensation Board. This change
reads that non-attorneys may not represent parents, guardians,
or court conservators of a minor.
1:24:02 PM
REPRESENTATIVE LEDOUX asked that as the law currently stands, is
there a prohibition on payment for the services of non-
attorneys.
MS. MARX responded that the Alaska Rules of Professional Conduct
(ARPC) guide what is the unauthorized practice of law, and it is
a matter for the Alaska Bar Association (ABA) as to whether a
non-attorney representing a party was practicing law and
receiving fees. Under Alaska Statutes, only attorneys can
receive attorney's fees and be paid for representing claimants
before the Alaska Workers' Compensation Board. That board must
approve attorney's fees and in the event a non-attorney
represents a claimant, nothing is submitted to the board and she
did not know whether they received attorney's fees. She opined
it was an unauthorized practice of law issue, and not an issue
for the Alaska Workers' Compensation Board.
1:25:22 PM
REPRESENTATIVE LEDOUX pointed out that there are few Alaska
attorneys practicing workers' compensation law, at least for
claimants, and she offered concern that the bill may possibly be
lessening the number of options for injured workers with a
claim.
MS. MARX opined that the bill improves the number of good
options, and when she served as a workers' compensation hearing
officer, her experience was that the claimants represented by
non-attorneys, who are not bound by ethical rules or the Alaska
Professional Rules of Conduct, did not make their cases proceed
more efficiently or have better outcomes. The department has
workers' compensation officers specifically trained to assist
unrepresented claimants and employers by providing information
about the Workers' Compensation Act, the duties of all parties,
and how to pursue their right to compensation. She explained
that most parties appearing before the Alaska Workers'
Compensation Board are unrepresented as it is meant to be an
informal process which is why the department provides so much
assistance to unrepresented parties. She opined that [non-
attorney representation] is not a better option or is in the
best interests of the claimants or employers.
1:28:15 PM
REPRESENTATIVE REINBOLD argued that the statement, "it's going
to be cheaper, et cetra, you know, bring down costs," with
regard to non-attorney not being allowed to represent parties,
because in her opinion, attorneys almost always "end up adding a
lot more money to the process." Representative Reinbold said
possibly her next comment would be snarky, but ...
CHAIR CLAMAN advised that if she wanted to describe it as a
"snarky comment" he wouldn't argue with her.
REPRESENTATIVE REINBOLD further argued that if injured workers
are forced to hire an attorney, it's only fair that all lawyers
post their fees at the door, "and the state collect all their
fees and post them as well," so people can shop around "because
litigation is one of the biggest problems we have in this
state."
1:29:25 PM
MS. MARX pointed out that the high cost of attorney's fees is
absolutely an issue being addressed in this bill. For example,
rather than letting the parties dictate when they are ready for
a hearing after two-three years of litigation, the bill reads
that at the time the parties appear before the Alaska Workers'
Compensation Board, the board will set a scheduling order, as is
done in the trial courts and other administrative agencies, to
rein in some of the high costs associated with these cases.
1:30:01 PM
REPRESENTATIVE EASTMAN referred to the statement "improving
options for claimants," and asked whether she meant the bill
decreases bad options.
MS. MARX agreed that stating the bill decreases bad options
would have been better.
1:30:24 PM
REPRESENTATIVE LEDOUX asked whether the workers' compensation
fee schedule was set by statute.
MS. MARX answered there is not a fee schedule [in statute], and
in most cases all attorneys fall into full, actual, and
reasonable, attorney's fees related to the issues upon which
they prevail, while another provision allows 10 percent of the
benefits received. There is not a cap set under statute,
although, some states have done so and one court ruled those
types of caps unconstitutional because the Supreme Court has
jurisdiction to regulate caps on attorney's fees, and so forth,
she offered.
1:31:53 PM
COMMISSIONER DRYGAS added that the department would like to
create costs containment in addressing the rising litigation
costs which are driven up by delays.
1:32:31 PM
MS. MARX continued the presentation as follows [original
punctuation provided]:
Additionally, HB 79 streamlines settlement
agreements by eliminating a requirement that the Board
approve attorney fees as part of a settlement
agreement, when fees are the only issue in the
settlement that requires Board approval.
HB 79 also streamlines the process of imposing
civil penalties against uninsured employers by
allowing the Division of Workers' Compensation to
assess the civil penalty directly, rather than
petitioning the Board to set the penalty. An employer
who disputes the assessed penalty may challenge the
assessment before the board.
1:33:09 PM
MS. MARX turned to slides 5-6, and continued the presentation as
follows [original punctuation provided]:
Sections 14, 20, 22-23 improve the delivery of
medical care by:
requiring employers to preauthorize or deny
medical treatment upon a medical provider's written
request, and providing a reasonable timeframe (60
days) for an employer to respond without incurring a
penalty
Currently there is no language in the Act
specifically addressing a request for preauthorization
of medical treatment.
This has led to much litigation and delayed the
delivery of medical care to injured workers.
The last bullet point is to clarify that medical
bills must still be paid within 30 days, because the
Division has received questions on this issue
Misclassification is a topic the Division is
committed to addressing on behalf of both workers and
law-abiding businesses
We are doing a great disservice to both when we
do not tackle misclassification head on
When workers are fraudulently misclassified,
workers die or are severely injured and uninsured
losses can put a company out of business
HB 79 does not prevent true independent
contractors from existing and flourishing
It is also important to clarify HB 79 addresses
independent contractor status only in regards to
workers' compensation. It does not change the
definition of independent contractor for other
purposes such as IRS status and other non-workers'
compensation laws; it is a narrow application
We must keep workers safe and law-abiding
employers should not have to pay the price for
misclassification
1:35:15 PM
REPRESENTATIVE REINBOLD referred to slide 5, and read "There's
going to be a penalty for untimely preauthorization or denial,"
and asked who is penalized and to describe the preauthorization
process.
CHAIR CLAMAN asked whether Representative Reinbold was saying
that preauthorization was a nightmare for the medical providers
because they keep waiting to hear from the insurance company.
