Legislature(1999 - 2000)
02/28/2000 03:28 PM House L&C
| Audio | Topic |
|---|
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
February 28, 2000
3:28 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Lisa Murkowski
Representative John Harris
Representative Sharon Cissna
Representative Jerry Sanders
MEMBERS ABSENT
Representative Tom Brice
COMMITTEE CALENDAR
SENATE BILL NO. 222
"An Act relating to standard industrial classification for,
eligibility for benefits under, and the definition of 'benefit
year' for, the Alaska Employment Security Act; and providing for
an effective date."
- MOVED HCS SB 222(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 418
"An Act relating to program receipts collected by the division of
insurance and to program receipts collected by the Department of
Community and Economic Development for occupational licenses; and
providing for an effective date."
- MOVED CSHB 418(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 378
"An Act eliminating certain taxes under AS 21.09 on premiums from
the sale of workers' compensation insurance; relating to the
establishment, assessment, collection, and accounting for service
fees for state administration of workers' compensation and worker
safety programs; establishing civil penalties and sanctions for
late payment or nonpayment of the service fee; and providing for
an effective date."
- HEARD AND HELD
PREVIOUS ACTION
BILL: SB 222
SHORT TITLE: EMPLOYMENT SECURITY ACT
Jrn-Date Jrn-Page Action
1/24/00 2056 (S) READ THE FIRST TIME - REFERRALS
1/24/00 2056 (S) L&C
1/24/00 2057 (S) ZERO FISCAL NOTE (LABOR)
1/24/00 2057 (S) GOVERNOR'S TRANSMITTAL LETTER
2/08/00 (S) L&C AT 1:30 PM BELTZ 211
2/08/00 (S) -- Rescheduled to 2/10/00 --
2/10/00 (S) L&C AT 1:30 PM BELTZ 211
2/10/00 (S) Moved Out of Committee
2/11/00 2272 (S) L&C RPT 4DP
2/11/00 2272 (S) DP: MACKIE, DONLEY, TIM KELLY, LEMAN
2/11/00 2272 (S) PREVIOUS ZERO FN (LABOR)
2/16/00 (S) RLS AT 11:15 AM FAHRENKAMP 203
2/16/00 (S) MINUTE(RLS)
2/16/00 2317 (S) RLS TO CALENDAR 02/16/00
2/16/00 2318 (S) READ THE SECOND TIME
2/16/00 2318 (S) ADVANCED TO THIRD READING UNAN CONS
2/16/00 2318 (S) READ THE THIRD TIME SB 222
2/16/00 2319 (S) PASSED Y19 N- E1
2/16/00 2319 (S) EFFECTIVE DATE(S) SAME AS PASSAGE
2/16/00 2320 (S) TRANSMITTED TO (H)
2/18/00 2232 (H) READ THE FIRST TIME - REFERRALS
2/18/00 2233 (H) L&C
2/28/00 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 418
SHORT TITLE: INSURANCE AND OCCUPATIONAL LICENSE FEES
Jrn-Date Jrn-Page Action
2/23/00 2279 (H) READ THE FIRST TIME - REFERRALS
2/23/00 2279 (H) L&C, FIN
2/28/00 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 378
SHORT TITLE: WORKERS COMP AND WORKER SAFETY
Jrn-Date Jrn-Page Action
2/16/00 2211 (H) READ THE FIRST TIME - REFERRALS
2/16/00 2212 (H) L&C, JUD, FIN
2/16/00 2212 (H) 4 FISCAL NOTES (ADM, DCED, 2-LABOR)
2/16/00 2212 (H) GOVERNOR'S TRANSMITTAL LETTER
2/16/00 2212 (H) REFERRED TO LABOR & COMMERCE
2/28/00 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
JANET SEITZ, Staff
to Representative Norman Rokeberg
Alaska State Legislature
Capitol Building, Room 24
Juneau, Alaska 99801
POSITION STATEMENT: Testified on SB 222, Version D.
REBECCA NANCE-GAMEZ, Director
Division of Employment Security
Department of Labor and Workforce Development
P.O. Box 25509
Juneau, Alaska 99802-5509
POSITION STATEMENT: Testified on SB 222, Version D.
DWIGHT PERKINS, Deputy Commissioner
Department of Labor and Workforce Development
P.O. Box 21149
Juneau, Alaska 99802-1149
POSITION STATEMENT: Testified on SB 222, Version D.
JEFF BUSH, Deputy Commissioner
Department of Community and Economic Development
P.O. Box 110800
Juneau, Alaska 99811-0800
POSITION STATEMENT: Testified in support of HB 418, Version G.
CATHERINE REARDON, Director
Division of Occupational Licensing
Department of Community and Economic Development
P.O. Box 110806
Juneau, Alaska 99811-0806
POSITION STATEMENT: Testified in support of HB 418, Version G.
SHARON MACKLIN, Lobbyist
Alaska Professional Design Council
315 Fifth Street, Number 8
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of HB 418, Version G.
PAUL GROSSI, Director
Division of Workers' Compensation
Department of Labor and Workforce Development
P.O. Box 25512
Juneau, Alaska 99802-5512
POSITION STATEMENT: Testified on HB 378.
KEVIN RITCHIE, Executive Director
Alaska Municipal League
217 Second Street, Suite 200
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 378.
CHRIS ROSS, Corporate Health, Safety and Environmental Manager
NANA Development Corporation
341 West Tudor Road, Suite 202
Anchorage, Alaska 99503
POSITION STATEMENT: Testified in support of HB 378.
GENE STORM, Staff Support
Workers' Compensation Committee of Alaska
P.O. Box 200631
Anchorage, Alaska 99520
POSITION STATEMENT: Testified on HB 378.
GLENN SMITH, Risk Manager
Municipality of Anchorage
P.O. Box 196650
Juneau, Alaska 99519-6650
POSITION STATEMENT: Testified on HB 378.
DON ETHERIDGE, Lobbyist
Alaska State AFL-CIO
710 West Ninth
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of HB 378.
ALAN WILSON, President
Alaska State Home Builders Association
P.O. Box 22797
Juneau, Alaska 99802
POSITION STATEMENT: Testified in support of HB 378.
KEVIN SMITH, Risk Manager
Alaska Municipal League Joint Insurance Association
217 Second Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 378.
JOHN GEORGE
National Association of Independent Insurers
3328 Fritz Cove Road
Juneau, Alaska 99801
POSITION STATEMENT: Testified on HB 378.
BOB LOHR, Director
Division of Insurance
Department of Community and Economic Development
P.O. Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Testified on HB 378.
ACTION NARRATIVE
TAPE 00-21, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:25 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Murkowski, and Harris. Representatives Cissna and Sanders
arrived as the meeting was in progress. Representative Brice was
absent.
SB 222-EMPLOYMENT SECURITY ACT
CHAIRMAN ROKEBERG announced the first order of business would be
SENATE BILL NO. 222, "An Act relating to standard industrial
classification for, eligibility for benefits under, and the
definition of 'benefit year' for, the Alaska Employment Security
Act; and providing for an effective date."
