Legislature(1995 - 1996)
04/24/1995 03:20 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR & COMMERCE STANDING COMMITTEE
April 24, 1995
3:20 p.m.
MEMBERS PRESENT
Representative Pete Kott, Chairman
Representative Jerry Sanders
Representative Kim Elton
Representative Beverly Masek
Representative Norman Rokeberg
Representative Brian Porter
MEMBERS ABSENT
Representative Gene Kubina
COMMITTEE CALENDAR
HB 251: "An Act relating to Native corporations."
HEARD AND HELD
HB 238: "An Act excluding certain direct sellers of consumer
products from coverage under the state unemployment
compensation laws."
PASSED OUT OF COMMITTEE
HB 266: "An Act relating to preferred provider agreements
offered by hospital or medical service corporations."
HEARD AND HELD
HB 288: "An Act relating to procurement preferences for
corporations and partnerships owned by persons with
disabilities."
SCHEDULED BUT NOT HEARD
HB 232: "An Act establishing an economic development tax credit;
and providing for an effective date."
SCHEDULED BUT NOT HEARD
(* First public hearing)
WITNESS REGISTER
ROD MOURANT, Administrative Assistant
to Representative Pete Kott
Alaska State Legislature
State Capitol Building, Room 432
Juneau, AK 99801
Telephone: (907) 465-3777
POSITION STATEMENT: Gave sponsor statement for HB 238 and
HB 266
JOE MARIANO, Vice President
Direct Selling Association
1666 "K" Street
Washington, D.C.
Telephone: (202) 293-5760
POSITION STATEMENT: Testified in support of HB 238(STA)
ANN CREWS, Manager
Corporate Affairs
Mary Kay Corporation
Stemmens Freeway
Dallas, Texas
Telephone: (214) 905-5729
POSITION STATEMENT: Testified in support of HB 238(STA)
PAM NEAL, President
Alaska State Chamber of Commerce
217 Second Street, Number 201
Juneau, AK 99801
Telephone: (907) 586-2323
POSITION STATEMENT: Testified in support of HB 238(STA)
STEVE EGLI, Kirby Sales
9310 Glacier Highway
Juneau, AK 99801
Telephone: (907) 790-4446
POSITION STATEMENT: Testified in support of HB 238(STA)
DIRK BLOEMENDAAL, Counsel
Cooperate Government Affairs
Amway Corporation
7575 East Bolton Road
Ada, MI 49355
POSITION STATEMENT: Testified in support of HB 238(STA)
ED FLANAGAN, Deputy Commissioner
Department of Labor
P.O. Box 21149
Juneau, AK 99802-1149
Telephone: (907) 465-2700
POSITION STATEMENT: Testified against HB 238
DAVID A. MCGUIRE, Orthopedic Surgeon
4049 Laurel, Suite 202
Anchorage, AK
Telephone: (907) 562-4142
POSITION STATEMENT: Testified in support of HB 266
JACK MCRAE, Senior Vice President
Blue Cross of Washington and Alaska
P.O. Box 327, MS 301
Seattle, WA 98111-0327
Telephone: (206) 670-5757
POSITION STATEMENT: Testified in opposition of HB 266
JERRY REINWAND, Lobbyist
Blue Cross of Washington and Alaska
2 Marine Way, Number 219
Juneau, AK 99801
Telephone: (907) 586-8966
POSITION STATEMENT: Testified in opposition of HB 266
STEVEN LEBRUN, Senior Account Manager
AETNA Health Plans
P.O. Box 91032
Seattle, WA 98111
Telephone: (206) 467-2803
POSITION STATEMENT: Testified in opposition of HB 266
DOUGLAS CARTER SMITH, President
Anchorage Medical Society
3240 Seawind Drive
Anchorage, AK 99516
Telephone: (907) 345-0728
POSITION STATEMENT: Testified in support of HB 266
GORDON EVANS, Lobbyist
Health Insurance Association of America
318 Fourth Street
Juneau, AK 99801
Telephone: (907) 586-3210
POSITION STATEMENT: Testified in opposition of HB 266
MARILYN PATTERSON
Human Affairs Alaska
4300 B Street, Suite 202
Anchorage, AK 99503
Telephone: (907) 463-4131
POSITION STATEMENT: Testified in opposition of HB 266
CHARLIE MILLER, Lobbyist
Alaska Regional Hospital
2801 DeBarr Road
Anchorage, AK 99508-3089
Telephone: (907) 264-1713
POSITION STATEMENT: Indicated testimony for HB 266 would
be given at the next hearing.
DON KOCH, Chief
Marketing Surveillance Section
Division of Insurance
Department of Commerce and Economic Development
P.O. Box 110805
Juneau, AK 99811-0805
Telephone: (907) 465-2577
POSITION STATEMENT:
PREVIOUS ACTION
BILL: HB 251
SHORT TITLE: NATIVE CORPORATIONS
SPONSOR(S): REPRESENTATIVE(S) MOSES, MacLean, Williams
JRN-DATE JRN-PG ACTION
03/15/95 741 (H) READ THE FIRST TIME - REFERRAL(S)
03/15/95 741 (H) LABOR & COMMERCE
03/27/95 (H) L&C AT 03:00 PM CAPITOL 17
03/27/95 (H) MINUTE(L&C)
03/29/95 (H) L&C AT 03:00 PM CAPITOL 17
03/29/95 (H) MINUTE(L&C)
04/05/95 (H) L&C AT 03:00 PM CAPITOL 17
04/05/95 (H) MINUTE(L&C)
04/10/95 (H) L&C AT 03:00 PM CAPITOL 17
04/10/95 (H) MINUTE(L&C)
04/12/95 (H) L&C AT 03:00 PM CAPITOL 17
04/12/95 (H) MINUTE(L&C)
04/21/95 (H) L&C AT 03:00 PM CAPITOL 17
04/21/95 (H) MINUTE(L&C)
04/24/95 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 238
SHORT TITLE: NO UNEMPLOYMENT COMP FOR DIRECT SELLERS
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/08/95 641 (H) READ THE FIRST TIME - REFERRAL(S)
03/08/95 641 (H) STATE AFFAIRS, LABOR & COMMERCE
03/23/95 (H) STA AT 08:00 AM CAPITOL 102
03/23/95 (H) MINUTE(STA)
03/28/95 (H) STA AT 08:00 AM CAPITOL 102
03/28/95 (H) MINUTE(STA)
04/06/95 1049 (H) STA RPT CS(STA) 2DP 1NR 2AM
04/06/95 1049 (H) DP: JAMES, OGAN
04/06/95 1049 (H) NR: GREEN
04/06/95 1049 (H) AM: WILLIS, ROBINSON
04/06/95 1049 (H) ZERO FISCAL NOTE (LABOR)
04/12/95 (H) L&C AT 03:00 PM CAPITOL 17
04/12/95 (H) MINUTE(L&C)
04/24/95 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 266
SHORT TITLE: HEALTH CARE PREFERRED PROVIDER PROGRAMS
SPONSOR(S): LABOR & COMMERCE BY REQUEST
JRN-DATE JRN-PG ACTION
03/17/95 778 (H) READ THE FIRST TIME - REFERRAL(S)
03/17/95 779 (H) LABOR & COMMERCE, HES, JUDICIARY
04/12/95 (H) L&C AT 03:00 PM CAPITOL 17
04/12/95 (H) MINUTE(L&C)
04/24/95 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 288
SHORT TITLE: PROCUREMENT PREFERENCE/DISABLED PERSONS
SPONSOR(S): REPRESENTATIVE(S) JAMES
JRN-DATE JRN-PG ACTION
03/29/95 979 (H) READ THE FIRST TIME - REFERRAL(S)
03/29/95 979 (H) LABOR & COMMERCE
04/03/95 (H) L&C AT 03:00 PM CAPITOL 17
04/03/95 (H) MINUTE(L&C)
04/07/95 (H) L&C AT 03:00 PM CAPITOL 17
04/07/95 (H) MINUTE(L&C)
04/21/95 (H) L&C AT 03:00 PM CAPITOL 17
04/21/95 (H) MINUTE(L&C)
04/24/95 (H) L&C AT 03:00 PM CAPITOL 17
BILL: HB 232
SHORT TITLE: ECONOMIC DEVELOPMENT TAX CREDIT
SPONSOR(S): REPRESENTATIVE(S) KOTT
JRN-DATE JRN-PG ACTION
03/06/95 590 (H) READ THE FIRST TIME - REFERRAL(S)
03/06/95 590 (H) ECD, STA, L&C, FINANCE
03/21/95 (H) ECD AT 09:00 AM CAPITOL 17
03/21/95 (H) MINUTE(ECD)
03/22/95 850 (H) ECD RPT CS(ECD) 6DP
03/22/95 850 (H) DP: KELLY, MOSES, MACLEAN,
KOHRING
03/22/95 850 (H) DP: SANDERS, ROKEBERG
03/22/95 850 (H) INDETERMINATE FISCAL NOTE (REV)
03/22/95 850 (H) FISCAL NOTE (DCED)
04/04/95 (H) STA AT 08:00 AM CAPITOL 102
04/04/95 (H) MINUTE(STA)
04/06/95 (H) STA AT 08:00 AM CAPITOL 102
04/06/95 (H) MINUTE(STA)
04/11/95 (H) STA AT 08:00 AM CAPITOL 102
04/11/95 (H) MINUTE(STA)
04/18/95 1345 (H) STA RPT CS(STA) 4DP 2NR
04/18/95 1346 (H) DP: GREEN, PORTER, JAMES, OGAN
04/18/95 1346 (H) NR: WILLIS, ROBINSON
04/18/95 1346 (H) INDETERMINATE FISCAL NOTE (REV)
04/18/95 1346 (H) ZERO FISCAL NOTE (DCED)
04/21/95 (H) L&C AT 03:00 PM CAPITOL 17
04/21/95 (H) MINUTE(L&C)
04/24/95 (H) L&C AT 03:00 PM CAPITOL 17
ACTION NARRATIVE
TAPE 95-43, SIDE A
Number 000
The House Labor and Commerce Standing Committee meeting was
called to order by Representative Pete Kott at 3:20 p.m. Members
present at the call to order were Representatives Masek, Elton,
Sanders, Rokeberg and Kott. Members absent were Representatives
Porter and Kubina. CHAIRMAN PETE KOTT asked that the record
reflect that Representative Kubina is with the Governor, and
Representative Porter is in a Judiciary Committee meeting. He
said the order of business would be HB 251, HB 238, HB 266, and
HB 232. He noted HB 288 would be addressed on Wednesday.
