Legislature(2015 - 2016)BARNES 124

01/27/2016 03:15 PM LABOR & COMMERCE

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Audio Topic
03:19:51 PM Start
03:20:05 PM SB47
04:27:07 PM Overview: Division of Workers' Compensation, Department of Labor & Workforce Development
05:03:01 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
*+ SB 47 LIFE INSURANCE/ANNUITY EXEMPTIONS TELECONFERENCED
Heard & Held
+ Overview: TELECONFERENCED
Division of Workers' Compensation by Dept. of
Labor & Workforce Development
                    ALASKA STATE LEGISLATURE                                                                                  
          HOUSE LABOR AND COMMERCE STANDING COMMITTEE                                                                         
                        January 27, 2016                                                                                        
                           3:19 p.m.                                                                                            
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Representative Kurt Olson, Chair                                                                                                
Representative Shelley Hughes, Vice Chair                                                                                       
Representative Jim Colver                                                                                                       
Representative Gabrielle LeDoux                                                                                                 
Representative Cathy Tilton                                                                                                     
Representative Andy Josephson                                                                                                   
Representative Sam Kito                                                                                                         
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Representative Mike Chenault (alternate)                                                                                        
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 47                                                                                                              
"An Act relating to exemptions for cash surrender values,                                                                       
accrued dividends, and loan values of life insurance and annuity                                                                
contracts."                                                                                                                     
                                                                                                                                
     - HEARD AND HELD                                                                                                           
                                                                                                                                
OVERVIEW:  DIVISION OF WORKERS' COMPENSATION ~ DEPARTMENT OF                                                                    
LABOR & WORKFORCE DEVELOPMENT                                                                                                   
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB 47                                                                                                                   
SHORT TITLE: LIFE INSURANCE/ANNUITY EXEMPTIONS                                                                                  
SPONSOR(s): SENATOR(s) COGHILL                                                                                                  
                                                                                                                                
02/11/15       (S)       READ THE FIRST TIME - REFERRALS                                                                        
02/11/15       (S)       L&C, JUD                                                                                               
02/26/15       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
02/26/15       (S)       Heard & Held                                                                                           
02/26/15       (S)       MINUTE (L&C)                                                                                           
03/03/15       (S)       L&C AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
03/03/15       (S)       Moved SB 47 Out of Committee                                                                           
03/03/15       (S)       MINUTE (L&C)                                                                                           
03/04/15       (S)       L&C RPT 3DP                                                                                            
03/04/15       (S)       DP: GIESSEL, MEYER, STEVENS                                                                            
03/16/15       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
03/16/15       (S)       Heard & Held                                                                                           
03/16/15       (S)       MINUTE (JUD)                                                                                           
03/25/15       (S)       JUD AT 1:30 PM BUTROVICH 205                                                                           
03/25/15       (S)       Bills Previously Heard/Scheduled:                                                                      
03/30/15       (S)       JUD AT 1:30 PM BELTZ 105 (TSBldg)                                                                      
03/30/15       (S)       -- Rescheduled from 3/25/15 --                                                                         
03/31/15       (S)       JUD RPT 3DP 1NR                                                                                        
03/31/15       (S)       DP: MCGUIRE, COSTELLO, COGHILL                                                                         
03/31/15       (S)       NR: WIELECHOWSKI                                                                                       
04/09/15       (S)       TRANSMITTED TO (H)                                                                                     
04/09/15       (S)       VERSION: SB 47                                                                                         
04/10/15       (H)       READ THE FIRST TIME - REFERRALS                                                                        
04/10/15       (H)       L&C                                                                                                    
04/15/15       (H)       L&C AT 3:15 PM BARNES 124                                                                              
04/15/15       (H)       Heard & Held                                                                                           
04/15/15       (H)       MINUTE (L&C)                                                                                           
01/27/16       (H)       L&C AT 3:15 PM BARNES 124                                                                              
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SENATOR JOHN COGHILL                                                                                                            
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Speaking as the sponsor, introduced SB 47.                                                             
                                                                                                                                
RYNNIEVA MOSS, Staff                                                                                                            
Senator John Coghill                                                                                                            
Alaska State Legislature                                                                                                        
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Speaking on behalf of Senator Coghill,                                                                   
sponsor, provided testimony during the hearing on SB 47.                                                                        
                                                                                                                                
LUKE FANNING, Vice President                                                                                                    
First National Bank Alaska                                                                                                      
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:  Speaking on behalf of the Alaska Bankers                                                               
Association, testified in opposition to SB 47, and answered                                                                   
questions.                                                                                                                      
                                                                                                                                
TOM SULLIVAN, Vice President                                                                                                    
Northrim Bank                                                                                                                   
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Speaking  on behalf  of the  Alaska Bankers                                                           
Association,  testified  in opposition  to  SB  47, and  answered                                                               
questions.                                                                                                                      
                                                                                                                                
CHARLES MCKEE                                                                                                                   
Anchorage, Alaska                                                                                                               
POSITION STATEMENT:  Testified in opposition to SB 47.                                                                        
                                                                                                                                
LINDA HULBERT                                                                                                                   
Fairbanks, Alaska                                                                                                               
POSITION STATEMENT:   Testified in  favor of SB 47,  and answered                                                             
questions.                                                                                                                      
                                                                                                                                
JOE THOMAS, Deputy Commissioner                                                                                                 
Office of the Commissioner                                                                                                      
Department of Labor & Workforce Development                                                                                     
Juneau, Alaska                                                                                                                  
POSITION STATEMENT:   Introduced  Marie Marx,  Director, Division                                                             
of  Workers'  Compensation,  Department   of  Labor  &  Workforce                                                               
Development.                                                                                                                    
                                                                                                                                
MARIE MARX, Director                                                                                                            
Central Office                                                                                                                  
Division of Workers' Compensation                                                                                               
Department of Labor & Workforce Development                                                                                     
Juneau, Alaska                                                                                                                  
POSITION   STATEMENT:     Provided   a  PowerPoint   presentation                                                             
entitled,  "The   State  of  the  Alaska   Workers'  Compensation                                                               
Division Overview," dated 1/27/16.                                                                                              
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
3:19:51 PM                                                                                                                    
                                                                                                                                
CHAIR KURT  OLSON called  the House  Labor and  Commerce Standing                                                             
Committee meeting to  order at 3:19 p.m.   Representatives Olson,                                                               
LeDoux, Tilton, Hughes, Colver,  Josephson, and Kito were present                                                               
at the call to order.                                                                                                           
                                                                                                                                
            SB 47-LIFE INSURANCE/ANNUITY EXEMPTIONS                                                                         
                                                                                                                                
3:20:05 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the first order of  business would be                                                               
SENATE  BILL NO.  47, "An  Act  relating to  exemptions for  cash                                                               
surrender  values, accrued  dividends,  and loan  values of  life                                                               
insurance and annuity contracts."                                                                                               
                                                                                                                                