Number 0136
REPRESENTATIVE HALCRO made a motion for the adoption of the
proposed committee substitute (CS) for SB 222 [Version D, 1-
GS2032\D, Cramer, 2/24/00]. There being no objection, the
proposed CS, Version D, was adopted.
JANET SEITZ, Staff to Representative Norman Rokeberg, came
forward to testify on SB 222, Version D. She explained that
Version D simply adds the definitions for alcohol, drugs and
misconduct in Section 4, page 2.
CHAIRMAN ROKEBERG asked if this mirrors what was done with HB
316, the companion bill to SB 222.
MS. SEITZ replied yes.
CHAIRMAN ROKEBERG indicated the Department of Labor and Workforce
Development (DLWD) is available to answer any questions.
REPRESENTATIVE MURKOWSKI stated that she is pleased this change
was made to SB 222. She understands that DLWD would like to take
a moment to explain how the jury service and uninterrupted
insurance would work under SB 222.
Number 0281
REBECCA NANCE-GAMEZ, Director, Division of Employment Security,
Department of Labor and Workforce Development, came forward to
testify on SB 222, Version D. She explained that during the
subcommittee meeting on SB 222/HB 316 the issue of jury service
was discussed regarding an isolated incident in the Fairbanks
area. She pointed out to the subcommittee that the person who
had the problem with jury duty simply wrote "jury duty" as the
reason for leaving his last job. Most of the claims now are done
by telephone. The Division has not had this problem come up
since and, as far as she knows, it had not come up prior. It
comes down to the Committee's decision whether it is a good
reason for jury duty to be covered under unemployment insurance
if a person refuses an offer to work. She stated,
I personally could go either way on that. Although, as
a former employer, if someone who was on call for work,
refused work, I wouldn't necessarily want to pay those
benefits. So, it was a misunderstanding and, after we
talked to that claimant in question, we did determine
that he was an on-call employee and, if fact, it was
lack of work as the reason he received UI (unemployment
insurance) and not jury service.
CHAIRMAN ROKEBERG asked, "That's not taken up in this bill, but
it's being handled by your department internally?"
MS. NANCE-GAMEZ replied yes and stated there have not been any
further problems or questions regarding that issue.
DWIGHT PERKINS, Deputy Commissioner, Department of Labor and
Workforce Development, came forward to testify on SB 222, Version
D. He informed Chairman Rokeberg that DLWD worked with the
subcommittee and stated there was no opposition to Version D.
REPRESENTATIVE MURKOWSKI made a motion to move SB 222, Version D,
out of committee with individual recommendations and the attached
zero fiscal note. There being no objection, HCS SB 222(L&C)
moved from the House Labor and Commerce Standing Committee.
HB 418-INSURANCE AND OCCUPATIONAL LICENSE FEES
CHAIRMAN ROKEBERG announced the next order of business would be
HOUSE BILL NO. 418, "An Act relating to program receipts
collected by the division of insurance and to program receipts
collected by the Department of Community and Economic Development
for occupational licenses; and providing for an effective date."
Number 0516
REPRESENTATIVE HALCRO made a motion to adopt the proposed
committee substitute for HB 418 [Version G, 1-LS1500\G,
Utermohle, 2/25/00]. There being no objection, the proposed CS,
Version G, was adopted as a working draft.
CHAIRMAN ROKEBERG commented that there have been years of
frustration about the way the budget bill was handled. Version G
proceeds to add receipts for the insurance program of the
Department of Community and Economic Development (DCED) under
Title 28 regarding occupational licensing. It also adds the
Pioneers' Home Care and Support receipts, which is consistent
with SB 111.
Number 0641
JEFF BUSH, Deputy Commissioner, Department of Community and
Economic Development, came forward to testify on HB 418, Version
G. He commented:
This has been an ongoing problem, as the chair pointed
out, for several years that we've had relating to our
fee-generated agencies, agencies that are, by statute,
required to pay for their activities by fees generated
by the program. These particular programs, both in
insurance and in occupational licensing, are not
allowed by statute to collect above their operating
expenses which are still subject to appropriation by
this body. Therefore, the problems arise when you have
things such as unallocated cuts to the department in
terms of expenditure authority.
We end up with expenditure authority that actually ends
up being less than the receipt authority that we have
or the receipts that come in for the programs. We then
have situations where we have essentially over
collected fees and we have very frustrated licensees
out there who say, "We don't mind the fees we're
paying", this is a very common theme we get, "We don't
mind the fees we're paying, we just want to be able to,
we want to have the service for those fees that we
pay." And they don't understand a budgetary system
that says you can't spend the money, it just has to sit
and roll forward on an annual basis in the general
fund.
We appreciate this for occupational licensing and
insurance and, actually, we would hope that as this
bill makes progress, we would continue dialogue on a
couple of other programs that have similar issues, one
of them being ASMI [Alaska Seafood Marketing
Institute]...which pays for itself strictly through
taxes collected from the fishing industry on a
voluntary basis, and also for Banking and Securities
[Division of Banking, Securities and Corporations,
DCED] which actually collects fees far in excess of
what it actually expends to run the program. But, for
the moment, we are very satisfied with this piece of
legislation and fully support it.
Number 0800
CHAIRMAN ROKEBERG stated that the only reason ASMI or the
Division of Banking, Securities and Corporations was not included
was because the statutory framework right now is much simpler
because the amounts collected under the Division of Insurance go
directly to the Department of Revenue.
MR. BUSH said he understands that, and DCED is struggling with
the same issues. He is not suggesting an amendment to do that.
He reiterated he would like to continue a dialogue, if the bill
continues to move, and find a way in which to do the same thing
for other agencies as well.
Number 0882
CATHERINE REARDON, Director, Division of Occupational Licensing,
Department of Community and Economic Development, came forward to
testify on HB 418, Version G. She strongly supports the bill and
appreciates it being introduced.
CHAIRMAN ROKEBERG asked Ms. Reardon to give one example of why
the bill needs to be done and why the licensees want to spend
more money.
MS. REARDON replied:
One example would be enforcement of licensing laws. We
have a large number of complaints from citizens and
other licensed professionals about acts that may
violate the licensing laws, but we don't have the
ability to purchase more legal assistance from the
Department of Law to prosecute those cases and so we
end up closing them without going forward and
presenting the case against applicants. And that is
one significant frustration on the part of boards and a
lot of licensees who want to follow in the law.
CHAIRMAN ROKEBERG requested that Ms. Reardon write a letter for
the bill packet with a list of various things in each board and
commission about how they want them to spend more money.
Number 0966
SHARON MACKLIN, Lobbyist, Alaska Professional Design Council
(APDC), came forward to testify on HB 418, Version G. She
indicated APDC is very much in support of the bill. She provided
two examples of why APDC would like the bill to pass. The
Architects, Engineers and Land Surveyors Board (AELS) has had a
very hard time keeping staff for the last few years. She
believes they have had three or four staff people because the
rate they are paid is fairly low for the type of experience that
is needed. She hopes their pay rate can be increased in order to
retain staff. Travel is another concern. The Board members have
not been able to go to national meetings which she believes is
important for their continuing education. The AELS Board and
APDC are willing to pay more fees in order to purchase these
additional services.