REPRESENTATIVE REINBOLD responded, "Oftentimes yes."
MS. MARX answered, the current statute states that upon being
presented with a medical bill, an employer or insurer has 30
days to either pay that bill or controvert the bill. In the
event they do not do either one of those two options within that
30 day period, they owe a 25 percent penalty on the amount of
money they should have paid. This bill reads that an employer
or insurer has 60 days to either preauthorize or deny the bill
offering a little more time to review the medical records. In
the event they don't preauthorize or deny the bill within those
60 days, a 25 percent penalty is due on the amount of the bill,
subject to the Alaska Medical Fee Schedule. She noted that as
Representative Reinbold stated, a preauthorization can be just a
phone call away.
1:37:28 PM
REPRESENTATIVE REINBOLD asked what entity receives the penalty.
MS. MARX advised that it is either the self-insured employer,
the uninsured employer, or the insurance company.
REPRESENTATIVE EASTMAN noted that Alaska has limited health
insurance options, and offered concern that if the employer or
the insurance company can avoid a penalty by simply denying
coverage, wouldn't that be an incentive to deny coverage.
MS. MARX replied that what happens currently is not better. For
example, a treating physician is reluctant to go forward with a
knee surgery unless they know it will be authorized and paid.
The injured worker does not necessarily want to go forward with
that cost if they think they will have to pay the bill if the
injury is later found not to be work related. The insurance
company or the self-insured employer says, "My only duty, under
statute, is to pay a bill - so you go get the care and we'll
tell you after you get it, and incur the fees, whether we'll
will pay for it or not." Currently, she explained, an injured
worker attends a hearing before the board, it can take much
longer than 60 days to receive an answer as to whether or not
that bill should be paid. This proposed change, she related, is
the result of litigation from a recent Supreme Court case
highlighting this issue, it led to litigation because it is
ambiguous, and the goal is to provide clarity which is why it is
addressed here.
COMMISSIONER DRYGAS clarified for Representative Eastman that if
a self-insured employer or insurer denies coverage, at least
then the worker has an answer and they can appeal that decision
to the Alaska Workers' Compensation Board, or live with the
decision. She described this as a key provision in the bill.
REPRESENTATIVE EASTMAN agreed it is a key provision of the bill,
but he was slightly skeptical because having been a state
employee and considering that some of these issues are
unresolved more than a year after he left state employment, 30
days may be premature and he was unsure implementing that policy
would necessarily solve the problem.
1:40:43 PM
REPRESENTATIVE LEDOUX referred to preauthorization, and noted
that 60 days is a long time to either approve or deny, and if
the employer was not controverting that the injury happened at
work, why would the insurance company need 60 days. She related
that she has state insurance and if she needed a knee operation,
she assumed the doctor would get preauthorization which would
simply require a telephone call, so why would the self-insured
employer or insurer need 60 days.
COMMISSIONER DRYGAS explained there is a difference between
reviewing a bill and deciding whether someone should seek
treatment for an injury because it is more intensive as far as
fact finding. She offered that it requires a review of the
medical records to determine treatment thus far, what has
worked, what hasn't worked, and whether it was work related,
which more intensive than simply paying a bill so they chose 60
days.
1:42:28 PM
REPRESENTATIVE LEDOUX asked who receives the penalty after 60
days.
MS. MARX advised that the penalty is due to whoever is owed the
money, whoever should have been paid and wasn't paid on time.
In the event the self-insured employer, uninsured employer, or
insurance company, should have paid the bill, they must pay the
penalty to the [medical] provider if the [medical] provider is
the entity with the unpaid bill. In the event the claimant paid
it out-of-pocket, submitted a bill for reimbursement, and the
bill wasn't paid on time, the penalty is due to the claimant.
1:43:33 PM
MS. MARX returned the committee to slide 5, and the language
"Benefits, except medical, paid every 14-days with 7-day grace
period," and said the bill language is calling "a spade, a
spade" by saying the benefits, except medical, are paid every
21-days.
1:43:54 PM
REPRESENTATIVE LEDOUX advised that the injured worker is
supposed to live on the benefits or payments.
MS. MARX agreed, and said it is called indemnity, lost wages.
REPRESENTATIVE LEDOUX remarked that she has a problem with 21-
days, or even the 14-days with a 7-day grace period. Most
people have jobs that pay every two weeks or bi-monthly and, she
asked why shouldn't an injured worker, who is supposed to be
receiving indemnity, be paid within the 14-day period with no
grace period, and with a penalty if their indemnity is not paid
within 14-days.
COMMISSIONER DRYGAS advised that the department decided to make
it abundantly clear that rather than the statute reading that
medical payments are paid every 14-days with a 7-days grace
period, to just change it to 21-days. She noted that
Representative LeDoux's point was not addressed in the bill and
it is a policy call.
1:45:39 PM
REPRESENTATIVE LEDOUX asked whether the department would oppose
or concur with an amendment addressing that issue.
COMMISSIONER DRYGAS said she did not see a problem with that,
but the question was for the stakeholders in the business of
paying indemnity benefits.
REPRESENTATIVE LEDOUX pointed out that employers do not receive
a 7-day grace period when paying a salary, they must pay on time
or run afoul of both federal and state statutes.
COMMISSIONER DRYGAS noted that some employers pay individuals
differently, not every single employer has to pay people bi-
weekly as it varies as long as there is a regular pay period.
1:46:59 PM
REPRESENTATIVE LEDOUX agreed that it is different, but of all
the employers she has had in her life, it's always been either
weekly, bi-weekly, or a semi-monthly pay period. Whereas, she
noted, a monthly pay period might be, for example, an
independent contractor working on a consulting contract. She
remarked that it is uncommon for an actual employee to be paid
monthly.
1:47:43 PM
MS. MARX commented that because there is no grace period it
would be in the best interests of those making those payments
that they would go out every 14-days to insure they are timely,
and explained that the department was simply saying 21-days
because that had become the practice.
