03/25/2002 03:20 PM House L&C
| Audio | Topic |
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
March 25, 2002
3:20 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Andrew Halcro, Vice Chair
Representative Kevin Meyer
Representative Pete Kott
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 290
"An Act relating to membership in the Comprehensive Health
Insurance Association."
- MOVED CSHB 290(L&C) OUT OF COMMITTEE
HOUSE BILL NO. 504
"An Act relating to the wages of people working in the fisheries
business."
- HEARD AND HELD
HOUSE BILL NO. 443
"An Act retroactively extending the application and licensing
deadlines and amending the effective date of certain provisions
relating to regulation of persons who practice tattooing and
permanent cosmetic coloring or body piercing; and providing for
an effective date."
- BILL HEARING POSTPONED TO 3/27
HOUSE JOINT RESOLUTION 38
Relating to urging the United States Congress to pass terrorism
risk protection legislation.
- BILL HEARING POSTPONED
PREVIOUS ACTION
BILL: HB 290
SHORT TITLE:COMPREHENSIVE HEALTH INSURANCE ASS'N
SPONSOR(S): REPRESENTATIVE(S)ROKEBERG
Jrn-Date Jrn-Page Action
01/14/02 1951 (H) PREFILE RELEASED 1/4/02
01/14/02 1951 (H) READ THE FIRST TIME -
REFERRALS
01/14/02 1951 (H) L&C, FIN
01/30/02 (H) L&C AT 3:15 PM CAPITOL 17
01/30/02 (H) Heard & Held
01/30/02 (H) MINUTE(L&C)
02/01/02 (H) L&C AT 3:15 PM CAPITOL 17
02/01/02 (H) Heard & Held
02/01/02 (H) MINUTE(L&C)
03/22/02 (H) L&C AT 3:15 PM CAPITOL 17
03/22/02 (H) Heard & Held
MINUTE(L&C)
03/25/02 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 504
SHORT TITLE:WAGES FOR WORKERS IN FISHERIES
SPONSOR(S): RLS
Jrn-Date Jrn-Page Action
03/15/02 2547 (H) READ THE FIRST TIME -
REFERRALS
03/15/02 2547 (H) L&C
03/25/02 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
KATIE CAMPBELL, Actuary L/H
Division of Insurance
Department of Community & Economic Development
PO Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Reviewed the changes encompassed in CSHB
290, Version J.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
3601 C Street, Suite 1324
Anchorage, Alaska 99503-5948
POSITION STATEMENT: Answered questions.
John George, Lobbyist
American Family Life Assurance Company (AFLAC)
3328 Fritz Cove Road
Juneau, Alaska 99801
POSITION STATEMENT: Testified in support of the premise behind
HB 290.
DON EHTERIDGE, Lobbyist
Alaska State American Federation of Labor and Congress of
Industrial Organizations
710 W 9th Street
Juneau, Alaska 99801
POSITION STATEMENT: Testified in opposition to HB 290.
LINDA SYLVESTER, Staff
to Representative Kott
Alaska State Legislature
Capitol Building, Room 204
Juneau, Alaska 99801
POSITION STATEMENT: Testified on behalf of the sponsor of HB
504, the House Rules Standing Committee.
STEPHANIE MADSEN, Vice President
Pacific Seafood Processors Association
213 Third Street
Juneau, Alaska
POSITION STATEMENT: Testified in support of HB 504.
ED FLANAGAN, Commissioner
Department of Labor & Workforce Development
PO Box 21149
Juneau, Alaska 99802-1149
POSITION STATEMENT: Testified in opposition to HB 504.
ACTION NARRATIVE
TAPE 02-43, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:20 p.m.
Representatives Halcro, Meyer, Kott, Rokeberg, and Crawford were
present at the call to order. Representatives Murkowski and
Hayes arrived as the meeting was in progress.
HB 290-COMPREHENSIVE HEALTH INSURANCE ASS'N
VICE CHAIR HALCRO announced that the first order of business
would be HOUSE BILL NO. 290, "An Act relating to membership in
the Comprehensive Health Insurance Association."
Number 0047
REPRESENTATIVE KOTT moved to adopt Version 22-LS1150\J, Ford,
2/28/02, as the working document. There being no objection,
Version J was before the committee.
REPRESENTATIVE ROKEBERG, Alaska State Legislature, testified as
the sponsor of HB 290. He explained that HB 290 changes the
method of spreading the premium. Under the current Alaska
Comprehensive Health Insurance Association (ACHIA), the small
number of private health insurance companies underwrite
individual and very small group plans that aren't eligible for
the Employee Retirement and Income Security Act of 1974 (ERISA).
These private health insurance companies make the $3 million per
annum assessments based on the amount of premiums they write in
the state. Version J changes the methodology to a covered lives
method of spreading the costs of the ACHIA program and defines
major medical benefits in order to capture a broader degree of
people. Representative Rokeberg directed attention to the
Division of Insurance's March 13, 2002, document entitled, "CSHB
290 (Version J) Analysis of Change in Assessment Formula."