CHAIRMAN ROKEBERG stated:
The frustration by the Occupational Licensing people is
a child of the Legislature. The Legislature has
statutorily required that each occupational license be
self-supportive. Then we found ourselves putting those
license fees in the general fund revenue side and then
the various boards and commissions wanted to do
something. For example, continuing education and
things of that nature, their hands are tied because the
Legislature refuses or feels constrained in giving them
appropriation power because of the impact on our budget
gap and the fiscal situation of the state, when, in
fact, these organizations wish to charge themselves
more money to do more things.
Number 1127
REPRESENTATIVE HALCRO made a motion to move HB 418, Version G,
out of committee with individual recommendations and the attached
fiscal notes. There being no objection, CSHB 418(L&C) moved out
of the House Labor and Commerce Standing Committee.
HB 378-WORKERS COMP AND WORKER SAFETY
CHAIRMAN ROKEBERG announced the next order of business would be
HOUSE BILL NO. 378, "An Act eliminating certain taxes under AS
21.09 on premiums from the sale of workers' compensation
insurance; relating to the establishment, assessment, collection,
and accounting for service fees for state administration of
workers' compensation and worker safety programs; establishing
civil penalties and sanctions for late payment or nonpayment of
the service fee; and providing for an effective date."
Number 1183
PAUL GROSSI, Director, Division of Workers' Compensation,
Department of Labor and Workforce Development, came forward to
testify on HB 378. He explained that HB 378 eliminates the
premium tax on workers' compensation insurance policies and
enacts a user fee on all workers' compensation claim payments.
It establishes a special account for the funding of workers'
compensation and the Occupational Safety and Health program. He
said all employers under the current law must cover their
employees for workers' compensation.
MR. GROSSI said this can be one of three ways. The employer can
purchase a workers' compensation insurance policy and have to pay
a premium tax, or the employer can certify to be a self-insurer
and not pay the premium tax. The fee starts at 3.3 percent and
then graduates down to 2.6 percent over a period of four years.
During the same four years, the self-insurers would also be
phased in and pay a percentage starting at 25 percent and then up
to 100 percent over that time period. This will allow employers
and insurers to pay at the same rate. They would pay based on
their use of the system. If the rate of injury is higher, claims
are higher and the user fee is higher. As well, if the injuries
are lower, the user fee is lower. It is believed this is a
better policy because it provides greater incentive for employers
to be safer and also allows all employers to pay at the same rate
according to their use and need. It also reduces the reliance on
the general fund. The money would be placed in a special account
under program receipts. He commented there is a spreadsheet in
the bill packet which shows there are six other states that
exclusively pay for workers' compensation and pay for the program
through their general fund.
Number 1431
MR. GROSSI informed members that 34 states pay for their program
through special accounts paid by the users of the system in a
variety of ways. Ten states pay through a combination of general
funds and special account funds. Of the 44 states which have
special accounts, 16 are using a similar method as that being
proposed in HB 378. The bill is an attempt to end the negative
funding problems the department is experiencing. The Workers'
Compensation Division and the Occupational Safety and Health
program (OSH) are suffering from budget cuts and are unable to
provide the types of services they have in the past. He said:
As a matter of fact, last year the House [of
Representatives] almost eliminated OSH and sent it back
to the feds to do. And we're hearing from our
customers that this is not something they really want.
Now, you're going to hear probably some testimony and
you're going to get letters, and some are going to be
positive and some are going to be negative....
Primarily, those in favor, and this includes some self-
insurers as well, are in favor of it because they see
the funding of these programs as something beneficial
to them...If they're into, like workers'
comp[ensation], for example, if it's insufficiently
funded, it actually costs them more money in the sense
that it increases litigation costs and claim costs.
And the same with OSH, they really don't want to deal
with the feds with OSH. They want OSH to be in Alaska
so that they can deal with it here.
Number 1588
MR. GROSSI noted that there will be people against this proposal
because it provides a mechanism requiring some employers to pay a
portion of the fee. He understands this will upset some
employers who currently do not have to pay anything. He said:
The thing you have to ask yourself: is this good public
policy? Do we want a viable workers' compensation
program? And do we want OSH to be here in the state?
And I think the answers to those questions is, "Yes".
And this provides a way of allowing that to happen.
REPRESENTATIVE HALCRO asked what the anticipated impact on local
government would be.
MR. GROSSI said:
Of course, it will start out at a lower amount because
it's starts out at 25 percent of the fee and then
graduates up to 100 percent. As far as the totals, I
can give you some numbers for the various systems. The
Municipality of Anchorage, in the first year, it's
going to cost about $74,000. These are based on, by
the way, the 1998 claims numbers which is the last
numbers we have at this time, and it would graduate up
to $234,000 approximately. Joint Insurance
arrangement, it would start out about $17,000, go up to
$86,000; that's small municipalities that join
together.
CHAIRMAN ROKEBERG asked what the Joint Insurance arrangement is.
MR. GROSSI explained that it is the members of the Alaska
Municipal League. There are approximately 140 members. In the
first year, the cost would be about $121 per member and then
graduate up to $400 per member.
CHAIRMAN ROKEBERG wondered if it is per claim.
MR. GROSSI clarified that it is per employer per year.
CHAIRMAN ROKEBERG asked if that is the fee.
MR. GROSSI replied yes.
CHAIRMAN ROKEBERG said he thought the fee was going to be based
on each claim.
MR. GROSSI said the amount is based on the 1998 claims figures.
CHAIRMAN ROKEBERG asked if the Alaska Municipal League (AML) is
self-insured.
Number 1793
MR. GROSSI explained that AML is an insurance pool.
CHAIRMAN ROKEBERG asked Kevin Ritchie, Executive Director, Alaska
Municipal League, if AML has an underwriter.
KEVIN RITCHIE, Executive Director, Alaska Municipal League, came
forward to testify on HB 378. He commented that AML is an
organization which is self-insured with excess insurance above a
certain amount.
CHAIRMAN ROKEBERG referred to the amount the AML would have to
pay and asked, "Based on the percentage, for example,...3.3
percent of what?"
MR. GROSSI said it is 3.3 percent of the total compensation pay.
CHAIRMAN ROKEBERG said, "But at 25 percent of that?"
MR. GROSSI answered yes.
CHAIRMAN ROKEBERG wondered what the other part of the equation is
and asked if the premium tax is being phased out over four years.
MR. GROSSI clarified that the premium tax will end January 1,
2001.
CHAIRMAN ROKEBERG wondered if there would be enough money.
MR. GROSSI indicated there would not be enough money the first
year to fund the entire year's budget because the fee would not
be collected until March 1, 2001. Three-quarters of the budget
would have to be funded through the general fund.
CHAIRMAN ROKEBERG wondered if he is referring to this year.
MR. GROSSI replied yes.
CHAIRMAN ROKEBERG asked if there is a savings to the general fund
of $1.5 million.
MR. GROSSI answered yes.
CHAIRMAN ROKEBERG asked Mr. Grossi to explain how that works.