Chairman Kott said the committee would take an hour break at 5:00
p.m.
HB 251 - NATIVE CORPORATIONS
Number 061
CHAIRMAN KOTT referred to the last committee hearing on HB 251
and said the committee adopted some amendments. Those amendments
have been included in the committee substitute (CS), Version M,
dated 4/17/95. He informed the committee there is another CS,
Version O, dated 4/24/95.
Number 072
REPRESENTATIVE NORMAN ROKEBERG moved the CS for HB 251(L&C),
Version 9-LSO662/O, Bannister, dated 4/24/95, be adopted.
CHAIRMAN KOTT asked if there was an objection.
REPRESENTATIVE KIM ELTON objected for the purpose of a question.
He asked if somebody could outline the differences between
Versions M and O.
CHAIRMAN KOTT referred to Version M and said he would explain
what has been deleted. He said there are very few changes,
however, Version M was not adopted. He noted the committee did
adopt some amendments. Chairman Kott said Section 1 was deleted
in its entirety. Section 2 is now Section 1 of Version O. He
said the committee had adopted an amendment that provided for a
petition holder to come up with 10 percent, 1/10 of all the
shares (indisc.) at the meeting. The new CS has raised that to
15 percent. The rest of Section 2 is standard, with the
exception of corporation. On line 7, page 3, the 90 days has
been increased after filing to 80 days. That was a compromise
allowing for additional time. Chairman Kott referred to (o) on
line 17, and said the one year was increased to two years. He
referred to Sections 3, 4, 5 and 6 of Version M, which dealt
mainly with civil and penal application, and said it has been
deleted. Section 7 of Version M, the definition of "Native
corporation," has been omitted. He said those are the changes
between the two versions.
REPRESENTATIVE ELTON said there were some things that he felt
fairly strongly about in Version M. One of them was the one year
versus the two years. He asked what the rational was for going
back to two years.
CHAIRMAN KOTT said after he spoke with the prime sponsor of HB
251, they decided two years would be more palatable to allow a
little more time to ensure the corporation's work was not
interrupted. They could carry out the business of the
corporation on behalf of the shareholders. It would provide for
a little less disruption.
REPRESENTATIVE ELTON asked if the committee has correspondence
from the Department of Commerce and Economic Development. He
noted a constituent of his gave him some correspondence that
reports to be from the department with some departmental
suggestions.
CHAIRMAN KOTT indicated he has a lot of correspondence in his
packet. He noted the correspondence Representative Elton
referred to doesn't ring a bell. Chairman Kott said he supposes
the department, as they are allowed to testify on the new
version, may offer some recommendations if they see fit.
REPRESENTATIVE ELTON asked if he could copy his information and
give it to the committee members.
CHAIRMAN KOTT said the committee would take a brief at ease at
3:27 p.m. The meeting was called back to order at 3:33.
Number 175
REPRESENTATIVE NORMAN ROKEBERG said he had a concern about the
authenticity of the information.
REPRESENTATIVE ELTON said what he wanted to do was give everyone
a copy, and then ask the department about the information.
Number 188
CHAIRMAN KOTT asked if Representative Elton still had an
objection to adopting Version O.
REPRESENTATIVE ELTON said he would remove his objection.
CHAIRMAN KOTT said if there is no further objection, the
committee would use work draft, Version O, as the CS.
Number 195
REPRESENTATIVE BEVERLY MASEK said it seems to her that the bill
is getting more and more complex. She said the committee is
receiving more and more information. There was work draft M and
now there is work draft O. She asked if the committee will be
looking at the letter they were given.
CHAIRMAN KOTT said that is correct. He said the department would
explain their noted exceptions based on the letter as compared to
Version O.
REPRESENTATIVE MASEK said it seems to be getting more and more
controversial. She made a motion that the bill be held, tabled,
until some work can be done on it during the interim. She said
it is getting too complex.
REPRESENTATIVE ROKEBERG objected to Representative Masek's
motion.
CHAIRMAN KOTT called a recess at 3:38 p.m.
Representative Porter arrived at 3:40 p.m.
CHAIRMAN KOTT called the meeting back to order at 4:00 p.m. He
said there is a motion pending.
REPRESENTATIVE MASEK said she would like to restate her motion to
table the bill.
CHAIRMAN KOTT said the motion is to table the bill, HB 251. He
asked if there was an objection. REPRESENTATIVE ROKEBERG
objected.
A roll call vote was taken. Representatives Kott and Rokeberg
voted against tabling HB 251. Representatives Masek, Elton and
Sanders voted in favor of tabling the bill. So HB 251 was
tabled.
HB 238 - NO UNEMPLOYMENT COMPENSATION FOR DIRECT SELLERS
CHAIRMAN KOTT announced the committee would hear HB 238, "An Act
excluding certain direct sellers of consumer products from
coverage under the state unemployment compensation laws."
He said the House Labor and Commerce Committee is the prime
sponsor, by request.
ROD MOURANT, Administrative Assistant to Representative Pete
Kott, said the committee has before them CSHB 238(STA), and read
the following statement into the record:
"The Department of Labor (DOL) has taken the position that direct
sellers are within the coverage of Alaska's unemployment
compensation statutes. CSHB 238(STA), should it become law,
provides an exemption for direct sellers from such coverage.
"Direct sellers are not employees in the common understanding of
the term. They are individuals who sell products, with no
supervision, directly to their customers. They are not paid a
salary, and they are not paid on an hourly basis. Their
compensation is based solely on their success in selling the
product. Because of these factors, direct sellers are individual
contractors and not employees, and therefore, they are outside
the underlying purpose of unemployment compensation.
"The federal government, for purposes of the Internal Revenue
Code, does not consider direct sellers to be employees. CSHB
238(STA) adopts, by reference, the federal standard. Thus,
passage of HB 238 conforms Alaska law with the treatment accorded
to direct sellers by the federal government and the Internal
Revenue."
Number 271
The first person to testify was JOE MARIANO, Vice President
Direct Selling Association (DSA), located in Washington, D.C. He
said DSA is a national trade association that represents
companies and the individuals who sell for those companies, which
market their products through personal demonstration, primarily,
though not exclusively, in the home. Companies like Amway, Avon,
the Kirby Company, Mary Kay Cosmetics, Logger Burger Baskets,
House of Lloyd, Shakley, Tupperware and Nu Skin, are among DSA's
150 corporate members. There are almost six million people,
nationally, who sell for these companies as independent
contractors and includes more than 10,000 people in Alaska.
MR. MARIANO referred to correspondence from DSA's companies and
Alaskan citizens, with regard to HB 238, and said that the bill
was offered in an effort to address a current dispute which a
specific group of direct sellers in Alaska has had with the DOL
about their status under existing law. Most direct sellers have
not had a problem under the existing law, but there is a
unanimous feeling within the industry and among the people who
sell for DSA's companies, that it is very important to pass
legislation this year to deal with the problem experienced by the
local direct sellers and to avoid the possible misapplication of
the law and similar cases in the future.
MR. MARIANO said direct sellers are universally treated as
independent contractors and not subject to unemployment insurance
(UI) coverage. There is no one issue more important to direct
sellers than their independent contractor status. He noted this
has been true, historically, for the entire industry. Most
people who sell direct, enter and exit the business frequently.
Most of the 10,000 Alaskan direct sellers operate their small
direct sales businesses on a part-time bases for only a few hours
every week, perhaps a few weeks or months out of every year.
Their earnings are generally quite small and meant to supplement
their family's other income.
MR. MARIANO said if direct selling was considered to be
employment, the state, direct selling companies, as well as
individuals, would be swamped by paperwork. Most direct selling
companies would go out of business, at least in the form that
they currently do business, because of the increased and
unnecessary costs. Most individual direct sellers would lose
their micro enterprises. Mr. Mariano said in DSA's internal
surveys over the last two years, the independent nature of these
businesses for these individuals has been sighted by them as the
number one reason they get involved in direct sales.