Number 0233
KATIE CAMPBELL, Actuary L/H, Division of Insurance, Department
of Community & Economic Development (DCED), testified via
teleconference. Ms. Campbell explained that Version J does a
couple of things. As mentioned by the sponsor, the major change
is the change from a premium base to a number of covered lives
base. Version J also increases the membership of the ACHIA
program to include any self-funded plans as allowed under
federal law. To the extent that plans can be accessed, those
plans would be members of the ACHIA program. Also, the
definition of major medical was expanded a bit from what is in
current law. She pointed out that the March 13, 2002, document
from the division illustrates how the formula would change. She
directed attention to page 4 of the document, which includes an
example of the impact of the new formula for some of the
insurers and members of ACHIA. This example utilizes data
captured in 2000. The caveat is that the information is only as
good as the information provided by the insurers. She pointed
out that Premera Blue Cross is the largest insurer and currently
pays about 50 percent of the assessment. If the formula [base]
is changed to the number of covered lives, it's disbursed more
broadly because the State of Alaska is covered under the ACHIA
program and thus will pick up a fairly large portion of the
assessment, and therefore it's distributed more broadly by the
insurers because of the larger number of insured lives compared
to the premium the insurer would write.
REPRESENTATIVE ROKEBERG highlighted the change in the CS that's
related to the ability to make an assessment against the stop
loss insurance that the self-insureds sometimes purchase; this
method allows the risk to be spread through a larger number of
people. Representative Rokeberg informed the committee that the
State of Alaska isn't an ERISA group, the state didn't join
ACHIA because they became self-insured. However, this
legislation would bring the state back in.
Number 0524
VICE CHAIR HALCRO estimated that under [Version J] the State of
Alaska's contribution to ACHIA would amount to $690,000. He
inquired from where that money would come.
REPRESENTATIVE ROKEBERG answered that it could come from the
individual under the current language of the legislation. He
announced that he has a proposed amendment if the committee
wishes to change it such that the state would pick up that
portion.
VICE CHAIR HALCRO recalled concern that several of the labor
organizations, through collective bargaining, had the ability to
become self-insured. He asked if including these self-insureds
would brush up against collective bargaining.
REPRESENTATIVE ROKEBERG replied that he didn't think so,
although he noted that he isn't a labor law expert. He informed
the committee that there are a small number of bargaining units
that were paying small premium assessments under [the current
formula], almost 1 percent. Under the current draft, the state
would pay a baseline amount and the individuals would pay the
difference. Representative Rokeberg informed the committee that
the calculation against the 260,000 lives amounts to
approximately $.86 a month per covered life, which he viewed as
a small amount to finance this important program.
REPRESENTATIVE ROKEBERG said:
And contrary to some popular belief, even members of
the State ... well not necessarily the State, but most
other unions -- the State wouldn't apply because they
would always have our state coverage. But, in the
instance where other people that are coming in now,
all of them would have the opportunities to become
ACHIA members if ... it was such that they could not
provide insurance in an affordable manner under their
existing contract.
REPRESENTATIVE ROKEBERG emphasized that there are benefits to
these people. Furthermore, he reminded the committee that
without [ACHIA] the [state] would jeopardize its primacy under
the federal law because of the Health Insurance Portability and
Accountability Act (HIPAA). Representative Rokeberg pointed out
that several other states have gone with this method as a way to
cover the cost of the pool more equitably. There have been
suggestions to use the permanent fund dividend (PFD) or other
tax methods to do this.
VICE CHAIR HALCRO inquired as to who will pay the $690,000 that
the state will have to contribute to ACHIA. Is there any
problem with what is being done with this legislation, he asked.
Number 0857
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development, testified via teleconference.
Mr. Lohr answered that he didn't believe there is any problem
with [implementation] of this legislation, which he
characterized as a good piece of legislation. He related his
belief that the legislation broadens the base of the assessment
of the ACHIA program. With regard to who pays, Mr. Lohr said
that ultimately the employee pays because typically an employer
for the state is going to pass the costs to the employee, which
is the case with private insurance companies. He highlighted
that under the current situation, the cost is passed through to
private insurers only, which is why 1 percent is specified.
Therefore, a program such as encompassed in HB 290 would broaden
the base of assessment to lower it to the range of six-tenths of
a percent.
REPRESENTATIVE MEYER related his understanding then that all the
employees at say Carr's Safeway will pay more into their plan
under this legislation.
MR. LOHR explained that such would only be the case if Carr's
chooses to use stop loss insurance as a component of their
strategy to control the risk of high cost health insurance for
individuals. Therefore, if the amount of claims in a given year
exceeded a certain threshold, then stop loss insurance would
kick in. Without the use of stop loss insurance, the entity
wouldn't be included. Mr. Lohr highlighted that this method has
been found permissible under ERISA.
REPRESENTATIVE MEYER said that he hoped [the legislation]
doesn't penalize one group in an effort to help another.
MR. LOHR responded that he didn't believe that to be the case.
He reiterated his belief that the legislation would broaden the
base of assessment as far as is possible under federal law in
order to more fairly distribute the burden of the uncovered
expenses of ACHIA.
REPRESENTATIVE CRAWFORD informed the committee that one of the
large self-insured unions, which contend that this legislation
will double the cost of their stop loss insurance each year.
This particular union is considering dropping its stop loss
insurance if this legislation passes, which would result in the
pool getting smaller.
MR. LOHR deferred to the numbers [provided] by Ms. Campbell [in
the March 13, 2002, document].