3:20:51 PM                                                                                                                    
                                                                                                                                
SENATOR  JOHN COGHILL,  Alaska State  Legislature, sponsor  of SB                                                               
47, informed the committee the  bill would remove an exemption in                                                               
[AS  09.38.025(a)]  of the  Alaska  Exemptions  Act.   Currently,                                                               
there  is  a  $500,000  "cap"  on  liability  for  annuities  and                                                               
contracts for  trust doctrine  issues.   He opined  the exemption                                                               
should be lifted for public  employees, and lifting the exemption                                                               
would be a way to protect  money for people who create a business                                                               
in  Alaska, and  who could  have  all of  their assets  attached,                                                               
after  the $500,000  limit.   Senator  Coghill  related that  the                                                               
banking industry  questioned whether  the bill would  allow money                                                               
to  be moved  fraudulently, and  he  advised the  answer to  this                                                               
lingering  question  was  forthcoming.    He  stressed  that  the                                                               
purpose of the proposed legislation  is to protect those who have                                                               
savings that are unprotected beyond  $500,000.  As "trust people"                                                               
have cautioned,  he acknowledged that  money may be  brought into                                                               
the state and  protected, but that is not the  primary purpose of                                                               
the bill.   Senator Coghill told of his  family's experience with                                                               
a small business that  grew and then was lost in  one year due to                                                               
market dynamics; SB 47 may  have given his father the opportunity                                                               
to save  enough from  his business losses  for retirement.   This                                                               
experience  showed Senator  Coghill what  can be  worked for  and                                                               
lost.  He  said he does not  support fraud in any  way, and there                                                               
are  other protections  in  the  law which  address  fraud.   The                                                               
proposed  legislation   creates  an  important   civil  liability                                                               
protection for those who have  earned it.  Senator Coghill stated                                                               
his understanding of trust law is  that if a liability is created                                                               
from an operation, the operation  still has to pay its liability,                                                               
but personal  assets are  protected up to  $500,000.   He advised                                                               
that questions  from the banking  industry have  arisen recently,                                                               
however, he remains satisfied with  the trust bill as written two                                                               
years ago.                                                                                                                      
                                                                                                                                
CHAIR  OLSON  stated that  the  bill  would  not move  today,  so                                                               
questions can  be answered,  and suggested  that the  bill should                                                               
move to the House Judiciary Standing Committee.                                                                                 
                                                                                                                                
SENATOR COGHILL asked that the  House Labor and Commerce Standing                                                               
Committee address any questions concerning the bill.                                                                            
                                                                                                                                
3:26:53 PM                                                                                                                    
                                                                                                                                
RYNNIEVA  MOSS,   Staff,  Senator  John  Coghill,   Alaska  State                                                               
Legislature, speaking  on behalf  of Senator Coghill,  sponsor of                                                               
SB 47, said  that last year the committee requested  a summary of                                                               
the  state's  income  from  premium   taxes.    Provided  in  the                                                               
committee  packet was  a  memo dated  1/25/16,  which included  a                                                               
[partial] history  of premium tax  revenues from 1997 -  when the                                                               
first trust bill was passed -  through 2015.  In fiscal year 1997                                                               
[FY  97],  premium  tax  revenues were  $28.4  million,  and  the                                                               
anticipated income from said revenues  in FY 15 is $62.7 million.                                                               
Ms. Moss  recalled last year's  committee packet  included copies                                                               
of  [AS   21.36.360  Fraudulent   or  Criminal   Insurance  Acts]                                                               
[document not provided],  and advised that the  Department of Law                                                               
verified  that the  bill covers  not only  insurance agents,  but                                                               
also  people   who  purchase  life   insurance  policies.     She                                                               
summarized  as  follows:    several  years  ago  Senator  Coghill                                                               
sponsored  a bill  that put  a $500,000  exemption on  un-matured                                                               
life  insurance policies  and  annuities; SB  47  would lift  the                                                               
$500,000  exemption,   so  that   life  insurance   policies  and                                                               
annuities are treated  in the same manner  as Employee Retirement                                                               
Income  Security  Act  (ERISA)  retirements.   Ms.  Moss  further                                                               
explained  that small  businesses  do not  have opportunities  to                                                               
invest in  retirement systems, so  they invest in  life insurance                                                               
and  annuities  as  retirement   plans,  and  thus  the  proposed                                                               
legislation  intends  to  treat  un-matured  life  insurance  and                                                               
annuities as retirement plans for small businesses and others.                                                                  
                                                                                                                                
3:29:20 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  COLVER  surmised  the  bill  only  protects  life                                                               
insurance  and  annuities  contracts from  bankruptcy  and  other                                                               
creditor actions.   He asked  whether there are federal  or state                                                               
protections for individual retirement  accounts (IRAs), and other                                                               
retirement accounts, against claims by creditors or bankruptcy.                                                                 
                                                                                                                                
3:30:22 PM                                                                                                                    
                                                                                                                                
MS. MOSS  said she has read  that IRAs are very  similar to ERISA                                                               
plans.                                                                                                                          
                                                                                                                                
REPRESENTATIVE  HUGHES expressed  her  understanding that  public                                                               
employees do not have an exemption  on a retirement account.  She                                                               
asked whether  there are retirement  accounts, such as  a 40l(k),                                                               
that  a  private  individual  can  get and  thus  have  the  same                                                               
protection.   In fact,  a 401(k)  could be  equal to  what public                                                               
employees have.   Further, she questioned whether  401(k) is only                                                               
available  in  an employer/employee  situation,  or  if they  are                                                               
available  to someone  who  is self-employed,  and  if so,  other                                                               
investors  already have  an option  without a  limit.   She said,                                                               
"... a public  employee, they can't put all, all  of their assets                                                               
in, into  their employee retirement  plans, so it's not,  I don't                                                               
know that we're creating a level playing field."                                                                                
                                                                                                                                
MS.  MOSS  responded that  anyone  can  contribute to  a  401(k);                                                               
however, 401(k) accounts are affected by stock market values.                                                                   
                                                                                                                                
3:33:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  LEDOUX asked  whether  there is  a  limit to  the                                                               
amount of money one can save in a 401(k).                                                                                       
                                                                                                                                
MS. MOSS said  she was unsure.  She agreed  to provide additional                                                               
information regarding 401(k) accounts.                                                                                          
                                                                                                                                
3:33:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE JOSEPHSON  directed attention to a  document found                                                               
in  the  committee  packet  entitled, "SB  47  Life  Insurance  &                                                               
Annuity Exemptions  FACT SHEET."   The seventh paragraph  read as                                                               
follows:                                                                                                                        
                                                                                                                                