MR. MARIANO said approximately 25 states have laws which
specifically exempt direct sellers from coverage. In those
states which do not, as in Alaska, a more general test, the ABC
test, is used to determine unemployment coverage. Direct sellers
are found virtually never to be covered under these laws.
Unfortunately, the ABC test is subject to somewhat inexact
interpretation and occasional administrative decisions have
determined that direct sellers are found wrongly to be covered
employees. This is what has happened in Alaska with some Kirby
direct sellers. As a result, all of the parties, the state, and
the individuals involved and the companies, can face lengthy and
costly judicial proceedings (indisc.) administrative proceedings
to confirm that the direct seller is an independent contractor
not covered by the unemployment compensation law.
MR. MARIANO said the CS for HB 238(STA), as well as a similar CS
for SB 122 which deals with the same issue, will avoid this
result by making Alaska's law consistent with the other narrow
state laws which define direct sellers. He said the DSA believes
that such consistency and reliability is vital for direct sellers
and the law, and can be accomplished by the simple referral to be
acknowledged in the existing definition of direct selling and
direct seller which is used in the federal Internal Revenue Code.
Many other states have done just that. Such an amendment would
clearly address the current problem.
MR. MARIANO explained that the federal language has been in place
since 1982, and has proven to be a effective limited definition
of direct seller for federal tax purposes, and in those states
that use it for their purposes as well. Only true direct
sellers, the Avon representatives, Amway distributors, Kirby
sales people, etc., have qualified under this definition. He
noted the DOL has indicated that it is rarely, if ever,
supportive of this type of legislation, but has acknowledged the
need and its desire for legislation, in this case, to assist the
local Kirby distributors who engaged in the dispute.
MR. MARIANO said the DSA feels confident that CSHB 238(STA) is
the simplest, most limited and effective manner, of clarifying
their status under the law. The original version of the bill,
which the department did support, would have done so,
unfortunately, in a manner inconsistent with federal and other
state laws. For example, the original language would have
applied to sellers who make sales in the customer's home. Many
direct sellers now sell in the customer's offices, or the home of
a third party hostesses. The CS eliminates that problem by
adopting the uniform, reliable and acknowledged standard. It is
one which the entire industry can support as one that will
clarify the existing law and avoid any potential misapplication
with regard to any direct sellers in the state.
Number 347
ANN CREWS, Manager, Corporate Affairs, Mary Kay Corporation, said
she was in attendance on behalf of the Mary Kay Corporation and
its sales force in Alaska. She expressed support for CSHB
238(STA). Ms. Crews said there are Mary Kay beauty consultants
and sales directors operating throughout the state. She said
this direct selling career is a great income earning opportunity,
usually a second or part-time job for Alaskans. Mary Kay beauty
consultants and other direct sellers are independent small
business people and truly value their independence as much as the
income they earn. In fact, direct sellers were an integral part
of the grass roots process included in the effort to define
direct sellers in the federal code in 1982. Ms. Crews said the
direct seller definition contained in the bill will give Alaskan
Mary Kay beauty consultants and other direct sellers additional
security regarding their statutory classification as a non-
employee independent contractor. She stated she agrees with the
definition. Ms. Crews stated the proposal is revenue neutral as
contributions are not currently made to the unemployment
compensation fund on behalf of direct sellers.
REPRESENTATIVE ELTON asked if there are any Mary Kay direct
sellers who have had a problem with the existing state system.
MS. CREWS said she isn't aware of any specific problems.
Number 399
PAM NEAL, President, Alaska State Chamber of Commerce, said she
is in support of CSHB 238(STA). Ms. Neal said the chamber has
worked with the DSA, and noted Avon Corporation is a member of
the Alaska State Chamber. She said she has worked with Steve
Egli with Kirby Corporation to come to an agreement. The Alaska
State Chamber of Commerce supports CSHB 238(STA).
REPRESENTATIVE ELTON referred to the Juneau Chamber testifying by
letter and said their testimony is in support of the Senate
version of the bill. He said they noted that with the DOL
signing off on the legislation, the bill should be viewed as a
piece of housekeeping legislation.
MS. NEAL stated the Alaska State Chamber of Commerce feels very
strongly that some legislation needs to be passed, either of the
versions. She said it seems that the Internal Revenue Service
(IRS) is usually known to be very strict and narrow in their
interpretations of who could be exempt from anything. She feels
that the IRS version really takes away any idea that these aren't
direct sellers. They are direct sellers and are independent
contractors. She said the Chamber prefers CSHB 238(STA), but
supports either bill. It is very important that something be
passed.
Number 413
STEVE EGLI, Kirby Sales, said his company has been involved in a
dispute with the DOL since 1992. Kirby has been involved in half
a dozen different disputes with the Alaska DOL. The problem is
the current ambiguity of the unemployment statutes, which is
commonly referred to as ABC test. Kirby prevailed in 1974. The
case that Kirby prevailed, which went to the superior court in
Anchorage, was then used against Kirby because they had lost at
the departmental level. He said they were audited March 17,
1992. Because they had paid sales people out of their checkbook,
the department auditor determined that the sales people were
employees with no other bases other than the fact that Kirby
sales people had been deemed by the department to be employees.
Mr. Egli said for Kirby to defend its position, they spent a
tremendous amount of resources. Currently, they are involved
with the superior court with more resources being expended for an
issue that would probably cost a lot less just to settle with the
DOL. He said he is sure the department's costs are probably
similar to his and maybe even higher. Mr. Egli said Kirby's
sales people want to be treated as independent contractors.
Because they are independent contractors, it allows them the
opportunity to make a better living. If they don't make a
living, it is because they aren't skilled in the art of sales.
Most people who aren't skilled in the art of sales aren't going
to stay in a sales type of business. These people aren't
flocking to the DOL asking for unemployment. He said to the best
of his knowledge, Kirby Sales hasn't had an individual file for
an unemployment claim.
MR. EGLI said legislation needs to be enacted. He said the
(indisc.) would work adequately, and the Senate legislation would
also be fine. He urged that legislation be passed this session.
He said his indications are that the DOL is backing the Senate
version. He urged legislation be passed so the ambiguity of the
current situation can be changed. Mr. Egli thanked the
committee.
Number 453
CHAIRMAN KOTT pointed out that both the Senate and House versions
of the legislation are identical.
Number 457
DIRK BLOEMENDAAL, Counsel, Cooperate Government Affairs, Amway
Corporation, testified via teleconference. He said Amway today,
on behalf of several thousand independent Alaska Amway
distributors, wishes to register very strong support for CSHB
238(STA). Mr Bloemendaal said as he has described in written
correspondence to the committee, Amway is a manufacturer and
distributor of a wide variety of home and personal care products
sold by thousands of independent distributors throughout the
country, including several thousand distributors in Alaska. He
said the Alaskan Amway distributors sell products to family,
friends and neighbors to supplement their family incomes. The
sales take place not only in the prospective customer homes, but
also in their customers' offices, the distributors' own homes and
in many other locations. He noted that there are distributors in
Alaska's large cities such as Anchorage, Fairbanks and Juneau,
and also in small towns and villages such as Big Lake, Eagle
River, North Pole, Palmer, etc.
MR. BLOEMENDAAL explained Amway distributors are not employees of
Amway Corporation, but are independent contractors whose status
as independent contractors is not disputed. CSHB 238(STA)
proposes to specifically exempt these direct sellers from the
state unemployment compensation law. The language mirrors laws
enacted by some 25 U.S. states, which directly tracked the
language enacted by the U.S. Congress in 1982. The language is
precise, limited in scope, and ensures that legitimate direct
sellers are indeed exempt from coverage under the state
unemployment compensation law, while ensuring that non-direct
sellers are not exempt from the state unemployment compensation
law. The bill, therefore, codifies the status of all direct
sellers in Alaska and ensures that no misunderstandings or
misinterpretations as to their status will arise in the future.
No persons, other than legitimate direct sellers selling consumer
products in the home, or otherwise in a permanent retail
establishment, can qualify under the language. Further, if the
bill were enacted, it would help all Alaskan direct sellers and
not just a few.
MR. BLOEMENDAAL pointed out the Michigan Legislature enacted
language in Michigan's unemployment compensation law this
session. Because Amway distributors sell products in all 50
states, it is vitally important to Amway that individual state
laws be consistent with one another. Companies and their
independent direct sellers must be able to rely upon the fact
that their status will not change when distributors cross state
lines or do business in another state.
MR. BLOEMENDAAL said the (indisc.) of the ABC test make it vital
that the definition of direct sellers put into Alaska law
accurately and correctly describe all direct sellers doing
business within Alaska. For these reasons, on behalf of several
thousand independent Alaskan Amway distributors, Amway urges the
committee to support CSHB 238(STA), and pass it out of committee.
Number 500
CHAIRMAN KOTT said he would like to make a correction, for the
record, that the Senate bill doesn't match CSHB 238(STA).
However, it does match CSHB 238(L&C), dated 4/20/95, which the
committee has not yet adopted. Chairman Kott asked Mr. Flanagan
to come forward.
