Legislature(2003 - 2004)

06/23/2004 08:10 AM JUD

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
                    ALASKA STATE LEGISLATURE                                                                                  
              SENATE JUDICIARY STANDING COMMITTEE                                                                             
                        Special Session                                                                                         
                         June 23, 2004                                                                                          
                           8:10 a.m.                                                                                            
                                                                                                                                
TAPE(S) 04-72                                                                                                                   
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Ralph Seekins, Chair                                                                                                    
Senator Scott Ogan, Vice Chair                                                                                                  
Senator Gene Therriault                                                                                                         
Senator Hollis French                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Johnny Ellis                                                                                                            
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
SENATE BILL NO. 1002                                                                                                            
"An   Act  providing   for  a   special   deposit  for   workers'                                                               
compensation  insurers;  relating  to  assigned  risk  pools  and                                                               
workers'  compensation   insurers;  relating  to  the   board  of                                                               
governors of  the Alaska Insurance Guaranty  Association; stating                                                               
the  intent  of the  legislature,  and  setting out  limitations,                                                               
concerning the  interpretation, construction,  and implementation                                                               
of  workers' compensation  laws;  relating  to restructuring  the                                                               
Alaska  workers'  compensation  system;  eliminating  the  Alaska                                                               
Workers' Compensation Board; establishing  a division of workers'                                                               
compensation  within  the  Department   of  Labor  and  Workforce                                                               
Development  and assigning  certain Alaska  Workers' Compensation                                                               
Board functions to  the division and the Department  of Labor and                                                               
Workforce  Development;  establishing   a  Workers'  Compensation                                                               
Appeals  Commission; assigning  certain functions  of the  Alaska                                                               
Workers' Compensation Board to  the Workers' Compensation Appeals                                                               
Commission and  the office  of administrative  hearings; relating                                                               
to  agreements that  discharge  workers' compensation  liability;                                                               
providing for administrative law  judges in workers' compensation                                                               
proceedings; relating  to workers' compensation  awards; relating                                                               
to an  employer's failure to  insure and keep insured  or provide                                                               
security;  providing   for  appeals  from   compensation  orders;                                                               
relating  to  workers'  compensation proceedings;  providing  for                                                               
supreme  court   jurisdiction  of   appeals  from   the  Workers'                                                               
Compensation Appeals  Commission; providing for a  maximum amount                                                               
for  the  cost-of-living  adjustment  for  workers'  compensation                                                               
benefits;  providing for  administrative penalties  for employers                                                               
uninsured   or    without   adequate   security    for   workers'                                                               
compensation; relating to fraudulent  acts or false or misleading                                                               
statements  in  worker's  compensation;   and  providing  for  an                                                               
effective date."                                                                                                                
     MOVED SB 1002 OUT OF COMMITTEE                                                                                             
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
BILL: SB1002                                                                                                                  
SHORT TITLE: INSURANCE & WORKERS' COMPENSATION SYSTEM                                                                           
SPONSOR(s): RULES BY REQUEST OF THE GOVERNOR                                                                                    
                                                                                                                                
No previous action to record.                                                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
Mr. Doug Wooliver                                                                                                               
Alaska Court System                                                                                                             
303 K St.                                                                                                                       
Anchorage, AK  99501-2084                                                                                                       
POSITION STATEMENT: Informed committee members of fiscal                                                                      
implications of SB 1002 on the court system                                                                                     
                                                                                                                                
Mr. Chuck Lundeen                                                                                                               
Chief Counsel                                                                                                                   
Northwest Insurance                                                                                                             
No address provided                                                                                                             
POSITION STATEMENT:  Supports SB 1002                                                                                         
                                                                                                                                
Mr. Paul Richards                                                                                                               
Alaska State Chamber of Commerce                                                                                                
217 Second Street                                                                                                               
Juneau, Alaska 99801                                                                                                            
POSITION STATEMENT:  Supports SB 1002                                                                                         
                                                                                                                                
Mr. Martin Peale, Chairman                                                                                                      
Board of Governors                                                                                                              
Alaska Timber Industry                                                                                                          
No address provided                                                                                                             
POSITION STATEMENT:  Supports SB 1002                                                                                         
                                                                                                                                
Ms. Barbara Huff-Tuckness                                                                                                       
Teamsters Local 959                                                                                                             
No address provided                                                                                                             
POSITION STATEMENT: Expressed concerns about SB 1002                                                                          
                                                                                                                                
Ms. Lori Wing, President                                                                                                        
Alaska Independent Insurance Agents & Brokers                                                                                   
No address provided                                                                                                             
POSITION STATEMENT: Supports SB 1002                                                                                          
                                                                                                                                
Mr. John Guichici                                                                                                               
Fairbanks, AK                                                                                                                   
POSITION STATEMENT:                                                                                                           
                                                                                                                                
Mr. Guy Bell, Director                                                                                                          
Division of Administrative Services                                                                                             
Department of Labor & Workforce                                                                                                 
  Development                                                                                                                   
PO Box 21149                                                                                                                    
Juneau, AK 99802-1149                                                                                                           
POSITION STATEMENT:  Explained the fiscal notes to SB 1002                                                                    
                                                                                                                                
Mr. Scott Nordstrand                                                                                                            
Department of Law                                                                                                               
PO Box 110300                                                                                                                   
Juneau, AK  99811-0300                                                                                                          
POSITION STATEMENT:  Presented SB 1002 for the administration                                                                 
                                                                                                                                
Ms. Linda Hall                                                                                                                  
Division of Insurance                                                                                                           
Department of Community & Economic Development                                                                                  
PO Box 110800                                                                                                                   
Juneau, AK 99811-0800                                                                                                           
POSITION  STATEMENT: Described  the  insurance  provisions of  SB
1002                                                                                                                            
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                                
TAPE 04-72, SIDE A                                                                                                            
                                                                                                                                
CHAIR  RALPH  SEEKINS  called  a   work  session  of  the  Senate                                                             
Judiciary  Standing  Committee  meeting  to order  at  8:10  a.m.                                                               
Senators  Ogan and  Chair Seekins  were present.  Senator Stedman                                                               
was also present.                                                                                                               
                                                                                                                                
        SB 1002-INSURANCE & WORKERS' COMPENSATION SYSTEM                                                                    
                                                                                                                                
MR. DOUG  WOOLIVER, Administrative Attorney, Alaska  Court System                                                               
(ACS), informed  members that  the ACS takes  no position  on the                                                               
merits of the  legislation but he would testify as  to the impact                                                               
one provision of  SB 1002 would have  on the ACS and  that is the                                                               
provision that  pertains to appeals  from the agency  which would                                                               
bypass the Superior  Court and go directly to  the Supreme Court.                                                               
He maintained that the bottom line  issue is that the ACS expects                                                               
to hear the same  number of appeals as it has  heard in the past.                                                               
Over the last  five years, the number of cases  appealed from the                                                               
agency to the Superior Court has  averaged 36 cases per year. The                                                               
agency process itself is likely to  have a very big impact on the                                                               
number of appeals. The ACS  does not believe the proposed changes                                                               
within the  agency will impact  the ACS, except that  the appeals                                                               
will go directly  to the Supreme Court. Out of  the 36 cases that                                                               
have  come to  the  ACS  each year,  75  percent  are settled  or                                                               
resolved at the Superior Court level.  About 9 of those cases are                                                               
further appealed to  the Supreme Court. The ACS  believes that by                                                               
bypassing the  Superior Court, the  Supreme Court will  see about                                                               
36 cases  per year,  rather than  9. The  Supreme Court  does not                                                               
have the capacity  to absorb caseload increases,  as the Superior                                                               
Court can. The  number of Superior Court judges  was increased by                                                               
two to 34  in 2001; that increase has allowed  the Superior Court                                                               
to hear more cases. In addition,  the Superior Court can bring in                                                               
pro tem cases.  At the Supreme Court level, the  same five judges                                                               
must resolve all  cases so absorbing a caseload  increase is more                                                               
difficult. The ACS  has requested additional staff  on its fiscal                                                               
note to absorb the increased caseload.                                                                                          
                                                                                                                                