       Banks have a right to a collateral agreement for a                                                                       
     loan using a life insurance policy as collateral.                                                                          
                                                                                                                                
REPRESENTATIVE JOSEPHSON said if  the above paragraph is correct,                                                               
the exemption in the bill can be waived.                                                                                        
                                                                                                                                
MS. MOSS confirmed  that the exemption can be waived.   Also, the                                                               
bank can ask  a person, who has a life  insurance policy, to sign                                                               
off that policy as collateral when applying for a loan.                                                                         
                                                                                                                                
REPRESENTATIVE  JOSEPHSON questioned  whether that  would be  the                                                               
protection that  the bank would  need; the exemption  would exist                                                               
until the  holder of the insurance  policy waived it in  order to                                                               
obtain a loan.                                                                                                                  
                                                                                                                                
MS. MOSS agreed.                                                                                                                
                                                                                                                                
3:34:57 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON  added that  the attachment would  be limited  to the                                                               
amount of the loan.                                                                                                             
                                                                                                                                
MS. MOSS said correct, the collateral  would be for the amount of                                                               
the loan.                                                                                                                       
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   said  he   assumed  the   bank  would                                                               
recognize the cash  value at the time of the  transaction, and if                                                               
so, the  expected annuity  of $500,000,  or death  benefit, would                                                               
not be an issue.                                                                                                                
                                                                                                                                
MS. MOSS said correct.                                                                                                          
                                                                                                                                
REPRESENTATIVE JOSEPHSON  directed attention to a  letter [letter                                                               
not  provided] found  in  the committee  packet  from Lori  Wing-                                                               
Heier, dated  3/17/15, which clarifies  what is also found  in AS                                                               
09.38.065:  a criminal act would  cause the exemption to be lost.                                                               
However, the letter said the  bill would not provide an exemption                                                               
for  civil acts.   He  posed an  example of  a criminal  act that                                                               
garnered a  civil judgement for  a large amount resulting  from a                                                               
jury  verdict  that held  the  driver's  insurance policy  holder                                                               
liable.  He asked, "There's no  way to pierce that veil is there,                                                               
under this bill?"                                                                                                               
                                                                                                                                
MS. MOSS  said no,  there "... might  be a fix  that needs  to be                                                               
made."                                                                                                                          
                                                                                                                                
3:37:17 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  KITO  expressed   his  concern  about  activities                                                               
and/or  judgements that  take  place outside  of  the state,  and                                                               
whether the state  can legally respond thereto.   For example, if                                                               
a  person who  has a  policy from  another state,  and who  has a                                                               
judgement -  criminal or civil  - placed against them  in another                                                               
state, has  the ability to access  the funds that were  placed in                                                               
trust in Alaska.                                                                                                                
                                                                                                                                
MS.  MOSS  advised  that  the  State of  Alaska  can  enforce  [a                                                               
judgement] in Alaska,  but does not have  jurisdiction outside of                                                               
the state.                                                                                                                      
                                                                                                                                
REPRESENTATIVE KITO concluded that if  a judgement takes place in                                                               
another state,  "there's not  the ability to  get the  whole life                                                               
insurance policy from Alaska."                                                                                                  
                                                                                                                                
MS. MOSS said she assumed that  the party has the ability to file                                                               
a claim in Alaska.                                                                                                              
                                                                                                                                
REPRESENTATIVE   JOSEPHSON   inquired   as   to   other   pending                                                               
legislation that would reduce tax  rates on insurance and annuity                                                               
instruments.                                                                                                                    
                                                                                                                                
MS. MOSS answered  that SB 15 reduced tax rates  from 1.0 percent                                                               
to 0.8 percent, passed the legislature and was signed into law.                                                                 
                                                                                                                                
3:39:31 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON opened public testimony on SB 47.                                                                                   
                                                                                                                                
3:39:42 PM                                                                                                                    
                                                                                                                                
LUKE  FANNING,  Vice  President,   First  National  Bank  Alaska,                                                               
informed the  committee he was  speaking on behalf of  the Alaska                                                               
Bankers  Association (ABA),  which  represents all  seven of  the                                                               
national, state,  and federal  savings banks  in Alaska.   Member                                                               
banks  are   responsible  for  85   percent  of   the  non-public                                                               
commercial lending in  Alaska, as well as  2,500 employees across                                                               
130  bank branches  statewide.   In  the past,  ABA  has been  in                                                               
support of trust legislation including  SB 15.  As background, he                                                               
pointed out that in the context of  SB 47, the cash value of life                                                               
insurance  and annuities  is  a  form of  investment,  and not  a                                                               
discussion  of  death  benefits:    an annuity  is  a  series  of                                                               
payments made  while the purchaser  is alive, and the  cash value                                                               
of  life insurance  is  the  cash given  to  a  policy owner  for                                                               
canceling  their  contract,  prior   to  maturity.    Alaska  law                                                               
provides exemptions  intended to save debtors  and their families                                                               
from hardship; the fundamental policy  behind these exemptions is                                                               
to  ensure  that the  debtor  is  not  left destitute  after  the                                                               
distribution of  his/her assets.   After the discharge  of debts,                                                               
exemptions  are  the  principal   means  by  which  a  bankruptcy                                                               
proceeding allows  a debtor  to rehabilitate  himself/herself and                                                               
this/her family  financially.  For example,  there are exemptions                                                               
for  retirement plans  and interest;  in fact,  exemptions extend                                                               
not only  to public employees and  members of unions, but  to all                                                               
individuals.   Senate  Bill 47  is  really about  the ability  to                                                               
exempt sums  placed into life  insurance and annuity  accounts in                                                               
excess  of a  cash value  of  $500,000, in  addition to  existing                                                               
exemptions provided  by pensions, a 401(k),  profit-sharing IRAs,                                                               
and other  accounts.  Mr.  Fanning said  there are many  forms of                                                               
creditors  including:    vendors; suppliers;  contractors;  civil                                                               
judgements;  banks; state,  municipal,  and federal  governments;                                                               
and child  support. The  existing $500,000  exemption that  SB 47                                                               
removes makes Alaska  a safe harbor for those who  wish to invest                                                               
and shield  their assets from  creditors in the event  of default                                                               
or bankruptcy.   He said  ABA opposes SB  47 because it  seeks to                                                               
generate insurance and investment  business by weakening creditor                                                               
protections.   In fact,  each dollar  shielded from  creditors is                                                               
one dollar  denied to legitimate  claims by those harmed.   Also,                                                               
ABA  does not  regard  the comparison  to  public pensions  valid                                                               
because of the  availability of 401(k), IRAs,  and pension plans.                                                               
Furthermore, the  benefits of  a public  employee may  be accrued                                                               
over a  long career.   An important  reason for ABA's  concern is                                                               
that the bill provides a  weakening of creditor protections which                                                               
may  restrict the  ability to  lend money,  and would  harm trade                                                               
creditors  as it  "calls  into question  the  dependability of  a                                                               
personal guarantee."   Since banks  are successful  at protecting                                                               
their  risks  in  the  case   of  default,  unsecured  and  trade                                                               
creditors are  in the  weakest positions.   At this  time, Alaska                                                               
businesses and  individuals are going  to need access  to credit,                                                               
and  he  cautioned  against  raising  barriers  to  credit.    He                                                               
informed the  committee there have  been instances of  fraud, and                                                               
legal  counsel has  advised the  banking  industry that  existing                                                               
exemptions in  statute are insufficient  to protect  creditors in                                                               
the case of fraud due, in part, to time limits.                                                                                 
                                                                                                                                