Number 1130
JOHN GEORGE, Lobbyist, American Family Life Assurance Company
(AFLAC), began his testimony by informing the committee that
AFLAC is a major underwriter of supplemental benefit insurance
policies. He explained that supplemental benefits offer very
narrow inexpensive coverage. He announced AFLAC's support of
this legislation. The current formula for ACHIA assessments
assess insurance companies based on their entire premium base,
not just the major medical premiums. The current definition
specifies that a Medicare supplement policy is a major medical
policy, and AFLAC writes four of those. The assessments for
those are $25,000-$30,000 a year. Mr. George pointed out that
the burden of this social problem shouldn't be placed on the
backs of the employees of small employers, which is where it
falls because those are the folks who purchase major medical
insurance. Mr. George related that [AFLAC] believes spreading
the costs of this social problem is fair and the right thing to
do.
MR. GEORGE turned to the Division of Insurance's projections
that AFLAC writes 14,500 lives while AFLAC believes that 5,000
lives will fall under this definition. Mr. George expressed the
need to change the definition of "major medical" to exclude the
limited benefit policies that AFLAC provides. He explained that
AFLAC's belief that its assessment should be much less than
$30,000 a year based on the four major medical policies it
writes. Mr. George suggested that the definition of major
medical should return to the definition [that already exists].
It doesn't seem fair to pay [the same as the major medical
policies] for those policies that aren't major medical policies.
Mr. George concluded by saying that the concept of spreading the
burden across a much broader segment and to include more than
just small employers and their employees is laudable.
Number 1324
REPRESENTATIVE ROKEBERG pointed out that the Division of
Insurance's estimates predict that [under this legislation]
AFLAC will pay substantially more than it's now. Representative
Rokeberg said he understood that AFLAC would like to change
that. Notwithstanding that, he asked, would AFLAC still support
the legislation.
MR. GEORGE clarified that the Division of Insurance was unable
to determine which policies were on an expense base and which
were on another base. Mr. George reiterated AFLAC's belief that
there are about 5,000 policies. Still, overall the bill has
positive effects. He announced that AFLAC would offer 100
percent support if the definition of [major medical] was changed
to its [existing] definition. In further response to
Representative Rokeberg, Mr. George said that going to a base of
covered lives is the most fair way to address this.
REPRESENTATIVE ROKEBERG noted his disappointment that there are
only 260,000 [covered lives].
Number 1419
DON EHTERIDGE, Lobbyist, Alaska State American Federation of
Labor and Congress of Industrial Organizations (AFL-CIO),
informed the committee that the AFL-CIO's trustees still oppose
this legislation because most of them view it as an additional
cost on their members. In fact, if it is an expense that is
passed through to the members, the public employee groups will
renegotiate the issue. Although the organization is fully
supportive of the idea, the organization believes the costs
should be spread to everyone in the state, not just to those
fortunate enough to have insurance.
REPRESENTATIVE ROKEBERG related his understanding that the AFL-
CIO is sympathetic, but is concerned that there would be impacts
to existing contracts as well as the future cost to the
membership.
MR. ETHERIDGE replied yes.
REPRESENTATIVE ROKEBERG surmised then that the AFL-CIO would
suggest looking to the general fund or general taxation rather
than have a premium or covered lives assessment.
MR. ETHERIDGE replied yes. He mentioned that even $1 could be
taken from everyone's PFD in order that everyone pays, including
those that aren't insured. In further response to
Representative Rokeberg, Mr. Etheridge confirmed that AFL-CIO's
board recognizes that perhaps one or two of the members may
benefit from this pool. However, the AFL-CIO's membership will
be covered by the plans that it has now.
REPRESENTATIVE ROKEBERG noted his disappointment that organized
labor has taken this position.
VICE CHAIR HALCRO, determining that there was no one else to
testify, closed public testimony.
REPRESENTATIVE ROKEBERG noted that the committee packet includes
two amendments.
Number 1592
REPRESENTATIVE ROKEBERG moved that the committee adopt Amendment
J.2 [22-LS1150\J.2, Ford, 3/22/02], which reads as follows:
Page 1, line 2, following "Association":
Insert "; and providing for an effective date"
Page 4, following line 12:
Insert new bill sections to read:
"* Sec. 9. The uncodified law of the State of
Alaska is amended by adding a new section to read:
TRANSITION. (a) Until January 1, 2003, the
Comprehensive Health Insurance Association shall
determine member assessments under AS 21.55.220(c) as
that provision existed before the effective date of
this Act.
(b) Notwithstanding AS 21.55.220(f), enacted by
sec. 6 of this Act, information required to be
reported under AS 21.55.220(f), enacted by sec. 6 of
this Act, must initially be reported to the director
of insurance by September 30, 2002.
* Sec. 10. The uncodified law of the State of
Alaska is amended by adding a new section to read:
TRANSITION: REGULATIONS. The director of
insurance may immediately proceed to adopt regulations
necessary to implement the changes made by this Act.
The regulations take effect under AS 44.62
(Administrative Procedure Act), but not before the
effective date of the statutory change.
* Sec. 11. This Act takes effect immediately under
AS 01.10.070(c)."
The committee took an at-ease from 3:50 p.m. to 3:54 p.m.
REPRESENTATIVE CRAWFORD objected.