MR. WOOLIVER said  one important part of the reform  that SB 1002                                                               
reflects is a  possible timesaving because the  cases should work                                                               
their  way  through  the  agency  more  quickly.  He  noted  that                                                               
bypassing the Superior Court will  also speed up those cases that                                                               
would  have   first  been  heard   by  the  Superior   Court  and                                                               
subsequently  heard  by  the  Supreme   Court.  Cutting  out  the                                                               
Superior Court  step should save at  least one year of  time.  He                                                               
said the  ACS's concern  is about  the 75  percent of  cases that                                                               
come to the  court that are never appealed to  the Supreme Court.                                                               
The Supreme  Court would  be forced  to hear  those cases  and it                                                               
takes  longer  to  resolve  cases than  the  Superior  Court  for                                                               
several reasons. The first reason  is that a Superior Court judge                                                               
is a committee of one. The  Supreme Court is a committee of five;                                                               
it is  a deliberative  body. When  an opinion  is drafted,  it is                                                               
circulated among  the members,  changes are  suggested and  it is                                                               
redrafted. He  repeated the  ACS does not  support or  oppose the                                                               
bill  but will  be  making  a request  for  extra  staff for  the                                                               
Supreme Court next year to deal with the increased work load.                                                                   
                                                                                                                                
CHAIR SEEKINS  announced that Senator  French had arrived  so the                                                               
Senate Judiciary Committee had a  quorum and its official meeting                                                               
was  now  in  progress.  He  then asked  Mr.  Wooliver  how  many                                                               
additional staff the ACS anticipates needing.                                                                                   
                                                                                                                                
MR. WOOLIVER said  the court would like to hire  a staff attorney                                                               
with expertise  in workers' compensation  cases to write  a legal                                                               
analysis for  each case. In addition,  the court wants to  hire a                                                               
secretary  and a  clerk to  handle the  additional paperwork  and                                                               
transcription work.                                                                                                             
                                                                                                                                
CHAIR SEEKINS asked Mr. Lundeen to testify.                                                                                     
                                                                                                                                
MR.  CHUCK LUNDEEN,  Chief Counsel,  Liberty Northwest  Insurance                                                               
based in  Portland, Oregon, told  members that  Liberty Northwest                                                               
writes  workers' compensation  policies  in Alaska  and hopes  to                                                               
expand into other insurance markets  in Alaska. Liberty Northwest                                                               
currently insures 20  percent of Alaska's assigned  risk pool, as                                                               
well  as 150  voluntary insureds.  Liberty Northwest  supports SB
1002;  it views  the  legislation  as a  very  modest  step in  a                                                               
process  of  workers'  compensation reform  in  Alaska.  Workers'                                                               
compensation  rates are  of concern.  Losses and  loss adjustment                                                               
expenses  determine  those  rates.   SB  1002  will  address  one                                                               
component of the rate picture  - litigation, which is a component                                                               
of loss adjustment expense.  An  important element of the bill is                                                               
a faster, streamlined process of  decision making for workers and                                                               
employers. Those decisions would  be published and have precedent                                                               
value, which is important.                                                                                                      
                                                                                                                                
MR. LUNDEEN said he has  looked at the administrative realignment                                                               
from  the  board  to  the   division  and,  although  he  is  not                                                               
completely conversant with that  administrative process, he views                                                               
putting people with  knowledge in charge of  certain functions in                                                               
the  department,  instead  of  the  board,  will  streamline  the                                                               
process.  The  anti-fraud  provision   that  was  added  will  be                                                               
beneficial. He  pointed out that the  Oregon Legislature grappled                                                               
with  various reform  issues. SB  1002 is  similar to  the Oregon                                                               
workers'  compensation   system,  in   regard  to   the  workers'                                                               
compensation   appeals    commission.   Oregon    uses   attorney                                                               
administrative law  judges (ALJs) at  the first level. A  core of                                                               
ALJs  under the  board handles  the compensability  of decisions,                                                               
regarding whether  the claim  falls within  the act.  Oregon also                                                               
has an independent ALJ pool,  which decides benefits issues, such                                                               
as  medical services  and vocational  services.  Everyone in  the                                                               
first level is an attorney.  Oregon's workers' compensation board                                                               
is comprised  of five members  - both lay members  and attorneys.                                                               
He  repeated  that he  sees  SB  1002  as  a modest  first  step.                                                               
Workers' compensation should be a  fast, efficient process. It is                                                               
supposed to be a no-fault system, not a tort system.                                                                            
                                                                                                                                
MR.  LUNDEEN said  that he  hopes that  labor and  management can                                                               
collaborate  on  an  ongoing  basis.   That  is  essential  to  a                                                               
successful reform and to avoid getting to a crisis point.                                                                       
                                                                                                                                
SENATOR FRENCH  asked what would happen  to workers' compensation                                                               
rates in Alaska  if the total amount spent in  litigation was cut                                                               
by 50 percent.                                                                                                                  
                                                                                                                                
MR. LUNDEEN replied:                                                                                                            
                                                                                                                                
     It  could  certainly  do   that,  Senator  French  and,                                                                    
     additionally,  I think  that Mr.  Nordstrand made  some                                                                    
     points  on  this in  discussion  of  this bill  in  the                                                                    
     regular session.  It's more  than just  I guess  what I                                                                    
     would call the hard current  costs that we can point to                                                                    
     - that $11  million. But as this process  works its way                                                                    
     through, as  claims are resolved  more quickly,  as you                                                                    
     get this body  of law so that there's  certainty, and I                                                                    
     know there's some dispute about  whether that exists or                                                                    
     not   currently,   our   view  is   when   the   system                                                                    
     participants  know  what the  rules  of  the road  are,                                                                    
     they'll settle cases or they  won't file for litigation                                                                    
     so there is  this $11 million that you can  point to as                                                                    
     a  current  expenditure,  if  you  will.  But  I  think                                                                    
     there's  much  more than  that.  We'll  tend to  reduce                                                                    
     rates as  we reduce litigation  over time. But  I'll be                                                                    
     happy to get back to you with some analysis.                                                                               
                                                                                                                                
SENATOR FRENCH asked Mr. Lundeen  to make an educated calculation                                                               
as to the amount of the rate reduction.                                                                                         
                                                                                                                                