3:46:42 PM                                                                                                                    
                                                                                                                                
MR.  FANNING  noted  that  banks  have been  asked  to  create  a                                                               
document designed to pierce the  exemptions established in SB 47.                                                               
He  pointed  out  that  said   "creditor's  document"  would  not                                                               
supersede SB  47.  In closing,  Mr. Fanning restated that  ABA is                                                               
generally  very supportive  of bills  that  would bring  business                                                               
into  Alaska;  however, ABA  is  concerned  that SB  47  provides                                                               
protections  of  wealth  by  denying  the  legitimate  claims  of                                                               
creditors.                                                                                                                      
                                                                                                                                
REPRESENTATIVE  LEDOUX  questioned  why  banks  cannot  create  a                                                               
document  that would  waive any  defense to  execution of  a life                                                               
insurance policy, or annuity contract,  shielded previously by AS                                                               
09.38.025(a).                                                                                                                   
                                                                                                                                
MR. FANNING  restated that legal  counsel advised that a  bank is                                                               
unable to create  a document that would  supersede terms provided                                                               
in statute, and he  gave an example.  This is  the basis of ABA's                                                               
belief that  the proposed legislation  does not  provide adequate                                                               
protection to creditors.                                                                                                        
                                                                                                                                
REPRESENTATIVE TILTON  referred to previous testimony  that loans                                                               
are  also based  on personal  assets,  and asked  whether a  loan                                                               
decision  can  also  be  based  on  "cross-collateralization"  of                                                               
assets.                                                                                                                         
                                                                                                                                
3:49:36 PM                                                                                                                    
                                                                                                                                
TOM SULLIVAN, Vice President, Northrim  Bank, explained that when                                                               
a bank underwrites a loan, a  variety of factors work in concert:                                                               
the primary source of repayment  is cash flow from the operation;                                                               
the   secondary  factor   is  the   financial  strength   of  the                                                               
guarantors;  the tertiary  factor is  collateral as  a source  of                                                               
repayment.   He agreed that the  bank looks at the  entirety of a                                                               
loan package, which can be affected by weakening in one area.                                                                   
                                                                                                                                
REPRESENTATIVE  TILTON observed  that litigation  of a  suspected                                                               
fraudulent bankruptcy allows for a  reversal within a time period                                                               
of  24 months.    She suggested  that this  is  a protection  for                                                               
creditors.                                                                                                                      
                                                                                                                                
MR. FANNING said a bank may  be able to pursue its options within                                                               
the time  period; however, the  bank still must  prove fraudulent                                                               
intent, which is a difficult hurdle.                                                                                            
                                                                                                                                
REPRESENTATIVE  LEDOUX   asked  whether  a  person   can  put  an                                                               
unlimited amount of money in a 401(k).                                                                                          
                                                                                                                                
MR. FANNING advised that there  are federal limitations as to the                                                               
amount that  can be  contributed -  as well as  to the  amount of                                                               
favorable  tax treatment  - associated  with retirement  accounts                                                               
including  401(k)  or  IRAs.    In a  similar  manner,  a  public                                                               
employee  has  limitations on  how  much  can  be earned  from  a                                                               
pension  in  a single  year;  on  the  other hand,  the  proposed                                                               
exemption can  be for  a one-time  purchase of  an annuity  or an                                                               
investment  asset,  which  is fundamentally  different  than  the                                                               
accumulation of pension benefits over multiple years.                                                                           
                                                                                                                                
3:52:46 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES asked:                                                                                                    
                                                                                                                                
     If the  fraud protections were strengthened,  would you                                                                    
     be able to support this, or  is it just the idea of the                                                                    
     exemption  itself problematic,  in  other regards,  for                                                                    
     someone who wouldn't be doing it fraudulently?                                                                             
                                                                                                                                
MR. FANNING  said the bank  would still  have to prove  fraud and                                                               
intent.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  HUGHES then  asked, "Have  you examined  that, is                                                               
there a  way to  strengthen those  statutes in  a way  that, that                                                               
this general concept might be acceptable to you?"                                                                               
                                                                                                                                
MR. FANNING said he was unable to answer her question.                                                                          
                                                                                                                                
MR.  SULLIVAN added  that  Mr. Fanning  and  he are  representing                                                               
bankers;  however, there  are  other creditors  -  such as  small                                                               
businesses -  that would not have  the means to prove  intent and                                                               
would simply write-off the debt.                                                                                                
                                                                                                                                
REPRESENTATIVE LEDOUX inquired  as to whether an  addition to the                                                               
bill which  specifically directed  that a bank  would be  able to                                                               
require that  an applicant - as  a condition to getting  a loan -                                                               
waive  his/her  defenses,  would  be acceptable  to  the  banking                                                               
industry.                                                                                                                       
                                                                                                                                
3:55:31 PM                                                                                                                    
                                                                                                                                
MR. SULLIVAN  said he was  unsure, and  added that the  issue is:                                                               
Does that  provide enough protection  to not be superseded  by SB                                                               
47?                                                                                                                             
                                                                                                                                
REPRESENTATIVE LEDOUX  clarified that the suggested  change would                                                               
be in statute, and not just written in the loan agreement.                                                                      
                                                                                                                                
MR. SULLIVAN said he was unsure.                                                                                                
                                                                                                                                
MR. FANNING  pointed out  that doing  so may  negate much  of the                                                               
purpose of the bill.                                                                                                            
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  redirected  attention  to  a  document                                                               
found in the  committee packet entitled, "SB 47  Life Insurance &                                                               
Annuity Exemptions  FACT SHEET,"  [text previously  provided]. He                                                               
asked whether the banking industry agreed.                                                                                      
                                                                                                                                
MR. FANNING responded:                                                                                                          
                                                                                                                                
     Whether I agree  with that sentence or not,  we would -                                                                    
     as   a  practical   matter  -   heavily  discount   any                                                                    
     protection  afforded   by  that  sentence   because  it                                                                    
     provides us  no real  means of adequately  securing our                                                                    
     loans, especially in context of the exemption.                                                                             
                                                                                                                                
