Legislature(1999 - 2000)
03/29/2000 03:28 PM House L&C
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* 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
March 29, 2000
3:28 p.m.
MEMBERS PRESENT
Representative Norman Rokeberg, Chairman
Representative Andrew Halcro, Vice Chairman
Representative Lisa Murkowski
Representative John Harris
Representative Tom Brice
Representative Sharon Cissna
Representative Jerry Sanders
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
CS FOR SENATE BILL NO. 193(FIN)
"An Act relating to the payment of wages and claims for the
payment of wages."
- MOVED CSSB 193(FIN) OUT OF COMMITTEE
CONFIRMATION HEARINGS:
Board of Marine Pilots
Michael C. Spence - Ketchikan
- CONFIRMATION ADVANCED
Barbara Huff Tuckness - Anchorage
- CONFIRMATION ADVANCED
HOUSE BILL NO. 345
"An Act relating to state employee health insurance."
- HEARD AND HELD
HOUSE BILL NO. 339
"An Act authorizing the Alaska Commercial Fishing and Agriculture
Bank to make loans relating to tourism and development or
exploitation of natural resources."
- SCHEDULED BUT NOT HEARD
PREVIOUS ACTION
BILL: SB 193
SHORT TITLE: COLLECTION OF UNPAID WAGES
Jrn-Date Jrn-Page Action
1/14/00 1977 (S) READ THE FIRST TIME - REFERRALS
1/14/00 1977 (S) L&C, FIN
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 CS(L&C) Out of Committee
2/10/00 (S) MINUTE(L&C)
2/11/00 2272 (S) L&C RPT CS 4DP SAME TITLE
2/11/00 2272 (S) DP: MACKIE, TIM KELLY, DONLEY, LEMAN
2/11/00 2272 (S) ZERO FISCAL NOTE (LABOR)
2/22/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
2/22/00 (S) Heard & Held
2/22/00 (S) MINUTE(FIN)
3/06/00 (S) FIN AT 9:00 AM SENATE FINANCE 532
3/06/00 (S) Moved CS(Fin) Out of Committee
3/06/00 (S) MINUTE(FIN)
3/06/00 2529 (S) FIN RPT CS 7DP 1NR SAME TITLE
3/06/00 2530 (S) DP: TORGERSON, PARNELL, PHILLIPS,
3/06/00 2530 (S) GREEN, PETE KELLY, LEMAN, WILKEN,
3/06/00 2530 (S) NR: ADAMS
3/06/00 2530 (S) PREVIOUS ZERO FN (LABOR)
3/07/00 (S) RLS AT 12:00 PM FAHRENKAMP 203
3/07/00 (S) MINUTE(RLS)
3/08/00 2562 (S) RLS TO CALENDAR 03/08/00
3/08/00 2567 (S) READ THE SECOND TIME
3/08/00 2567 (S) MOVE TO BOTTOM OF CALENDAR
3/08/00 2576 (S) FIN CS ADOPTED UNAN CONSENT
3/08/00 2576 (S) ADVANCED TO THIRD READING UNAN
CONSENT
3/08/00 2576 (S) READ THE THIRD TIME CSSB 193(FIN)
3/08/00 2577 (S) PASSED Y19 N- E1
3/08/00 2577 (S) TORGERSON NOTICE OF RECONSIDERATION
3/15/00 2614 (S) RECONSIDERATION NOT TAKEN UP
3/15/00 2615 (S) TRANSMITTED TO (H)
3/15/00 2481 (H) READ THE FIRST TIME - REFERRALS
3/15/00 2481 (H) L&C, JUD
3/29/00 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 345
SHORT TITLE: STATE EMPLOYEE HEALTH INSURANCE
Jrn-Date Jrn-Page Action
2/07/00 2118 (H) READ THE FIRST TIME - REFERRALS
2/07/00 2118 (H) L&C, STA, FIN
2/07/00 2118 (H) REFERRED TO LABOR & COMMERCE
3/17/00 (H) L&C AT 3:15 PM CAPITOL 17
3/17/00 (H) Heard & Held
3/17/00 (H) MINUTE(L&C)
3/24/00 (H) L&C AT 3:15 PM CAPITOL 17
3/24/00 (H) Scheduled But Not Heard
3/29/00 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
KRIS KNAUSS, Staff
to Senator Drue Pearce
Alaska State Legislature
Capitol Building, Room 111
Juneau, Alaska 99801
POSITION STATEMENT: Presented sponsor statement for CSSB
193(FIN).
AL DWYER, Director
Division of Labor Standards & Safety
Department of Labor & Workforce Development
P.O. Box 21149
Juneau, Alaska 99802-1149
POSITION STATEMENT: Testified on CSSB 193(FIN).
MARGARET BAUMAN
8100 Lamplighter Court
Anchorage, Alaska 99502
POSITION STATEMENT: Testified in support of CSSB 193(FIN).
JAY SEYMOUR
1031 West Third Avenue Number 300
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in support of CSSB 193(FIN).
RANDY CARR, Chief of Labor Standards & Safety
Division of Labor Standards & Safety
Department of Labor & Workforce Development
P.O. Box 107021
Anchorage, Alaska 99510-7021
POSITION STATEMENT: Answered questions on CSSB 193(FIN).
CHUCK O'CONNELL, Business Manager
A.F.S.C.M.E. [American Federation of State, County and Municipal
Employees] Local 52
626 F Street
Anchorage, Alaska 99501
POSITION STATEMENT: Testified in opposition to HB 345, Version
G.
DON VALESKO, Business Manager
Public Employees Local 71
2510 Arctic Boulevard
Anchorage, Alaska 99503-2516
POSITION STATEMENT: Testified on HB 345, Version G.
ALISON ELGEE, Deputy Commissioner
Office of the Commissioner
Department of Administration
P.O. Box 110200
Juneau, Alaska 99811-0200
POSITION STATEMENT: Testified on HB 345, Version G.
ACTION NARRATIVE
TAPE 00-38, SIDE A
Number 0001
CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce
Standing Committee meeting to order at 3:28 p.m. Members present
at the call to order were Representatives Rokeberg, Halcro,
Murkowski, Harris, Brice and Cissna. Representative Sanders
arrived as the meeting was in progress.