REPRESENTATIVE ROKEBERG explained that the amendment establishes
a transition period and requires that all the reporting required
by this must report to the director of the Division of Insurance
by September 30, 2002, in order to determine the correct amount
of covered lives. He noted that the current mandatory insurance
reports have deadlines in April.
REPRESENTATIVE CRAWFORD withdrew his objection.
There being no objection, Amendment J.2 was adopted.
REPRESENTATIVE ROKEBERG turned attention to Amendment J.1 [22-
LS1150\J.1, Ford, 3/22/02]. He explained that under the current
draft employees would pay about $.96 a month or potentially $2
per family a month. Amendment J.1 would result in the state
"eating it" [paying it] and thus those costs are shifted to the
general fund. This amendment would create a fiscal note.
Number 1708
REPRESENTATIVE ROKEBERG moved that the committee adopt Amendment
J.1, which reads as follows:
Page 4, following line 12:
Insert new bill sections to read:
"* Sec. 9. AS 39.30.095(b) is amended to read:
(b) After obtaining the advice of an actuary, the
commissioner of administration shall determine the
amount necessary to provide benefits under
AS 39.30.090, 39.30.091, and 39.30.160 and, subject to
(e) and (g) of this section, shall set the rate of
employer contribution and employee contribution, if
any. With money in the fund, the commissioner of
administration shall pay premiums, claims, and
administrative costs required under the insurance
policies in effect under AS 39.30.090 and 39.30.160,
or required under self-insurance arrangements in
effect under AS 39.30.091.
* Sec. 10. AS 39.30.095(e) is amended to read:
(e) Notwithstanding (b) of this section and
subject to (g) of this section, the rate of employer
contribution to provide hospital, surgical, dental,
audiovisual, and other medical care benefits under
AS 39.30.091 is $515 monthly beginning July 1, 2000;
$575 monthly beginning July 1, 2001; and $630 monthly
beginning July 1, 2002, for the following employees
and officials:
(1) employees in the executive branch of
the state government, including the governor and
lieutenant governor, who are not members of a
collective bargaining unit established under the
authority of AS 23.40.070 - 23.40.260 (Public
Employment Relations Act);
(2) officials and employees of the
legislative branch of state government under AS 24;
(3) employees in the judicial branch of
state government, including magistrates and other
judicial officers, who are not members of a collective
bargaining unit established under AS 23.40.070 -
23.40.260 (Public Employment Relations Act).
* Sec. 11. AS 39.30.095 is amended by adding a new
subsection to read:
(g) In setting the rate of contribution by an
employer and employee under (b) and (e) of this
section, the commissioner may increase the amount of
the employer contribution under (e) of this section
and may exceed the amount set in that subsection, but
may not increase the amount of the employee
contribution if the amount necessary to provide
benefits under AS 39.30.090 and 39.30.160, or for a
self-insurance arrangement under AS 39.30.091,
increases as a result of an assessment against the
state as a member of the Comprehensive Health
Insurance Association under AS 21.55.220."
REPRESENTATIVE MEYER objected.
REPRESENTATIVE ROKEBERG reiterated that Amendment J.1 would be
paid by the state rather than the individual employee.
REPRESENTATIVE CRAWFORD related his belief that the legislation
attempts to bring in everyone.
REPRESENTATIVE ROKEBERG clarified that Amendment J.1 speaks only
to the state [employees]. He pointed out that the legislature
can establish the terms and conditions of the health program
established by the state government. This decision would be
made by a private employer as well.
VICE CHAIR HALCRO surmised that Amendment J.1 would include
those who aren't covered by collective bargaining, members of
the executive, legislative, and executive branches.
Number 1789
REPRESENTATIVE CRAWFORD specified that his concern is in regard
to the self-insureds who have already bargained for a contract
and already receive a set amount from the employers.
REPRESENTATIVE ROKEBERG suspected that those employers would
have to pay for [the increase] until the end of the contract.
REPRESENTATIVE CRAWFORD predicted that all the employers he
deals with will say that they bargained for an established
amount per hour and that's all they will pay. Therefore, he
predicted that it would come out of the pool of premiums that
are available. He said he wasn't sure how [the money] could be
obtained from the employers until the end of the contract.
REPRESENTATIVE ROKEBERG remarked, "We'd pass a law and they
would have to pay." He said he didn't think the employers could
assess the employees if in a sharing basis under an existing
contract.
REPRESENTATIVE CRAWFORD asked if Representative Rokeberg was
going to amend the language in order to assess the employers.
REPRESENTATIVE ROKEBERG reiterated that Amendment J.1 does that
for the State of Alaska, which is the only group the legislature
can legally control.
REPRESENTATIVE CRAWFORD surmised then that the legislature can't
assess employers through legislation, other than the State of
Alaska.
REPRESENTATIVE ROKEBERG disagreed and said that is what is being
done [with this legislation]. However, whether to pass the cost
on to employees is the decision of the employer, he suspected.
REPRESENTATIVE CRAWFORD expressed the need to know how that
would be handled because if an employer has a contract then the
employer is only liable for that until the end of the contract.
REPRESENTATIVE ROKEBERG specified, "He's liable to his
employees, but not to the State of Alaska if we pass this bill."