MR. GROSSI stated the fee would be collected on March 1, 2001
towards the end of the fiscal year. Two-thirds would need to be
funded from the general fund, and from March 1, 2001 forward, the
fee could be used for funding.
CHAIRMAN ROKEBERG wondered if it is a general fund from the
premium tax only.
MR. GROSSI said yes.
CHAIRMAN ROKEBERG asked when the cut-off is for the premium tax.
Number 1934
MR. GROSSI said he believes the effective date is January 1,
2001.
CHAIRMAN ROKEBERG wondered, "So, there's some revenue coming in
during the next fiscal year for the transition?"
MR. GROSSI said yes, but stated that it depends on the
Legislature.
CHAIRMAN ROKEBERG said, "Assuming this passed, and everything
else being equal, we'd have approximately six months of the
fiscal year with a premium tax (indisc.)."
MR. GROSSI replied yes.
CHAIRMAN ROKEBERG asked if Mr. Grossi has a spreadsheet which
shows how everything balances out and works over a four-year
period.
MR. GROSSI indicated that he does not currently have that
available.
CHAIRMAN ROKEBERG asked if that could be done.
MR. GROSSI said yes.
CHAIRMAN ROKEBERG wondered if there would not be a premium tax in
2002 and if they would be getting 50 percent of the fee
assessment.
MR. GROSSI said, "No. Basically it'll still amount to the same
amount of money because, if you look, we've graduated; the fee
starts at 3.3 percent and graduates down to 2.6 percent as the
self-insurers are phased in."
CHAIRMAN ROKEBERG asked, "Well, the people that are not self-
insured, what are they paying?"
MR. GROSSI stated that they pay the premium tax at 2.7 percent
with a total amount of $3.5 million.
CHAIRMAN ROKEBERG asked if they have a different rate.
MR. GROSSI explained that the premium tax is based on the premium
pay which is different.
CHAIRMAN ROKEBERG wondered if that is what is being eliminated.
MR. GROSSI replied yes.
CHAIRMAN ROKEBERG asked, "What are they going to be assessed in
terms of the claims, what percentage?"
Number 2038
MR. GROSSI commented that they would be assessed at 3.3 percent
the first year and 3.1 percent the second year.
CHAIRMAN ROKEBERG wondered if the schedule would be the same.
MR. GROSSI said yes.
CHAIRMAN ROKEBERG asked, "The 25, 50, 75, 100 also?"
MR. GROSSI said, "No. No, they're at a 100 percent the first
year."
CHAIRMAN ROKEBERG wondered, "You pay the premium tax previously
by having an underwriter. The first year it'll be 3.3 against
100 percent of your claims?"
MR. GROSSI responded yes.
CHAIRMAN ROKEBERG said, "So, there's the variable there."
MR. GROSSI stated that is correct.
CHAIRMAN ROKEBERG commented, "Previously it was whatever your
premium tax was. You said it was about 2.7 approximately."
MR. GROSSI clarified that it is 2.7 percent of the total premium
pay.
CHAIRMAN ROKEBERG said, "Now we're going to shift to 3.3 of
whatever claims were paid out."
MR. GROSSI said that is correct and stated, "As that pool gets
larger, that percentage can go down."
CHAIRMAN ROKEBERG wondered, "Okay, so it's only the self-insurers
that are getting a break at the beginning and that's, maybe
there's a margin in there you can get squeezed on? If I have a
perfect safety record, [and] the other part of OSHA, or whatever
it is, did a great job and you didn't have a bunch of claims
(indisc. - coughing)?"
MR. GROSSI replied:
You wouldn't pay anything. Yes, that's true, but there
wouldn't be as great a need for us. I mean if
everybody does a great job on safety, and they
eliminate injuries, there won't be any claims. There'd
be fewer claims and so there shouldn't be as much work
for us. So, it actually gives us a reasonable way of
cutting the budget.
Number 2118
REPRESENTATIVE SANDERS asked, "You say that their bill, by
performing well and protecting the safety and health of their
employees, their bill can go down. Does that continue until it
can go to nothing?"
MR. GROSSI stated it can. He noted some states have a minimum
payment, but that was not included in HB 378 because if someone
is doing that good of a job they should not have to pay anything.
REPRESENTATIVE SANDERS commented that it sounds like an incentive
program.
MR. GROSSI replied that it is an incentive program for employers
to have safer work places. The idea is that if the work place is
safer then the annual fee is less.
REPRESENTATIVE SANDERS added, "And they have a direct interest in
this."
MR. GROSSI said, "Absolutely."
CHAIRMAN ROKEBERG indicated he is a little confused because the
fiscal notes for HB 378 show level amounts. He asked, "But we
know it's not going to be level, but that's the best guess?"
MR. GROSSI pointed out that it was made revenue neutral based on
the 1998 claims numbers. The fee and the graduation were
calculated so they would be $3.5 million, the amount which is
required to fund the programs.
Number 2195
REPRESENTATIVE MURKOWSKI stated she is confused with respect to
the fiscal notes and asked:
If in fact, part of the incentive, if you will, is to
have a perfect safety record, and you can therefore
reduce your payments altogether, are the self-insureds
going to be able to get to a point where they don't
pay? Because it looks like they pay an annual service
fee regardless of the safety record.
MR. GROSSI clarified that self-insureds pay the annual fee based
on the workers' compensation payments. There is also another
fee.
REPRESENTATIVE MURKOWSKI pointed out that the annual service fee
is kind of a misnomer because a self-insured with a perfect
safety record would pay an annual fee based on zero claims and
would thus have no annual service fee.
MR. GROSSI explained that there would not be an annual service
fee if that were the case.
Number 2266
CHAIRMAN ROKEBERG asked Mr. Grossi to point out where this is in
the bill.
MR. GROSSI replied it is in Section 7, page 5, which states that
the annual service fee is part of yearly certification.
CHAIRMAN ROKEBERG wondered if the transition for the phase-in of
fees occurs in Section 9.
MR. GROSSI said that is correct. Section 6 addresses the issue
of service fees and the exact percentages to be paid each year.
CHAIRMAN ROKEBERG said:
It just doesn't come out in what I was getting at. It
doesn't say under the claims paid, but just refers back
to the statutory revision about what the percentages;
it just talks about the service fee.
MR. GROSSI referred to Section 6, page 3, lines 24 through 26,
which reads, "The service fee is the following percent of all
payments reported to the Alaska Workers' Compensation Board under
AS 23.30.155(m) or (n)."
CHAIRMAN ROKEBERG stated he understands now. He asked if there
were federal funds in the OSHA program.
MR. GROSSI noted that OSHA has a 50 percent match.
Number 2424
CHRIS ROSS, Corporate Health, Safety and Environmental Manager,
NANA Development Corporation, testified via teleconference from
Anchorage. He stated:
I am testifying today in support of HB 378.... I am
serving my second term on the Alaska Safety Advisory
Council and I'm past chair of the Governor's Safety and
Health Conference, and as many of you know, I'm the
Division Director of the National Ski Patrol and serve
on the national board of directors.