SB 193 - COLLECTION OF UNPAID WAGES
CHAIRMAN ROKEBERG announced the first order of business would be
CS FOR SENATE BILL NO. 193(FIN), "An Act relating to the payment
of wages and claims for the payment of wages."
KRIS KNAUSS, Staff to Senator Drue Pearce, Alaska State
Legislature, came forward to testify on CSSB 193(FIN). He stated
that the bill was introduced on behalf of Senator Pearce in
regard to a constituent, Margaret Bauman, who attained membership
with the Alaska Business and Industry Newspaper Publishing
Company. Ms. Bauman was hired in the fall of 1998. She had
arrears that reached the amount of $10,000 before termination of
employment. The employment relationship ceased, and Ms. Bauman
went to the Department of Labor & Workforce Development [DLWD],
looking for a way to get the arrearage back. She encountered a
problem since the maximum the department could deal with was
$7,500.
MR. KNAUSS explained that CSSB 193(FIN) is a modification of the
law and raises the cap to $20,000. Since Ms. Bauman's arrearage
amounted to $10,000, it was not feasible for her to gain legal
representation on a contingency fee basis. Therefore, CSSB
193(FIN) alleviates that and would allow for Ms. Bauman to get
those funds back.
REPRESENTATIVE HALCRO indicated Ms. Bauman is a constituent of
both his and Senator Pearce's. He spoke with Ms. Bauman this
summer regarding her situation. His conversation led him to
Randy Carr, who told him the cap has been at $7,500 because the
Bar Association and associated attorney organizations have been
hesitant in the past to allow the state to "go after any more"
because they feared it would encroach on their business. He
stated that it is now unlikely to find an attorney to pursue a
matter for anything under $20,000. During the interim,
Representative Halcro worked with Senator Pearce's staff. They
spoke to the Bar Association and other organizations, and they
did not have a problem raising the cap to $20,000. He also spoke
with Dwight Perkins, Deputy Commissioner, DLWD, and Ed Flannagan,
Commissioner of DLWD, who seemed to support this issue. He
indicated he had introduced a companion bill but that there was
an agreement that Senator Pearce's legislation would move
instead.
REPRESENTATIVE BRICE asked when the $7,500 cap was established.
CHAIRMAN ROKEBERG answered that it was two or three years ago, by
the House Judiciary Committee, which raised the limit from $5,000
to $7,500.
REPRESENTATIVE HARRIS wanted to confirm that DLWD was supportive
of the bill.
MR. KNAUSS said that is correct. He noted that he has been
working with some defense attorneys who are more familiar with
the legal aspects of the issues. A couple of amendments had been
made with respect to double-penalizing on liquidation. As far as
he knows, everyone is okay with the bill.
Number 0457
AL DWYER, Director, Division of Labor Standards & Safety,
Department of Labor & Workforce Development, came forward to
testify on CSSB 193(FIN). He said he has not heard any
complaints from the court system.
REPRESENTATIVE MURKOWSKI asked, "Do you have any idea what this
is going to mean to the courts in terms of an increase in case
load to the small claims court?"
MR. DWYER responded that approximately 120 cases have been
assumed. Out of those claims, 10 or 20 could possibly end up in
court annually.
CHAIRMAN ROKEBERG asked if this is because the bill could provide
some leverage.
MR. DWYER explained that the division turns away a lot of people
because of the $7,500 cap.
REPRESENTATIVE HALCRO reported that Randy Carr had said that
current penalties act as a hammer. Therefore, those in arrears
have a vested interest to pay as soon as possible because the
penalties are pretty steep. He indicated Mr. Carr had said this
mitigates the number of cases that actually make it court.
Number 0582
MR. KNAUSS said the employer has three days to pay arrears after
employment is terminated.
MARGARET BAUMAN testified via teleconference from Anchorage:
I am here to testify in favor SB 193, legislation to
raise the amount of back wages for residents which the
state can pursue through the court system. At present,
the Labor Department [DLWD] can only pursue amounts up
to $[7],500 and my former employer owes me in excess of
$10,000. The employer, Business News Alaska, has
refused to pay me any of the amount since last July,
although the company has acknowledged in writing that
they owe me the money.
At the time, I worked as the news editor for Business
News Alaska, a monthly business publication in
Anchorage, from October 1998 through July 1999. I was
also caring for an elderly parent at home. My mother
was not in good health and needed 24-hour care, so I
needed a job I could do largely at home, except for
hours when I had a care giver or my mother was at day
care. Business News Alaska hired everyone on a
contract labor basis. I had no idea at the time the
practice was illegal, as the state Labor Department has
twice since concluded.
As the company became further and further behind in
paying me, the publisher, Kay Cashman, continued to
hire other people and kept coming up with excuses for
not paying up. When we parted company last summer, I
asked for the money due me within three working days.
Kay said I was not an employee and she could pay me in
the indefinite future. I inquired at the Labor
Department, filled out paperwork for them to make a
determination, as did Kay Cashman.
The department spent a lot of time studying the
situation and concluded I was an employee; so did the
Internal Revenue Service [IRS]. Ms. Cashman and her
publishing partner, Raylene Combs, then appealed the
Labor Department's decision. The hearing officer for
the appeal also concluded I was an employee, and the
state is now studying all the records of Business News
Alaska because the company hired most people on a
contract basis with no benefits and no taxes
[with]held.
Now Business News Alaska is appealing the matter again,
on the commissioner level. It's a good thing the Labor
Department took my case, because even if I could afford
an attorney to handle my side, I've been advised that
given her track record, Cashman has no intention of
paying me any of the money she owes.
I have with me, for the legislature, copies of records
which I paid for myself from Motznik Computer Service,
showing that Ms. Cashman has numerous debts
outstanding, including a $35,000 judgment against her
through the state superior court. She's never paid a
dime on that judgment, either. To cover herself, she
lists herself as a publisher, and her son and a
partner, Raylene Combs, as owners.
Changing the state law to allow the Labor Department to
pursue, through the court system, back wages would
benefit residents like myself who have no other
recourse. It would also put companies like Business
News Alaska on notice that this state will not tolerate
employers who think they can operate outside the law.