REPRESENTATIVE LEDOUX said she understands that, her suggestion
was that payments should be within 14-days, with a penalty if
payments are made after 14-days.
1:48:36 PM
REPRESENTATIVE REINBOLD said she disagrees with Representative
LeDoux because this is beyond reasonable and the grace period is
necessary.
1:49:50 PM
REPRESENTATIVE EASTMAN commented that the committee should not
be encouraging benefits to not be paid until 21-days, if
anything to encourage the payments earlier, but this [language]
seems to be encouraging the opposite.
1:50:45 PM
MS. MARX continued the presentation as follows [original
punctuation provided]:
Sections 7, 9, 11-12, 25-26, 28, 31-35, and 37
strengthen provisions to prevent workers' compensation
fraud by employers and employees
It defines when an employer's misclassification
of employees amounts to fraud under the Alaska
Workers' Compensation Act
It imposes an affirmative duty on employees
receiving workers' compensation benefits to report
work and receipt of other types of wage-loss
replacement benefits
It defines independent contractor instead of
relying on a convoluted multi-factor test of employee
status
HB 79 grants the Division the ability to claim a
lien on behalf of the Benefits Guaranty Fund, which is
the injured worker Fund, for compensation benefits
paid and for an assessed civil penalty.
HB 79 expands the Division's ability to assess a
civil penalty to include employers who are
underinsured because they have misclassified workers
in a variety of ways that results in artificially low
workers' compensation premiums, misrepresented the
nature of their business, or engaged in deceptive
leasing practices
It also changes the calculation and maximum civil
penalty for a failure to insure for workers'
compensation liability. The current maximum penalty of
$1,000 for each uninsured employee workday has led to
two unintended consequences.
First, the calculation results in astronomically
high penalties that do not withstand review on appeal
and that increase litigation costs and employer
defaults.
Second, uninsured employers that have not
maintained required records frequently are penalized
less severely than similar employers that have kept
records because of the difficulty of establishing the
number of uninsured employee workdays without records.
The bill corrects these issues by setting a
maximum penalty of three times the workers'
compensation insurance premium that the employer would
have paid if the employer had properly insured its
employees.
This calculation is simpler because it requires
only the employer's overall payroll data calculated as
if it had properly classified its employees and the
Division of Insurance's assigned risk rates for the
nature of the employer's business.
The new penalty will result in a reasonable
deterrent that takes into account the employer's size,
the nature of the employer's business, and the
financial gain the employer realized by operating
without paying, in full or in part, for workers'
compensation insurance.
HB 79 clarifies that civil penalties may not be
suspended. The Alaska Workers' Compensation Board
often suspends penalties in full or in part to address
an employer's ability to pay the astronomically high
penalties resulting from the current statutory
calculation. However, the penalty suspensions resulted
in assessments without sideboards. The new
calculation addresses this by putting sideboards on
the assessment, changes the calculation so that it is
tied to an employer's size, type of business, and the
financial gain the employer realized by operating
without paying.
The bill allows an employer to enter into a
payment plan to pay the civil penalty in installments,
to ensure an employer is not put out of business by a
civil penalty assessment.
HB 79 requires interest to be paid on these
plans, at the state rate for judgments, for judgments
entered in 2017, this rate is 4.25%.
1:54:45 PM
MS. MARX turned to slides 9-10, and continued the presentation
as follows [original punctuation provided]:
Sections 2-6, 13, 15, 19, 21, 24, 27, 29-30, 38
and 40 reduce administrative costs
Does not prescribe a specific method of payment
of benefits, allowing employers to pay benefits by
such means as electronically, both delivering benefits
to workers faster and saving costs
allowing the Division of Workers' Compensation to
prescribe the filing format of reports of injury and
compensation payments, including requiring electronic
filing
eliminating a requirement that corporate
executive officers seek the division's approval before
opting out of workers' compensation coverage for
themselves
Corporate executive officers and members have at
least 10% ownership interest are not employees of the
business so do not need workers' compensation coverage
But they may opt in to coverage
Insurers may just look to corporations database
or corporate or LLC documents.
HB 79 adds medical publications to a list the
Department of Labor and Workforce Development may
incorporate, including future amended versions, into
regulation
providing a penalty for insurers and employers
that fail to timely submit proof of coverage in order
to reduce the Division's wasted efforts investigating
insured employers that neglected to report insurance
coverage
phasing out the second injury fund, saving
administrative costs for the Department and reducing
costs for employers, which are required to contribute
to the fund
1:57:10 PM
REPRESENTATIVE REINBOLD asked Ms. Marx to explain the second
injury fund.
MS. MARX explained that the second injury fund's purpose is to
encourage employers to hire or retain disabled individuals,
although, the fund is no longer necessary with the passage of
the Americans With Disability Act (ADA) and other laws that bar
employment discrimination. Currently, she said, before offering
someone a job, the potential employee cannot be asked whether
they have a pre-existing disability. The purpose of the fund is
served by the ADA, 19 states have phased out these funds, and
she described it as an administrative fund that no longer serves
its purpose.
REPRESENTATIVE REINBOLD asked how much money is in that fund and
where the money would move.
MS. MARX stated the second injury fund balance for FY 2016 was
$3,792,900, and the fund revenue comes in through an assessment
against self-insured employers and insurance companies.
Currently, she advised, they pay 6 percent of non-medical
benefits into this fund, and then qualifying insurers or self-
insured employers can be reimbursed from that fund if they hire
someone with a pre-existing disability that has a subsequent
injury. All self-insured employers and insurance companies pay
into the fund regardless of whether they would ever be
reimbursed, and she asked whether she should explain the phase
out process.
1:59:36 PM
REPRESENTATIVE REINBOLD asked that she explain the phase out
process, and commented that it appear employers "would love
this." She further asked the location of where the money would
move.
MS. MARX responded that the phase out includes a finite date
wherein no further claims for reimbursement would be accepted.