REPRESENTATIVE JOSEPHSON asked -  from the sponsor's standpoint -                                                               
even though  retirement pensions are  earned over time,  what the                                                               
difference  is in  terms of  either  the ability  to capture  one                                                               
asset and not the other, because  a policy decision has been made                                                               
to protect one type of asset and not another.                                                                                   
                                                                                                                                
MR.  FANNING opined,  as a  matter  of public  policy, there  are                                                               
protections  for retirement  accounts, and  other exclusions,  so                                                               
one  is not  left  destitute;  on the  other  hand,  he cited  an                                                               
example of  one who was  acquitted in  a criminal trial,  but who                                                               
was  found  responsible  in  a  civil trial,  and  by  moving  to                                                               
Florida,  was  shielded  from  paying a  legitimate  claim.    In                                                               
further response  to Representative Josephson, he  agreed that it                                                               
is  plausible that  financial advisors  and attorneys  may advise                                                               
their clients of  protections afforded under SB 47,  which is one                                                               
of ABA's concerns with the bill.                                                                                                
                                                                                                                                
4:01:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  suggested  that the  position  of  ABA                                                               
should be  that the present  exemption of $500,000 is  "too much,                                                               
also ...  if you're upset  about unlimited, you  should logically                                                               
be upset about half a million dollars."                                                                                         
                                                                                                                                
MR.  SULLIVAN  pointed  out  that  the  limit  in  California  is                                                               
approximately $20,000;  however, the  existing limit  of $500,000                                                               
has not  created any  problems in Alaska,  and he  restated ABA's                                                               
and creditors' concerns about fraudulent transfers.                                                                             
                                                                                                                                
REPRESENTATIVE   JOSEPHSON  referred   to   an  un-matured   life                                                               
insurance  policy,  or  an  annuity, and  said,  "What  is  being                                                               
protected doesn't  have any  present value to  the holder  of the                                                               
instrument ... I have whole  life insurance, but it doesn't, it's                                                               
not going to benefit me today, I don't think."                                                                                  
                                                                                                                                
MR. FANNING  responded that  a life insurance  policy has  a cash                                                               
value  that would  be  paid  for canceling  the  policy prior  to                                                               
maturity; in  fact, many people  pay into policies for  years and                                                               
the cash value could be greater than $500,000.                                                                                  
                                                                                                                                
REPRESENTATIVE  LEDOUX   pointed  out   that  once   cashed  out,                                                               
creditors could execute on the proceeds.                                                                                        
                                                                                                                                
4:05:44 PM                                                                                                                    
                                                                                                                                
MR.  FANNING opined  that one  who wished  to shield  assets from                                                               
his/her creditors would not cash out a policy.                                                                                  
                                                                                                                                
REPRESENTATIVE  LEDOUX  asked,  "...  then how  do  you  get  any                                                               
benefit out of it?"                                                                                                             
                                                                                                                                
MR. SULLIVAN explained that the core  of ABA's concern is:  cash,                                                               
or  an asset  that  was used  to support  a  credit decision,  is                                                               
changed into  another instrument to  which creditors do  not have                                                               
access.                                                                                                                         
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   referred  to  [AS   09.38.065  Claims                                                               
enforceable against exempt property] which read in part:                                                                        
                                                                                                                                
     (2) a creditor may make  a levy against exempt property                                                                    
     to enforce a claim for                                                                                                     
          (A) the purchase price of the property or a loan                                                                      
     made for the express  purpose of enabling an individual                                                                    
     to purchase the property ...                                                                                               
          (B) labor or materials furnished to make, repair,                                                                     
     improve, preserve, store, ...                                                                                              
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  surmised  that many  loans  relate  to                                                               
property,  buildings,  and  their  related labor,  and  he  asked                                                               
whether the  above existing exemption  would "cover you,  in most                                                               
instances."                                                                                                                     
                                                                                                                                
4:08:12 PM                                                                                                                    
                                                                                                                                
MR. FANNING  relayed that legal  counsel for First  National Bank                                                               
Alaska and Northrim Bank opined  that the protections afforded in                                                               
[AS 09.38.065]  are of  minimal value to  the banks  because they                                                               
would be superseded by SB 47.                                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON said:                                                                                                  
                                                                                                                                
     But,  if this  statute's on  the books,  and theirs  is                                                                    
     too, a court would have to  make them meld, that I know                                                                    
     for sure  ... so,  I'd like that  addressed.   So, that                                                                    
     bill would not trump this,  unless it has a repealer in                                                                    
     it that says it does.  That's my understanding.                                                                            
                                                                                                                                
REPRESENTATIVE  KITO described  a recently  purchased whole  life                                                               
policy,  with  a cash  value  of  $500,000,  and asked  how  much                                                               
insurance it  would buy the  holder.  He  said he would  hold his                                                               
question for a later witness.                                                                                                   
                                                                                                                                
REPRESENTATIVE  LEDOUX questioned  whether, without  SB 47,  if a                                                               
person  bought  a  life  insurance  policy in  a  state  with  an                                                               
unlimited  exemption,  ABA  could execute  on  that  out-of-state                                                               
policy.                                                                                                                         
                                                                                                                                
MR. SULLIVAN said he did not know the answer.                                                                                   
                                                                                                                                
REPRESENTATIVE  LEDOUX   commented  that  if  a   policy  can  be                                                               
purchased  now out-of-state,  creditors are  subject to  the same                                                               
risks anyway,  with respect to  sophisticated borrowers,  and she                                                               
did not see that SB 47 posed any additional problems for Alaska.                                                                
                                                                                                                                
4:11:1 PM                                                                                                                     
                                                                                                                                
CHARLES MCKEE provided  comments that were not on  topic with the                                                               
published agenda, and said he was unhappy with the bill.                                                                        
                                                                                                                                