SB 193 would make Alaska a fairer playing field for
employers who do operate under the law and are at a
disadvantage when other employers are allowed to
operate outside the law.
Number 0899
JAY SEYMOUR testified via teleconference from Anchorage. He
stated that he is in support of CSSB 193(FIN), although he had
some concerns with the bill when it was first introduced. An
attorney whose practice almost exclusively deals with labor and
employment issues, he has been an Alaskan for over 25 years. As
an employment lawyer, he indicated that the most aggravating set
of laws that employers face is the wage and hour laws. From an
employer perspective, they often result in a windfall for
employees who have been fairly paid. He commented:
In my experience, I have often seen employees who have
been paid $40,000 a year ... or even $80,000 or $90,000
a year when settlements for judgments in excess of ...
$100,000 for unpaid overtime on the basis of a good-
faith dispute between them and their employer. To add
insult to injury, the current law provides for a
waiting time penalty, which a court can impose for not
having paid the overtime that was in dispute, even
though it may have been a good-faith dispute.
Paradoxically, there are some gaps in the law, as Ms.
Bauman just testified, that don't allow the Department
of Labor to pursue those unscrupulous employers with
wage claims that are much smaller than the claims that
we normally see brought by the plaintiff's (indisc.).
I think that SB 193 is a good first step towards
providing some relief on both ends of the spectrum -
both for those who are paid at the minimum wage or
don't have large claims, at the same time bringing a
little bit of sanity for those who've already been
fairly paid claims in excess of $30,000 or $40,000.
The bill provides additional authority to the
department to enforce labor laws for the State of
Alaska, and I do believe that those are claims that
ordinarily would not be brought by most of the
attorneys in the claims (indisc.). It also provides
some relief to those employers who face overtime
claims, so that they don't have to face the claim of
additional penalties. That's simply been a good-faith
mistake in the application of the law.
Number 1069
REPRESENTATIVE MURKOWSKI referred to Ms. Bauman's testimony. She
asked whether allowances are being made in the bill for an
employer who considers an employee to be an independent
contractor.
MR. SEYMOUR said he understands that the determination of whether
or not an individual is an employee or an independent contractor
would not be affected in CSSB 193(FIN). This determination is
affected by other provisions of law which, in his experience, are
fairly liberal in favor of the employee. He said:
I'm not too familiar with the facts in this case, but I
understand it to be that there are a lot of indices
that Ms. Bauman was, in fact, an employee under the law
in this particular case, even though she was labeled an
independent contractor, and the Department of Labor or
a court would make the determination of (indisc.)
issue.
REPRESENTATIVE MURKOWSKI responded:
In recognizing that, they would, in fact, do that. But
this legislation requires that it be paid three days
afterwards, and if you fail to do, you've got certain
penalties that the employer is facing. So, I guess, if
this were to pass, if I were making the argument that
no, I was not an employee - I was, in fact, an
independent contractor - my employer would be wise to
just go ahead and pay me right up-front and then argue
about it later. Is that kind of the direction that
things could take?
MR. SEYMOUR explained that the laws currently provide for the
three-day payment. He said:
I guess, in most instances, a contractor, or someone
who's labeled a contractor, would be claiming that they
were in fact an employee - therefore, would be covered
by the law. ... This law doesn't impact that
determination either way. That would be a separate
determination, but you're right: The employer wants to
be conservative, and there's some question about
whether the worker is, in fact, an independent
contractor or is really an employee. The employer
[would be] well-advised to make the payment of all
wages ... in the time stipulated by law.
Number 1233
RANDY CARR, Chief of Labor Standards & Safety, Division of Labor
Standards & Safety, Department of Labor & Workforce Development,
testified via teleconference from Anchorage. He stated:
It is not unusual that an individual presenting a wage
claim is responded to by the employer in such a manner
that the employer ... wants to lay out a number of
possible defenses. One of them may be the fact that
they think they're an independent contractor, and the
way the law currently reads - and the way the bill also
reads - would allow the employer to settle with the
Department of Labor at an administrative level, which
basically means we can conduct the investigation to
determine from the facts whether or not the individual
is an employee or an independent contractor.
Once we make that determination, if the finding is that
the individual is an employee, then the matter becomes
one of trying to effect a resolution as to the amount
due and get payment from the employer. Once that
determination has been made, if the employer resolves
this matter administratively with the department, the
waiting-time penalties that are addressed in this
statute are not a factor. The way the statute is
applied now - and the way it would be applied as
amended - would be that the waiting-time penalties are
there as an incentive to get the employer to deal in
good faith with the Department of Labor.
If a resolution cannot be reached and the Department of
Labor is compelled to take the matter to court, then
the waiting-time penalties in that action would become
mandatory, but only in that situation. At all other
points up until that time, they are a bargaining chip
that can be used to reach a negotiated settlement.
Number 1339
REPRESENTATIVE MURKOWSKI referred to page 2, subsection (b)
[beginning on line 25], and said:
You've got three working days after termination to make
payment. Then, under subsection (d), if you do not do
it within that three-working-day period, then you are
subject to the penalties upon the employer and there
isn't this waiting period that you're talking about.
Maybe that's what I'm missing, is where's the reference
to the waiting period? You've got to get through this
administrative process where you all settle out,
whether or not you are an employee or an independent
contractor.
MR. CARR explained that the current statute says the waiting-time
penalties are not discretionary and must be awarded by a court.
They cannot be awarded by DLWD. The present language requires
that any party who seeks to collect waiting-time penalties gets a
judgment from the court awarding them.
REPRESENTATIVE HALCRO said to Mr. Carr:
Randy, that goes to the heart of our discussion last
August, when you were talking about some employees will
simply just string you out, then take you to court.
But ... the penalty provisions that were put in place
recently act as kind of a deterrent for that, because
people know at the end of the day they can string you
out, but at the end of the day, they may just suffer
the consequences of some heavy penalty.
MR. CARR affirmed that it is exactly what the bill would now do.