Number 506
ED FLANAGAN, Deputy Commissioner, Department of Labor, said a
cover letter to the Chairman Kott, with a memorandum to the State
Affairs Committee, was distributed when the bill was first
scheduled in the Labor and Commerce Committee. He said he wanted
to correct something that might have given a misperception of the
department's position in Mr. Mourant's statement. Mr. Flanagan
said the DOL has not determined that direct sellers should be
covered under the UI. He said as Ms. Crews stated Mary Kay
people have never been caught up in unemployment compensation.
They satisfy the ABC test. He referred to Amway and Shakley and
said nobody has come forward to say that any of them have ever
been found or audited to owe unemployment tax, going back as far
as 25 years. Kirby has about six times since 1972. He said
Kirby had a problem. Two Alaskans that testified prior to him,
the business man who needed a situation addressed and the chamber
representative, mentioned that the Senate bill will take care of
the situation that needs fixing. For the rest of the sellers,
there is a situation where it isn't broke and it doesn't need
fixing.
MR. FLANAGAN said he finds it ironic that in Alaska, of all
states, we're being encouraged to slavishly adopt federal
language from, of all places, the IRS Code. He said it boggles
the mind. Mr. Flanagan said the DOL doesn't like the federal
language. Frankly, the department doesn't care how they do it
outside. He said he doesn't think Alaska needs to be the twenty-
sixth state to lock step and get in line. There is no vagaries
here. Mr. Flanagan said the ABC test is actually a two part
test. First, there has to be a master-servant relationship
established and then there is the ABC test determining the
independent contractor status. There is no problem for any of
the direct sellers whether they are selling in the home, in
someone's office, or in a church basement. They are independent
contractors. The DOL has never audited them and never will.
MR. FLANAGAN said Ms. Crews stated the bill is revenue neutral
and that is because none of them are currently paying, and
nothing in the bill is going to change that. He said Mr.
Bloemendaal mentioned the vagaries of the ABC test. There are no
vagaries. It is very strict and that is why Kirby has repeatedly
been caught up in it. He noted that Kirby prevailed on a point
of the ABC test in either 1972 or 1974, and never really did beat
it. He indicated Mr. Egli is the requester of the bill. He said
the DOL isn't interested in diluting the statute and removing
people from coverage from any of their statutes. They aren't
voluntary. Mr. Flanagan said the commissioner raised a question
about Kirby salesmen, "How do we catch them up in audits and not
Amway, Mary Kay, Shakley, Nu Skin, whoever." He said the fact is
that the DOL didn't ever trigger audits on them, but did in the
case of Kirby and did get the department to look at the
situation. Where the Kirby sellers kept getting hung up was with
the unique arrangement of where there is a central office that
the sellers work with and it has a retail establishment, where
Mr. Egli doesn't sell new Kirbys out of it, so they couldn't
satisfy the ABC test. Mr. Flanagan said the DOL did try to work
out some language. They looked at the federal language. The
original direct sellers language, more specifically than the
federal, included sales of services. There is no way that the
department, and hopefully the legislature, would support that.
He said he doesn't think we need to march to the drumbeat of some
Washington lobbying organization. The DOL fees they have the
responsibility to look out for Alaskan situations. He said he
knows that Mary Kay doesn't need additional security. They are
already secure in their own independent contractor status.
MR. FLANAGAN said the current language in the State Affairs CS
threatens the security of other employees out there. Someone
will figure out a way to call them direct sellers and they'll be
selling services, or they'll be selling from a boiler room
operation telephone sales. He said before the DOL would pursue
anything for Kirby, they did research and couldn't find a single
case where there was a blocked claim. In other words, where an
employee had come forward and said, "I worked for Kirby, so I
should be eligible for unemployment." He said if the DOL had
found one person, they probably wouldn't have even supported the
Senate (indisc.). There are other situations where there are
people selling directory space, etc. Mr. Flanagan urged the
committee either adopt the Senate language as an amendment, or to
move the Senate bill.
Number 578
REPRESENTATIVE ROKEBERG referred to what is in the Senate bill
and said the language still has the IRS reference in subsection
21.
MR. FLANAGAN said State Affairs took the Senate bill and stripped
out the Senate language and put in the "Teffer" (Sp.?) language.
The Senate bill that came over had language that was worked out
with the requester, with Senator Kelly's staff and with the DOL,
to address the department's concerns. He noted there was also
the approval of Kirby, even at the national level. The Direct
Sellers Association decided they had a problem with it.
There was discussion regarding which version of the bill the
committee was addressing regarding a proposed Labor and Commerce
CS.
There being no further testimony, CHAIRMAN KOTT said he would ask
if there is any discussion.
Number 593
REPRESENTATIVE ROKEBERG moved that the committee adopt CSHB
238(L&C), 9-LSO871/G, Cramer, 1-20-95, as the working document.
CHAIRMAN KOTT asked if there was any objection. Hearing none,
Version G was adopted.
REPRESENTATIVE ROKEBERG asked if Mr. Mariano could address CSHB
238(L&C).
CHAIRMAN KOTT reopened public testimony and asked Mr. Mariano to
come forward.
REPRESENTATIVE ROKEBERG said there are two different bills.
There is the IRS citation as well as Sections (a), (b), and (c),
which he assumes is the ABC test. He asked Mr. Mariano to
comment on the prior testimony.
MR. MARIANO said he has two points of clarification. He said he
had not seen the Labor and Commerce Committee CS. The bill that
he was voicing strong support for was the State Affairs Committee
CS which is basically everything through line 6 of what the
committee currently sees. He said what the Labor and Commerce
Committee CS does is combines the two versions of the bill. He
said frankly, the DSA had suggested this, informally, a week ago
as an effort to reach middle ground with the DOL. He said the
Labor and Commerce CS is not the preferred route because it is
not simple and straight forward and is somewhat convoluted. The
straight reference to Section 35.08 of the Internal Revenue Code,
which is through line 6 of the CS before the committee, and what
came out of State Affairs, is a much simpler and more straight
forward version. He said the ABC test in the bill is not the
same ABC test which is the more general broad test, which causes
the DSA problems. The ABC test in the bill does cause them
difficulty standing alone on its own. He understands that it is
somewhat complicated and convoluted.
REPRESENTATIVE ROKEBERG asked Mr. Mariano if he has a
recommendation.
MR. MARIANO recommended that the committee adopt CSHB 238(STA).
REPRESENTATIVE ROKEBERG asked if there wasn't testimony that the
IRS definition tends to be more restrictive.
Number 626
MR. MARIANO said DSA's position is that the IRS language is very
limited and narrow in its scope, however, it does define
differently direct sellers in the original version of the bill,
which is supported by the DOL. He said it is broader in the
sense that it more accurately defines all direct sellers. He
said the DSA believes that it does define, only and exclusively,
direct sellers.
Number 635
MS. NEIL referred to her statement of it being more restrictive
and said she meant that positively. She feels that it covers all
the bases and so they are in support of the IRS language.
REPRESENTATIVE ELTON said he has a couple of proposed amendments
and said the purpose of the amendments is to make the language
the same as what is in the Senate bill, which is preferred by the
DOL. The first amendment is on line 5,...(end of tape)
On line 5 following "who" delete remainder of sentence and all of
line 6.
REPRESENTATIVE ROKEBERG objected.
TAPE 95-43, SIDE B
Number 013
REPRESENTATIVE ELTON said what he is trying to do is get rid of
the third option and revert to the preferred version that the DOL
has testified to which is the Senate version. He said he has two
fairly simple amendments to the Labor and Commerce CS. If these
amendments are adopted, we would be back to the Senate version
that was supported by the representative from DOL. The first
amendment gets rid of the onerous IRS provision that is in the
House State Affairs version.
REPRESENTATIVE ROKEBERG said the onerous IRS division is what the
private sector people are saying they support.
REPRESENTATIVE ELTON said his interest is that the committee has
heard testimony from the affected party, the Kirby Corporation,
where they talked about their problem. Representative Elton said
we're starting with a fairly discrete problem and if we start
adding things to it, he is afraid that what is going to happen is
nothing this session. He said what he is proposing is a simple
approach that is supported by the department, and is solves the
Kirby Corporation problem. He said he would hate to be in a
situation where we try to expand the definition of the problem
and the way that problem is solved, and have the DOL go to the
Governor's Office and end back at ground zero.
CHAIRMAN KOTT said he hates to address a particular single issue.
He said he isn't going to guess what the Governor might or should
do. He said he thinks as long as the committee takes care of a
potential problem, it should be done with this vehicle. He said
there is another vehicle available which is the Senate version.
REPRESENTATIVE ROKEBERG said he still maintains his objection.
Number 068
A roll call vote was taken on Amendment 1. Representatives Elton
and Masek voted in favor of the amendment. Representatives
Sanders, Kott and Rokeberg voted against Amendment 1. So
Amendment 1 failed.
Number 077
REPRESENTATIVE ELTON said Amendment 2 is on page 12. It restores
language that is in the Senate bill under subparagraph (i).
After "commissions on sales" insert "or other remuneration
directly related to sales or sales performance;".
CHAIRMAN KOTT said he would like to amend that amendment. He
asked it to be considered a friendly amendment. On line 6, after
the word "as amended" insert "." and delete the rest.
REPRESENTATIVE ELTON said it is different than his Amendment 2,
which related more to the first amendment. He said the question
he has is what is the effect. He noted he thinks there is a
punctuation problem.
CHAIRMAN KOTT said we would have a "." after "as amended".