Number 1891
REPRESENTATIVE MEYER related his view that this is a direct cost
of doing business. He posed a situation in which the owner of a
rental car business decides to pass on the increased cost in
insurance to the consumer via increased rental costs.
REPRESENTATIVE ROKEBERG agreed with Representative Meyer's
analysis.
REPRESENTATIVE MEYER remarked that Representative Rokeberg has
been opposed to such in the past.
REPRESENTATIVE ROKEBERG said that unless the funding source for
ACHIA is changed, the entire program is going to be jeopardized.
REPRESENTATIVE MEYER inquired as to the fiscal note were
Amendment J.1 to pass.
REPRESENTATIVE ROKEBERG estimated that the fiscal note would
amount to $690,000 per the Division of Insurance, which assumes
inclusion of all the retirees.
REPRESENTATIVE MEYER said he could appreciate Representative
Rokeberg protecting the state membership. However, he
questioned why other memberships shouldn't be protected as well.
REPRESENTATIVE ROKEBERG related that the legislature's arm only
extends so far.
Number 2006
A roll call vote was taken. Representatives Kott, Rokeberg,
Hayes, and Halcro voted for the adoption of Amendment J.1.
Representatives Meyer and Crawford voted against the adoption of
Amendment J.1. Therefore, Amendment J.1 was adopted by a vote
of 4:1.
REPRESENTATIVE HAYES requested an explanation in regard to what
the amendments actually accomplish.
REPRESENTATIVE ROKEBERG explained that the amendments provide a
transition period and shift the cost of this to the state
administration versus to the state employees. He noted that
this legislation will probably receive a fiscal note now.
Representative Rokeberg emphasized that he introduced the bill
to generate discussion with regard to the needs of ACHIA and
what needs to be done in Alaska [in order] to ensure that Alaska
has an insurance program that works in this state. Without an
insurer of last resort many won't have insurance. He stressed
that the federal government requires that Alaska have some sort
of single-payer type system like ACHIA, and without such a
program the state would lose primacy in the regulation of health
insurance in the state. In conclusion, Representative Rokeberg
asked for the committee's support of the bill.
REPRESENTATIVE HAYES informed the committee that he may have a
conflict [of interest] because his company may be impacted by
this legislation.
Number 2137
REPRESENTATIVE CRAWFORD applauded Representative Rokeberg for
attempting to do this, which he believes needs to be done.
However, there are a number of employers who choose not to
provide insurance and who will not be impacted by this
legislation. Representative Crawford expressed the need to
bring in those employers who aren't providing insurance. With
regard to contracts already in effect, Representative Crawford
said he didn't see how any extra charge could be passed [on to
anyone] until the end of the contract. Therefore, he predicted
this would be an area waiting for lawsuits. He questioned how
things would proceed when there is an existing contract.
REPRESENTATIVE MEYER echoed Representative Crawford's sentiments
with regard to Representative Rokeberg's work on this matter.
He suggested that perhaps the simplest way to deal with this is
to withdraw $1 from each individual's PFD. Representative Meyer
pointed out that businesses have been hit hard this year with an
increase in the minimum wage and unemployment compensation. He
expressed concern that employers will be reluctant to pass this
cost on to their employees and thus will pass the cost on to the
consumers. Therefore, there is the potential to raise the cost
of goods in the state. He reiterated that he applauded
Representative Rokeberg's efforts, but mentioned that [this
legislation] doesn't seem to be the appropriate vehicle.
VICE CHAIR HALCRO remarked, "We're treading on some very
dangerous ground here." He pointed out that labor unions,
through collective bargaining, have been given permission to
self-insure and [through this legislation] the state is going to
become involved in their policy. Furthermore, adoption of
Amendment J.1 basically exempted the legislature and its
employees, the executive branch, and the judicial branch from
paying this out of their own checks and thus the state will have
to come up with $690,000.
The committee took a brief at-ease at 4:11 p.m. in order to
return the gavel to Chair Murkowski.
Number 2319
REPRESENTATIVE HALCRO moved to report CSHB 290, Version 22-
LS1150\J, Ford, 2/28/02, as amended out of committee with
individual recommendations and the accompanying fiscal note.
There being no objection, CSHB 290(L&C) was reported from the
House Labor and Commerce Standing Committee.
HB 504-WAGES FOR WORKERS IN FISHERIES
TAPE 02-43, SIDE B
CHAIR MURKOWSKI announced that the next order of business would
be HOUSE BILL NO. 504, "An Act relating to the wages of people
working in the fisheries business."
REPRESENTATIVE KOTT, Chair, House Rules Standing Committee,
Alaska State Legislature, testified as the sponsor of HB 504.
He informed the committee that the packet should include a
committee substitute (CS) for the committee's consideration.
Number 2272
REPRESENTATIVE MEYER moved to adopt Version 22-LS1595\L, Craver,
3/25/02, as the working document. There being no objection,
Version L was before the committee.
REPRESENTATIVE KOTT recalled his remarks at a meeting regarding
an increase in minimum wages for all Alaskans. He recalled
specifying that increasing the minimum wages for all Alaskans
would harm the fishing industry, primarily the processors. This
legislation attempts to provide processors the ability to reduce
the minimum wage equal to a fair value associated with room and
board. Representative Kott directed attention to AS 23.10.055,
which houses a number of exemptions that don't include [the
fishing industry], which he estimated to be an oversight.