At that point, the department would know the amount of the
existing liability, and she offered that most of the second
injury fund claims are for permanent and total disability. She
explained that [reimbursement] is for the life of the claimant,
which may be difficult to estimate, but the department would
have only a certain number of claimants. She further explained
that as those claims are paid off over time less money would
need to be collected, the fiscal note estimates an average age
of 80-years for each claim to be phased out. Therefore, the
phase out would not be completed for decades, which is why the
department wants to start now. Decades from now, she advised,
if the process is accomplished correctly, the amount of money
taken in will slowly decrease over time as the liability
shrinks, and if the department works it out just right, decades
from now it will almost perfectly match the amount of money
being taken in and given out. She referred to Version O, Sec.
40, page 22, lines 8-11, which read as follows:
TRANSITION: SATISFACTION OF SECOND INJURY FUND
CLAIMS. Subject to appropriation, the balance of the
second injury fund created under AS 23.30.040 lapses
into the general fund when all liability for accepted
claims under AS 23.30.205 to the second injury fund
and claims ordered to be paid from the fund have been
satisfied.
2:01:38 PM
CHAIR CLAMAN surmised that it will takes years before the draws
on the second injury fund are depleted with the idea to adjust
what was collected based on the estimate of need.
MS. MARX answered in the affirmative.
2:01:56 PM
MS. MARX turned to slide 11, and continued the presentation as
follows [original punctuation provided]:
Section 1 ensures adequate funding for the
administration of the Workers' Safety and Compensation
Administrative Account (WSCAA)
WSCAA balance is rapidly declining
In 2005, the Alaska Legislature established
programs such as the Workers' Compensation Fraud Unit.
These programs are funded by WSCAA, but there was no
increase in the WSCAA service fee rate to account for
the increased costs to operate these programs.
The bill allows the Department of Labor and
Workforce Development to receive a greater percentage
of the annual service fees that insurers pay
The bill does not increase the service fee for
workers' compensation insurers or employers, but
allocates more of the insurers' annual service fee to
the Department, which would otherwise go to the
general fund.
MS. MARX explained that currently, the insurers' annual service
fee is 2.7 percent of the net workers' compensation premium
written, and the bill allocates more of that percentage to the
department which would otherwise go to the general fund. She
further explained that rather than the current 1.82 percent, it
would be 2.5 percent.
2:03:31 PM
REPRESENTATIVE REINBOLD asked the amount the 2.5 percent would
be on an annual basis.
MS. MARX stated that it equates to approximately $1.89 million.
COMMISSIONER DRYGAS added that the department's budget leader,
Paloma Harbour, is attending another hearing, and in the event
there are additional budget questions, Ms. Harbour could assist
[at a later time]. She noted that the department received
concerns from the Alaska Trucking Association and a few others
regarding the proposed independent contractor provision. The
department worked with the Alaska Trucking Association to
address those concerns and, yesterday, they reached an
agreement, and she said she is hopeful those changes will be
included in a committee substitute next week.
2:05:20 PM
CHAIR CLAMAN said, in terms of the independent contractor, the
current language in the bill is not what the administration
recommends.
COMMISSIONER DRYGAS answered that the proposed two minor changes
to HB 79 are as follows: Sec. 28, page 17, lines 1-3, and also
page 17, lines 4-6 would read as follows:
(ii) the person maintains a business
location or a business mailing address separate from
the location of the individual for whom, or the entity
for which, the services are performed;
(iii) the person engages in any kind of
business advertising, solicitation, or other marketing
efforts reasonably calculated to obtain new contracts
to provide similar services;
2:08:25 PM
REPRESENTATIVE REINBOLD noted there has been pushed back with
the National Federation of Independent Business (NFIB) and
medical offices, and that she will offer amendments after
working with the sponsors of the bill.
2:09:00 PM
REPRESENTATIVE LEDOUX referred to [Sec. 28. AS
23.30.230(a)(11(H)(i)], page 16, lines 29-31 which read as
follows:
(i) the person maintains liability
insurance or other insurance policies necessary to
protect the employees, financial interests, and
customers of the person's business.
REPRESENTATIVE LEDOUX noted that a person can obtain a personal
liability policy with a rider that will cover anything relating
to the business a person may own, and asked whether that would
achieve the desired result.
MS. MARX responded that it would. These are common indictors of
independent contractors, and an independent contract is a person
or entity that protects its business assets. Representative
LeDoux is correct that a liability insurance policy that
protects its business assets would meet this (indisc.).
2:10:21 PM
REPRESENTATIVE LEDOUX asked whether such a policy exists.
MS. MARX responded that the Division of Insurance would best
discuss insurance policies.
2:10:42 PM
REPRESENTATIVE EASTMAN referred to slide 11, and asked whether
less funds would be going to the general fund, and whether that
had been incorporated into the governor's budget.
MS. MARX explained that the net change to the State of Alaska is
zero, and even though it is $1.8 million, it would go to a
dedicated fund rather than the general fund. She added that if
he was asking something specific, she could bring it to Ms.
Harbour's attention.
REPRESENTATIVE EASTMAN said that the slide would say,
"Currently, under current law, .88 percent goes to the general
fund, now we're changing that to only .2 percent goes to the
general fund," and he would like to understand any impact on
future budgets.
COMMISSIONER DRYGAS responded that they will follow up with an
answer.
2:12:12 PM
REPRESENTATIVE EASTMAN referred to the bottom of slide 9 and the
language "Division approval not required; not an employee if at
least 10 percent ownership interest," and asked whether that
would have an impact on sole proprietorships which, for example,
under current law are eligible for workers' compensation.
MS. MARX explained that sole proprietors are full owners of the
business and they are not required to carry workers'
compensation insurance. She further explained that worker's
compensation is an insurance program that covers employees, and
a sole proprietor is an owner and not an employee. Under this
proposed law, a sole proprietor is not required to have workers'
compensation insurance.
REPRESENTATIVE EASTMAN offered that under current law, AS
23.30.239, sole proprietors, and partners as employees, are
permitted to apply for workers' compensation. He asked whether
Ms. Marx was saying that this law prohibits them from applying
for workers' compensation.