Anything after "as amended" would be deleted. That would take it
back to the original bill.
REPRESENTATIVE ELTON said the only objection he would have is
that there is an amendment pending that isn't anything close to
Chairman Kott's amendment.
CHAIRMAN KOTT withdrew his amendment and said the committee would
deal with Amendment 2. He asked if there was an objection to
Amendment 2.
Number 123
REPRESENTATIVE ROKEBERG objected. He said he wishes to delete
the whole area below it, that it becomes redundant. He said that
is why he is objecting.
Number 130
A roll call vote was taken on Amendment 2. Representative Elton
voted in favor of the amendment. Representatives Rokeberg,
Masek, Sanders and Kott voted against the amendment. Amendment 2
failed to be adopted.
CHAIRMAN KOTT offered Amendment 3, page 1, line 6, insert a "."
after the word "amended" and strike the remaining portion of line
6 as well as lines 7 through page 2, line 5. He moved the
amendment.
REPRESENTATIVE ELTON objected. He said he has heard from Mr.
Egli, who is one of his constituents, that there is a problem.
He said the testimony that the committee has heard is from a
national professional association and some national and multi-
national corporations who don't have a problem that needs fixing.
All of a sudden, the committee is fixing a problem for one of his
local constituents with language that is being proposed and
brought to the legislature from Washington, D.C., from Dallas,
Texas, and other points of the globe. Representative Elton said
by fixing it in the way they want, he believes that his
constituent and the problem is being put at risk. He said he
doesn't want the committee to come up with a solution that is a
solution for three months until it gets to the Governor's desk,
and somebody decides that they're going to listen to the DOL
better than the legislature listened to the DOL. He said he
objects to this because we're risking some help that will come to
one of his constituents. He said the only Alaska input that the
committee has received is a sheaf of one sentence letters that
all came from the same fax machine in Anchorage. He said, "I
don't think that is necessarily the way we help my constituent."
CHAIRMAN KOTT said he has a sheaf of additional fax material that
has come from all over.
REPRESENTATIVE ELTON said he has information from all over too,
all over the United States. He said the information he has from
Alaska came from one fax number in Anchorage.
Number 197
CHAIRMAN KOTT said since the committee sponsored the bill on
behalf of Mr. Egli, he thinks the amendment, as proposed, would
be all inclusive to cover Mr. Egli's problem. He said by
initiating the original bill, it was brought to his attention,
that there may be some other potential problems that could be
headed off before they occur. Whether or not there is a problem
out there remains to be seen. Chairman Kott said, in this
particular case, he thinks it would do more good than harm by
supporting the bill as it is hopefully going to be amended.
REPRESENTATIVE ELTON said if this language is the best approach,
he would appreciate some kind of an explanation on why the
committee felt that we needed a CS, that was briefly glanced
over, and now we're going back to the bill as it came to the
committee. There must be something that compelled the committee
to change the State Affairs version. He said he hasn't heard
what those reasons are.
Number 205
CHAIRMAN KOTT said the State Affairs version, as well as the new
CS, contains the Internal Revenue Code as part of it. He said he
had asked his staff to try and work with the DOL on some language
that would address their particular concerns. That was the
reason additional language was included. It clarifies
specifically the intent. However, it is his understanding that
this isn't satisfactory, so the committee will go back to the
original State Affairs version of the bill. He said he would
object to the motion to adopt Version G. Chairman Kott said he
has moved Amendment 3, and asked Representative Elton if he is
still maintaining his objection. REPRESENTATIVE ELTON indicated
he is maintains his objection.
A roll call vote was taken. Representative Sanders, Masek,
Rokeberg and Kott voted in favor of the amendment.
Representative Elton voted against the amendment. Amendment 3
was adopted.
Number 247
REPRESENTATIVE SANDERS made a motion to move CSHB 238(L&C) out of
the House Labor and Commerce Committee with individual
recommendations, unanimous consent and zero fiscal notes.
CHAIRMAN KOTT said there is a motion to move CSHB 238(L&C),
Version G, out of committee with individual recommendations. He
noted there was a request for unanimous consent. Chairman Kott
asked if there was an objection.
REPRESENTATIVE ELTON objected.
A roll call vote was taken. Representatives Rokeberg, Masek,
Sanders and Kott voted in favor of moving the bill.
Representative Elton voted against moving the bill. CSHB
238(L&C), Version G, as amended, with a zero fiscal note, was
moved out of the House Labor and Commerce Committee.
HB 266 - HEALTH CARE PREFERRED PROVIDER PROGRAMS
Number 266
CHAIRMAN KOTT announced the next order of business the committee
would address would be HB 266, introduced by the House Labor and
Commerce Committee.
MR. MOURANT came forward to give the sponsor statement:
"In the preferred providers bill, which is HB 266 before you, it
allows a hospital or a medical services corporation to offer a
preferred provider service agreement to a health care provider or
a hospital. It prohibits exclusion of a health care provider or
a hospital from being treated as a preferred provider if the
health care provider or hospital agrees to the terms and
conditions of the existing preferred provider agreement."
The first person to testify was DAVID A. MCGUIRE, Orthopedic
Surgeon. He testified via teleconference from Anchorage. He
said he is in support of HB 266. It is clear that the cost of
health care has become a major issue for everyone. He said he
believes that there is unanimous agreement that we would like to
make the provision of health care more affordable and more
available for everyone. The question of how to do that is not
one on which there is unanimous agreement. An alternative
approach has been promulgated by private non-governmental
approaches and has been one of so called managed care, preferred
providers or HMOs. There have been cost savings affected by
these (indisc.) Dr. McGuire said the state of Alaska is a little
bit different, in some regards, than down town Los Angeles, New
York, or other similar urban environments. The problems that we
face in the state of Alaska are one of total numbers of
population and geographic distances and, therefore, the
availability and the dispersion of health care facilities.
DR. MCGUIRE explained the problem is that in the end we've got to
remember that the reason health care facilities and health care
exists is that we're concerned about providing for the individual
needs of the patients. He said there are some specialties in the
state that are represented by as few as three or four
practitioners. It is clear that there is an exclusive HMO or PTO
provider and that arrangements will either have to be made with
those practitioners or with the ability to send patients outside
for treatment. We advance the proposition that anyone should be
free to set up any kind of a program that they like that
restricts the total payment for circumstances under which they
can be delivered. If any other provider is willing to provide
the same service for the same price, same quality, etc., then
given the geographic limitations of Alaska, it would be in the
best interest, as opposed to having the case that a single
dominate provider may be the only one that provides (indisc.)
excluding other providers, and in the end reducing or eliminating
rather than enhancing competition.
DR. MCGUIRE said it is the patient, sometimes, who is (indisc.)
being used as the trading chip in order to get a service for a
lower price. One of the negotiating strategies is to say that
insurance company or another entity will agree to deliver an
increased volume of patients to a health care provider in return
for a reduction in cost. The problem is that the patients
involved don't know that they have been traded in the cost until
they come to use the service, then many times, they become aware
that they are not able to go to the provider of their choice
because of the restriction in their insurance contract of which
they may have been unaware.
DR. MCGUIRE said he would argue that nobody disputes the need
that we should reduce the cost for (indisc.). He said there once
was a time when hospitals and doctors provided information about
the cost of service in advance to the patient. Dr. McGuire
suggested that we go back to that concept. Almost anybody who
provides service should at least have a good idea of how much it
costs to provide the things that are most commonly provided. He
suggested a system be established in which any patient can call a
health care provider, whether it be the hospital, the doctor, the
nursing home, the pharmacy, etc., and inquire as to the price of
a service. That service should be represented as being
comprehensive. Once the patient has received that service, the
bill should be the same as that which was quoted prior to the
patient selecting that provider for the service.
DR. MCGUIRE said in the instance in which there are complications
or other contingencies that were not foreseen, the provider would
have the opportunity to charge more for their services, but would
also have to refer to the Division of Insurance that there had
been a deviation from their prospective pricing. This puts the
power where it should be, in the hands of the patient. They
decide who their provider will be and what they are willing to
pay for (indisc.) provider. It requires that the provider adhere
to an economic (indisc.) that they have not (indisc.) asked to
adhere to. He suggested that HMOs are a good deal, but asked
where all the money is going to be saved. Mr. McGuire said he
would be happy to answer questions.
Number 384
REPRESENTATIVE ELTON said if anyone is free to match the terms
and conditions of preferred provider service agreements, what is
the incentive for a group to come in and bid at a low rate. They
may say that they can provide services at a low rate. What is
the incentive for them to quote a low price if they know that if
they lose the bid, they still get to provide the service anyway
by matching what the competitor bid.
DR. MCGUIRE said any insurance company is free to provide an
insurance policy with a maximum limitation. Of course, the
argument goes that if the patient has an insurance policy, they
will be subject to the remaining balance should the insurance
company not pay it. He said what occurs when that is reality is
the patient is infinitely more in tune to the cost of medicine
that he/she may choose to have. Dr. McGuire referred to his own
office and said they never have screwed someone because of their
ability to pay or not pay, so an insurance policy that provides a
benefit that is less than some other insurance policy is not very
likely to be thrown out the window. He suggested that there is
also a competition that can improve with the insurance companies
and that is that they can provide a product that says, "For `X'
amount of dollars in reduction of monthly benefits, you will have
this coverage, and this coverage will pay up to `X' in certain
instances. Then there can be built into those policies
provisions for catastrophic losses."