Representative Kott emphasized that this legislation doesn't
seek complete exemption from the [Alaska Wage and Hour Act],
rather it attempts to carve out a small niche for the seafood
processing industry. Representative Kott informed the committee
that when the original statute was passed the department was
allowed to adjust the minimum wage, although it was never done.
In the current state of affairs for the fishing industry, this
matter needs to be addressed.
CHAIR MURKOWSKI related her understanding that although other
industries provide room and board, this legislation doesn't
intend to expand this [minimum wage adjustment] to other
industries.
REPRESENTATIVE KOTT agreed that there is no intent to expand
this beyond the fishing industry. He pointed out that other
industries that provide room and board, such as mining and
logging, often pay well above the minimum wage. Furthermore,
there is a provision in regulation that allows the [employer] to
approach the department in order to adjust the wage for the food
and lodging, although that wage can't fall below the minimum
wage.
Number 2056
LINDA SYLVESTER, Staff to Representative Kott, Alaska State
Legislature, testified on behalf of the sponsor, the House Rules
Standing Committee. Ms. Sylvester explained that Version L adds
a new section to the Alaska Wage and Hour Act. However, it
doesn't tamper with AS 23.10.085. Ms. Sylvester pointed out
that when the Fair Labor Standards Act was enacted it included
an exemption for fishery processor workers. However, the Alaska
Hour and Wage Act in 1959 didn't include the aforementioned
exemption. There doesn't seem to be any indication that there
was an intention to exempt the rural areas.
MS. SYLVESTER directed attention to AS 23.10.085(c), which reads
as follows: "(c) The regulations may permit deductions by an
employer from the minimum wage applicable under AS 23.10.050 -
23.10.150 to employees for the reasonable cost, as determined by
the director on an occupation basis, of furnishing board or
lodging if board or lodging is customarily furnished by the
employer and used by the employee." This language comes
directly from the federal Fair Labor Standards Act. The
enabling regulations, 8 AAC 15.160, which says "(a) AS 23.10.085
(c) does not limit the right of an employer and employee to
enter into a written agreement to provide for deductions of
monetary obligations of an employee." Furthermore, 8 AAC
15.160(a) specifies that [an employer] can't negotiate a wage
that falls below the minimum wage. Moreover, 8 AAC 15.160(d)
specifies the following:
(d) Nothing in (a) of this section prohibits
deductions from earnings, based on a written
agreement, to reimburse an employer for the reasonable
cost of furnishing board and lodging, if
(1) alternative public board and lodging
facilities are accessible to the worksite and the
employee has declined to use such facilities;
(2) the board and lodging facilities of the
employer are customarily furnished by the employer and
used by the employees; and
(3) the cost to the employee for the use of the
employer's board and lodging facilities, is reasonable
and without profit to the employer.
MS. SYLVESTER continued by pointing out that 8 AAC 15.160(f)
specifies that the director will make the determination
regarding the cost of board and lodging based on 29 C.F.R.
531.3-531.5 and 531.29-531.35, which provide the definitions of
all the terms in the [related] statutes and regulations. Ms.
Sylvester informed the committee that the department is
unwilling to remove 8 AAC 15.160(g)(1) because without it there
is no indication that the employee has voluntarily accepted the
room and board as an adjustment to their wage. She then turned
attention to Title 29, Chapter 8, Sec. 203(m) [Section 3(m)] and
pointed out that it speaks very generally with regard to how the
fair value [for the room and board] is determined. She
interpreted the intent of the Fair Labor and Standards Act and
the Alaska Hour and Wage Act as to allow an employer who
provides room and lodging to consider a fair value for that room
and board [and factor it in] the wage paid. However, with the
pending increase in the minimum wage, the seafood processors are
unable to absorb the costs of room and board. This legislation
attempts to correct the inability of some rural processors to
factor in the costs of room and board.
REPRESENTATIVE KOTT clarified that this legislation is
independent of the legislation increasing the minimum wage.
Regardless of the outcome of the minimum wage, the [processors]
are in a depressed situation.
MS. SYLVESTER noted that during the work on the minimum wage,
she received many phone calls requesting exemptions. Often it
seemed that there was nothing to offer. However, this situation
with the [processing industry] is unique because this industry
has been part of Alaska's fabric since before the turn of the
Twentieth Century, not to mention that this industry was
factored in with the federal regulations. Recently, the
industry was precluded and in the current environment, the
industry needs the statutes to return to the original intent
that allowed these remote processors to operate under their
unique situations. In closing, Ms. Sylvester pointed out that
employees of the processing industry are akin to migratory
workers, both of which don't require much education or training.
These positions can be filled with individuals off the street
while offering practical [employment].
CHAIR MURKOWSKI noted the hour and announced that HB 443
wouldn't be taken up today.
Number 1490
STEPHANIE MADSEN, Vice President, Pacific Seafood Processors
Association, informed the committee that the Pacific Seafood
Processors Association has been in existence since 1914. This
association represents shore-side throughout the state as well
as three mother ship operations in the Bering Sea. Ms. Madsen
stated the association's support for this legislation, which she
characterized as critical for the seafood processing industry.