MR. LUNDEEN  said that is the  job of the actuaries  and he would                                                               
be happy to provide that information.                                                                                           
                                                                                                                                
CHAIR SEEKINS  said his concern  is the  length of time  it takes                                                               
for a  claim to be  fully processed  and whether that  process is                                                               
being unnecessarily dragged  out. He asked how  that factor plays                                                               
in to the rates.                                                                                                                
                                                                                                                                
[A short  portion of the  recording could not be  transcribed due                                                               
to tape failure.]                                                                                                               
                                                                                                                                
MR. LUNDEEN said he believes this bill will help.                                                                               
                                                                                                                                
CHAIR SEEKINS asked  how the rates of a small  employer who has a                                                               
claim that has  been repeatedly delayed and  has additional costs                                                               
pile up will be affected.                                                                                                       
                                                                                                                                
MR. LUNDEEN replied, "I think as  we use losses to calculate year                                                               
over year,  if he has  a case that's going  on for three  or four                                                               
years and there's a reserve held  on that, that would go into the                                                               
rate calculation Senator,  and certainly drive up  his rates." He                                                               
said he has seen that happen countless times in his career.                                                                     
                                                                                                                                
CHAIR SEEKINS asked Mr. Richards to testify.                                                                                    
                                                                                                                                
MR. PAUL RICHARDS, Alaska State  Chamber of Commerce, said he was                                                               
asked  to  represent  the  Chamber  since  Pam  LaBolle  recently                                                               
retired.  He  told  members  the Chamber  supports  SB  1002  and                                                               
compliments the administration for looking  at how to improve the                                                               
efficiencies  of workers'  compensation  in Alaska.  He said  any                                                               
efficiencies,  consistencies  and  less   cost  to  business  are                                                               
supported  by the  Chamber. He  asked committee  members to  move                                                               
forward with this legislation.                                                                                                  
                                                                                                                                
SENATOR THERRIAULT joined the committee.                                                                                        
                                                                                                                                
MR.  MARTIN PEALE,  Chairman, Board  of Governors,  Alaska Timber                                                               
Insurance  Exchange (ATIE),  said ATIE  was formed  in 1980  as a                                                               
reciprocal  workers'  compensation  insurance  company  owned  by                                                               
policyholders.  ATIE's specialty  has been  the logging  industry                                                               
and  higher  risk coverage.  ATIE  has  been very  successful  in                                                               
promoting work  place safety and  it returns any profit  it earns                                                               
each year to  its policyholders as a dividend. It  sets its rates                                                               
conservatively  high   to  protect  its   policyholders'  surplus                                                               
balances,  knowing the  dividend  will reduce  costs  to the  net                                                               
basis. He said over the last  10 years, its dividend has averaged                                                               
67 percent  of premiums, however  for the year 2003,  despite one                                                               
of its  best years in  terms of accident frequency  and severity,                                                               
ATIE's profit was  wiped out by assessments of  the assigned risk                                                               
pool, which equaled $642,000.                                                                                                   
                                                                                                                                
Mr. PEALE  said the legislature  has been addressing a  crisis in                                                               
workers' compensation and SB 1002 is  part of that. Over the last                                                               
seven  years,  the  assigned  risk pool  has  an  aggregated  $60                                                               
million in  losses. ATIE  has absorbed  about $2.9  million. ATIE                                                               
cannot  continue to  absorb those  assessments,  as its  solvency                                                               
would  be  threatened.   He  explained  that assigned  risk  pool                                                               
losses continue  into 2004 and the  surviving insurance companies                                                               
continue  to face  these  assessments, which  are  out of  ATIE's                                                               
control. Those assessments largely  result from mismanagement and                                                               
lack of control  in the system managed by the  division. He asked                                                               
members not to blame the current director for mismanagement.                                                                    
                                                                                                                                
MR. PEALE noted that the assigned  risk pool losses over the last                                                               
seven consecutive years have resulted  from suppression of rates,                                                               
established by  previous directors of the  Division of Insurance.                                                               
Heavily  discounted rates  also contributed  to the  magnitude of                                                               
the  burden  of insolvencies  on  the  Alaska Insurance  Guaranty                                                               
Fund.  Rates have  been so  inadequate  that insurance  companies                                                               
have declined applications  in the voluntary market  and forced a                                                               
great number of  increased insureds into the  assigned risk pool.                                                               
He continued:                                                                                                                   
                                                                                                                                
     Premiums  in the  assigned risk  pool increased  three-                                                                    
     fold  in the  last five  years  from about  $12 or  $13                                                                    
     million   to  about   $40   million.   He  said   heavy                                                                    
     discounting  of  rates  has  also  contributed  to  the                                                                    
     magnitude  of   the  burden  of  insolvencies   on  the                                                                    
     Guaranty  Fund.  Rates  have been  so  inadequate  that                                                                    
     insurance companies  have declined applications  in the                                                                    
     voluntary  market   and  forced   a  great   number  of                                                                    
     increased  insureds   into  the  assigned   risk  pool.                                                                    
     Premiums  in  the  assigned risk  pool  have  increased                                                                    
     three-fold in  the last  five years  from about  $12 or                                                                    
     $13  million   to  about  $40  million.   You've  heard                                                                    
     testimony  about recent  increases.  Yesterday a  graph                                                                    
     was presented  showing a 21.2  percent increase  in the                                                                    
     rates  from 2004.  We all  share a  concern about  rate                                                                    
     increases  but  this  must be  viewed  in  perspective.                                                                    
     Rates from  1993 to 1999  were flat, if  not decreased,                                                                    
     and included  a great deal of  discounting. Today rates                                                                    
     are just about  back to the level they were  in '93, in                                                                    
     spite  of 10  years of  inflationary impacts  and costs                                                                    
     and we all know what medical costs have done.                                                                              
                                                                                                                                
     We have followed this  year's workers' comp legislation                                                                    
     closely with obvious interest. We  have worked with the                                                                    
     administration  and  the   director,  promoting  needed                                                                    
     fixes  to improve  management of  the system  and avoid                                                                    
     continuation of  losses, which continue to  be assessed                                                                    
     against insurance  companies and our  policyholders. We                                                                    
     appreciate changes,  which have been agreed  to working                                                                    
     with the  division. Improving the loss  cost system, as                                                                    
     provided by HB  540, was a major first  step. Two other                                                                    
     steps, collateralizing the  assigned risk pool reserves                                                                    
     to protect Alaska and a  mandate that the assigned risk                                                                    
     pool be  managed at  least on a  break-even basis  on a                                                                    
     three year rolling basis -  these provisions were in HB
     357  but  were   stripped  in  the  last   day  of  the                                                                    
     legislature and  they are  now being  incorporated into                                                                    
     SB 1002  before you now.  However, words were  added in                                                                    
     the mandate language at the  bottom of page 4, line 31,                                                                    
     words  that say  'that are  approved by  the director,'                                                                    
     which  substantially  changes  the  mandate  provision.                                                                    
     This is a  change from the previous  language agreed to                                                                    
     at the  director of administration. Director  Hall told                                                                    
     us this morning that will  be changed. The wording will                                                                    
     be  moved  so it  doesn't  basically  say the  director                                                                    
     would be free to pick  and choose what's built into the                                                                    
     rate structure. So we appreciate  that. We have revised                                                                    
     wording we  would like to  submit, which does  that and                                                                    
     I'm sure the administration will.                                                                                          
                                                                                                                                