DR. MCGUIRE explained not much has been said about the paperwork
hassles associated with insurance companies. He informed the
committee he is a one person practitioner and has an association
with a group to be certain. He said he pays the salaries of his
staff and has a full-time person doing nothing but (indisc.)
authorization on insurance, certification, follow up on claim
denials, etc. Dr. McGuire said he would be more than happy to
negotiate reductions in rates with insurance companies. The
(indisc.) being that they would relieve him of some of the
hassle that is associated in provided care for patients. He said
there are a lot of incentives out there to reduce health care.
DR. MCGUIRE said he would like to remind everyone that he
believes in advancing the proposition that these prices ought to
be public, posted and accountable. That would give the patient
the opportunity to be a deciding consumer of health care by being
able to legitimately compare prices between the various
providers.
REPRESENTATIVE ELTON said there is currently nothing that stops a
provider from posting a price. The bill doesn't get to that
issue at all.
DR. MCGUIRE noted he isn't proposing that one bill will solve the
entire health care problem. He is proposing that what is being
said by those proponents is that the only tool they have is one
that is restrictive, coercive, and in the end, limits the
patient's freedom of choice as to what provider they want to
have. He doesn't believe that it is right, on behalf of the
patient, to be limited as to choice. There are other means of
controlling health care.
REPRESENTATIVE ELTON said he doesn't see the bill as limiting
choice at all. The bill only provides that if you want to go
elsewhere, you pay the difference. If there is not a difference,
there is no problem with choice.
DR. MCGUIRE said he agrees with Representative Elton's last
statement completely. Dr. McGuire said what he is saying is that
there are those people who would propose that they would limit
the patients access by requiring that they would only be able to
go to a single provider or else they wouldn't be covered; or, the
differences between coverage would be so financially onerous as
to be effectively unavailable.
Number 456
REPRESENTATIVE ROKEBERG said the effect of the legislation is
that a patient may not have (indisc.) to pay that cost
differential between what the insurance company is going to
provide and what another physician may be charging. He asked if
that statement is correct.
DR. MCGUIRE referred to so called preferred provider organization
plans (PPO) or HMO or other kind of plans, and said there is one
in Anchorage where if a patient goes to the designated preferred
provider, then they are billed at the standard rate. The
insurance pays 80 percent of the charge and they pay 20 percent.
However, if they do not go to the designated provider, then the
insurance company will only pay 20 percent and the patient has to
pay 80 percent. The difference between those two is so
financially onerous that very few individuals have the (indisc.)
to make up that difference. Passage of this bill would say that
if a patient felt strongly that they wanted to go to another
provider, the insurance company would be required to pay the same
benefit as they would to the first provider. If the insurance
company in question wants to limit the total amount that they
would pay, there is no restriction on that ability whatsoever.
REPRESENTATIVE ROKEBERG asked Dr. McGuire if he thinks the bill
would really only affect the Anchorage area. DR. MCGUIRE said he
doesn't think that is true. He said we are talking about
providers as a group. It isn't too difficult to imagine that in
some of the other outlying areas, a hospital could decide that it
would only allow certain physicians to provide these services.
REPRESENTATIVE ROKEBERG said he appreciates Dr. McGuire's
comments about choice, selection, health delivery services, etc.
He asked Dr. McGuire if he posts his prices in his office. DR.
MCGUIRE said he doesn't, but when anybody asks him, he does give
a detailed accounting of what they will be. He said the prices
are available to anyone who asks.
REPRESENTATIVE ROKEBERG stated that he had asked a surgeon less
than twelve months ago what he was going to charge for a major
operation. The surgeon had no idea and referred him to his
office risk management claims supervisor because he didn't know
what he charged. DR. MCGUIRE said he didn't know exactly the
history of how that has come to be but believes that has
something to do with the contest of a third party payer. When
the consumer is not really going to pay the price of service of
product (indisc.) ordered, than there becomes less pressure to
ask the provider exactly how much it is going to be. That is one
thing that can be done to encourage more cost awareness on the
part of everyone.
Number 516
CHAIRMAN KOTT referred to Dr. McGuire statement that, if someone
asked, he would give the cost of what a particular surgery might
be. He asked Dr. McGuire if he is fairly accurate in his cost
estimates based on no complications. DR. MCGUIRE said he tries
to be accurate. There has been instances where the patient comes
back and says that wasn't the cost. He said he reviews the bill
and tries to find out where any misunderstandings occur. That is
the way it should be.
Number 528
JACK MCRAE, Senior Vice President, Blue Cross of Washington and
Alaska, was next to testify in opposition to HB 266. He read his
statement into the record:
"We are very concerned about the concept of any willing provider
and we strongly believe that if passed, HB 266 will increase
health care costs for our members and other Alaskan citizens. As
you are aware, health care costs have decreased over the last
year. They are not down to rate of inflation nationally, but are
lower by half of what most economists predicted for 1994. A
major factor in this decline is managed care and HB 266 will take
a step backwards if passed.
"Blue Cross of Washington and Alaska's goal is to keep health
care costs down and to provide the highest quality of health care
costs to our members. Under the present concept of managed care,
we're able to offer the highest quality health care costs at the
lowest cost.
"Now I'd like to comment on specific concerns with the bill
itself. The language that states, `A subscriber's contract
containing a preferred provider program must provide for payment
for a service provided by a non-preferred provider or hospital.'
Our interpretation is that that could mean that we have to pay
any bill that comes to us if this law were to pass, and we're
very concerned about the cost that will be accelerated under the
willing provider concept.
"We're also concerned about the 90 day implementation portion of
the bill. We believe it's going to be very very difficult to
change computer systems and a variety of things that are in the
90 day implementation schedule. It doesn't seem workable from
our perspective.
"We are also concerned about the constitutionality of the state
legislature modifying contracts between private parties. I
understand there have been court rulings in Alaska pertaining to
that subject.
"The next area I would like to cover are the positions that the
national associations have taken on the concept of any willing
provider. The National Association of Insurance Commissioners,
the National Governors Association, and the Federal Trade
Commission have all opposed the concept of any willing provider
and we have some documentation we'll hand out pertaining to those
positions they've taken. These organizations and many state
organizations have recognized the inflationary and quality
problems created by implementing what is in HB 266. I will not
quote from the above organizations because we've submitted all
the information for testimony.
"In conclusion, we believe that it would not be in the best
interest of our members in Alaska if HB 266 were to become law.
We believe health care costs will go up if HB 266 passes and the
quality of the care could go down.
"I want to thank the committee for taking the time today to
listen to Blue Cross and if you have any questions, I will be
more than willing to try to answer those."
Number 563
REPRESENTATIVE ROKEBERG said, "Assuming the worst case scenario
from Mr. McRae's perspective, is there a time frame that would be
workable?" MR. MCRAE said it would take until 1996 at least. He
noted his company is currently in the process of adding new
computer programs, they would all have to be modified. It would
be much longer than 90 days. But noted he couldn't give a
specific answer.
REPRESENTATIVE ROKEBERG referred to having caps on particular
procedures and said Mr. McRae suggested that he would be in a
position where he would have no control whatsoever. He asked Mr.
McRae if he internally provides some maximum caps in terms of
what they pay on all procedures to all policy holders. MR. MCRAE
said they are able to do that because they go into an area and
negotiate with preferred providers. They tell the preferred
providers that they will bring them a volume of business and that
this is what they'll pay for a certain service. He said that is
a way that costs can be held down. If there weren't any
negotiations and everyone is free to send Blue Cross the bills
even though they have put a cap on it, there is not leverage to
go into a specific area and negotiate because everyone is in the
same playing field. There is not a preferred provider concept.
Mr. McRae said they currently go to one block of providers,
clinics or hospitals and say, "Do you want to accept our rate for
this process and, in turn, we'll bring you a volume which is
greater than you have now." In a lot of cases, they say yes.
Number 592
JERRY REINWAND, Lobbyist, Blue Cross of Washington and Alaska,
said part of the testimony was directed at the last sentence of
the bill, "What is the net effect of that sentence? It would
appear that anybody who submits a bill who is a non-preferred
provider, we'd have to pay the bill. I think that was the issue
Mr. McRae was trying to raise."
Number 599
STEVEN LEBRUN, Senior Account Manager, AETNA Health Plans,
testified via teleconference from Seattle, Washington. He said
AETNA is an insurance and managed care company that offers most
traditional medical benefit programs and managed care programs
that include preferred provider arrangements. He said he is in
opposition to HB 266. Preferred provider programs are a tool for
employers and collective bargaining groups, in many cases, to
help manage benefit costs. Managed care saves money and these
savings are passed on to employers in the form of lower premium
rates. Perhaps more importantly, you can (indisc.) in the form
of lower co-payments and out of pocket costs. Currently, many
thousands of Alaska residents are enrolled in preferred provider
arrangements sponsored by AETNA, both in the public sector and
private sector employer groups.
MR. LEBRUN said AETNA feels they need to encourage and not thwart
a market based solution that leverages competition and provides
for lower costs while not compromising the quality of care.
Preferred provider networks involve appropriate and beneficial
collaboration between insurance companies and provider groups.