I'd like to share a couple of key points about HB 378
that appeal to me. First, it will spread the cost of
funding DOL [Department of Labor and Workforce
Development] programs such as workers' comp[ensation]
and workers' safety over a much larger group as Mr.
Grossi pointed out. Under the current premium tax,
there are many employers who are not contributing to
the process, and insurance pools such as the Timber
Exchange all enjoy the benefits of the DOL programs,
but do not pay premium tax. This bill would charge a
user fee on all claims, not traditional premium
payments which is a more equitable arrangement. In
other words, all users will now be assessed and
contribute their fair share.
The second consequence of this bill also relates to
equity and paying a fair share. Because of the new
funding, employers with high claims will pay more,
while employers with good loss control programs in
place will pay less.
Number 2479
Ten years ago, NANA embarked on a journey to completely
overhaul our safety process. Our claims were way too
high and our frequency and severity rates were much
worse than average. As a result of our determination
to change our culture, we achieved remarkable results.
Our claim cost per employee has gone from $1.25 per
employee hour in 1989...[Mr. Ross read from written
testimony and this is what was cut off: to .02 cents
per hour in 1999. This is a savings to us of nearly
$800,000 per year. HB 378 will provide even more of an
incentive for employers to implement.... [ends
midspeech because of tape change]
TAPE 00-21, SIDE B
... effective loss control strategies, as we have done.
I think this is a far more of effective approach - the
carrot - rather than implementing tougher laws or
stepping up enforcement - the stick.
And the third attractive element of this bill is the
bright outlook for the Alaska Department of Labor.
Recent funding cuts to DOL have jeopardized the
Occupational Safety and Health Division. One possible
outcome of these reductions would be a federal takeover
of Alaska OSH, resulting in Alaska being a Federal OSHA
state.
This is not a desirable outcome for Alaskan employers.
We would far prefer dealing with a state entity that
has the flexibility to adapt to the unique conditions
of Alaska, and employs local residents who more fully
understand the risks associated with our workplaces.
This bill would provide a stable funding mechanisms
that will protect the mission of worker safety and
effective workers' compensation insurance
administration.
As a side note, it would also help preserve the
Governor's Safety and Health Conference, an important
event that is self-sustaining and helps to reach and
educate many Alaskans each year and it would prevent us
from having to submit a similar bill such as HB 418 to
keep designated program receipts.
As I review each section of this proposed legislation,
it all makes good, common sense. It spreads the cost
of these important functions throughout the users in
the State, and it rewards excellence and helps to
maintain our important local relationships. There's
two concerns I have about the bill which is a refund on
subrogation and also that we deserve some prior year
claims would not be taxed, but otherwise it's a good
bill.
Number 0072
REPRESENTATIVE MURKOWSKI referred to Mr. Ross' comment regarding
a refund on subrogation. She asked Mr. Ross to explain his
concern.
MR. ROSS replied, "If we're paying in premium tax based on
claims, some claims we later subrogate and get the money back.
So, we would be looking for a credit for subrogated claims." In
reply to Chairman Rokeberg, he explained that his other point had
to do with the term "claims". He is not exactly sure what a
claim is under this bill. He presumes it is a paid-out claim and
would not include reserves. From his perspective, NANA has far
more reserves than paid-out claims. If there was a tax based on
reserves, it would be anywhere between three and ten times as
much as a tax pain on actual claims. He indicated that claims
from prior years, which have already been assessed down to the
premium tax, should not be double-taxed.
CHAIRMAN ROKEBERG asked Mr. Grossi to address these issues.
Number 0127
MR. GROSSI said, with respect to subrogation, he had not thought
about that. He noted that there would somehow have to be a
reduction for that which could possibly be done through
regulation.
CHAIRMAN ROKEBERG asked Mr. Grossi to speak to the definition of
a "claim".
MR. GROSSI replied, "The way we have it, it's just the reported
actual claim payments made in the annual report. So, it would
not in any way...be charged against the reserve."
CHAIRMAN ROKEBERG wondered if it is fully defined in the bill.
MR. GROSSI responded, "Not in those words, but because the annual
report only reports actual payments made." He reiterated that it
appears in Section 6, page 3, lines 23 through 24. AS
23.30.155(m) and (n), in Section 6, require a report of payments
made on workers' compensation claims.
CHAIRMAN ROKEBERG referred to AS 23.30.155(m).
MR. GROSSI said the statute refers to actual payments made.
CHAIRMAN ROKEBERG wondered, "Just to payment of the claims or
litigation costs?"
MR. GROSSI specified that it is all payments made regarding
claims with the exception of the administrative costs.
CHAIRMAN ROKEBERG said he believes a claim needs to be defined
very clearly in the bill.
REPRESENTATIVE MURKOWSKI commented:
I listened to what you said, and I was waiting for it
to become clear to me exactly what the claim was. What
I heard the previous speaker mention was whether or not
reserves are included as part of that and I didn't hear
any mention of it. So, it sounds like there's still
some vagueness, I think, as to the term and it
certainly couldn't hurt to clarify it in the statute.
CHAIRMAN ROKEBERG asked, "Is the interest on your litigation, is
that part of a claim paid out because you're paying it out?"
MR. GROSSI answered yes.
Number 0315
REPRESENTATIVE MURKOWSKI referred to a February 4, 2000, letter
from the Workers' Compensation Committee of Alaska (WCCA)
[included in the bill packet]. It states in the letter that
WCCA's support of the bill is "based on the qualification that
the fees raised be used specifically for the purpose stated and
not be diverted" to any other uses. She asked if there is any
way for the fees to be used for other purposes.
MR. GROSSI indicated the fees will be placed in a separate
account. He hopes the Legislature will choose to use the fees
for the specific purposes stated. However, it is possible, but
highly unlikely, the fees could be used for other purposes.
REPRESENTATIVE MURKOWSKI asked if this issue has been a subject
of controversy.
MR. GROSSI said:
I think the employers, in their discussion, were
concerned that it could potentially be raided, but I
don't think that that's likely. I don't think that
those accounts, those special accounts that exist, get
raided. So, I guess the answer to that is you can't
have a purely designated fund because that would be
unconstitutional. However, you can have these special
accounts that allow money to be available for the
funding of...those purposes.
Number 0385
CHAIRMAN ROKEBERG pointed out that there are several concerns
regarding the misuse of the funds.
MR. GROSSI stated that it is the legislature that truly has the
choice. The Department of Labor and Workforce Development (DLWD)
would not really have any control. He explained that the budget
process would still go forward, but it would be up to the
Legislature to budget how the money would be used. The
Department would not be able to spend any more than what is
allocated by the budget. He is not sure if this answers
Representative Murkowski's question.
REPRESENTATIVE MURKOWSKI replied that it does. She simply was
unsure if this had been a concern by employers that they would be
paying into this and then not have the ability to access to the
money for the intended purposes.
MR. GROSSI clarified that employers are willing to pay the fee if
it is then going to be used to fund the programs being discussed.