     The  third amendment  we have  sought is  known as  the                                                                    
     quarter share fix. Last year  we saw a major insolvency                                                                    
     of  the   Fremont.  Under  current  statute,   when  an                                                                    
     insolvency  occurs, that  company shares  assigned risk                                                                    
     pool  losses.  It's  reassessed against  the  remaining                                                                    
     insurance companies. For us that  was about one-half of                                                                    
     the  $642,000  in  assessments our  policyholders  were                                                                    
     forced  to absorb  in 2003.  Insolvent insurers  direct                                                                    
     writing  reserves are  covered  by  the Guaranty  Fund.                                                                    
     Under SB  276, the assessment rate,  which all workers'                                                                    
     comp policies, including  assigned risk policies, pays,                                                                    
     was increased from two to four percent.                                                                                    
                                                                                                                                
     Here's  what I  want to  emphasize. Since  an insolvent                                                                    
     insurer  has collected  or received  its  share of  the                                                                    
     assigned risk  pool premiums,  and the  two -  now four                                                                    
     percent assessment of workmen's  comp policies has been                                                                    
     paid, we  strongly believe that an  insolvent insurers'                                                                    
     share  of assigned  risk pool  losses should  travel as                                                                    
     part  of that  insolvent  insureds'  bankruptcy to  the                                                                    
     Guaranty Fund.  Why treat  the direct  writing reserves                                                                    
     differently   than  the   [indisc.]  reserves   in  the                                                                    
     assigned  risk pool?  In several  discussions with  the                                                                    
     director and  administration, we seem to  get agreement                                                                    
     that this  quota share reallocation is  grossly unfair.                                                                    
     The state  should be anxious  to fix this  injustice if                                                                    
     it wants to  create a more open  and competitive market                                                                    
     to  benefit  employers  and the  injured  workers.  The                                                                    
     Division   of   Insurance   should  manage   to   avoid                                                                    
     insolvency but,  when they  do [indisc.],  the Guaranty                                                                    
     Association  or fund  should have  its place.  We offer                                                                    
     amendment language that would fix this.                                                                                    
                                                                                                                                
     As to  the bulk of SB  1002 before you, we  support the                                                                    
     changes proposed  by the administration in  the hearing                                                                    
     process of how  it worked. We believe  the process will                                                                    
     be  fair to  injured workers  and more  expeditious. We                                                                    
     all, I think know that any  process that is not fair to                                                                    
     the injured worker is not  going to survive the test of                                                                    
     time. Thank  you for this opportunity  to testify. We'd                                                                    
     be happy to answer any questions.                                                                                          
                                                                                                                                
8:35 a.m.                                                                                                                       
                                                                                                                                
MR.  PEALE referred  to the  graph  presented to  members on  the                                                               
previous day that shows that  rates increased 21 percent and said                                                               
the data  from the National Council  shows that in the  last five                                                               
years,  the assigned  risk pool  direct losses  from just  claims                                                               
paid have equaled 90 percent  of premiums before all other costs.                                                               
He pointed  out that a 21  percent increase against a  90 percent                                                               
loss ratio will not break  the system; that would require another                                                               
20 percent.                                                                                                                     
                                                                                                                                
SENATOR OGAN  asked if Mr. Peale  feels the system is  broken and                                                               
could be  causing insolvencies among insurance  providers at this                                                               
time  and if  he feels  continuation of  the current  system will                                                               
compromise  the ability  of businesses  to  even obtain  workers'                                                               
compensation in the future.                                                                                                     
                                                                                                                                
MR. PEALE said a good  number of insurance companies have already                                                               
exited Alaska.  He thought the  division sent  out questionnaires                                                               
to 90  insurance companies; 27  did not respond  and 20-something                                                               
indicated  they   pulled  out  of  Alaska.   Premiums  have  been                                                               
inadequate.                                                                                                                     
                                                                                                                                
SENATOR OGAN said  building contractors can only get  so much for                                                               
a house  and that amount  is dictated  by market value.  He noted                                                               
their  workers' compensation  prices  are  skyrocketing and  have                                                               
various forces  opposing any changes. He  said workers everywhere                                                               
will  be hurt  if employers  cannot afford  workers' compensation                                                               
insurance.  Businesses will  fold, people  will lose  their jobs,                                                               
and home prices will increase.                                                                                                  
                                                                                                                                
MR. PEASE  said insurance  is the process  of spreading  risk and                                                               
providing  a  profit  to  an  insurance  company,  based  on  its                                                               
capital, which  is at  risk over  a period of  time. He  said the                                                               
market  should  be  competitive  so   that  a  lot  of  insurance                                                               
companies are offering  policies. ATIE offers policies  on a cost                                                               
basis with no profit.                                                                                                           
                                                                                                                                
MS.   BARBARA  HUFF-TUCKNESS,   Director   of  Governmental   and                                                               
Legislative  Affairs   for  the  Teamsters'  Local   959,  stated                                                               
opposition   to  SB   1002.  She   said  throughout   the  entire                                                               
legislative  process  with  workers'  compensation  [this  year],                                                               
Local 959  has been consistent  in its concerns about  the issue.                                                               
She said that the hearing  yesterday was her first opportunity to                                                               
hear about  this new 68-page  bill. It is her  understanding that                                                               
the administration  is supposed  to give  a demonstration  of the                                                               
bill to  labor participants this morning.   She asked to  cover a                                                               
few of labor's concerns:                                                                                                        
                                                                                                                                
     While the  bill, we believe,  has been drafted,  it has                                                                    
     gone  through  changes.  It  continues  to  go  through                                                                    
     changes and that  should be a concern for  not only the                                                                    
     members  of  this  committee but  I  think  the  entire                                                                    
     legislative  body.   We  seem   to  be   going  through                                                                    
     continued   draft  after   draft  and   yet  the   same                                                                    
     arguments, even with  some of these changes  - well now                                                                    
     we're flipping,  for example,  the hearing  process now                                                                    
     instead of having the lay  individuals hearing the case                                                                    
     initially  and then  going  to a  superior  court or  a                                                                    
     higher   level  of   appeal,  we   now  have   the  lay                                                                    
     individuals  that   are  deciding  some   very  serious                                                                    
     concerns  with  respect  to the  law  and  allowing  an                                                                    
     individual, i.e.  the hearing  officer or I  guess it's                                                                    
     the  administrative   law  judge  in   this  particular                                                                    
     process,  to  hear  a  case.   You're  losing  -  we're                                                                    
     concerned that by doing this you're losing continuity.                                                                     
                                                                                                                                