Ms. Madsen pointed out that the European union has very
stringent import requirements, and those requirements have
increased as has their concern for food safety. The European
union is one of the largest markets for canned salmon. As of
December 1, 2003, [the processors] will no longer be able to
fill cans that they currently own. From that point in time, the
can coating will have to be changed. Furthermore, since the
September 11, 2002, tragedy, food has been of particular
interest with regard to ensuring that it's tamper proof.
Therefore, the Food and Drug Administration (FDA) has provided
lengthy guidance documents with regard to educating employees
and ensuring that products are tamper proof. Along with the
aforementioned, the industry is trying to adapt to a global
market, which means that [Alaska] needs to be cost-competitive.
Every increment that is added to the cost is an increment that
prevents the industry from being a cost-competitive producer in
the global market place. Ms. Madsen stressed that this
[inability to reduce wages based on the room and board that's
provided] does place the industry over the edge. The cumulative
effect is disastrous for the industry. This legislation merely
offers an expansion of what is already authorized. She pointed
out that there are some seafood processors that lived in
communities with facilities that are accessible to the work site
and have traditionally charged employees for room and board, as
determined by the department. Those processors typically pay
higher than the minimum wage and thus were able to deduct that
room and board from the wage. However, the situation has
drastically changed and the industry is faced with trying to
internalize increased costs. She expressed hope that there
would be consideration for those remote operators who have
historically provided room and board by allowing the deduction
for the room and board even if it falls below the minimum hourly
rate and the overtime level. Ms. Madsen highlighted that there
are two tests: the minimum wage hourly rate and overtime. She
mentioned the costs associated with transportation, and pointed
out that transportation costs can be deducted if the wage
doesn't fall below the minimum wage requirement. Ms. Madsen
noted that the committee packet should include a letter from
Trident Seafoods. In closing, Ms. Madsen informed the committee
that [seafood] is the state's number one export and [the seafood
processing industry] is the largest private employer in the
state and the second largest taxpayer in the state.
Number 1232
REPRESENTATIVE HAYES inquired as to who would determine what
would be considered the reasonable cost or fair market value.
MS. MADSEN deferred to the commissioner of the Department of
Labor & Workforce Development. She pointed out that AS
23.10.085 directs the division director to have oversight on
[determining the reasonable cost or fair market value]. She
related her understanding that the current practices involve
either producing a detailed analysis of the company's costs,
which would be reviewed by the department, or utilizing the
standard federal allowance of $10 a day. Customarily, the
seafood processors have chosen a reasonable standard approved by
the department, and that standard ranges from $12-$15 a day.
MS. MADSEN, in response to Representative Meyer, answered that
traditionally the employer provides room and board. She
mentioned that services such as laundry are also offered by the
processor. She explained that if a seafood processor has public
facilities accessible to the work site and those seafood
processors make a deduction on their employee's room and board,
then those processors have the option to live in company housing
or find alternative housing. The difficulty is in the places
where no public facilities are accessible. In further response
to Representative Meyer, Ms. Madsen agreed that legislation such
as this is important in order to be competitive in today's
seafood market. She stressed that the seafood industry is in
competition with seafood from around the world as well as every
other protein source.
Number 0938
REPRESENTATIVE CRAWFORD surmised that the seafood industry is
also in competition with other industries for workers. He asked
if the industry felt that it [could compete] for workers if say
$15 a day was withdrawn for room and board. He also inquired as
to whether workers have to pay for their room and board on days
when there is no work.
MS. MADSEN highlighted that the market drives what is paid. She
noted that Alaska competes with Washington and California as
well as with other processors. Therefore, Ms. Madsen informed
the committee that [seafood processors] are nervous about
charging employees for something that has been received in the
past. She noted that those employees at the minimum wage are
entry level employees and thus can become employed with no
education or work experience. She reiterated that the market
would drive the wage and what can reasonably be deducted.
REPRESENTATIVE CRAWFORD asked if it would be better to have a
level playing field rather than having one [company in a
particular area] deduct more than another.
MS. MADSEN agreed that it would be nice to have a level playing
field, although it probably isn't practical because of price
differences.
CHAIR MURKOWSKI restated Representative Crawford's question with
regard to whether an employee would be charged room and board on
days in which the employee has no work.
MS. MADSEN related her belief that this situation currently
exists and probably varies from plant to plant. Ms. Madsen
informed the committee that seafood processors often use the
room and board deduction as an incentive for employees to
complete their contract. When such an incentive is offered,
upon completion of a contract an employee's room and board
deduction is reimbursed. This type of information would be in
the agreement signed by the employee prior to going to work.
CHAIR MURKOWSKI mentioned horror stories she has heard with
regard to employees who don't speak English well and because of
room, board, and transportation charges end up owing the
company.
MS. MADSEN clarified that such situations probably occur on a
catcher processor because those employees are paid by crew-share
and thus an employee could end up owing the boat. Ms. Madsen
mentioned that it's in the employer's best interest to keep the
employee working and thus [plants] often have employees painting
or doing various other "work" when no fish are coming through
the plant.
Number 0552
ED FLANAGAN, Commissioner, Department of Labor & Workforce
Development (DLWD), announced the department's strenuous
opposition to HB 504. Commissioner Flanagan submitted that the
language [in statute and regulation] was written such that
seafood processing employees were covered by the Alaska Wage and
Hour Act, including overtime and minimum wage. The exclusions
were for the piece-work or crew-share exemptions. Commissioner
Flanagan said that he found the discussion with regard to the
definitions found in the Federal Labor Standards Act irrelevant.