Prior to 1981, the penalties were mandatory. In 1981, the
penalties were relaxed and discretion was given to the court to
award or not award the penalties. He said:
Now what we have before us is a compromise in matters
wrought by the state Department of Labor. If we are
compelled to go to court to prosecute on behalf of
someone to collect their wages, any appropriate
waiting-time penalties would be mandatory.
MR. CARR indicated that in private cases it would be up to the
discretion of the court to award waiting-time penalties or not.
There is one exception to this, addressed in Section 5,
subsection (f), page 3 of CSSB 193(FIN), which reads:
(f) In an action brought for unpaid overtime under AS
23.10.060 that results in an award of liquidated
damages under AS 23.10.110, the provisions of (d) of
this section do not apply unless the action was brought
by the department under (e) of this section.
He said the waiting-time penalties under this statute would not
come into effect. The language has been worked out as a
compromise.
CHAIRMAN ROKEBERG asked Mr. Carr to explain the amount that the
liquidated damages under AS 23.10 could be.
Number 1536
MR. CARR replied that the liquidated damages under AS 23.10 are
equal to the amount of unpaid minimum wage or unpaid overtime.
It is a punitive damage and, under the current statutory
construction, the employer may assert a good-faith defense to his
violation. If that defense is acceptable to the court, then the
court has the authority to waive some or all of the liquidated
damages for cases brought in the private sector. Liquidated
damages are mandatory in cases brought by DLWD. The mandatory
aspects in cases brought by DLWD are not there to specifically
"roll up the dollar value of the case, but to offer an incentive
to the employer to negotiate harder, and reach a settlement with
the department short of court action."
CHAIRMAN ROKEBERG referred to Section 5, subsection (f), amending
AS 23.05.140. He asked, "If you go into a small claim court
under this provision, you could get the mandated liquidated
damages as well as the section (e) damages also?"
MR. CARR said that is correct because the damages are for
different violations of different laws. The liquidated damages
in AS 23.10 relate to failure to pay the minimum wage or
overtime. The waiting-time penalties relate to failure to pay
whatever is due. For example, it could be vacation pay, wages
all together, minimum wage or overtime that the employee is
entitled to.
Number 1627
CHAIRMAN ROKEBERG said:
You've indicated the reason that you have the waiting
time penalties - in particularly, like, the (f)
section, liquidated damages, which would be mandatory -
is to try to get a settlement before you go to court,
but that doesn't square up with ... we're giving you a
free pass to small claims court right out of the chute.
MR. CARR replied that it is not so much that the bill is giving a
pass to small claims court; rather, it is providing the ability
to take a claim into [their] "offices to administratively
investigate it and attempt to resolve it." Currently, the
ability to do that does not exist because it is over the
statutory limit. He said, "Our track record has about a 85 to 90
percent resolution administratively, short of ever having to go
to court."
CHAIRMAN ROKEBERG indicated he was not aware that a statutory
limitation existed on their jurisdiction.
REPRESENTATIVE MURKOWSKI asked whether she understands correctly
that a person can be assessed both liquidated damages and the
waiting-time penalty.
MR. CARR said that is correct. That is the current status of the
law, unchanged by the bill. The changes effected by the bill
would be if DLWD brings a case in court and has to go through the
court process to judgment; then the penalties will be mandatory.
In the private sector, the penalties may be discretionary if
awarded by the court. He expanded on his answer:
Let's say someone takes a claim for unpaid vacations
and unpaid wages, and they get an attorney to take a
case to court for them. Then the court can award the
waiting-time penalties or not. If the claim, as
identified in Section 5(f), is strictly for overtime -
such as the case that Mr. Seymour is referring to,
where he has an individual who is a highly paid person
who files an overtime claim - usually those arise out
of a dispute over whether the individual was exempt
from overtime or not. And so, they have an overtime
claim for 30, 40, 50 thousand dollars; they win that
claim, they also get liquidated damages awarded by the
court. In that situation, this bill says waiting-time
penalties would not apply because it's a highly paid
individual in the first place, and it's a large claim.
The compromise here is that the liquidated damages
should suffice for the recovery, and the waiting-time
penalties should not be an issue.
CHAIRMAN ROKEBERG wondered if a private party, under this bill,
could bring an action for a wage-and-hour claim up to $20,000 to
a small claims court.
MR. CARR said that is not correct. Only the DLWD can bring an
action for $20,000 in small claims court. All other issues in
small claims court are subject to the $7,500 cap set out in the
small claims statute.
CHAIRMAN ROKEBERG asked whether the penalties would, therefore,
apply.
MR. CARR affirmed that.
CHAIRMAN ROKEBERG referred to Section 4, subsection (d), page 3,
of CSSB 193(FIN). He requested clarification.
MR. CARR replied that the demand is going to be set by DLWD's
first notice to the employer. The deadline can be set, in rare
cases, when the employee has articulated a demand for their wages
in writing. In most cases, there has not been that sort of a
formalization in the dispute. In the private sector, it may well
be more frequent that the demand is established in writing
because the party has usually received legal counsel sometime
well before the filing of a lawsuit.
CHAIRMAN ROKEBERG said it appears to be an incentive to drag
one's feet, up to 90 days, so that one's award could be bigger.
MR. CARR responded, "No." He clarified that the award only
starts from the day of demand until the day of payment. If a
person waits 45 days before demanding his or her wages, the clock
doesn't start until the 48th day, and that is when the 90 days
begin to run.
CHAIRMAN ROKEBERG asked Mr. Seymour, "In your capacity as counsel
on these types of wage-and-hour [disputes], you represent both
... employees and employers normally, or what is your typical
practice?"
MR. SEYMOUR replied that he typically only represents employers.
CHAIRMAN ROKEBERG asked whether Mr. Seymour is satisfied with the
conditions set out in the bill.
MR. SEYMOUR reiterated that he thinks the bill is a good first
step. There are some provisions in law not covered in the bill,
but it is well balanced.
Number 1934
REPRESENTATIVE HALCRO made a motion to move CSSB 193(FIN) out of
committee with individual recommendations and the attached zero
fiscal note. There being no objection, CSSB 193(FIN) moved out
of the House Labor and Commerce Standing Committee.