4:14:48 PM                                                                                                                    
                                                                                                                                
LINDA  HULBERT  informed  the  committee she  has  lived  in  the                                                               
Interior since 1968, working 20  years in the field of education,                                                               
and the last 27 years working  as an insurance agent with offices                                                               
in Fairbanks  and Anchorage.   She said SB 47  raises significant                                                               
revenue  for the  state, provides  incentives for  individuals to                                                               
save for the  future, and said savings are  from after-tax income                                                               
in an  annuity, as  in life  insurance.   For most  residents, an                                                               
annuity brings  in 2.7 percent  of funds deposited, and  for life                                                               
insurance  2.7  percent  is  gained  up  to  the  first  $100,000                                                               
deposited  per  year, and  0.8  percent  is  gained per  year  on                                                               
amounts  over $100,000.    Ms.  Hulbert advised  that  this is  a                                                               
significant source  of revenue; in  fact, since the  enactment of                                                               
the trust act  with the exemption of $500,000,  state premium tax                                                               
revenue  has  increased  from $28.4  million  to  $62.7  million.                                                               
Furthermore, 30 other states offer  some form of asset protection                                                               
for   life  insurance,   and  several   states  offer   unlimited                                                               
exemptions.   Ms. Hulbert pointed  out that the residency  of the                                                               
owner  of the  policy determines  whether a  policy is  exempt or                                                               
not,  thus if  an  Alaska resident  owns a  policy  and moves  to                                                               
another state, the rules governing  the policy are subject to the                                                               
rules of the  new state of residence.  She  clarified that when a                                                               
bank or lender  take access to a life insurance  policy, the bank                                                               
or lender  is listed with  the insurance company as  a collateral                                                               
assignee, and the individual is  unable to acquire the cash value                                                               
of  their  policy  without  permission  or  notification  to  the                                                               
collateral assignee.   In addition, most  banks contact insurance                                                               
companies  annually to  verify that  their position  is still  in                                                               
effect until  the collateral assignment  is removed and  the bank                                                               
releases  the collateral  assignment.   Ms. Hulbert  continued to                                                               
explain that  if a person  dies and  there is an  assignment, the                                                               
assignee  is  paid  first,  and   the  balance  is  paid  to  the                                                               
beneficiary of the  contract.  She said her experience  is that a                                                               
bank has  the right  to take  first position on  a whole  life or                                                               
term life insurance policy, as well as on an annuity.                                                                           
                                                                                                                                
4:21:10 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE LEDOUX  asked whether SB  47 "would work"  for the                                                               
insurance industry and the trust  industry if a waiver is written                                                               
into the bill.  The  previous discussion related to policies that                                                               
have  been  written  before loans  were  executed;  however,  she                                                               
surmised  the   banking  industry  is  concerned   about  a  loan                                                               
evaluation  that   is  based  upon  personal   credit,  and  then                                                               
subsequently,  the   debtor  places  his/her  funds   in  a  life                                                               
insurance policy.  She restated her question.                                                                                   
                                                                                                                                
MS. HULBERT was unsure as she  is not an attorney.  Currently, if                                                               
someone wants  to hide an asset,  he/she would choose to  do that                                                               
in   another  jurisdiction   because  Alaska   has  very   strong                                                               
fraudulent transfer rules.   She opined that most  of those using                                                               
life  insurance   and  annuity   products  are  using   them  for                                                               
legitimate planning purposes.                                                                                                   
                                                                                                                                
REPRESENTATIVE JOSEPHSON observed that  creditors are right to be                                                               
insecure because  even though there may  not be an ill  motive to                                                               
defraud, a  debtor may fail  to make payments and  his/her assets                                                               
are insulated from creditors.                                                                                                   
                                                                                                                                
MS. HULBERT  restated that Representative Josephson's  example is                                                               
not  part of  her experience;  in fact,  fraudulent transfer  for                                                               
large  sums of  money "is  something that  can be  done in  other                                                               
ways."   If  the cash  value is  pulled out  of a  life insurance                                                               
policy, the life  insurance policy ceases to exist,  which is not                                                               
its intent.  She added that  in Alaska, people put their time and                                                               
money into their businesses because  they cannot afford to invest                                                               
in  a 401(k),  which requires  an  employer-sponsored plan.     A                                                               
business  person  is  limited  to  how much  they  can  save  for                                                               
retirement, which  is the  reason to  create a  mechanism whereby                                                               
people can put money aside for retirement.                                                                                      
                                                                                                                                
4:27:00 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  SB 47 was held over  with public testimony                                                               
open.                                                                                                                           
^OVERVIEW:   DIVISION  OF  WORKERS'  COMPENSATION, Department  of                                                               
Labor & Workforce Development                                                                                                   
  OVERVIEW:  DIVISION of WORKERS' COMPENSATION, Department of                                                               
                 Labor & Workforce Development                                                                              
                                                                                                                                
4:27:07 PM                                                                                                                    
                                                                                                                                
CHAIR OLSON announced  that the final order of  business would be                                                               
an overview of the Division  of Workers' Compensation, Department                                                               
of Labor & Workforce Development (DLWD).                                                                                        
                                                                                                                                
4:28:27 PM                                                                                                                    
                                                                                                                                
JOE  THOMAS, Deputy  Commissioner,  Office  of the  Commissioner,                                                               
DLWD,  introduced  Marie  Marx, Director,  Division  of  Worker's                                                               
Compensation, DLWD.                                                                                                             
                                                                                                                                
4:29:24 PM                                                                                                                    
                                                                                                                                
The committee took a brief at ease.                                                                                             
                                                                                                                                
4:29:49 PM                                                                                                                    
                                                                                                                                
MARIE  MARX,  Division  Director,  Central  Office,  Division  of                                                               
Workers' Compensation,  DLWD, provided a  PowerPoint presentation                                                               
entitled,  "The   State  of  the  Alaska   Workers'  Compensation                                                               
Division  Overview."   She  informed  the  committee the  mission                                                               
statement of  the Division of  Workers' Compensation is:   Ensure                                                               
the   quick,  efficient,   fair  and   predictable  delivery   of                                                               
indemnity,  medical  and  vocational rehabilitation  benefits  to                                                               
injured  workers at  a reasonable  cost to  employers [slide  2].                                                               
Ms. Marx  said the division  operates 13 programs  statewide with                                                               
offices located  in Fairbanks, Anchorage,  and Juneau  [slide 3].                                                               
Programs  range from  the adjudication  of workers'  compensation                                                               
claims to the  investigation of cases such as  failure to insure,                                                               
and to  administering funds  such as  the Benefit  Guaranty Fund.                                                               
One  of  the challenges  to  meeting  the division's  mission  is                                                               
rising  workers' compensation  premium costs;  Alaska has  one of                                                               
the  highest  workers' compensation  premium  rates  in the  U.S.                                                               
[slide  4].   Ms.  Marx  directed  attention  to slide  5,  which                                                               
illustrated that  Alaska is  now ranked  fifth in  premium rates,                                                               
behind  California,  Connecticut,  New   Jersey,  and  New  York.                                                               
Further, Alaska  has consistently  been near  the top  since 2004                                                               
[slide 6].   She  explained that  medical, indemnity,  legal, and                                                               
reemployment costs are driving increases in premiums [slide 7].                                                                 
                                                                                                                                
4:32:42 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES  returned attention  to slide 6,  and asked                                                               
what occurred to drive Alaska's  ranking from fifteenth to second                                                               
in the years 2002 to 2004.                                                                                                      
                                                                                                                                
MS.  MARX answered  that  other states  began  to implement  cost                                                               
containment measures.                                                                                                           
                                                                                                                                
REPRESENTATIVE  HUGHES  further  questioned whether  the  ranking                                                               
changed  because of  actions  by  other states,  or  if costs  in                                                               
Alaska went significantly up.                                                                                                   
                                                                                                                                