Number 0460
GENE STORM, Staff Support, Workers' Compensation Committee of
Alaska, testified via teleconference from Anchorage. He stated:
WCAA represents approximately 600 employers, insurers
and defense attorneys statewide. There's a 17-member
board. At the time that the Board addressed this
issue, there were 15 active members on the Board and
not all board members participated in the vote. Some
chose to abstain or did not vote. The majority of
those who did vote, supported this legislation, and it
followed some discussions with Mr. Grossi and Mr.
Flanagan [Commissioner, DLWD] from the Division
[Department] of Labor when the legislation was in draft
form.
The issue raised by Representative Murkowski was very
critical for those people who voted to support this.
They did so contingent on the money being raised going
back into the program as described in the bill. They
didn't want the money that they paid to support the
Division or the safety programs to be rated for other
purposes.
CHAIRMAN ROKEBERG asked if Mr. Storm participated in the ad hoc
committee.
MR. STORM said he provided staff support to the board. He did
not participate in the ad hoc committee deliberation. He
commented that hundreds of hours were spent on meetings over a
period of two months.
CHAIRMAN ROKEBERG asked whether Mr. Storm is in a position to
inform the committee if there is any connection between HB 378
and the other ad hoc bill [HB 419] that will be before the
committee.
MR. STORM explained that there is no connection even though both
bills came up at the same time. There had been discussion last
year regarding the service provided by the Division and whether
or not the level of service could be sustained given the last few
budget cuts. He believes there was a consensus at the WCCA level
that it is important for everyone who uses the system to have a
level of service that results in claims being processed in a more
expeditious manner.
Number 0621
CHAIRMAN ROKEBERG stated that it seems HB 419 offsets the intent
of HB 378 to increase premiums.
MR. STORM confirmed that would be the case.
CHAIRMAN ROKEBERG said:
I have a marketing background. I'd say it would be
kind of a marketing tool that you can sell the concept
of this and then it's easier to sell the other one
which is an increase in premiums. Was that not
discussed at the ad hoc committee or WCCA?
MR. STORM responded no and stated that the two bills were not
really tied together during the ad hoc committee process. He
commented there were a lot of details in the ad hoc process that
were discussed through a long series of meetings, but they were
not tied to the change in funding for the Division.
Number 0718
GLENN SMITH, Risk Manager, Municipality of Anchorage [MOA],
testified via teleconference from Anchorage. He is a former
member of the WCCA. He stated:
I'd like to state that it's very difficult in today's
day in age and with our budget cuts to argue with
supporting our Department of Labor and workers'
compensation system as well as OSHA. As you may or may
not be aware, the Municipality's been self-insured
since 1976 and I just wanted to make it clear to the
members that we're one of the largest self-insureds in
the state with the exception of the State [of Alaska]
most likely and we do pay premium tax in the form of
excess premiums.
I don't believe there's a self-insured entity within
the state that doesn't have excess coverage over and
above their self-insured retention. Secondly, I have
some difficulty in paying a user fee on my defense
costs. I don't have a problem with indemnity payments,
but on defense costs and medical payments which account
for approximately; the medical-only claims account for
approximately two-thirds of my claim frequency on an
annual basis. And over the last ten years that I've
gone through this, we've been consistent within 50
claims per year. So, we have a very active safety
program.
We spend a great deal of money. Every department head
in the city contributes to it on a monthly basis.
We've had one OSHA complaint in my entire tenure with
the Municipality which admittedly has only been three
years. And I do not see why I would be paying a user
fee on my defense costs to support a system that
generally supports the injured worker. It seems that
there would be a conflict of interest there.
On the other hand, I have no adversity for supporting
the system. It just, I feel, should be done more
equitably and the bill should reflect that it's not
based on prior claims because, from the carrier's
standpoint they've already paid the premium tax on it.
And from my standpoint, I've already paid the premium
tax on the excess coverage...We have several claims
that have been open 10 and 15 years, fatalities and
such. And I'm sure many of the other employers do
also.
Number 0858
REPRESENTATIVE MURKOWSKI referred to Mr. Smith's comment
regarding the Municipality already paying the equivalent of a
premium tax through the excess premiums. She asked, "If this
bill is passed, and you pay this annual service fee, that excess
premium expense is still there, is it not?"
MR. SMITH said that is correct. He believes the premium tax
which is paid is based on a combined loss ratio. He thinks it is
important to differentiate for everyone that there is a distinct
difference between an insurance company's combined loss ratio and
their claim loss ratio. Most carriers today have a combined loss
ration in excess of 125 percent for workers' compensation. He
wondered if the percent has consistently been 3.5 on the premium
tax.
Number 0928
CHAIRMAN ROKEBERG said 3.5 percent is correct. He stated that
the MOA in 1998 paid $2,302 of that tax.
MR. SMITH replied that is based on $2.4 million in claims.
CHAIRMAN ROKEBERG asked, "At what level does your excess kick in,
Mr. Smith?"
MR. SMITH responded that it is $500,000 this year . He further
stated:
Of course, under the premium tax, an insurance company
can use their claims adjusting administration
underwriting is included in that combined loss ratio.
In my case, I'm paying a self-insured administrator and
claims adjuster, at least from the Municipality's
standpoint, above and beyond, and that's a substantial
amount yearly.
CHAIRMAN ROKEBERG said that is their choice though.
MR. SMITH replied that is correct.
Number 1027
DON ETHERIDGE, Lobbyist, Alaska State AFL-CIO, came forward to
testify in support of HB 378. He indicated there is a letter of
support in the bill packet from the AFL-CIO. The AFL-CIO
considers HB 378 a very important piece of legislation for
protecting workers' safety and taking care of those that are
injured due to lack of safety. He said last year they came close
to losing the OSHA program. One of the effects of becoming part
of the federal OSHA is that public employees would no longer be
covered under any kind of an OSHA program.
Number 1088
ALAN WILSON, President, Alaska State Home Builders Association,
came forward to testify on HB 378. He read the following letter
of support:
The Alaska State Home Builders Association [Alaska HBA]
voted to support House Bill 378 for the following
reasons.
Home builders across Alaska recognize the importance of
dealing with workers' compensation claims and disputes
in a timely manner. We know this can only be done with
a stable source of funding which this bill would
provide. We further advocate that the funds collected
remain separate from the State's general fund and be
used for the purpose stated in the bill.
Second, as employers engaged in an industry that deals
with OSHA on a regular basis, we support this bill
because we adamantly insist on in-state management of
the OSHA program. Under federal control any appeal
hearings would be held in Seattle. The cost of travel,
hiring lawyers, and the time involved would create an
economically disastrous situation for small employers
across the state.
The Alaska State Home Builders Association understands
the importance of a stable funding source for the
Workers' Compensation and in-state management of OSHA
programs. It is with this goal that we support House
Bill 378.
MR. WILSON commented that a few years ago the Alaska HBA pushed a
piece of legislation with a similar impact for the employers. He
thinks it is advantageous to pursue ways to offer incentives for
workers to provide safety programs and make job sites safe.
CHAIRMAN ROKEBERG asked, "Is that bill on the self-insured
programs still wandering around the halls of this building?"
MR. WILSON affirmed that it is.
CHAIRMAN ROKEBERG said, "For that to be enacted, you'd have...to
be paying a surcharge, if you will, or a percentage of the claims
paid out. Were you aware of that?"