CONFIRMATION HEARINGS - Board of Marine Pilots
Number 1948
CHAIRMAN ROKEBERG announced that the committee would consider two
appointees to the Board of Marine Pilots. In accordance with AS
39.05.080, the committee would review the qualifications of the
appointees. He stated that the execution of the reviewed
document does not reflect an intent by any of the committee
members to vote for or against the individual during any further
sessions for the purpose of confirmation. [Committee packets
contained a resume from each appointee.]
CHAIRMAN ROKEBERG made a motion to forward the nomination of
Michael C. Spence. There being no objection, the confirmation
was advanced.
CHAIRMAN ROKEBERG made a motion to forward the nomination of
Barbara Huff Tuckness. There being no objection, the
confirmation was advanced.
CHAIRMAN ROKEBERG called an at-ease at 4:05 p.m. and called the
meeting back to order at 4:09 p.m.
HB 345 - STATE EMPLOYEE HEALTH INSURANCE
Number 2069
CHAIRMAN ROKEBERG announced the next order of business would be
HOUSE BILL NO. 345, "An Act relating to state employee health
insurance."
CHAIRMAN ROKEBERG noted that Version G [1-LS1364\G, Cramer,
3/17/00] of HB 345 was adopted at the last committee hearing
[March 17, 2000], at which time members asked for public
testimony. He said he did not intend to move the bill beyond the
next committee of referral.
CHAIRMAN ROKEBERG noted that one objective of the legislation is
to "allow the legislature to make the public policy." Testimony
from the Department of Administration has indicated that the
commissioner made a decision to grant collective bargaining units
the right to establish their own health care trusts. That, he
said, is what galvanized him to introduce HB 345. Furthermore,
discussions with the president [executive president, Mano Frey]
of the AFL-CIO [American Federation of Labor and Congress of
Industrial Organizations] have indicated that he is working to
form larger coalitions with the state employees. His concern is
related to the size of the actuary pool.
CHAIRMAN ROKEBERG said, "When you take the basic premise that an
actuary pool is to be smaller then there's a smaller amount of
covered lives to spread those risks." It's particularly
important to consider in cases of major illnesses such as AIDS
[acquired immunodeficiency syndrome] because the rollback affects
the cost of those in the pool. He said, "We don't have [a]
reinsurance cap because we have a large pool of covered
employees. So, my concern was ... decreasing the amount of the
people in the pool, and that's ... the problem."
CHAIRMAN ROKEBERG further noted that there are some 30,000 lives
under the AFL-CIO trust statewide, and the idea that a collective
bargaining unit could stop their own trust and enter into a
coalition for greater buying and negotiating power causes him
concern. He said:
If they're [going to] enter into agreements to pull in
the state employees under this net with these
coalitions - that potentially, with some excess of
30,000 lives that would be part of that, that
particular umbrella organization could have as many as
60, 70 thousand lives underneath it. And, therefore,
in the state of Alaska this would be the 800-pound
gorilla. And they would have the ability to do the
bargaining with the health care providers ... in such a
way to get the very best of prices, which you think,
"Well, that's a good thing."
But I think all of us in this committee should know, or
at least you should recognize, in the health care game,
if you will, anytime there's a decrease in price, it
becomes a cost-shift type of situation. And that's one
of the problems I can talk about with the insurance
mandates and things like that. When you get a cost-
shift situation, ... you'd have this large group of
people going into a very small market, which is
basically the state of Alaska, and those folks would
get lower costs for their service and everybody else
would basically have to pay more.
And so, I think, that is a responsibility on the part
of the legislature, to make sure that whatever happens
with the state employees and how they are given their
rights or they're given the right to leave the pool
that we need to know, number one, where they're going
and, number two, how they're [going to] be
administered. We have the responsibility to protect
the state employees, and we have a responsibility to
every other citizen in this state to make sure that
their health insurance doesn't go up as a result of
this type of action. And that is absolutely the reason
I introduced this bill, and no other.
Number 2359
REPRESENTATIVE BRICE said he doesn't see how making public
employees pay $500,000 into a pool that they can't participate in
addresses the concern expressed by Chairman Rokeberg.
CHAIRMAN ROKEBERG said he is talking about the ACHIA [Alaska
Comprehensive Health Insurance Association] portion of HB 345.
REPRESENTATIVE BRICE said Chairman Rokeberg's assumption that
self-insurance pools increase medical costs for everybody across
the state is not accurate in relation to the principles of
economics.
CHAIRMAN ROKEBERG replied that it is a question of fairness.
Number 2450
CHUCK O'CONNELL, Business Manager, A.F.S.C.M.E. [American
Federation of State, County and Municipal Employees] Local 52,
came before the committee to testify. Local 52 represents about
7,400 GGU [General Government Unit] members. He said HB 345 he
said, would make the subject of negotiating health care for state
employees illegal. He referred to Section 3 of Version G [page
2, lines 8-11], which read as follows:
(b) Except as provided in this [sic] (c) of this
section, the state and an organization representing
state employees may not enter into a collective
bargaining agreement in which members of the bargaining
unit are exempted from coverage under the health
insurance plan provided by the state under AS
39.30.090(a)(1) or 39.30.091.
TAPE 00-38, SIDE B
Number 0001
MR. O'CONNELL said if the bill becomes law it would increase the
cost of health care for state workers dramatically. He noted
that during the course of bargaining Local 52's contract there
was a dispute over the cost of health care. In that regard,
Local 52 became convinced that they could provide health care for
their members at a lower cost if they directly managed an
independent trust. Under state control, he noted, the
administrative costs would be about at least $15 a month more
than if Local 52 was to negotiate a third party administrator
outside of the procurement codes.
MR. O'CONNELL said it also became glaringly obvious throughout
the negotiation process that there were many more of those types
of cost-efficiencies that could be secured if they controlled the
delivery of the plan. As a result, an agreement was reached with
the commissioner to set up a trust. Local 52 is in the process
of selecting trustees, as soon as the contract is ratified.
Local 52 also thinks that with direct oversight they can audit
claims and premium payments annually. He further stated that the
health care industry in the state is a mature, professionally
managed industry. It's very profitable and knows how to survive
in the business world. It seems therefore that it is not
necessary for the legislature to put a "mantel" over the industry
in order to protect that "1000 pound gorilla." He respectfully
asked the committee members to oppose the bill.