AETNA feels that the results of these collaborations are in the
public interest of providing cost effective quality care.
MR. LEBRUN referred to the issue of choice and said there has
been testimony relating HMOs and excluding providers. He said he
would like to clarify and said he isn't talking about HMO
(indisc.) plans, with regard to HB 266, that they require special
regulatory authorization. Under preferred provider arrangements,
providers are not excluded nor are individual unable to see
providers. Under AETNA sponsored plans, there are still
meaningful and significant reimbursements available regardless of
the provider chosen. Most typically, AETNA's plans provide a 10
to 20 percent benefit differential and that occurs within the
context of still providing a very reasonable overall out of
pocket limit for any individual in any calendar year.
MR. LEBRUN said the problems AETNA has with any willing provider
is that it removes incentives for contracting and removes the
leverage that they have with providers. That is the trading of
patient volume for preferential pricing and, therefore, being
able to construct networks or provider relationships that are
suitably sized to take advantage of competitive market dynamics.
In addition, the ability to contract selectively also allow AETNA
to maximize their ability to work with providers in the areas of
quality assurance, performance standards and the like.
MR. LEBRUN referred to the value to consumers and said as part of
AETNA's contracting with preferred providers, they do negotiate
prices with providers and do not allow balance billings. It does
provides consumers of health care a certainty that the percentage
they pay of the bill will be their only obligation and all other
payment requirements will be fully met by the insurance company.
This would avoid the situation with non-preferred arrangements of
having reasonable and customary limits that create a balance
billing situation for individuals.
MR. LEBRUN said AETNA feels that any willing provider provisions
like those in HB 266 threaten to blunt the effectiveness of
managed care plans to control costs and manage quality. AETNA
finds that in Alaska and the lower 48, where managed care is in
much broader acceptance, that rates of inflation are lower then
they are with traditional plans. Costs are often 10 to 20
percent lower than traditional (indisc.) service plans, at the
same time that managed care plans promote and provide extensive
benefits for wellness and Medicare and avoid the imposition of
large up-front deductibles.
TAPE 95-44, SIDE A
Number 000
MR. LEBRUN said he is available to answer any questions the
committee may have.
REPRESENTATIVE ROKEBERG referred to AETNA being the provider for
state of Alaska employees and asked if they provide any kind of
policy like that to an individual person in the private sector
with a non-group basis. MR. LEBRUN stated AETNA only operates in
the group insurance market in Alaska and elsewhere. Their health
insurance is employer based.
REPRESENTATIVE ROKEBERG asked if it would be a fair proposition
to say that the savings that you realize when you negotiate a
preferred provider (indisc.) contract is passed along to the
policy holders within AETNA's groups. MR. LEBRUN said,
"Certainly, we prepare reports that show the value of the managed
care arrangements that are in place."
Number 051
DOUGLAS CARTER SMITH, President, Anchorage Medical Society,
testified via teleconference. He said he represents 211
physicians in Alaska. Mr. Smith said he is in support of the
preferred provider bill. HB 266 protects or preserves the
autonomy of the doctor/patient relationship. The health consumer
would be able to continue with the care of his/her chosen
position regardless of who becomes the third party payer. When
the hospital or medical service corporation selected by Alaskan
employers is switched, that person would not have to switch
physicians. When Alaskans change jobs and find themselves under
a new health care program, they would not be forced (indisc.) to
achieve this new position. Some have argued that potential
hazard exists if this bill goes into effect. They say that the
motivation for offering services at a savings would be lost if a
specific (indisc.) patient population cannot be guaranteed to the
same physician or hospital provider. This could be the stance
taken by some physicians or hospitals. He said he suspects it is
more likely the competition and free market encouraged by HB 266
will result in the offering of services at the lowest possible
prices. Mr. Smith said providers would understand that to get
and keep more patients, they would have to offer services at a
minimum cost with maximum (indisc.) The Anchorage Medical
Society supports the preferred provider concept such as described
in HB 266.
Number 082
REPRESENTATIVE ELTON asked Mr. Smith to explain a little more
about his organization.
MR. SMITH said the Anchorage Medical Society is from the
Municipality of Anchorage and includes all specialties. The 211
physicians who are current members represent a majority of all
physicians in the area.
Number 100
GORDON EVANS, Lobbyist, Health Insurance Association of America
(HIAA), testified in opposition to HB 266. He said HIAA is a
trade association of the nation's leading commercial health
insurers which provides health insurance for approximately 55
million Americans. He said the bill would essentially allow
hospitals or medical service corporations to offer a preferred
provider service agreement to a provider or hospital licensed in
Alaska. Currently, Alaska doesn't have a statute directly
authorizing the operation of PPOs in the state. He noted there
is a model PPO Act drafted by the National Association of
Insurance Commissioners which has not been adopted in Alaska. HB
266 would not serve the same purpose as a true PPO Act. HB 266
is nothing more than a badly disguised provider mandate. The
consequences would increase the costs and reduce the efficiencies
of managed care. An integral part of managed care is the
provider network. When a managed care plan such as a PPO, enters
into a contract with a particular provider it seeks to accomplish
several purposes. One is to establish a long-term relationship
with that provider that enhances the plan's market attractiveness
and its ability to provide access to quality health care. A
second purpose of the plan is to establish a method of
reimbursement with the provider that improves the plan's ability
to manage its health care costs effectively. Managed care plans
attract providers by guaranteeing access to a specified pool of
enrollees. If all providers in a community are required to be
included in a plan, as the second sentence in HB 266 would
require, there is no economic incentive for any provider to enter
into an alternative delivery or reimbursement system. Any
willing provider laws erode savings since the costs of a plan
increase, savings can no longer be passed to the consumers. The
value of the plan for consumers is lost.
MR. EVANS said HIAA believes that managed care systems should be
able to limit their networks of providers and to alter
reimbursement systems to reward efficient providers in their
network. Insurers should be free to negotiate reimbursement
schedules with providers to contain health care expenditures.
HIAA is opposed to legislation that would restrict the ability of
an insurer or other entity to contract with providers and which
would require the insurer to accept any provider in a particular
service agreement. The Federal Trade Commission has determined
that any willing provider mandates are anti-consumer and, "may
discourage competition among providers, in turn, raising prices
for consumers and unnecessarily restricting consumer choice in
prepaid health care programs without providing any substantial
public benefit." Mr. Evans urged the committee to reject HB 266.
Number 178
MARILYN PATTERSON, Human Affairs Alaska, said her organization
has been in business since 1979, when the owner pioneered the
concept of employee assistance programs in Alaska. They provide
employees an employer prepaid mental health benefit. The
preventive approach for helping employees to get back on track by
resolving their personal or work related problems early, helps to
maintain workplace productivity and other job performance
indicators as well as reduce potential costs later for medical
and surgical claims. Ms. Patterson said they also provide
managed behavioral health care programs since 1989. They are the
largest of employee assistance programs and are the leading
provider of managed mental health care. She noted they serve
over 200 companies and organizations, have more than 50,000
employees and with 120,000 covered members. Their offices are in
Fairbanks, Juneau, Wasilla and Anchorage. Ms. Patterson noted
they are strongly opposed to HB 266, or any other amendment or
legislation that would potentially restrict their ability to
offer managemental health care programs.
MS. PATTERSON said many of their customers are interested in
providing a mental health benefit to their employees, but
managing this benefit helps to contain costs for the company
while still providing a valuable service to the employee. Human
Affairs Alaska uses a preferred provider network of physicians,
therapists and treatment facilities that meets their clinical
standards and they contract with providers who share their brief
therapy - problem - resolution behavioral management philosophy
assuring compliance with the health plan's requirements. They
are able to negotiate favorable financial arrangements with
providers in return for supply and increased patient volume.
Having preferred provider networks makes it possible for them to
monitor provider performance, ongoing quality assurance and
utilization management programs more efficiently. It helps to
minimize administrative overhead in monitoring the treatment
patterns by maintaining the electronic connectivity. Ms.
Patterson said she believes HB 266 discourages competition among
providers of health care. Requiring that programs be open to all
providers wishing to participate on the same terms, reduces the
portion of her business that each preferred provider can expect
to obtain. This makes it less advantageous for providers to
enter into agreements at discounted prices, since any provider
would be entitled to contract on the same terms as other
providers, gives little incentive for providers to compete in
developing attractive innovative and cost containing proposals.
Because this would make it possible for all providers to free
ride on a successful proposal formulation, providers would likely
be less willing to bear the costs of developing a proposal.
There would be no reason or motivation for them to be
competitive.
MS. PATTERSON said she understands that the Federal Trade
Commission's staff, in response to requests from officials in
other states considering legislation that requires managed care
plans to contract with any willing provider that wants to beat
the health plan terms and conditions, has issued opinion letters
stating that this type of legislation discourages competition
among providers of health care and may promote increased costs.
MS. PATTERSON said HB 266, in its current form, applies only to
Blue Cross at the moment, could easily be expanded to cover Human
Affairs. If applied to them, the legislation would eliminate
their ability to offer managed health care programs to their
customers. She said it is their experience that competition is a
powerful and necessary tool in controlling costs. Managemental
health care will only work in a competitive environment, which
contains costs by integrating financing and delivery of health
care.
