Legislature(1995 - 1996)

04/24/1995 03:20 PM L&C

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
txt
           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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