Number 0205
CHAIRMAN ROKEBERG asked Mr. O'Connell whether he truly believes
HB 345 was designed to protect the health care providers of the
state.
MR. O'CONNELL replied that if HB 345 is to prevent large health
care coalitions from forming, that is exactly what it would do.
CHAIRMAN ROKEBERG stated that the intention of HB 345 is to keep
the large pool of state employees together. It is not to
restrict the ability of collective bargaining units to bargain
health care benefits or anything like that. He asked Mr.
O'Connell: Doesn't the phenomena of cost-shifting take place in
the health care industry?
MR. O'CONNELL replied, yes, it does.
Number 0244
CHAIRMAN ROKEBERG asked Mr. O'Connell to explain to the committee
members how GGU relates to the coalition.
MR. O'CONNELL first noted that GGU members fall under a different
health plan than other state employees. GGU members do not have
a select-benefit option. In that way, GGU members have preserved
their insurance pool and have found that the cost of the plan is
increasing slower compared to other plans. It is the intention
therefore of Local 52 to maintain that structure in a trust
situation.
MR. O'CONNELL further stated that there are about 30,000 lives
that have access to the coalition. The way it works, the
coalition of labor unions negotiates rates with certain providers
and each union has the option to purchase whether or not they
want to use those providers. For example, the iron workers have
a preferred provider agreement with Alaska Regional Hospital.
The Teamsters [General Teamsters Local 959, State of Alaska] and
NEA [National Education Association-Alaska], for example, have a
preferred provider agreement with Providence Hospital. Each
union is free to make its own deal with the most astute business
persons in the health care industry.
Number 0344
CHAIRMAN ROKEBERG asked Mr. O'Connell whether a union opts in or
out under the same contract that has already been bargained.
MR. O'CONNELL explained that the only thing unions bargain in
relation to health care is the employer's contribution. They do
not bargain the preferred provider [agreement] or the level of
benefits.
Number 0359
CHAIRMAN ROKEBERG asked Mr. O'Connell whether the preferred
provider [agreement] is bargained by the coalition and whether
unions opt in or out of the coalition.
MR. O'CONNELL replied, to the best of his knowledge, not every
union participates in the hospital preferred provider "deal." He
deferred the question to Mr. Don Valesko [Business Manager,
Public Employees Local 71], who is part of the coalition. As to
the intent of Local 52 in relation to the coalition, they have
not made any commitments. Local 52 is going to look at all of
the options, and will take the best option for their members.
Local 52, he noted, has members in every House [of
Representative] district across the state, which means a good
deal in Fairbanks, for example, doesn't necessarily benefit those
in another part of the state.
Number 0432
CHAIRMAN ROKEBERG asked Mr. O'Connell, "Wouldn't it be possible,
if you thought that the state was properly managing it, to have
more power and stay together as a unit?" That, he said, is all
that he is trying to "get at" in HB 345.
MR. O'CONNELL replied, "I'm not sure I agree with that."
CHAIRMAN ROKEBERG said, "No, I mean, ... because you're statewide
exposure, don't you think you'd have a greater ability to do that
or maybe the reluctance of the Administration to enter into a PPO
[Preferred Provider Organization] type program would ...."
MR. O'CONNELL replied:
Well, there's a lot of reasons for that, and I wouldn't
blame the Administration totally. There's been an
awful lot of legislative interference over the years to
prevent preferred provider agreements. You have to
remember that whenever you have one you have
legislators in the constituent area where the preferred
provider agreement has not been reached.
Number 0469
REPRESENTATIVE BRICE asked Mr. O'Connell what has driven Local 52
down the path of developing its own program. Has it been budget
cuts?
MR. O'CONNELL replied that budget cuts are part of it. Local
52's employees are paying a large amount of money for health care
in relation to the amount of money that they make. If that cost
can be lowered, he said, it might help in making their modest
salary settlement more attractive.
Number 0498
REPRESENTATIVE BRICE asked Mr. O'Connell to indicate what kind of
money Local 52 is able to save for its membership and the state
general fund by developing its own plan.
MR. O'CONNELL replied that he doesn't know an exact amount. He
also doesn't know whether or not Local 52 can continue to save
money; but he thinks that they can bring about a number of cost-
efficiencies in the short term.
Number 0532
CHAIRMAN ROKEBERG asked Mr. O'Connell what the cost of the plan
is now.
MR. O'CONNELL replied that the current total cost of the self-
insurance plan is $573 a month per member.
CHAIRMAN ROKEBERG asked Mr. O'Connell what it costs a member.
MR. O'CONNELL replied that a member pays $84.50 a month and the
employer pays $488.50 a month.
CHAIRMAN ROKEBERG asked Mr. O'Connell whether $573 is the
equivalent to an economy plan with the state.
MR. O'CONNELL replied, yes, it is commonly referred to as an 80-
20 plan.
CHAIRMAN ROKEBERG asked Mr. O'Connell how much Local 52 thinks it
can save by providing its own plan.
MR. O'CONNELL replied he doesn't know. He pointed out, as his
only comparison, that Local 52 has 20 employees and the premium
is $402 a month under the laborers' health insurance trust.
CHAIRMAN ROKEBERG asked Mr. O'Connell to comment on ACHIA, the
high-risk pool. He explained that before the state went to a
self-insured plan, it paid a million-dollar premium into a high-
risk pool, which was necessary for an affordable plan.
MR. O'CONNELL replied, as he understands the pool, it was created
for those who had a difficult time obtaining insurance. In that
regard, it is a very small but expensive pool.
CHAIRMAN ROKEBERG noted that it is a pool of 362 people. It was
put together for those who couldn't get insurance, and the health
insurance companies that conduct business in the state picked up
the difference of what was paid above the high premiums. He also
noted that the state has to have a pool in order to maintain
compliance since the federal Health Insurance Portability [and
Accountability] Act passed three years ago. Chairman Rokeberg
said it's a matter of fairness. When the state became self-
insured, everybody else around the state had to pay for it. It's
a classic example of cost-shifting. The bill therefore says that
state employees would have to make a prorated contribution in
that regard.