MS. PATTERSON said her company believes HB 266 is anti-
competitive, will promote increased costs and provides no benefit
for her company, customers, or the thousands of employees they
serve across the state who benefit from their contracts with
preferred providers. She asked that HB 266 not be passed out of
committee in any form.
Number 265
REPRESENTATIVE ROKEBERG asked Ms. Patterson who she works for.
MS. PATTERSON said she works for Human Affairs Alaska. She said
they contract with individual companies and organizations across
the state to provide employee assistance programs for their
employees.
REPRESENTATIVE ROKEBERG asked if they are already under an
insurance program. MS. PATTERSON indicated they could be under
AETNA, Blue Cross, etc.
REPRESENTATIVE ROKEBERG asked if Human Affairs Alaska is
compensated from the individual's existing group policy or are
they selling another type of service which requires an additional
premium. MS. PATTERSON said they are compensated by the
organization they contract with. She said they are organizations
from the Municipality of Anchorage, the Alaska Railroad, Aleyska,
British Petroleum, small little non-profits, etc. She explained
the Employee Assistance Program is a gatekeeping means for the
managemental health care that Human Affairs does, but many
organization just have the Employee Assistance Program.
REPRESENTATIVE ROKEBERG asked how the bill would make things less
competitive for her organization. MS. PATTERSON said her
organization negotiates with preferred providers. They have a
partnership with them where they agree to work with them in
managing the mental health care of somebody who comes in for
service. For example, if an employee decided they wanted a
psychiatrist and picked one out of the "Yellow Pages." She said
by coming to Human Affairs Alaska, they could assess what their
needs are and a psychiatrist could be a very inappropriate level
of service for what they need. So they work with Human Affairs
Alaska, go through counseling and, if necessary, they are sent to
the appropriate level of care. HB 266 would eliminate
competition. She said they have partnerships with various people
who are in agreement with the type of behavioral health care that
they do. They have negotiated discounted rates for them.
Number 343
CHARLIE MILLER, Alaska Regional Hospital, indicated that his
organization would give testimony at the next meeting on HB 266.
He noted that the person who was going to give testimony had
become ill.
DON KOCH, Chief, Marketing Surveillance Section, Division of
Insurance, Department of Commerce and Economic Development, said
they have some challenges with the bill as it is currently
structured. He said the department would like to suggest an
alternative that they believe accomplishes what the committee
intends.
MR. KOCH said HB 266 only impacts a medical or hospital service
corporation that has been formed under AS 21.87. The service
corporations are not insurers in the normal sense. He referred
to the solvency of these two types of organizations, an insurance
company versus a service corporation. With an insurance company,
you base your solvency on capital, surplus and reserves. In
order for an insurance company to operate in the state, they have
to have a certain level of capital and surplus. Generally, it is
fairly high. In addition, they are subject to a guarantee fund
so that if an insurance company goes down, all of the other
companies in the state writing that kind of business pick up the
ticket. A service corporation, formed under Chapter 87, is
dependent upon the contracts it enters into as the basis of their
solvency. They use two contracts. The first one is called a
service agreement. That is what they enter into with their
provider, the hospital or doctor. That is the basis of their
solvency. Blue Cross, Blue Shield or a medical or hospital
service corporation is not required under the statutes to have a
capital surplus kind of structure because it basically is
accomplished through these contracts. Mr. Koch said in order to
provide service, they use a second contract which is a
subscriber's contract. What the subscribers contract does is it
offers access to the service agreements that they have with
hospitals. He explained that is distinct from the way an
insurance company does it. When they offer a policy, they offer
an indemnity contract. Mr. Koch said as of Friday, they have the
Attorney General's opinion that says preferred provider
arrangements are legal in the state of Alaska without specific
authorization. This means that an insurance company could enter
into a preferred provider arrangement and have side contracts
that basically have doctors or hospitals agreeing to provide the
indemnity provisions under the insurance policy at certain
levels.
MR. KOCH said the problem the department has with HB 266 in its
current form is they believe it disturbs the structure of a
Chapter 87 service corporation. He said it needs to be clearer
that the service agreement is still in place. That is the
solvency picture for these kinds of service corporations. Mr.
Koch referred to the language the department provided and said
the second sentence clarifies the fact that a service agreement
still needs to exist. It also makes a distinction between the
service agreement at a participating level and a preferred
provider agreement. It says that anybody who can meet those
terms and conditions, of either the participating agreement or
the preferred provider arrangement, can do so. Nobody will be
excluded from the opportunity to become a preferred provider if
they will meet the terms and conditions and enter into a service
agreement. They have to be able to enter into a service
agreement. Another thing the language does is it provides three
conditions under which services would have to be paid if provided
by somebody who is not in one of these service agreements. For
example, if you're traveling outside of Alaska, you have an
emergency, and you can't get to a hospital or doctor in the state
of Alaska to take care of an emergency service, you have to
indemnify for that kind of service.
MR. KOCH said another provision is that if you are a preferred
provider, you must, under that contract, allow service by a
participating provider in the area. You could have two levels of
service, the preferred and the normal participant. The language
says that while those may have different levels of benefit, the
person who is receiving care has the option of which one he goes
to.
MR. KOCH said if you're in Alaska, in an area of the state
without the medical service corporation or the hospital service
corporation, you have to also be allowed to go to somebody who
can provide the care who is in that area.
Number 440
REPRESENTATIVE ELTON referred to the last three provisions in the
language he gave committee members and said absent this language,
what would happen if the committee doesn't adopt HB 266.
MR. KOCH said absent any action at all, a medical service
corporation or a hospital service corporation presently can enter
into preferred provider arrangements. That is clear from the
Attorney General's opinion. Mr. Koch said the statute currently
provides that they may provide these other indemnification kinds
of services for the out of state emergency or the in state
emergency. It says they may. He explained there is not a real
strong incentive for them to provide this to a great extent
because, again, we're talking about their solvency base. This is
a clarification of what currently exists. He noted that in the
current statutes do not specifically address preferred versus
non-preferred providers and the fact that you have to allow
options for both. That is voluntary.
MR. KOCH said currently they can enter into these kinds of
agreements. Typically, they provide the out of state or out of
area emergency care. The one thing that isn't particularly
addressed is in the area of the non-participating kind of thing.
Number 464
REPRESENTATIVE ELTON asked Mr. Koch if he has ever heard of a
problem that makes him think that the language is necessary. MR.
KOCH said there is currently an issue that tends to suggest there
may be a problem. That is primarily in the Anchorage bowl where
there are two public hospitals and a contract with only one. He
said he thinks that is part of the reason there is legislation
like HB 266.
REPRESENTATIVE ELTON said some of the testimony says that
preferred provider plans typically decrease the cost to an
employer and employee. He said if somebody doesn't have a
financial oar in this water, what has his experience been. Do
preferred provider plans, as presently constituted, typically
provide a savings to the consumer or the employer?
MR. KOCH said he has not explored that. Currently, the
department doesn't have rate authority on health care insurers
with the exception of hospital medication service corporations.
So, we don't see the kinds of numbers that tell use that there is
a difference. He said he doesn't know the answer.
CHAIRMAN KOTT referred to the Attorney General's opinion and
asked if the opinion was rendered last Friday. MR. KOCH said it
is dated April 21. Chairman Kott asked that he make the opinion
available to the committee.
Number 485
REPRESENTATIVE ROKEBERG referred to testimony about there being
some concerns about the fact there weren't any caps on payments
and asked Mr. Koch if his suggested language addresses that
issue. MR. KOCH indicated it does not address that issue. He
said there are other provision in statute that tend to address
it, particularly with hospital and medical service corporations.
This doesn't extend to anything but those kinds of organizations.
Mr. Koch noted there are only two, Blue Cross and Alaska Vision
Services. There are other features in that statute that deal
with rates and contract structure. There are some components of
Chapter 87 that basically provide some minimum guidance for what
has to be in the contract. He said the department uses some
subjectivity when they are reviewing forms to the degree that the
contract is not a negotiated situation between the employer and
the (indisc.). Mr. Koch said they don't get too involved in
areas where there is clearly negotiations going on. He explained
there are a number of cost control features in place and the
department has the ability to review those through examination.
Number 516
REPRESENTATIVE ROKEBERG asked which types of organizations AS
21.87 refers to. MR. KOCH said they are called service
corporations. They're either a hospital service corporation or a
medical service corporation. Blue Cross is both of these.
REPRESENTATIVE ROKEBERG asked what Providence, Humana and Alaska
Regional are. MR. KOCH said those would be people that a service
corporation contracts with to provide services under its
subscriber contracts.
REPRESENTATIVE ROKEBERG said HB 266 doesn't affect other private
insurers that may be issuing policies in the state of Alaska.
MR. KOCH said that is correct. HB 266 is aimed strictly at
service corporations. REPRESENTATIVE ROKEBERG asked if AETNA
would qualify. MR. KOCH explained AETNA is an insurance company
and is not affected by the bill.
Number 529
CHAIRMAN KOTT said intention is to hold HB 266 over in order to
offer the public an additional opportunity to testify.
CHAIRMAN KOTT noted HB 260 would be held until the following
Wednesday.
ADJOURNMENT
Number 545
CHAIRMAN KOTT adjourned the House Labor and Commerce Standing
Committee meeting at 6:00 p.m.
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