     As  I understood,  and we  didn't spend  a lot  of time                                                                    
     with the  most recent bill,  which of course  puts into                                                                    
     the system  the administrative  law judge  process, but                                                                    
     now  you're taking  individuals  and  having them  hear                                                                    
     cases. There is no,  I guess, specialty requirement out                                                                    
     there   or   those    requirements   for   individuals,                                                                    
     especially  the current  hearing officers  who probably                                                                    
     don't even  qualify for these particular  positions. So                                                                    
     now  you're  creating a  new  system  under this  bill.                                                                    
     You're putting  in individuals to  hear cases  who have                                                                    
     little,  if  any,  experience  and  you're  creating  a                                                                    
     system that  we believe is  going to encourage -  and I                                                                    
     think the testimony  has probably also added  to this -                                                                    
     encourage litigation.  Now is  that going  to be  for a                                                                    
     year,  two years,  until we  have everything  on record                                                                    
     out   there?  And   then  we   go  on   to  do   a  new                                                                    
     administration, new individuals  coming into the system                                                                    
     and  we start  all over  again  and that  is a  concern                                                                    
     that, at  least from organized labor's  perspective, we                                                                    
     do represent  injured workers.  We don't  represent all                                                                    
     the injured workers.  In fact, I'd like  to come before                                                                    
     you and  say that if  we had safety programs  that were                                                                    
     working  efficiently   and  effectively,   we  probably                                                                    
     wouldn't have the number of  injured workers that we do                                                                    
     right now.                                                                                                                 
                                                                                                                                
     If  we're  talking about  reducing  costs,  we need  to                                                                    
     start  looking  at what's  driving  those  costs and  I                                                                    
     think this was  in House Labor and Commerce  at the end                                                                    
     of session  there were statistics that  were introduced                                                                    
     there. The  driving force with workers'  comp costs and                                                                    
     those  rates  right now,  of  which  organized labor  -                                                                    
     Teamsters  Local and  our  trust -  we  employ over  60                                                                    
     employees. We pay, as an  employer, those workers' comp                                                                    
     costs  as  well. We  are  part  of  not only  the  cost                                                                    
     bearing, but  we also represent workers  that are going                                                                    
     through the  system. But in  looking at  those numbers,                                                                    
     the driving cost  is medical. There is  nothing in this                                                                    
     bill,  and I  would  ask anybody  in  this audience  or                                                                    
     anybody  that's  watching   television  today  to  come                                                                    
     forward  and say  that  this bill  is  going to  reduce                                                                    
     those costs  because it does nothing,  unless what this                                                                    
     system  ultimately  ends  up  doing  is  denying  those                                                                    
     rights or benefits to injured  workers. Then you're not                                                                    
     paying  those  medical  costs and  that  is  a  serious                                                                    
     concern that we have with this bill.                                                                                       
                                                                                                                                
     And I'd  like to run  through a couple of  other issues                                                                    
     as  well.   There  was   testimony  yesterday   by  the                                                                    
     administration  that they  have  taken a  look at  this                                                                    
     bill.  The new  draft addressed  concerns that  we had.                                                                    
     The de  novo review  was a concern,  is a  concern, and                                                                    
     has  continued to  be a  concern. It  is still  in this                                                                    
     bill  and  the  administration, in  drafting  this  new                                                                    
     bill, at  least never  talked with a  representative of                                                                    
     the  Teamsters. I  don't believe  anybody from  AFL-CIO                                                                    
     was  contacted. The  first that  we'd actually  seen of                                                                    
     this bill was yesterday  so there was no communication.                                                                    
     Evidently listening  to some of our  concerns, or maybe                                                                    
     our written documents that  have been submitted through                                                                    
     this process, again  all we're saying is we  want to be                                                                    
     a  part  of the  process.  We  want  to work  with  the                                                                    
     employers  out there  to take  a look  at what  are the                                                                    
     driving  costs  or  issues   out  there.  We  represent                                                                    
     injured workers  going through this process.  There has                                                                    
     not been a  complaint about the slowness  of the system                                                                    
     but yet we've  heard testimony here that  this is going                                                                    
     to  speed up  the process.  Well, if  it's a  complaint                                                                    
     then  yes, maybe  we do  need to  look at  how we  make                                                                    
     those  changes with  the  system but  at  least to  our                                                                    
     understanding, that  particular statistic has  not come                                                                    
     forward. It  has not  been a  complaint with  the folks                                                                    
     that we represent and granted,  there are a lot of non-                                                                    
     represented injured  workers in  this state  and again,                                                                    
     why is that happening. I  think what you really need to                                                                    
     do is  take a  look at where  are the  injuries. What's                                                                    
     the cost driving those and  maybe improving some of the                                                                    
     safety  programs  out  there, which  does  reduce  your                                                                    
     workers' comp costs directly.                                                                                              
                                                                                                                                
     Small  business -  we believe  that the  small business                                                                    
     owners  should   be  concerned   about  SB   1002  and,                                                                    
     specifically, and maybe there's  somebody here from the                                                                    
     administration that  can talk  about this. We  have not                                                                    
     had an opportunity  to ask and answer  questions but we                                                                    
     do  believe  that  under  Section  6,  with  the  small                                                                    
     businesses  lifting   that  surcharge  cap,   that  the                                                                    
     employers,  especially  the small  business  employers,                                                                    
     will be  paying more, not  less. I don't know  what the                                                                    
     response from the administration is on that.                                                                               
                                                                                                                                
     Let's  see, it  also  permits, under  Section 12(j)  of                                                                    
     this bill,  conflict of interest  - at least  creates a                                                                    
     potential   conflict  of   interest   for  some   state                                                                    
     employees or  former state  employees. We  also believe                                                                    
     that there  needs to be  some consistency  applied with                                                                    
     respect  to  fraud  for all  parties,  not  a  specific                                                                    
     individual or  individual claimant  out there  but from                                                                    
     employers'  medical, as  well as  employees. I  believe                                                                    
     that you  do have a  system that does address  fraud as                                                                    
     it's currently drafted.                                                                                                    
                                                                                                                                
     There's  no  change in  the  insurance  code to  better                                                                    
     protect employers against  future Fremont failures and,                                                                    
     again,  I  think  that  the  previous  speaker  did  an                                                                    
     absolutely  excellent job  in  discussing those  issues                                                                    
     and concerns. I  believe, as do many  of my co-workers,                                                                    
     the reason that this bill  was introduced to begin with                                                                    
     was nothing  more than a  message out there,  and we're                                                                    
     concerned  a bad  message for  employers that  while we                                                                    
     are going to  increase your rates by  21 percent, we're                                                                    
     also   going  to   guarantee,  through   the  Insurance                                                                    
     Guaranty Association, that we  are protected from those                                                                    
     Fremont situations - we're going  to give you this bill                                                                    
     and it's going  to be a fix for all.  We don't see that                                                                    
     fix  in this  bill and,  in fact,  we aren't  concerned                                                                    
     that the only thing that  this is doing is sending some                                                                    
     bad mixed  messages with respect  to the  workers' comp                                                                    
     and the workers' comp system.                                                                                              
                                                                                                                                
     I can  actually go on  and on and  on and I  don't know                                                                    
     that  the committee  necessarily needs  to hear  all of                                                                    
     this.  We had  Jim Sampson  - and  I believe  that each                                                                    
     member  of the  committee  did receive  a  copy of  his                                                                    
     letter yesterday -  a couple of areas.  One number that                                                                    
     was  actually disputed  in this  particular letter  and                                                                    
     I'd like  to read it  into the record, Jim  talks about                                                                    
     the workers' comp system here  - the fact that Alaskans                                                                    
     have   enjoyed   a    very,   very   healthy   workers'                                                                    
     compensation climate  for many  years that  through the                                                                    
     joint labor  and management ad  hoc committee  that met                                                                    
     in  the  '80s,  actually   saved  over  50  percent  in                                                                    
     workers' comp costs at over $400 million since 1988.                                                                       
                                                                                                                                