Number 0695
REPRESENTATIVE BRICE asked under what circumstances state
employees do not get insurance. Is a person who has a
catastrophic illness and who is hired by the state not insured?
MR. O'CONNELL answered that the only people who are not covered
by health insurance are those who work less than 30 hours a week.
REPRESENTATIVE BRICE said, "Okay, so, if I come in with a
predetermined condition, ... I get my coverage?"
MR. O'CONNELL replied, "Right."
REPRESENTATIVE BRICE said, "So, in other words, then, trying to
apply the ACHIA to state employees is kind of like trying to put
an apple in an orange crate, given the fact that the ACHIA ...."
MR. O'CONNELL interjected and said it is paying for a benefit
that's not necessary.
REPRESENTATIVE BRICE replied, "Well, not necessarily, in that
they will never get."
MR. O'CONNELL responded in the affirmative.
Number 0748
DON VALESKO, Business Manager, Public Employees Local 71, came
before the committee to testify. Local 71 represents some 1,700
people who work for the state. At any one given time, Local 71
represents 1,390 to 1,485 employees of the state who are covered
by their trust, depending on the season. The bill, he said,
would have little effect on Local 71.
CHAIRMAN ROKEBERG asked Mr. Valesko how many covered lives are
involved.
MR. VALESKO replied that he doesn't have the exact figure with
him, but 4,500 is real close.
Number 0833
MR. VALESKO further stated that he was appointed to Local 71's
trust, when it was originally formed in 1976, as a member from
the Department of Transportation [& Public Facilities] in
Fairbanks. He has served on the trust since. The trust, he
explained, was formed to provide supplemental health insurance
because members wanted better coverage than what the state was
providing. The state, he noted, provided a plan that was close
to the current 80-20 plan. The union, therefore, negotiated an
additional 18 cents an hour from members' wages in order to go
into a trust fund to buy additional coverage. The supplement
provided for a 90 percent plan. The trust was in effect from
1976 until around 1981 to 1982, when the state opted out of the
Social Security system and into the SBS [Supplemental Benefit
System] system, which offered additional coverage. It was then
decided that members could use the money that was made available
from opting out of the Social Security system to buy an
additional 10 percent health coverage.
MR. VALESKO further stated that when [Bill] Sheffield became
governor, Local 71 negotiated a full trust. Local 71 negotiated
the removal of "X" amount per hour from members' wages in order
to go into the trust and pull away from the state plan. The
trust was bilateral in that there were three "straight" trustees
and three union trustees. Prior to that, the trust was strictly
unilateral in that there were only union trustees. The
unilateral trust lasted for one year and built up a surplus of
one million dollars. The next year, however, the attorney general
ruled that a trust was not an option at the time because of AS
39.30.090. As a result, Local 71's members went back under the
state's plan, and the million dollars was distributed to the
participants of the trust.
MR. VALESKO further stated that in 1993, Local 71 renegotiated a
full plan of coverage under a unilateral trust of union trustees.
Local 71 was able to find a 90 percent coverage plan in the
marketplace. Three years ago the plan was changed to a flexible
benefit type of plan so that members can select a plan depending
upon their marital status. For example, a member who has
dependents can opt for Plan 101, which provides for 90 percent
coverage. A member who is single can opt for Plan 105. The
state, he noted, contributes $550 a month, while members
contribute $50 a month. Plan 105 costs $325 a month so a
participant can get $275 put into his/her paycheck. He noted
that taxes are paid on any money put into a paycheck.
MR. VALESKO further stated that a union is better able to
communicate with its members compared to a state as a entity in
order to get a person onboard to help cut costs. He further
stated that economy-of-size is not necessarily the driving
factor, and individual bargaining units should have the choice to
deal for what best fits their members. He cited that custodians,
as a group, are rated as the lowest in experience in relation to
health coverage, while doctors and nurses, as a group, are rated
the highest.
MR. VALESKO said in that regard, Chairman Rokeberg's concern of
the large groups pulling out of the state thereby causing rates
to increase for those who are left is something that might not
happen. It could happen, however, if the group that's left is a
high-user group because of how the insurance system works. Local
71 is part of the coalition and he believes that competition will
drive down the cost of medical coverage in the state. The area
where cost-shifting takes place is related to free services -
those who cannot pay their medical bills. Those who have
coverage or who can pay for medical expenses, on the other hand,
end up paying for those who cannot.
Number 1501
CHAIRMAN ROKEBERG asked Mr. Valesko whether Local 71's trust is
self-insured or whether there is an underwriter.
MR. VALESKO replied that Local 71's trust contracts with United
of Omaha [Life Insurance Company].
CHAIRMAN ROKEBERG asked Mr. Valesko whether United of Omaha is
the underwriter or the administrator.
MR. VALESKO replied that Local 71 pays United of Omaha premiums.
He said:
It's like an underwriter but it's kind of self-insured
too. We reach an agreement that only so much will go
into paying claims each month and, if it's at the end
of the year it costs them "X" amount of dollars over,
they own that risk.
Number 1549
CHAIRMAN ROKEBERG stated, then, that the trust has an actual
underwriter as well as a variable menu.
MR. VALESKO agreed.
CHAIRMAN ROKEBERG stated, then, that the trust is not self-
insured, which means that the trust pays into ACHIA.
MR. VALESKO replied, "I suppose so."
CHAIRMAN ROKEBERG said it is true because it means that United of
Omaha is paying its fair share into ACHIA.
MR. VALESKO said, in essence, the fund is self-administered
through Local 71. In other words, an administrator pays the
bills to United of Omaha.
Number 1600
CHAIRMAN ROKEBERG explained to Mr. Valesko that when he
introduced the legislation he wasn't trying to put the trust out
of business.
MR. VALESKO replied that he sees that now, but he would still
have to testify in opposition to excluding other bargaining units
from having the same opportunity that Local 71 has had to address
its individual memberships.