MS. MARX recalled  in 2007 there was a "softening"  of the market                                                               
and a weakening of the economy.                                                                                                 
                                                                                                                                
CHAIR OLSON added that in some  cases medical costs in Alaska are                                                               
200  percent to  300  percent  higher than  in  other West  Coast                                                               
states; many employers and self-insurers,  including the State of                                                               
Alaska, are exploring medical tourism to save money.                                                                            
                                                                                                                                
REPRESENTATIVE  HUGHES summarized  that  between  2002 and  2004,                                                               
Alaska's ranking  changed due not  only to improvements  in other                                                               
states, but to increasing costs in Alaska.                                                                                      
                                                                                                                                
MS. MARX  agreed.  She said  she would provide data  from 2000 to                                                               
2004,  and pointed  out  that  20 years  ago  indemnity, or  non-                                                               
medical costs,  were the greater  part of total  losses; however,                                                               
at this time  about 76 percent of workers'  compensation costs is                                                               
medical cost.                                                                                                                   
                                                                                                                                
CHAIR OLSON has  related information that he will  share with the                                                               
committee.                                                                                                                      
                                                                                                                                
4:37:01 PM                                                                                                                    
                                                                                                                                
MS. MARX presented slide 8,  which illustrated that medical costs                                                               
are 76  percent and indemnity costs  are 24 percent of  the total                                                               
cost;  other  states  have  medical   costs  of  60  percent  and                                                               
indemnity costs  of 40 percent  of the total  cost.  In  2005, in                                                               
response  to rising  premium costs,  the legislature  established                                                               
the  Medical  Services  Review Committee  (MSRC)  to  assist  and                                                               
advise  the Workers'  Compensation  Board and  the department  on                                                               
matters  involving medical  and related  services provided  under                                                               
the Alaska Workers' Compensation Act [slide 9].                                                                                 
                                                                                                                                
CHAIR OLSON recalled that the collection of data was delayed.                                                                   
                                                                                                                                
MS. MARX  provided the purpose  and membership of MSRC  [slides 9                                                               
and 10].  In 2014,  the legislature prescribed the development of                                                               
new fee  schedules based on  resource based relative  value scale                                                               
(RBRVS); tasked MSRC with  developing and recommending conversion                                                               
factors  to the  commissioner  of DLWD  for regulatory  adoption;                                                               
and provided for an annual review  [slide 11].  To accomplish its                                                               
task  of  developing  conversion factors,  MSRC  collected  data,                                                               
selected  a  third  party  vendor to  assist,  analyzed  data  on                                                               
conversion factors, obtained feedback  on the proposed conversion                                                               
factors  from  constituency   groups,  and  submitted  conversion                                                               
factors to the commissioner for review and adoption [slide 12].                                                                 
                                                                                                                                
REPRESENTATIVE  JOSEPHSON questioned  whether the  starting point                                                               
for the maximum allowable reimbursement  (MAR) rates was a review                                                               
of  the Centers  for  Medicare &  Medicaid  Services (CMS)  RBRVS                                                               
rates.                                                                                                                          
                                                                                                                                
MS.  MARX explained  the goal  was to  convert from  the existing                                                               
schedule in  2010 to [new] values  on a neutral basis,  thus MSRC                                                               
looked at  CMS base  amounts - not  Medicaid or  Medicare payment                                                               
amounts -  but CMS base  amounts, which are  used as a  factor to                                                               
determine the  amount of a  Medicaid or  Medicare payment.    She                                                               
provided  a hypothetical  example:    a CMS  base  amount of  two                                                               
multiplied  by a  conversion factor  of $10  equals a  payment of                                                               
$20; in order to determine MAR  rates in Alaska, MSRC begins with                                                               
the CMS  base amount of  two and applies "our  own state-specific                                                               
conversion  factors that  are set  out  in regulation  ...."   In                                                               
further response to Representative  Josephson, Ms. Marx said 2010                                                               
was used because it was the fee schedule in place.                                                                              
                                                                                                                                
4:42:01 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON   observed  that   if  there   were  no                                                               
increases by  regulation from  2010 to  2015, whatever  the usual                                                               
and customary  rate was for a  procedure in 2010 was  the maximum                                                               
payment for the same procedure in 2015.                                                                                         
                                                                                                                                
CHAIR OLSON explained that for  many states, the National Council                                                               
of Compensation Insurance  (NCCI) sets rates which are  used as a                                                               
base, and then adjusted on the  basis of costs, losses, and other                                                               
factors.                                                                                                                        
                                                                                                                                
REPRESENTATIVE HUGHES  asked whether  the CMS  base value  is set                                                               
nationally and is not specific to Alaska.                                                                                       
                                                                                                                                
MS.  MARX  advised that  the  RBRVS  amounts  are set  through  a                                                               
collaborative effort  by CMS and  the Specialty  Society Relative                                                               
Value Skill Update Committee of  the American Medical Association                                                               
(AMA).    Ms. Marx  continued,  noting  that MSRC  finalized  its                                                               
proposed  recommendations on  4/20/15; a  report was  reviewed by                                                               
the  commissioner of  DLWD and  public comment  was heard;  after                                                               
changes,  MSRC   forwarded  its  final  recommendations   to  the                                                               
commissioner  and  the  board for  adoption  by  regulation;  and                                                               
regulations were  drafted and submitted to  the commissioner, the                                                               
Department  of  Law,  and  the   lieutenant  governor  for  final                                                             
adoption  (slide 13).    Turning to  the impact  of  the new  fee                                                               
schedule, she  said NCCI estimated  that the proposed  changes to                                                               
the Alaska  Medical Fee Schedule  would result in a  reduction of                                                               
3.8 percent,  or savings  of $11  million, and  when self-insured                                                               
employers  are included,  the  savings are  estimated  to be  $15                                                               
million [slide 14].  Finally, slide  15 was a detailed summary of                                                               
the estimated impact the  aforementioned cost containment measure                                                               
would have.                                                                                                                     
                                                                                                                                
4:46:25 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE  JOSEPHSON  directed  attention to  slide  15  and                                                               
concluded that a  physician should expect to  receive 1.2 percent                                                               
less than he/she would receive now.                                                                                             
                                                                                                                                
MS. MARX explained that physician  charges account for 50 percent                                                               
of all  medical costs,  and the estimated  1.2 percent  impact on                                                               
medical  costs that  is  indicated on  the  slide represents  1.2                                                               
percent  of all  physician billings.     She said,  "Whether that                                                               
equates to  a specific bill reduction,  I don't know that  we can                                                               
make that statement, that correlation."                                                                                         
                                                                                                                                
REPRESENTATIVE  JOSEPHSON recalled  his  concerns about  previous                                                               
legislation related to MSRC.  He remarked:                                                                                      
                                                                                                                                