MR. WILSON replied yes and stated that the Alaska HBA, under the
bill they sponsored a few years ago, was one of the few self-
insureds that would have voluntarily paid the premium tax. He
believes HB 378 is a better approach.
CHAIRMAN ROKEBERG asked if the state inspects any of HBA's job
sites.
Number 1241
MR. WILSON responded that is exactly how it works. He noted:
You know, OSHA's one of those things that; kind of a
love-hate relationship going on, you hate to see them
on your job site, but just knowing they're there
increases the likelihood that you're going to comply
with safety programs. The fear for us is that if a
federal OSHA person came in, it's going to be pretty
tough to sit down and work through any issues with that
inspector and then the appeal process, of course, would
be to Seattle or possibly Washington, D.C. which would,
for a small home builder, that would be pretty
disastrous.
CHAIRMAN ROKEBERG asked if OSHA actually comes out to the job
sites.
MR. WILSON said they do come out to job sites occasionally,
typically by request.
Number 1300
MR. RITCHIE stated that the Alaska Municipal League [AML]
supports the work the department has done in this area. He
commented:
What I wanted to sensitize you to is simply the kind of
comprehensive impact of a number of issues that are
happening at the same time on municipalities and tax
payers. From a standpoint of allocating the costs, an
insurance company would be going from a tax to a fee.
In this particular instance, for better or for worse,
municipalities, or the Joint Insurance Association,
would be going from no cost to a percentage fee.
I'm not going to comment on whether that's a good
system or a bad system, but I just wanted to just talk
to you about for a very brief was, of all the things
that are happening right now, Mr. Grossi suggested that
it might be $400 per year or per municipality for the
small ones. In that particular instance, though, many
of these small municipalities now are receiving $23,000
to $25,000 in revenue-sharing funds cut several
thousand dollars from the previous year so when you
look at the context of that, it may be one-third, even
50 percent of their total municipal budget, it does
make an impact.
Number 1399
REPRESENTATIVE HALCRO wondered if it is fair that municipalities
do not pay anything for the same service that private insureds
do.
MR. RITCHIE said he does not think it is fair. He clarified:
And all I'm commenting on is, in the context, is it
fair that lots of costs from a whole different bunch of
areas together impact both the taxes? My answer to
that would be it's not fair either. And there is a
compromise, obviously. You know, we're hoping that the
legislature works on a long-range, comprehensive fiscal
plan that includes considering what local tax payers
have to pay and working on that. ...
Obviously, partially or fully restoring the funding for
revenue sharing mitigates a lot of this kind of issue,
but there needs to be something on both sides of the
balance sheet. One point I would like to make, my
understanding, and I'd maybe have Mr. Grossi comment
more on this, is that the premium tax apparently is
being paid on the excess insurance; that probably the
savings would not get passed on to the Joint Insurance
Association. I'm not really sure how that relationship
works, but its, what Mr. Smith essentially referred to,
and the play between saving money for a private
company, it may or may not get passed on to the
municipality through the insurance program.
Number 1499
REPRESENTATIVE HALCRO referred to Mr. Ritchie's letter in the
bill packet which reads that municipalities "cannot absorb the
cost of additional state mandates without raising taxes or
cutting local services". He stated HB 378 is a "pay-as-you-play"
proposal. He indicated that local services would not need to be
cut, but that workers' compensation claims would need to be cut.
He pointed out that there was some controversy four or five
months ago in Anchorage regarding road grader drivers. These
drivers were on workers' compensation because they suffered
injuries from plowing over manhole covers. Some of the debate
revolved around who was responsible for covering their workers'
compensation claims. The drivers claimed the Municipality of
Anchorage should have fixed the problem years ago.
Representative Halcro asked, "With this type of program in place,
don't you feel that municipalities might be a little more quicker
to respond to potential safety hazards?"
MR. RITCHIE said no. He explained that there is a tremendous
incentive to save money through workers' compensation. He stated
that Mr. Smith [Kevin Smith] is here with the Joint Insurance
Association [JIA] which is actually a separate organization from
AML. From his experience, the costs are pretty staggering. In a
self-insured program, more of the cost goes directly back to the
municipality itself. He commented those municipalities which are
self-insured or anyone insured by the JIA have a charge back
system for organizations which have higher than average loss
rates. One of the advantages of the JIA is they provide loss-
control service far more than any private insurance company.
Number 1668
KEVIN SMITH, Risk Manager, Alaska Municipal League Joint
Insurance Association, came forward to testify on HB 378.
CHAIRMAN ROKEBERG asked Mr. Smith to explain what his association
does and what opinion he has on HB 378.
MR. SMITH stated:
About 15 years ago, municipalities and school districts
were having a tough time buying insurance so they
turned to the Alaska State Legislature and said, "We'd
like to give a big California howdy to any insurance
companies and we'd like to do this ourselves." and the
Legislature said, "Okay".
So, what they've got now in law is the ability to
basically pool self-insurance for workers'
compensation, liability and property. With respect to
the workers' comp[ensation] provisions here, you know,
I think that everybody at this table can see a
difference between government and an insurance company.
Is it fair ... that governments don't pay as they go?
Well, these are your constituents, these are members of
our organization, it's a public entity. We don't
typically tax public entities. Yeah, I think it is
fair that, perhaps, municipalities and the state and
public entities don't pay as they go. This is a hard
cost that basically would be passed on to the municipal
governments and, frankly, the timing couldn't be worse.
REPRESENTATIVE HALCRO stated that Mr. Grossi pointed out that
there are only six states that do not get some kind of a
contribution. That leaves 44 states that have a program similar
to what is being proposed in HB 378. He said, "I would say, in
the case where you're concerned about governments taxing each
other, it seems to be okay in 44 of the 50 states."
MR. SMITH said he is unclear as to whether Mr. Grossi was
proposing legislation similar to this or whether it specifically
applies to public entities. He was under the impression that a
fee-based schedule was being discussed with respect to these
states.
CHAIRMAN ROKEBERG asked how many different municipalities or
organizations are involved with his group.
MR. SMITH said there are 141 municipalities and school districts
in his group. There is another pool in the state which consists
of another 20 to 25 municipalities and school districts. The JIA
is a voice for a much broader section of the municipalities that
are "self-insured", but not really.
Number 1854
CHAIRMAN ROKEBERG wondered if Mr. Smith has an idea of the impact
number wise.
MR. SMITH said the JIA, if their claims remain stable, could stay
at about $56,000 four years out. He added that there has been a
lot of discussion about how the 3.3 percent increase for self-
insureds will provide an incentive for losses to go down. He
pointed out that it is 3.3 percent on all the money the self-
insureds are already paying out on workers' compensation. He
stated, "The fact that they're self-insured and paying workers'
compensation alone is reason enough and incentive enough to try
and get their losses down."
CHAIRMAN ROKEBERG asked if the MOA and the Anchorage School
District are part of his group.
MR. SMITH said these organizations are part of the AML's mother
group. They are self-insured and not part of a joint insurance
arrangement. The North Slope Borough is an exception to this.