MS. MARX clarified that no change was made to AS 23.30.239;
therefore, it does not prohibit sole proprietors from opting in,
and the department encourages them to do so because the cost may
be worth the risk of a huge uninsured loss. The bill changes it
with regard to certain business entities, such as corporations
and limited liability companies because, for example, a limited
liability company may have one member who is 100 percent owner,
but also puts on five members who have no ownership interest for
the purposes of avoiding workers' compensation coverage. She
opined that most employers abide by the laws and do not abuse
the system, except a loop hole was created that the department
is trying to close. She reiterated that 10 percent is a
sufficient investment in a company to not be considered an
employee and; therefore, not be required to carry workers'
compensation coverage.
CHAIR CLAMAN advised for informational purposed, in the event a
sole proprietor buys workers' compensation insurance it is
fairly common for the carrier or broker to ask whether or not
they want an employer's policy.
2:15:56 PM
REPRESENTATIVE REINBOLD referred to a letter from a constituent
independent contractor who runs a quilt shop, and an issue came
up about small mom and pop type business out of their garages
who have gone out of business due to some of the workers'
compensation issues. She said she wants to know how the bill
will impact a small business run out of a home.
COMMISSIONER DRYGAS asked whether Representative Reinbold's
question was whether the department was reducing workers'
compensation premiums, and she advised that the department is
attempting to do so, primarily through the department's medical
services review committee work, but that issue is separate from
this bill. She said she was unclear as to Representative
Reinbold's constituent's specific concerns with the bill as it
relates to their small business.
2:17:42 PM
REPRESENTATIVE REINBOLD advised that small business owners are
concerned that it adds new definitions intended to force
workers' compensation coverage on independent contractors. She
related that Alaska is number two in the nation for the highest
costs and issues surrounding workers' compensation are killing
Alaska's small businesses.
2:18:37 PM
MS. MARX answered that this bill should lower costs to small
businesses because it will level the playing field to make sure
everyone that should be paying into workers' compensation is
actually paying into workers' compensation, thereby, spreading
the risk of those injuries and hopefully bringing down some of
those workers' compensation costs. She stated that the bill
does not make people independent contractors who were not
independent contractors. What has happened, she explained, is
that some employers abuse the system, although far more
employers generally believe that by giving someone a Form 1099
and calling them an independent contractor is sufficient under
current law, except that is not true. Regrettably, employers
are then shocked when their injured worker is suddenly found to
be an employee and now the employer has a huge uninsured loss
that may put them out of business. She pointed out that HB 79
will protect those small business from going out of business.
MS. MARX related that the following incident illustrates how the
department is attempting to protect small businesses from huge
uninsured losses. There had been an Alaska industry practice of
calling helicopter ski guides independent contractors, even
though the helicopter ski company controls their hours, when
they work, provides the helicopter, and the guides ski the
clients down the mountain. She remarked that a broken leg came
to the division's attention so it worked hard to educate and not
penalize these small businesses. The goal was to educate these
small businesses that they needed to have workers' compensation
insurance on the guides because they were opening themselves up
to huge uninsured losses. She advised that most of the
companies came into compliance except one person, in particular,
was upset and said that the division would cause him to incur
higher business expenses, but he finally came into compliance.
One year later, a guide died tragically in an avalanche working
for that company, and the owner thanked the division for his
education and helping him realize the ramifications of going
without workers' compensation insurance because that loss was
covered by the insurance company.
2:21:20 PM
REPRESENTATIVE REINBOLD surmised that the intention was not to
drive costs up for small businesses. She then asked
Commissioner Drygas to address the 2/17/17 letter addressed to
Representative Sam Kito from the National Federation of
Independent Business (NFIB).
COMMISSIONER DRYGAS advised that Ms. Marx and she had met with
the NFIB a number of times and they will continue to meet with
the NFIB addressing their concerns.
2:22:12 PM
REPRESENTATIVE REINBOLD surmised that nothing has been agreed
upon at this time.
CHAIR CLAMAN pointed out that he had received a similar letter
and also had conversations with Dennis DeWitt, lobbyist for the
NFIB. He referred to [HB 79, Version O, Sec. 27. AS
23.30.205(a)(11)(H)], page 16, beginning line 28, regarding
meeting three of the five criteria, and advised of the NFIB
belief that the section should be removed because it is not
necessary or serving its purpose. Representative Reinbold, he
opined, would like the division to address those concerns.
2:23:19 PM
MS. MARX responded that the independent contractor and this
classification issue started one year ago with legislation
brought forward by Representative Gabrielle LeDoux. Concerns
were raised and further work was performed to refine the
independent contractor definition to the point where the
division appreciated the language when [HB 79] dropped. Since
that time, different stakeholder groups expressed concerns and
rather than implementing a 12 multi-factor test where the person
must meet all 12 factors, it was refined to read that the person
must meet seven of the requirements, and three of the five
options. She explained that concern were expressed as to
whether it was possible to meet all of those factors, so it was
changed to three out of five options. The goal of the division,
she expressed, was to be sure it captured a true independent
contractor, and not prevent true independent contractors from
operating.
2:25:21 PM
CHAIR CLAMAN offered that the independent contractor definition
begins on HB 79, Version O, page 15, line 29, as follows:
(11) a person employed as an independent
contractor; a person is an independent contractor for
the purposes of this chapter only if the person
CHAIR CLAMAN surmised that for a person to be qualified as an
independent contractor they must satisfy subparagraphs A through
G, and under subparagraph H the person must meet three out of
five options. Therefore, he pointed out, rather than 12
requirements, the first seven plus these five, the division
reduced it to satisfying 10 of the 12 requirements.
MS. MARX advised that the department removed requirements
different stakeholder groups had described as problematic, those
requirements were replaced with requirements that are easy to
verify, such as advertising and a bank account.
2:26:42 PM
REPRESENTATIVE REINBOLD commented that she weighs the issues
raised with the NFIB and small businesses carefully and this is
an area she will focus on heavily.