     Now there was  a question that was  raised yesterday. I                                                                    
     did some  checking to see where  this particular number                                                                    
     came  from. Kevin  Dougherty, who  is an  attorney that                                                                    
     represents laborers,  actually has  that number  and if                                                                    
     anyone  is  interested  in  taking a  look  at  how  we                                                                    
     actually came about  that I'd be glad  to provide that.                                                                    
     But it  goes back to I  guess the climate of  the time,                                                                    
     the  fact  that it  was  a  joint working  relationship                                                                    
     between  labor and  management that  actually addressed                                                                    
     those serious  issues and concerns with  respect to the                                                                    
     cost  out there  of  workers' compensation.  We do  not                                                                    
     believe  that this  bill  does that  at  all. We  don't                                                                    
     believe that this  was a joint effort.  We believe that                                                                    
     it  was nothing  more  than a  pacifier,  so to  speak,                                                                    
     because  of  all the  other  changes  that actually,  I                                                                    
     think  everybody  in  this room  will  sit  and  agree,                                                                    
     actually needed  to occur and  it was  very unfortunate                                                                    
     that it took the Fremont  incident to bring all this to                                                                    
     everybody's  attention.  The  fact that  the  insurance                                                                    
     rates  have not  gone up  - five  years ago  I remember                                                                    
     talking  with folks  in the  halls, looking  at, again,                                                                    
     the rates  of workers' comp  - the fact that  they have                                                                    
     not increased,  they were not  going to  increase under                                                                    
     the  previous administration  and  yet now  everybody's                                                                    
     sitting here  going we're looking at  21 percent. Well,                                                                    
     for the last eight years  there was no increase. Take a                                                                    
     look at  - there  was a  chart that  the administration                                                                    
     has circulated  that actually grabs out  amongst the 50                                                                    
     states  where  their  workers' comp  rates  are  and  a                                                                    
     question that  had been  asked -  Nevada, I  think, was                                                                    
     actually the lowest - I think  it's at least a minus 12                                                                    
     percent out  there. Has  anybody taken  a look  at what                                                                    
     the State  of Nevada  has done and  the answer  to that                                                                    
     was no.  There's been discussion  with Oregon.  On that                                                                    
     chart Oregon's  at a  - I  believe they're  probably at                                                                    
     zero. So  there was no  increase, no decrease  for this                                                                    
     particular period of time. But  there's got to be other                                                                    
     factors. State  of Nevada -  I think  everybody sitting                                                                    
     here realizes  that their economy has  been going very,                                                                    
     very  well.  There  are  a   lot  of  people  that  are                                                                    
     employed.  There are  probably a  lot of  employers out                                                                    
     there  that are  paying  into their  fund, which  would                                                                    
     tend   to  reduce   those   costs   out  there   versus                                                                    
     increasing. And, of  course, if you have  a good safety                                                                    
     program,  as all  of  the workers  are  working in  the                                                                    
     system,  then ultimately  that  also  helps reduce  the                                                                    
     cost.                                                                                                                      
                                                                                                                                
     Changing the  system we do  not believe needs  to occur                                                                    
     with  respect  to  the   hearing.  There  haven't  been                                                                    
     complaints. If  you take a look  statistically at those                                                                    
     decisions  -  50/50  with  employer/employee  decisions                                                                    
     coming back. Again,  it goes back to what  is the issue                                                                    
     and what  is it that we're  trying to fix and  we don't                                                                    
     believe that this particular bill does that.                                                                               
                                                                                                                                
CHAIR SEEKINS asked MS. Wing to testify.                                                                                        
                                                                                                                                
MS.  LORI WING,  President  of the  Alaska Independent  Insurance                                                               
Agents  and Brokers  (AIIAB),  stated support  for  SB 1002.  Her                                                               
organization works  with a variety  of employers and  has watched                                                               
rates increase over  the last few years to the  point where those                                                               
rates could  put employers out  of business. AIIAB  realizes that                                                               
some  of the  cost  increases are  due to  large  claims and  are                                                               
driven  up by  skyrocketing medical  costs but  the state  has to                                                               
address what  it can, that being  the manner in which  claims are                                                               
being handled.  She said  she couldn't  describe the  impact that                                                               
increasing   workers'  compensation   premiums   are  having   on                                                               
employers in the  state. Some of those premiums  have doubled. If                                                               
those employers cannot find some  relief, they will be forced out                                                               
of  business,  which  will  have  a  devastating  effect  on  the                                                               
economy. The AIIAB  does not want to take away  any benefits from                                                               
injured  workers, but  the problem  of increasing  rates must  be                                                               
addressed somehow.                                                                                                              
                                                                                                                                
TAPE 04-72, SIDE B                                                                                                              
                                                                                                                                
MS.  WING said  that  SB  1002 is  the  first  step and  repeated                                                               
support for the bill.                                                                                                           
                                                                                                                                
MR. JOHN  GUICHICI, IBEW, Fairbanks, said  Mr. Lundeen emphasized                                                               
how  labor  and industry  got  together  in  Oregon and  came  to                                                               
consensus  on   workable  situations.  He  pointed   out  that  a                                                               
similarly concerted  effort has  been virtually absent  with this                                                               
legislation.  He said  the lay  board,  in the  process of  early                                                               
determination, has been removed  again. He personally thinks when                                                               
these  cases  go  before  an  administrative  law  judge  without                                                               
involvement of the layperson who  is familiar with the workforce,                                                               
delays in  resolution will  occur and  ultimately be  more costly                                                               
because of  probable litigation.  Disputes should be  resolved at                                                               
the  lowest level  with people  who  are familiar  with the  work                                                               
place; turning  it over to  an administrative law judge  will not                                                               
do that.  Also absent in  the bill are transition provisions with                                                               
the current  staff within the workers'  compensation division. He                                                               
questioned why those workers were  eliminated in SB 1002 and said                                                               
he believes it  is only fair that those people  are considered as                                                               
they  have been  doing a  good job.  The reversal  rate on  their                                                               
decisions is one-third  of the reversal rate in  other states. He                                                               
said,  regarding  the  de  novo   review,  any  decision  can  be                                                               
overturned  with little  regard for  the merits  of the  case and                                                               
that is unfair.  He expressed concern that SB 1002  has flaws and                                                               
that people should  have more than one or two  days to review it.                                                               
He repeated  that it is  imperative that labor and  industry work                                                               
together to come up with a satisfactory bill.                                                                                   
                                                                                                                                
SENATOR   FRENCH  referred   to   the  four   fiscal  notes:   an                                                               
indeterminate fiscal  note from the Division  of Risk Management;                                                               
a fiscal  note with  a net  increased cost  of $415,000  from the                                                               
Department  of Labor  and Workforce  Development;  a fiscal  note                                                               
from  Centralized Administrative  Services  with  an increase  of                                                               
$826,000 the first  year and $770,000 in subsequent  years; and a                                                               
fiscal note from  the court system projecting  increased costs of                                                               
$188,000. He  questioned the large  fiscal note  from Centralized                                                               
Administrative Services.                                                                                                        
                                                                                                                                