The statute allows [the department], absent regulation or
statute, to utilize definitions and determinations found in the
Federal Labor Standards Act. To say that the state can't differ
from the Federal Labor Standards Act is incorrect. Commissioner
Flanagan turned to the 1959 legislation that clearly specifies
that the department "may" develop regulations to allow for some
deductions. Historically, the department practice has been not
to allow the [room and board] deduction for remote site
employers where the housing is provided for the convenience of
the employer. The regulation basically codified the practice in
1985.
COMMISSIONER FLANAGAN said:
I find it a little chilling to talk about the place of
certain people or workers and what they're here for
... -- basically to be guest workers or something.
I'll push the envelope as far as anybody on trying to
use every legal means to give preference to Alaskan
workers. But once workers are in our state and
working, we don't distinguish between them on the
protections they're entitled to under state law,
including minimum wage.
COMMISSIONER FLANAGAN refuted the notion provided in the sponsor
statement with regard to college students working in canneries.
Commissioner Flanagan highlighted the work that has been done to
encourage Alaskan hire in this industry. He informed the
committee that Alaskan employment in this industry has risen
from 24 percent of workers in 1995 to 30 percent [in 2002]. The
wages [paid to Alaskans] have risen from 36 percent to 45
percent. Commissioner Flanagan expressed empathy for the
industry and the challenges it faces. However, there will be
canneries that won't operate this year and that doesn't have
anything to do with the minimum wage. Commissioner Flanagan
pointed out that those workers receiving close to the minimum
wage don't benefit when the prices are good, although the
fisherman, the processor, and the local community does.
Commissioner Flanagan related that these workers are making 25
percent less in real dollars than they were 15 years ago. "To
... have the brunt of the hardship that the industry is facing
be borne by the low-wage workers, I think, is unconscionable,"
he said.
COMMISSIONER FLANAGAN related his belief that the lack of an
effective date was inadvertent because if this passes next
month, it would take effect four to six months before there is a
minimum wage increase, if there is one. Therefore, an employer
could utilize this [legislation before the minimum wage
increase]. Commissioner Flanagan charged that [were this
exemption granted] other industries would line up to receive an
exemption from the onerous minimum wage. With regard to the
amenities of laundry, television, and overtime, Commissioner
Flanagan stressed that these workers are working 80 hours a
week. Therefore, these workers receiving minimum wage may have
a little time to eat, sleep, watch a little television, and do
laundry -- all for the sum of $715 a week with the increase. He
discussed the difference in the camps from subsistence level
housing to the year round facilities.
TAPE 02-44, SIDE A
COMMISSIONER FLANAGAN discussed the "recruitment crunches"
during which the camps offer to pay transportation and as the
recruitment becomes more difficult payment for things such as
room and board are offered as incentives. He noted that the
processors [near cities] usually pay higher wages than those in
the remote sites paying near the minimum wage. To start
excluding people before the minimum wage is even raised, is
[inappropriate], he related.
Number 0179
REPRESENTATIVE KOTT asked if Commissioner Flanagan was familiar
with the "Davis brothers case" [Davis Brothers, Inc., a Georgia
Corp Plaintiff/Appellant v. Raymond Donovan, Secty of Labor, et
al.], a federal case in which the courts held it reasonable that
employers could deduct board [from an employee's wage].
COMMISSIONER FLANAGAN answered that he believes that such is
allowed under federal law, although he said he wasn't familiar
with the case.
REPRESENTATIVE KOTT said that this legislation, to a large
extent, mirrors what is in federal law. Representative Kott
turned to the statute passed in 1959 in which the legislature
specified that the regulations to be promulgated may permit
deductions. He expressed confusion with regard to why [in 8 AAC
15.160] (d)(1) was included when it was specifically [left out]
of the statute.
COMMISSIONER FLANAGAN related his understanding that the
department, through 26 years, had chosen not to promulgate
regulations. Rather, the department had a policy that it would
recognize deductions, but not in remote sites. Clearly [8 AAC
15.160] (d)(1) differentiates between a remote site and one
where alternative housing is available. Commissioner Flanagan
indicated that this may have been a situation in which a
regulation was based on policy, and therefore the regulation
codified the policy. The statute is permissive in regard to
which regulations the department could promulgate. "We're just
being consistent with interpretation," he said. With regard to
differences between the federal and state law, Commissioner
Flanagan said that Alaska's level of remote employment makes it
entirely appropriate for the state to have different standards
than the federal government.
REPRESENTATIVE KOTT agreed that the statute is permissive.
However, he said he believes that the legislature's intent was
moving in the opposite direction. Representative Kott asked if
the department has the ability to enter the non-remote sites and
make adjustments.
COMMISSIONER FLANAGAN deferred to Richard Mastriano, Director,
Division of Labor Standards & Safety, DLWD, with regard to
enforcement. However, he noted that depending upon the wages
paid, the fees may be nominal enough that minimum wage isn't an
issue.
CHAIR MURKOWSKI announced her intention to hold HB 504 and bring
it back before the committee on Wednesday, March 27, 2002.
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:10 p.m.
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