2:28:15 PM
REPRESENTATIVE LEDOUX noted that if someone doesn't carry
workers' compensation insurance and there is an injury with any
negligence involved, workers' compensation benefits are limited
compared to the benefits someone may be able to obtain if they
sued at common law. She continued that in the event there is no
workers' compensation insurance and a jury finds them negligent,
the damages can be "absolutely huge."
2:29:08 PM
CHAIR CLAMAN related an incident wherein an employer owned an
aircraft company, and a pilot went down and the pilot did not
survive the crash. The owner of the aircraft company was
someone one would think knew all of the reasons to carry
workers' compensation insurance. He related that the first
proceeding was a lawsuit, immediately followed by a bankruptcy
proceeding.
2:29:32 PM
REPRESENTATIVE KOPP inquired as to how this bill impacts the
average skipper/deck hand relationship in the commercial fishing
industry.
MS. MARX answered that fishermen crew members fall under the
Fishermen's Fund, which is a separate statutory scheme to
provide benefits and does not impact the Alaska Workers'
Compensation Act.
CHAIR CLAMAN commented that the Fishermen's Fund is a small part
of a deck hand's remedies compared to the Jones Act and various
maritime law doctrines.
2:30:54 PM
REPRESENTATIVE KOPP referred to Sec. 15 [HB 79, AS 23.30.098,
page 8, beginning line 9] and noted that new references were
added wherein it becomes unnecessary to publish updates every
year. In 2014, [the 28th Alaska State Legislature] passed House
Bill 314, which required annual public notice and review of any
new regulations promulgated having to do with pricing or
workers' compensation rates. He commented, by incorporating
these references into this statute, it appears "we are kind of
doing an end run around that requirement."
MS. MARX responded that [the 28th Alaska State Legislature]
changed the way the Alaska Workers' Compensation Fee Schedule
maximum allowable reimbursement was calculated by setting a
groundwork to use, to which the division applies its state
specific multiplier. That groundwork, she explained, is a lot
of reference materials, many of which are listed in Sec. 15, and
the statute was passed with most of those intact there. The
division used the relative values established by organizations,
such as the Centers for Medicaid and Medicare Services (CMS) and
the American Medical Association (AMA), to establish a base
value - a number for a procedure, such as a physician provided
procedure. She explained that "We do not apply Medicare
multiplier to that, we do not, we apply our state specific
multiplier to come up with a maximum dollar amount." Ms. Marx
referred to [Sec. 15, AS 23.30.098] page 8, lines 14-15, and
said the American Medical Association (AMA), on January 1 of
every year, publishes a new book with current CPT codes, titled
Procedural Terminology Codes. The Medical Services Review
Committee (MSRC) is tasked with providing fee schedule
recommendations and presenting those to the Alaska Workers'
Compensation Board, and if the board is in agreement, they
become regulation. She pointed out that the MSRC and the Alaska
Workers' Compensation Board include reference materials, such as
the current Procedural Terminology Codes, and the reference
materials added in HB 79.
MS. MARX explained that the January 1 version had gone through
the Centers for Medicare & Medicaid Services (CMS) and the
federal register public comment period. Subsequently, she
further explained, when the version comes into play the division
can then publish notice advising the public to use the January 1
version. The Alaska Administrative Procedures Act allows an
agency to use future amended versions of reference material as
long as it has statutory authority to do so, otherwise, the
division wouldn't be able to make it effective until,
potentially, 2018.
2:34:55 PM
REPRESENTATIVE KOPP commented that the Medicaid compensation
rates are challenging for the business community, and asked
[technical difficulties] kind of came up with a base rate off of
Medicaid and Medicare versus commercial insurance. He opined
that Medicaid and Medicare are for the elderly, the frail, and
the infirmed, and those people can have very high rates, whereas
commercial insurance for Medicare is basically for people hurt
on the job and are otherwise healthy people. It appears if that
is being used as a base, it will drive rates up higher than if
using a market commercial insurance rate, he remarked.
2:36:09 PM
MS. MARX continued as follows:
I think I'll probably just clarify that we are not
using Medicare rates. It is a relative value
established a committee, it's called, I think, the
Relative Value Unit Committee involved of members from
the American Medical Association and members from the
Centers for Medicaid and Medicare Services. And they
come in and assign a value to a procedure based on the
expertise, geographic location, and so forth. They
assigned a number, and let's say that number is 10.
Medicare will apply their own multiplier to that to
get a maximum. So, Medicare may apply a multiplier of
20. So, 20 times 10, maximum of $200.
We apply our Alaska multiplier and let's say it's 80.
So, we take relative value of 10, but we would apply
our state specific multiplier to take into
consideration those types of issues, and have a
maximum reimbursable, for example, of 800. And so it
does not -- I just want to make sure that I am very
clear -- we are not using Medicare rates. It is a
value established by the American Medical Association
and Centers from Medicaid and Medicare Services
committee that come up with these values, for example,
for physician services to which we apply our own state
specific rules. So, we have the MSRC and the board
has carved out exceptions when the rules don't
necessarily work for Alaska, and they have carved out
-- they've absolutely carved out exceptions.
MS. MARX offered that the division encourages parties to come
before the Medical Services Review committee that meets every
year to hear the public's comments and concerns. The committee
is chaired by Ms. Marx as the director, and comprised of four
public members and four members from the medical community to
take public comments. She offered that the committee should
start up sometime in June of 2017, with the goal of determining
new recommendations effective January 1, so that everyone is on
the same page with an annual update on January 1 on all of the
rules and guidelines.
2:38:24 PM
REPRESENTATIVE KOPP referred to HB 79, Version O, page 9, lines
13-16, with read as follows:
(15) Hospital Outpatient Prospective Payment
System, produced by the federal Centers for Medicare
or Medicaid Services; or
(16) Ambulatory Surgical Center Payment
System, produced by the federal Centers for Medicare
and Medicaid Services.