His group provides a layer of their law enforcement liability
between their self-insurance and another type of insurance
purchased elsewhere.
CHAIRMAN ROKEBERG indicated there needs to be amendments to HB
378 with respect to refunds on subrogation and the definition of
a claim.
Number 2043
REPRESENTATIVE HALCRO asked for clarification on the number of
states which have a similar program to what is being proposed in
HB 378.
MR. GROSSI said he believes there are approximately 16 that have
a fee based on compensation pay.
Number 2189
JOHN GEORGE, National Association of Independent Insurers, came
forward to testify on HB 378. He stated:
We're not really opposed to the bill, but there's a
couple of things that came up in testimony today that I
think are important to clarify. Several people
mentioned, "We don't want to pay twice". If you write
a policy this year and you pay the losses next, you
want to make sure you haven't paid out a premium tax
and then have to pay a fee on top of the losses that
apply this year's premium.
Several people have mentioned that, but I haven't seen
how we're going to address that to make sure that we
don't have to pay twice. And the reason that I really
think that's important is that a lot of testimony has
hinged about insurance companies paying. Insurance
companies don't pay, they pass on. It's almost like a
sales tax. The merchant doesn't pay sales tax. The
individual pays it. It goes to the merchant. The
merchant sends it in. Premium tax on workers'
comp[ensation] is an add-on. The fee on the claims is
going to be an add-on.
Now, it's a little more difficult to figure it out
because you don't know precisely what the claims are
going to be. You know what precisely the premium is,
but assuming that an insurance company is going to
adjust to that, they will figure out what it is and
they will pass it on to employers. So, what we're
really talking about is small employers who are unable
to self-insure or large employers who elect not to
self-insure are paying, at this point, into the general
fund, unrestricted, money's just there.
So, you could say that it's sort of been going to the
Department of Labor for these or not, depending on how
you want to look at it.... This does level that playing
field a little bit. It makes insurance more
competitive, I suppose with self-insurance, but
probably not enough to really make a difference in
whether someone was self-insured or not. We do support
the fact that it brings in the other players and we
think that they ought to be contributing...I think it's
important to note that this is really affecting
employers not insurance companies.
CHAIRMAN ROKEBERG asked if the statutory tax has always been due
on March 1.
MR. GEORGE said he believes the tax has to be collected quarterly
now. The premium is earned during a policy year. He explained:
Let's say you bought a policy on January 1, 2000. The
premium is earned all during 2000, but the claims may
be largely paid out in 2001. You paid the premium tax
and that was passed to the small employers, then we pay
the claims in 2001 and pay an additional fee on top of
those which, I assume, we're going to have to go back
to the Division of Insurance and say we need to go back
and retroactively charge are employer insureds so that
we can have additional money to pay those. Or, if the
claim results out of policy period for which you paid
the tax, you don't have to pay the fee. And I think
that probably is more logical.
CHAIRMAN ROKEBERG stated, "Well, everybody in the business knows
up here the tax is due on or around the first of March. So, when
are the policy years for workers' comps (indisc.)?"
[Due to a tape change, Mr. George's response was not recorded.]
TAPE 00-22, SIDE A
Number 0001
CHAIRMAN ROKEBERG voiced concern that the anniversary date of a
workers' compensation policy typically varies with respect to
when the underwriting occurred. He said:
It's conceivable that with a March 1 premium tax, if
you bought a policy sometime in February of the year,
that next year, assuming this bill were to pass, you
would pay the full premium tax on March 1 and then
starting on; would that be prorated?
MR. GEORGE indicated it would be similar to income tax. He
explained that the tax year is January 1 to January 1, but a
person pays in April.
CHAIRMAN ROKEBERG asked, "So, whatever isn't a prorated share of
how much premium you'd pay to the prior calendar year?"
MR. GEORGE said he is not sure.
CHAIRMAN ROKEBERG asked Bob Lohr if he could answer his question.
Number 0104
BOB LOHR, Director, Division of Insurance, Department of
Community and Economic Development, testified via teleconference
from Anchorage. He indicated he does not know the answer, but
would get back to Chairman Rokeberg with a response.
MR. GEORGE recalled that there is now an exemption for
municipalities paying a premium tax.
CHAIRMAN ROKEBERG asked Kevin Smith if he knows anything about
that.
MR. SMITH replied that he does not know. He said if the JIA does
pay it, then it would the reinsurers who are paying. He
reiterated that his organization is self-insured.
MR. GEORGE said, "I've been corrected by the State Risk Manager,
and it is only on surplus lines that the tax difference; so, this
would not apply to workers' comp[ensation]."
CHAIRMAN ROKEBERG asked if there is a premium tax on surplus
lines.
MR. GEORGE explained that there is a premium tax on surplus
lines, but the exemption is for that tax. He added that
municipalities are not exempted from a premium tax on workers'
compensation.
CHAIRMAN ROKEBERG wondered, "Do they pay the tax or not? Yes or
no?"
MR. GEORGE said he believes if a municipality buys workers'
compensation insurance, then the insurance company will add on
premium tax and charge it to the municipality. The insurance
company will then pay the premium tax to the State on municipal
workers' compensation.
CHAIRMAN ROKEBERG asked, "And it's best to use it for the excess
lines because they're self-insured?"
MR. GEORGE answered, "You don't want to go there. It's just
different."
CHAIRMAN ROKEBERG said:
The other issue would be whether, for example, you
heard testimony on those third-party administrators for
these programs and so that'd be part of the whole claim
payments and the fees charged by the third-party
administrators to operate their programs.
MR. GEORGE said he understands that the Division of Workers'
Compensation is looking for is the amount on the check that is
handed to the employee or to the doctor, and would not include
claim payments, administrative fees, adjusting fees, etcetera.
CHAIRMAN ROKEBERG said that is why he would like a clear
definition of a claim.
Number 0333
MR. GROSSI said he thinks a claim is well-defined in HB 378. He
clarified that administrative costs would not be included. It
would strictly be workers' compensation payments which are
reported in the annual report. He could provide an example of
what kind of costs are reported in that report.
CHAIRMAN ROKEBERG stated, "That's basically what you're testimony
was and it ties into that, the language in the statute there.
That's subsection (m)?"
MR. GROSSI replied yes.
CHAIRMAN ROKEBERG asked Mr. Lohr to get back to the committee
with information regarding the calculation on the premium tax now
for excess lines and how the March 1 date impacts that. He
suggested that Mr. Lohr speak with Mr. Grossi on the transitional
elements outlined in HB 378.
MR. LOHR agreed to do that.
CHAIRMAN ROKEBERG asked if Mr. Lohr had any further comments
regarding the rights of subrogation or any other issues.
MR. LOHR replied no. He stated:
Basically, the division views this as our duty under
current statute is to collect the premium tax at the
established rate by the Legislature and process those
funds in the unrestricted general fund. And I don't
think it's the place of the division to advise on the
policy question of the most effective for the
Legislature to fund the workers' compensation.
[HB 378 was held over.]
ADJOURNMENT
Number 0511
CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing
Committee meeting at 5:10 p.m.
| Document Name | Date/Time | Subjects |
|---|