MR. GUY BELL, Division of  Administrative Services, Department of                                                               
Labor and Workforce Development, said  the answer is technical in                                                               
nature. He explained:                                                                                                           
                                                                                                                                
     You'll  notice   that  the   funding  source   for  the                                                                    
     Department  of Labor  and Workforce  Development fiscal                                                                    
     note  of  $415,000  is  the  workers'  safety  account.                                                                    
     Included  in  that  fiscal  note   is  a  reduction  in                                                                    
     personal  services  and   an  increase  in  contractual                                                                    
     services. 100  percent of the  cost of the  fiscal note                                                                    
     for  the   Department  of  Administration  is   in  the                                                                    
     contractual services budget in  the labor and workforce                                                                    
     development  fiscal note.  So, you'll  notice that  the                                                                    
     funding source  for the Department  of Administration's                                                                    
     fiscal note  is interagency receipts so  basically what                                                                    
     we're  indicating  is  that the  workers'  compensation                                                                    
     commission, the new commission,  will contract with the                                                                    
     Office  of Hearings  and Appeals  in the  Department of                                                                    
     Administration for  the services of  the administrative                                                                    
     law judges  so it's  not a net  increase in  cost, it's                                                                    
     just  a demonstration  that some  of the  cost of  this                                                                    
     program will actually be incurred  in the Department of                                                                    
     Administration.                                                                                                            
                                                                                                                                
SENATOR  FRENCH thanked  Mr. Bell  for the  explanation. He  then                                                               
asked if  the labor  costs and  the court  system costs  would be                                                               
general fund costs.                                                                                                             
                                                                                                                                
MR. BELL said  the funding source for the Department  of Labor is                                                               
the  workers' safety  account, which  has  sufficient funding  to                                                               
cover this  cost. The workers'  safety account was  designated by                                                               
the legislature and  is the result of  receipts from self-insured                                                               
and workers' compensation insurers,  collected by the Division of                                                               
Insurance. It is  a component of the total rates  directed to the                                                               
workers' safety  account for the  cost of  administering workers'                                                               
compensation programs.                                                                                                          
                                                                                                                                
SENATOR FRENCH asked if that account is funded by the industry.                                                                 
                                                                                                                                
MR. BELL said that is correct.                                                                                                  
                                                                                                                                
SENATOR FRENCH replied, "That's still  a cost to industry so it's                                                               
not as if they're experiencing  a savings. Their rates still have                                                               
to reflect that cost."                                                                                                          
                                                                                                                                
MR. BELL again said that is correct.                                                                                            
                                                                                                                                
SENATOR  FRENCH asked  if the  $188,000 for  the court  system is                                                               
from   general  funds   and  the   $415,000  is   from  insurance                                                               
surcharges.                                                                                                                     
                                                                                                                                
MR. BELL agreed.                                                                                                                
                                                                                                                                
SENATOR   THERRIAULT  asked   if   the  ongoing   cost  for   the                                                               
administration is $295,000 of new expenses.                                                                                     
                                                                                                                                
MR. BELL said  there is a one-time cost of  about $140,000, which                                                               
involves  moving  staff  and office  reconstruction  due  to  the                                                               
required  separation  of offices.  The  ongoing  net increase  in                                                               
cost, outside of the court system, is estimated to be $295,000.                                                                 
                                                                                                                                
SENATOR THERRIAULT asked to be  reminded of the ongoing costs for                                                               
SB 311.                                                                                                                         
                                                                                                                                
MR. BELL said they were $554,000, so this amounts to about half.                                                                
                                                                                                                                
CHAIR SEEKINS said  the Senate Finance Committee  will review the                                                               
fiscal notes and consider additional amendments.                                                                                
                                                                                                                                
SENATOR  THERRIAULT  asked  the   administration  to  respond  to                                                               
comments made by witnesses today.                                                                                               
                                                                                                                                
MR.  SCOTT NORDSTRAND,  Deputy  Attorney  General, Department  of                                                               
Law, said he  would defer the insurance comments to  Ms. Hall but                                                               
would clarify a few other comments that were made. He began:                                                                    
                                                                                                                                
     In  terms  of  there  being no  requirements  that  the                                                                    
     administrative law  judges have  special expertise  - I                                                                    
     think that  was mentioned earlier  by one witness  - if                                                                    
     you look at Section 60 of  the bill, this is a specific                                                                    
     provision that  in addition to  the requirements  to be                                                                    
     in the  administrative law judge cadre,  they also must                                                                    
     have three  years of  experience in  this state  in the                                                                    
     field of  workers' compensation law or  a similar field                                                                    
     of  practice. That's  the identical  language that  was                                                                    
     used in  SB 311  and I think  most found  acceptable to                                                                    
     ensure  that, in  that case,  a  hearing examiner  with                                                                    
     sufficient qualifications. Literally  all we've done is                                                                    
     taken  that  hearing examiner  from  [SB]  311 and  put                                                                    
     those  duties   with  the   central  panel   to  ensure                                                                    
     independence  and to  go  along with  the  flow, so  to                                                                    
     speak, of the new system. So that's one thing.                                                                             
                                                                                                                                
     There was  some suggestion that somehow  when there's a                                                                    
     new  administration that  the  system  would all  start                                                                    
     over and  ... case law  would run amuck ...  that there                                                                    
     would  be  new  decisions. Remember,  by  operation  of                                                                    
     statute,  the terms  of the  five folks  on this  panel                                                                    
     will be staggered with five  year terms. If you look at                                                                    
     the  current workers'  compensation board,  you'll see,                                                                    
     as  I  understand  it,   there  are  three-year  terms.                                                                    
     They're also  staggered and also  are appointed  by the                                                                    
     governor and  confirmed by the legislature  in the same                                                                    
     way. In fact, by making  them five-year terms we could,                                                                    
     in fact, have  maybe a little bit  more continuity, not                                                                    
     less  or at  least there  is the  staggering so  that's                                                                    
     important to note.                                                                                                         
                                                                                                                                
     And then  there was a  mention about the  current staff                                                                    
     at  the   division  and  there  not   being  transition                                                                    
     provisions for  them into this  new process.  We simply                                                                    
     went with the  methodology that was used in  SB 203, as                                                                    
     I understand it,  and all of those  folks are certainly                                                                    
     capable  and   certainly  can  apply.  The   only  real                                                                    
     limitation  -   obviously  all   the  folks   that  are                                                                    
     presently working  for the division and  doing hearings                                                                    
     have lots  of experience  in workers'  comp -  the only                                                                    
     limiting  factor  will  be  that  they'll  have  to  be                                                                    
     admitted to practice  law and I don't want  to get into                                                                    
     the specifics but I understand  there are some that are                                                                    
     admitted to  practice law  in there  - maybe  some that                                                                    
     aren't and if  they choose to become  qualified in that                                                                    
     way  they can  apply  for these  positions like  anyone                                                                    
     else. That's exactly the same  system, I think, that SB
     203  contemplated  because  we   are  talking  about  a                                                                    
     significant   increase  in   pay.   It's  a   different                                                                    
     position. It's going from a range  21 to a 24, which is                                                                    
     consistent with  what the central  panel is  paying the                                                                    
     administrative  law  judges so  I  think  that's all  I                                                                    
     heard.  Linda maybe  wants to  mention something  about                                                                    
     the insurance rate increase issues.                                                                                        
                                                                                                                                