REPRESENTATIVE KOPP noted that it incorporates by reference the
Hospital Outpatient Perspective Payment System (HOPPS) and the
Ambulatory Surgical Center Payment System (ASC), and the CMS
reviews those and updates those reimbursement rates annually for
each one of those. The Hospital Outpatient Perspective Payment
System (HOPPS) has a market-based review whereas the ASC is
based on the Consumer Price Index (CPI) so those two payments
will diverge remarkably over time. In fact, he commented, there
is over 40 percent divergence and what "you're eligible for
reimbursements," and described it as a real challenge. At the
Ambulatory Surgical Center, "let's say Alaska Surgery Center is
getting reimbursed at 48 percent less than the hospital
outpatient" there could be some friction there, and he asked how
the division was addressing that issue.
2:39:55 PM
MS. MARX replied that she believes that she read, on average,
the Ambulatory Surgery Center Payment System (ASC) was
approximately 65 percent less. She continued as follows:
So, the MSRC, the Medical Services Review Committee
... and the board said, "We are not going to pay the
amounts, the relative values to Ambulatory Surgical
Centers, the ACS values, and we're not going to apply
a separate conversion factor." They decided, and
that's currently in statute -- or in regulation, and
is not changed by this, that Ambulatory Surgical
Centers get the same conversion factor of hospital
outpatients, and use the same relative values just for
that reason.
REPRESENTATIVE KOPP noted that her response was good to know.
MS. MARX advised that the dispute lies in the billing rules that
go along with that, how things are bundled and coded. While she
said she does not pretend to be an expert, opined that it is in
those details along that way that the Ambulatory Surgery Center
Payment System has its own payment system for hospital
outpatient, and it doesn't quite work with the Ambulatory
Surgical Centers. Although, at the end of the day, they use the
same type of base values and they have the same conversion
factor, she said.
2:41:29 PM
REPRESENTATIVE EASTMAN surmised that the government could
educate the private sector in offsetting a workers' compensation
claim that could drive them out of business, but it appears the
government helps the private sector cut costs by adding
regulations, and if the regulations are not complied with they
could be prosecuted for fraud. He then pointed to [AS
23.30.230(a)(11)(H)(i-v)], page 16, lines 28-31 and page 17,
lines 1-13, referencing that three out of five options are
necessary in order to qualify, and requested a black and white
definition for an independent contractor, at least for purposes
of avoiding prosecution for fraud. He related that when moving
into the gray area of meeting three out of five options, this
legislation will raise costs for those small businesses because
"now more people have to come up under providing and producing
insurance." He then referred to AS 23.30.230(a)(11)(H)(v),
which read as follows:
(v) the person engages in a trade,
occupation, profession, or business to provide
services that are outside the usual course of business
for the individual for whom, or the entity for which,
the services are performed.
REPRESENTATIVE EASTMAN asked whether consultants are independent
contractors.
2:45:25 PM
COMMISSIONER DRYGAS answered that Representative Eastman would
probably hear from stakeholders in the room and others that they
do not want a black and white, bright line test because
flexibility is important. Circumstances change from employer to
employer, and if there was a black and white, bright line test
it would become unworkable despite the fact that a worker could
be a true independent contractor.
COMMISSIONER DRYGAS referred to his question regarding small
businesses, and responded that small businesses want clarity and
better notice as to whether they have an employee or an
independent contractor, and that's what this legislation does.
Currently in statute is the "Relative Nature of the Work Test"
to determine whether someone is an employee or an independent
contractor and, unfortunately, she described, the test is vague
and difficult to quantify, with a lack of clarity. The division
is not trying to cast a wider net, but rather is trying to
provide clarity for employers, workers, and the division, to
truly understand who is an independent contractor and who is an
employee. After pulling state laws from all of the different
states, she stated that this is the best test. This
classification is a problem throughout the country because it
takes advantage of unknowing workers and law abiding businesses.
She pointed out that the division received positive responses
from folks it didn't anticipate, and this is better than current
law.
2:47:55 PM
REPRESENTATIVE EASTMAN argued that the stakeholders he spoke
with prefer that the [definition] be black and white and clearly
identify the workers' compensation requirements so that the risk
of fraud is limited. That is how to help the small businesses
because the bill tries to catch three out of five options, and
it catches people that are not clearly outside of any
independent contractor category. He opined that the division
says, "Well you don't qualify as an independent contractor so
now you're going to get caught up with everybody else."
REPRESENTATIVE CLAMAN advised that public testimony will be open
on HB 79 on 4/5/17, and stakeholders would have an opportunity
to testify.
2:50:16 PM
COMMISSIONER DRYGAS reiterated that the goal of the test is
clarity. She then spoke to representatives in the room that had
served for years and asked, "How often we can see things in
black and white when we're passing legislation, I would love to
hear it." This legislation attempts to provide clarity and
notice to employers and workers whether they are an independent
contractor or an employee and, she stated, this definition is
far above the language in current law.
2:51:10 PM
REPRESENTATIVE KREISS-TOMKINS referred to Sec. 28, [AS
23.30.230(a)], and advised he is looking forward to public
testimony and is interested in how one crafts the best possible
test definition of an independent contractor. He suggested
looking at the IRS definition of independent contractor, what it
is, and how it differs from this legislation.
MS. MARX advised there are many different tests in law across
the board identifying an independent contractor because there
different goals are reached through that test. The IRS test is
a 20 multi-factor balancing test and no one factor is
determinative and, she described it as simply a subjective
weighing test with the goal to obtain money from the IRS.
Whereas, the Workers' Compensation Act is to protect workers
from severe injury or death, protect employers from huge
uninsured losses, and ensures that benefits flow smoothly.
Those are completely different goals, which is why other tests
do not work for workers' compensation, and a workers'
compensation test would not necessarily work in other areas of
the law. She offered that states found that these multi-factor
subjective balancing tests do not work and lead to rampant
fraudulent misclassification, and opined that 23 states have
started moving toward defining independent contractor and
providing clarity in that respect.
2:53:46 PM
REPRESENTATIVE KREISS-TOMKINS speculated that possibly states
used that 20 multi-factor non-determinative definition of
independent contractor for the purposes of workers'
compensation, and asked whether the proposed five factor test
has precedence.