Number 1632
CHAIRMAN ROKEBERG said he wanted to get a discussion going in
order to address the issue of health care insurance problems,
which includes the bargaining units as well as the state. He
appreciated Mr. Valesko's testimony today and how it illustrated
Local 71's ability to give a choice to its members and to save
money.
CHAIRMAN ROKEBERG asked Mr. Valesko what the total monthly cost
is for the 90-10 plan.
MR. VALESKO replied that the total cost is $600 a month, which
includes vision and dental. He also commented that Local 71
would be interested in negotiating coverage for the non-covered
employees.
Number 1748
ALISON ELGEE, Deputy Commissioner, Office of the Commissioner,
Department of Administration, came before the committee to
testify. She said:
We are opposed to this legislation. The first section
that would bring state employees back in ... as
participants in funding the ACHIA pool, we don't
believe there is any equity in that. We would be the
only self-insured environment in the state
participating, and because of the way our contracts
work with a capped employer contribution, this increase
cost would be borne entirely by employees. ... When the
state participated in the ACHIA pool, prior to our
going self-insured, the entire cost of health insurance
was covered by the state. The employees did not
participate.
The concerns that we have about Section 3 and the
inability of various bargaining units to move into a
health trust environment, I think, have been very
clearly outlined by the labor representatives here. We
believe self-determination will, in fact, allow some of
the health plan design changes that may be necessary in
the future to ... control costs or perhaps reduce
costs. And putting those management decisions in the
hands of the employees themselves is the best way to go
about accomplishing that. So, we have a lot of hope
for a health trust environment.
There are a couple of things that I do want to clarify,
and I think that Mr. O'Connell covered that. We don't
presently pool all of the state employees. We pool the
General Government Unit apart from the Select Benefits
people. So, we're maintaining two separate
environments in our health trust today. The
implications of actually reducing the size of that pool
are that we might have to look at ... a little
different mix of ... self-insurance and stop-loss kinds
of insurance, if the pool were to get smaller. We
purchase stop-loss for a variety of different purposes
through our risk management program, and we would look
at actually purchasing some kind of stop-loss coverage
... if the pool got down to a size where we felt that
was important, in order to minimize the state's risk.
CHAIRMAN ROKEBERG asked Ms. Elgee how many non-covered employees
there are.
MS. ELGEE replied that there are 2,000 non-covered employees and
about 4,700 covered lives - a sizable pool.
CHAIRMAN ROKEBERG asked Ms. Elgee whether that would be one
method of a stop-loss or a smaller pool.
Number 1982
MS. ELGEE replied, "Yes." She noted that the Public Safety
Employees Association, which is part of a trust environment, is a
small group and, therefore, purchases an insured product. In
that regard, there are a wide variety of options available in
order to continue to provide coverage. The labor representatives
have indicated very clearly the advantages of the ability to
exercise cost controls, compared to the state as an entity.
CHAIRMAN ROKEBERG asked Ms. Elgee to comment on the difficulty of
the state as a large group entering into a PPO contract.
Number 2028
MS. ELGEE replied that the Administration has looked at a PPO
agreement primarily in the Anchorage market, the only place that
has the volume and necessary competition to make it effective.
The Administration has looked primarily at the hospital aspect
and has explored the option with some of the unions. She said:
The labor management group that we worked with looked
at this last year and choose not to try to implement
that option because we were still relatively new in a
select-benefits environment, and the concern they
expressed was that the more choices you threw at the
employees the more difficulty the employees were going
to have trying to make a meaningful selection for their
own set of circumstances; that we ought to give
employees a couple of year to actually become
comfortable with the options that they had at that time
before we introduced anything new.
MS. ELGEE said the contract for the GGU employees does not allow
the Administration to make any changes to their plan without
concurrence. In other words, a PPO plan option would have to be
negotiated.
Number 2168
CHAIRMAN ROKEBERG asked Ms. Elgee whether the Administration has
a plan for the non-covered employees, if the bargaining
agreements are approved.
MS. ELGEE replied that the Administration would like to include
non-covered employees in a trust environment in order to allow
the same type of self-determination, in terms of plan design and
participation in the coalition. An attorney is looking into that
now. In the meantime, there are a bunch of tiny units of
employees who are participating in Select Benefits, and the non-
covered employees act as an "anchor" to that pool. For example,
there are only 75 masters, mates and pilots who need to be made
part of a broader plan.
Number 2295
CHAIRMAN ROKEBERG said:
So, you think you can manage this whole situation
without sticking together and lowering costs? There's
been testimony and also comments made that the state
employees had a good deal for too long and they
overused the plan and that's one of the reasons they've
driven the cost of the plan up. Is there any validity
to that?
MS. ELGEE replied that the escalators in health care nationwide
have been a good deal higher than the general cost-of-living
adjustments, and Alaska has been experiencing a higher escalation
of cost than the Lower 48, primarily because of the small
provider markets and the inability to utilize health maintenance
organizations. She further stated that there was a "run on the
plan" in 1997, when the state went to a self-insured plan, which
is not uncommon in a time of uncertainty. For example,
participants were "shoving" checkups and teeth cleanings into a
tighter time frame instead of spreading them out over the course
of a year, in order to get them done before the change. The "run
on the plan" reduced the available reserves to zero; as a result,
the new self-insurance program started with no reserves.
TAPE 00-39, SIDE A
Number 0001
MS. ELGEE continued:
And in '99, when we priced the plan, we priced the
standard plan design for the Select Benefits group at
$525, because we were seeing a lower trend at that time
for that crowd than the GGU group, which was priced at
$573. So, the reason they have a lower premium today
is that we substantially underpriced the Select
Benefits plan in '99 after the experience came in, but
had the General Government Unit priced appropriately.
So, we're playing catch-up on the Select Benefits side
this year. We believe both those plans will level out
to be similarly priced, because the coverages are
almost identical and the demographics of the two groups
are not significantly different.
CHAIRMAN ROKEBERG said, "Well, we look forward to having a PPO or
point-of-service action in the state plan for the uncovered
employees in about a year or so, wherever they may be. We may be
over with Local 71."
CHAIRMAN ROKEBERG announced that he would put HB 345 aside in
order to sort out the misunderstanding.
ADJOURNMENT
Number 0156
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:08 p.m.
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