     In terms of  any concern I had  about providers wanting                                                                    
     to do this kind of work,  and making the kind of living                                                                    
     that they  expect to  make ...  and therefore,  if they                                                                    
     want to do  it and they're making the  living they want                                                                    
     presumably  there's   access  to  them.     That  those                                                                    
     concerns  are  mostly  assuaged  here,  that  is,  what                                                                    
     you've done is  you've bent the curve but  ... it isn't                                                                    
     like doctors aren't going to make a living doing this.                                                                     
                                                                                                                                
MS. MARX agreed;  in fact, the goal of the  committee was to make                                                               
a small  reduction, so  it began  at a neutral  point and  took a                                                               
percentage of  between 75 percent  and 80 percent.   The decrease                                                               
was not large, to purposely lessen  the severity of the impact to                                                               
medical providers.   Also, the data will be  reviewed annually to                                                               
determine if there  is an impact to access to  care.  In response                                                               
to Chair Olson, she said  the committee included four members who                                                               
were not  in the medical  field, the director, and  the remainder                                                               
were in the medical field.                                                                                                      
                                                                                                                                
4:50:16 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE   LEDOUX  asked   whether  workers'   compensation                                                               
claimants have the option of going out-of-state for care.                                                                       
                                                                                                                                
MS. MARX  responded that  worker's compensation  does not  have a                                                               
directed  care system  and thus  employees choose  their treating                                                               
physician, with some restrictions,  but there are no restrictions                                                               
on going  out-of-state to  access care.   In further  response to                                                               
Representative  LeDoux,  she  said  claimants  can  choose  their                                                               
treating physician, inside  or outside of Alaska, and  as long as                                                               
costs are documented and are less, they may be accompanied.                                                                     
                                                                                                                                
REPRESENTATIVE JOSEPHSON  returned attention to slide  15, column                                                               
(A).   He gave an example  of an air ambulance  that transports a                                                               
patient and  is paid  16.5 percent  less than  before.   He asked                                                               
whether the  division would alert  insurance companies  about the                                                               
anticipated reduced payments for service.                                                                                       
                                                                                                                                
MS. MARX assured  the committee that all  members of constituency                                                               
groups  were  invited  to  provide  public  comment  to  MSRC  on                                                               
numerous occasions; she  opined the division made  a thorough and                                                               
concerted effort  to reach constituency groups  through listening                                                               
sessions and public meetings.                                                                                                   
                                                                                                                                
CHAIR OLSON observed that cost  shifting is not illegal in Alaska                                                               
thus flights that were charged  to workers' compensation could be                                                               
over  $100,000,  whereas  a Medicaid  patient  would  be  charged                                                               
$25,000.  He  recalled testimony from a representative  of an air                                                               
ambulance  service  that "somebody  has  to  pay."   Chair  Olson                                                               
characterized  charges  for  medivacs  from the  North  Slope  as                                                               
appalling.                                                                                                                      
                                                                                                                                
REPRESENTATIVE LEDOUX inquired  as to why the laws  of supply and                                                               
demand do not encourage competition from other air carriers.                                                                    
                                                                                                                                
REPRESENTATIVE  HUGHES commented  that Alaska  Trauma, a  medical                                                               
organization,  is trying  to coordinate  between 24  hospitals in                                                               
order to save  time and travel costs in the  case of an accident.                                                               
She   encouraged   the   division  to   communicate   with   this                                                               
organization.                                                                                                                   
                                                                                                                                
MS. MARX summarized:  Alaska  is taking steps to address workers'                                                               
compensation premium costs, although there  is much work still to                                                               
be done.                                                                                                                        
                                                                                                                                
CHAIR  OLSON has  heard  that  NCCI will  issue  an interim  rate                                                               
adjustment.                                                                                                                     
                                                                                                                                
MS. MARX offered  to provide further information  in that regard.                                                               
In response  to Representative Josephson, she  explained that ASC                                                               
stands  for an  ambulatory surgical  center, which  provides same                                                               
day surgery services.                                                                                                           
                                                                                                                                
REPRESENTATIVE JOSEPHSON  asked for the purpose  of the emergency                                                               
regulations issued by the board in December, 2015.                                                                              
                                                                                                                                
MS.  MARX   said  the   aforementioned  regulatory   process  was                                                               
complicated and involved MSRC, the  division, and the board.  Due                                                               
to deadlines  related to  the regulations,  emergency regulations                                                               
were  issued to  ensure that  the regulations  were in  effect by                                                               
12/1/15, to meet  the legislative mandate, and prevent  "a gap of                                                               
a month,  where there would be  no fee schedule."   The emergency                                                               
regulations were made permanent by a  vote of the board, and they                                                               
have been approved by the commissioner.                                                                                         
                                                                                                                                
5:00:26 PM                                                                                                                    
                                                                                                                                
REPRESENTATIVE HUGHES asked  how all health care  costs in Alaska                                                               
generally compare  with those of  other states, and  how workers'                                                               
compensation  medical  costs  compare.   She  suggested  that  if                                                               
overall costs were reduced, worker's  compensation costs would be                                                               
reduced as well.   She expressed her  understanding that Medicare                                                               
and Medicaid rates are used to  set the rates in each state, thus                                                               
if Medicaid  rates came down,  all charges by providers  would be                                                               
affected.  Representative Hughes asked  Ms. Marx if any state has                                                               
successfully  lowered its  Medicaid rates,  and whether  workers'                                                               
compensation costs followed suit.                                                                                               
                                                                                                                                
MS. MARX said she will provide the requested information.                                                                       
                                                                                                                                
5:03:01 PM                                                                                                                    
                                                                                                                                
ADJOURNMENT                                                                                                                   
                                                                                                                                
There being no  further business before the  committee, the House                                                               
Labor and  Commerce Standing Committee  meeting was  adjourned at                                                               
5:02 p.m.                                                                                                                       

Document Name Date/Time Subjects
SB47 Fiscal Note DCCED-DOI-01-22-16.pdf HL&C 1/27/2016 3:15:00 PM
SB 47
SB47 Opposing Documents-Letter AK Bankers Assoc 1-22-16.pdf HL&C 1/27/2016 3:15:00 PM
SB 47
SB47 Supporting Documents-History of Premium Tax Revenues 1-25-16.PDF HL&C 1/27/2016 3:15:00 PM
SB 47
SB47 Supporting Documents-Fact Sheet.pdf HL&C 1/27/2016 3:15:00 PM
SB 47
SB47 Supporting Documents-Recap of Other States 1-26-16.pdf HL&C 1/27/2016 3:15:00 PM
SB 47
DOLWD-Div of Workers Comp Overview 1-27-16.pdf HL&C 1/27/2016 3:15:00 PM
DOLWD Presentation on Workers' Compensation 1-27-16