MS. MARX clarified that some states still use, and other states
may have generally used, a multi-factor balancing test similar
to the IRS test, and she was unaware whether any states had
adopted the 20 multi-factor balancing test. The IRS multi-
factor balancing test has a different goal than workers'
compensation, she reiterated.
MS. MARX referred to his second question as to how the division
came up with this refinement, and answered that in response to
the stakeholder groups, the division staff went back through its
list with her and read and re-read statutes in other states.
They found there were four other states with a similar optional
type of two-part test, Florida, Maine, Nevada, and Oregon. The
division believes it allows flexibility in addressing some of
the concerns raised while at the same time providing clarity on
the independent contractor definition, she explained.
2:57:07 PM
REPRESENTATIVE KREISS-TOMKINS referred to Sec. 29 [AS
23.30.240], page 17, lines 14-31, and asked for more context or
the value the division sees in this clarification of chief
executive officers potentially being exempt from workers'
compensation versus the status quo.
MS. MARX explained that currently certain executive officers may
exempt themselves from workers' compensation coverage through a
lengthy application process the division administers, the
Executive Officer Waiver Program. She explained that a division
staff member accepts applications, reviews them, and maintains
them, plus it also receives many inquiries from insurance
companies asking whether that executive officer has a waiver in
place. She described this and an administrative and resource
expenses so the division streamlined the process by allowing a
person with a 10 percent interest in a company to waive workers'
compensation coverage. In that manner, the information would be
available through the Division of Corporation's database for
business records, she explained.
2:59:19 PM
REPRESENTATIVE KREISS-TOMKINS asked that in the event Sec. 29
becomes law, whether she anticipates an operating budget savings
or the continued need for a full time equivalent (FTE) to manage
this program.
MS. MARX answered there are many efficiencies in this
legislation, and the fiscal note estimated that the department,
beginning FY 2019, would be able to reduce by one position with
a cost savings of $59,300.
3:00:40 PM
REPRESENTATIVE REINBOLD commented that Commissioner Drygas and
Ms. Marx do not have to answer her next question today, and
asked whether they anticipate bringing down Alaska's statistic
of number two in workers' compensation costs throughout the
nation, and where they anticipate Alaska's rank would be in the
next five and ten years amongst other states.
3:01:28 PM
COMMISSIONER DRYGAS responded that she does not have a crystal
ball and could not say where Alaska will rank, but she could say
that medical costs are driving workers' compensation costs which
must be addressed. This legislation will save some
administrative costs for the department and, she noted, it aims
to reduce attorney's fees for workers and employers by setting
schedules and penalties directly, without going through the
Workers' Compensation Board process.
3:02:52 PM
CHAIR CLAMAN asked for clarification about companies selling
workers' compensation insurance because it was his understanding
that because Alaska is a mandatory workers' compensation state,
that in addition to the limited number of companies officially
in Alaska selling, there is this whole pool of companies that
are not in the state but nevertheless coverage is placed with
them through the insured risk pool. He asked Ms. Marx to
explain how that works because employers are never at risk for
being unable to get coverage, although, it may be that they are
covered by a workers' compensation company that may, or may not,
have offices in Alaska. Chair Claman asked her to also explain
how that dynamic works in terms of both companies that are, in
theory, in state and have offices here. For example, Alaska
National, and then there are all these other companies that are
part of a mandatory pool, he said.
3:03:48 PM
MS. MARX advised that the Division of Insurance is the expert,
but she could say there is a residual market of last resort, of
which insures that all employers have some means of procuring
workers' compensation insurance. Many states have created a
residual market of last resort and small employers that may have
a hard time obtaining insurance, possibly the company is in a
high risk industry, can obtain insurance in that manner, she
said. She doesn't have the details as to how it works, but she
opined that the ones who are part of that assigned risk rate are
insurance companies assigned to take those and they have to
cover those policies. In the event the insurance company is
part of that pool, as these policies come in they have to take
them, and they alternate as to who will take and cover that
policy. She commented that these are not big money makers, but
that is part of the privilege of operating and being a workers'
compensation insurance company in Alaska. She said she agrees
that all employers have some means of procuring workers'
compensation insurance.
[HB 79 was held over.]
3:05:47 PM
ADJOURNMENT
There being no further business before the committee, the House
Judiciary Standing Committee meeting was adjourned at 3:05 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| Select Committee on Legislative Ethics-Lee Holmes Resume 3.29.17.pdf |
HJUD 3/31/2017 1:00:00 PM |
|
| HB079 ver O 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM HJUD 4/5/2017 1:00:00 PM HJUD 4/13/2017 5:30:00 PM |
HB 79 |
| HB079 Transmittal Letter 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM HJUD 4/5/2017 1:00:00 PM HJUD 4/13/2017 5:30:00 PM |
HB 79 |
| HB079 Sectional Analysis ver O 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM |
HB 79 |
| HB079 Letters Index.pdf |
HJUD 3/31/2017 1:00:00 PM |
HB 79 |
| HB079 Supporting Document-Letters of Support 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM |
|
| HB079 Opposing Document-Letters of Opposition 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM |
|
| HB079 HJUD Slide Presentation 3.31.17.pdf |
HJUD 3/31/2017 1:00:00 PM HJUD 4/5/2017 1:00:00 PM |
HB 79 |
| HB079 Fiscal Note DOA-DRM 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM HJUD 4/5/2017 1:00:00 PM HJUD 4/13/2017 5:30:00 PM |
HB 79 |
| HB079 Fiscal Note DOLWD-WC 3.28.17.pdf |
HJUD 3/31/2017 1:00:00 PM HJUD 4/5/2017 1:00:00 PM HJUD 4/13/2017 5:30:00 PM |
HB 79 |
| HB079 Fiscal Note DOLWD-SIF 3.27.17.pdf |
HJUD 3/31/2017 1:00:00 PM HJUD 4/5/2017 1:00:00 PM HJUD 4/13/2017 5:30:00 PM |
HB 79 |