MS. HALL asked to address a few comments made earlier. Regarding                                                                
the rate increases, she explained that over the last five years,                                                                
the rate increases were as follows:                                                                                             
                                                                                                                                
     In the year 2000, the  rate increase was zero but there                                                                    
     was a  benefit change  that resulted  in a  7.9 percent                                                                    
     [increase];                                                                                                                
                                                                                                                                
     In the year 2001, the rate increase was zero;                                                                              
                                                                                                                                
     In the year 2002, the rate increase was 10.2 percent;                                                                      
                                                                                                                                
     In the year 2003, the rate increase was 3.5 percent.                                                                       
                                                                                                                                
She  pointed to  a graph  and explained  that beginning  in 1988,                                                               
rates started to go up. She said  a phrase was added to Section 6                                                               
of SB 1002. The legal drafters  changed the language to make sure                                                               
the director's  approval provision  applies to  rates and  not to                                                               
the factors that  are used for rate making,  which are prescribed                                                               
in  statute.  She  said  burdens  on  insurers  have  created  an                                                               
unhealthy environment;  one of those  burdens is the loss  in the                                                               
assigned  risk pool  and  another is  the  reallocation to  those                                                               
businesses   that  remain.   She   said  that   she  agrees   the                                                               
reallocation is a  burden but disagrees with putting  that in the                                                               
Guaranty  Fund. That  will put  a traditional  insurer obligation                                                               
into the Guaranty Fund for policyholders to pay. She continued:                                                                 
                                                                                                                                
     We  did  just put  into  law  the ability  to  increase                                                                    
     assessments up  to four percent. That  goes directly to                                                                    
     the cost  of workers' comp  for employers and  I cannot                                                                    
     advocate doing  something else that increases  the cost                                                                    
     to employers so  I have not supported that.  I think we                                                                    
     need to find ways to deal  with that but not by putting                                                                    
     it in the  Guaranty Fund. That's not done  in any other                                                                    
     state. It is a specific  exclusion in the guaranty fund                                                                    
     statutes of every other state.                                                                                             
                                                                                                                                
SENATOR OGAN questioned whether Section  6 is the bottom line and                                                               
will increase costs to businesses.                                                                                              
                                                                                                                                
MS. HALL said it could increase costs. She explained:                                                                           
                                                                                                                                
     If we make  the assigned risk pool  self funding, right                                                                    
     now there is  a statutory cap and  actually Section 111                                                                    
     of  this bill  removes that  25 percent  statutory cap.                                                                    
     This provision is more of  a proactive statement asking                                                                    
     that -  requiring that  the pool  be self-funding  on a                                                                    
     three-year  average. I  will tell  you three  years ago                                                                    
     there  was a  filing  made by  the  NCCI that  proposed                                                                    
     increasing the assigned risk pool  rates by 70 percent.                                                                    
     I  don't think  -  that was  obviously  not approved  -                                                                    
     could  not be  approved under  our current  statutes. I                                                                    
     don't  think anyone  would  ever anticipate  increasing                                                                    
     the assigned  risk pool  rates 70  percent but  it's an                                                                    
     indication  of how  severely under-funded  the assigned                                                                    
     risk pool has been.  It could potentially increase, and                                                                    
     I think would, at least  for a period of time, increase                                                                    
     rates above the  25 percent statutory cap.  So there is                                                                    
     a potential.  Probably 85 percent of  the pool policies                                                                    
     are small  businesses and, by  small I think  I've used                                                                    
     statistics  with   this  group,  we're   talking  under                                                                    
     $10,000  in   premium.  The  average  premium   in  the                                                                    
     assigned risk pool  is $864. The average  claim cost is                                                                    
     $19,363. That's where the discrepancy  comes from is in                                                                    
     the  average  premium  that's  very,  very  small.  Our                                                                    
     average  claim costs  in  Alaska  are reasonably  high.                                                                    
     They are higher than the national average.                                                                                 
                                                                                                                                
     Now that  $864 premium won't  go up to pay  the $19,000                                                                    
     but they  will go  up to overall  make that  pool self-                                                                    
     funding.                                                                                                                   
                                                                                                                                
CHAIR  SEEKINS said  he was  pleased  to hear  about the  planned                                                               
meeting between the administration and labor representatives.                                                                   
                                                                                                                                
SENATOR THERRIAULT asked Mr. Nordstrand how  much of SB 1002 is a                                                               
rewrite of  SB 311. He  pointed out that the  chairman encouraged                                                               
the Department of  Law to meet with labor  representatives in the                                                               
process  used with  SB  311 and  asked  how much  of  SB 311  was                                                               
carried forward.                                                                                                                
                                                                                                                                
MR.  NORDSTRAND   said  a  couple  of   the  technical  insurance                                                               
provisions in SB  1002 are new, as well as  the fraud section. He                                                               
continued:                                                                                                                      
                                                                                                                                
     Beyond that, everything is the  same with the exception                                                                    
     of the structure for a  hearing being instead of with a                                                                    
     panel of lay  members and the hearing  examiner with an                                                                    
     administrative law judge and  the commission having lay                                                                    
     members  and   a  single   attorney.  The   roles,  the                                                                    
     standards  of  review,  the methods,  the  division  of                                                                    
     duties between the director now  and the commission and                                                                    
     the  other entities  essentially dividing  judging from                                                                    
     administering, all  of that is identical.  So it really                                                                    
     is  just that  as  what was  described  as flipping  of                                                                    
     where the lay participation happened and that's it.                                                                        
                                                                                                                                
SENATOR THERRIAULT  said recognizing  that the fiscal  notes need                                                               
to  be reviewed  by the  Senate Finance  Committee, he  will make                                                               
that referral today.  He then moved to pass SB  1002 and attached                                                               
fiscal notes from committee with individual recommendations.                                                                    
                                                                                                                                
SENATOR FRENCH objected.                                                                                                        
                                                                                                                                
CHAIR SEEKINS  said he  feels comfortable that  the bill  will be                                                               
thoroughly  discussed in  the Finance  Committee  and hopes  that                                                               
some consensus will come from the meeting between the                                                                           
administration and labor representatives this morning.                                                                          
                                                                                                                                
SENATOR  OGAN stated  that his  desire for  workers' compensation                                                               
reform is based on the hope  that the cost of doing business will                                                               
be  lowered.  He  pointed  out that  he  remains  concerned  that                                                               
Section 6 will increase the cost of doing business.                                                                             
                                                                                                                                
CHAIR SEEKINS agreed with Senator Ogan.                                                                                         
                                                                                                                                
The motion to pass SB 1002 with attached fiscal notes passed                                                                    
with Senators Therriault, Seekins and Ogan in favor, and                                                                        
Senators French and Ellis opposed.                                                                                              
                                                                                                                                
CHAIR SEEKINS adjourned the meeting at 9:22 a.m.                                                                                

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