Legislature(1997 - 1998)
03/25/1997 01:30 PM Senate L&C
* first hearing in first committee of referral
= bill was previously heard/scheduled
= bill was previously heard/scheduled
SENATE LABOR AND COMMERCE COMMITTEE March 25, 1997 1:30 P.M. MEMBERS PRESENT Senator Loren Leman, Chairman Senator Mike Miller Senator Tim Kelly Senator Lyman Hoffman MEMBERS ABSENT Senator Jerry Mackie COMMITTEE CALENDAR Confirmation Hearings: Board of Barbers and Hairdressers Ms. Rosalyn Wyche - Anchorage Ms. Sheryl Sutton - Juneau SENATE BILL NO. 89 "An Act relating to regulation of barbers and hairdressers; extending the termination date of the Board of Barbers and Hairdressers; and providing for an effective date." - MOVED CSSB 89(L&C) OUT OF COMMITTEE SENATE BILL NO. 137 "An Act exempting certain volunteer emergency medical technicians and volunteer fire fighters from state wage and hour laws; and providing for an effective date." - MOVED CSSB 137 OUT OF COMMITTEE SENATE BILL NO. 104 "An Act relating to regulation and examination of insurers and insurance agents; relating to kinds of insurance; relating to payment of insurance taxes and to required insurance reserves; relating to insurance policies; relating to regulation of capital, surplus, and investments by insurers; relating to hospital and medical service corporations; and providing for an effective date." - HEARD AND HELD PREVIOUS SENATE COMMITTEE ACTION SB 89 - No previous action to consider. SB 137 - No previous action to consider. SB 104 - No previous action to consider. WITNESS REGISTER Ms. Mariann Stoffel, Chairman Board of Barbers and Hairdressers 1352 Pioneer Peak Dr. Wasilla, AK 99654 POSITION STATEMENT: Supported the CSSB 89. Ms. Barb Gabier, Program Coordinator Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, AK 99811-0806 POSITION STATEMENT: Supported CSSB 89. Mr. Craig Lewis Interior Region Emergency Medical Services Council 3522 Industrial Ave. Fairbanks, AK 99701 POSITION STATEMENT: Supported SB 137. Mr. Randy Carr, Chief Division of Labor Standards Department of Labor P.O. Box 107021 Anchorage, AK 99510-7021 POSITION STATEMENT: Supported SB 137. Ms. Martha Moore Division of Community Health and Emergency Medical Services Department Health and Social Services P.O. Box 110610 Juneau, AK 99811-0610 POSITION STATEMENT: Supported SB 137. Ms. Virginia Mccarthy P.O. Box 303 Tok, AK 99780 POSITION STATEMENT: Supported SB 137. Mr. Dwight Perkins, Special Assistant Department of Labor P.O. Box 21149 Juneau, AK 99802-1149 POSITION STATEMENT: Commented on SB 137. MS. Annette Kreitzer, Staff Senator Leman State Capitol Bldg. Juneau, AK 99811-1182 POSITION STATEMENT: Commented on SB 89 and SB 137. Ms. Marianne Burke, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, AK 99811-0805 POSITION STATEMENT: Gave overview and supported SB 104. Mr. Kevin Smith Risk Manager Alaska Municipal League 217 2nd Juneau, AK 99801 POSITION STATEMENT: Supported SB 104. Mr. Reed Stoops Aetna 240 Main Street, #600 Juneau, AK 99801 POSITION STATEMENT: Commented on SB 104. ACTION NARRATIVE TAPE 97-13, SIDE A Number 001 SB 89 BARBERS AND HAIRDRESSERS CHAIRMAN LEMAN called the Senate Labor and Commerce Committee meeting to order at 1:30 p.m. and after no response from Ms. Wyche, Board of Barbers and Hairdressers, announced SB 89 to be up for consideration. MS. MARIANN STOFFEL, Board of Barbers and Hairdressers, thanked Senator Leman for contacting her about the meeting today and said the Board supported the version of the bill with two licensed barbers and two licensed hairdressers, one of which was also a licensed cosmetologist. SENATOR MILLER moved to adopt the Lauterback 3/24/97 2\E version. There were no objections and it was so ordered. MS. BARB GABIER, Program Coordinator, Division of Occupational Licensing, said she supported the CS. SENATOR MILLER moved to pass CSSB 89(L&C) from committee with individual recommendations. There were no objections and it was so ordered. SB 137 EXEMPT VOL. EMT/FIRE FGTR WAGE & HOUR LAW CHAIRMAN LEMAN announced SB 137 to be up for consideration. MS. ANNETTE KREITZER, Staff to Senator Leman, explained that SB 137 is a result of problems that some volunteer organizations, EMS and fire fighting organizations in particular, are having with determining what is an employee and what is not an employee. MR. CRAIG LEWIS, Interior Region Emergency Medical Services Council, supported SB 137. The State's definition of employer/employee is more restrictive than the Federal Labor and Standards Act (FLSA)'s definition. Exemptions include religious organizations, cemetery workers, and educational organizations to name a few, but exclude humanitarian agencies or EMTs or other volunteers. This causes problems in terms of determining whether a person is really a volunteer or an employee. If a person is told when to come to work, is provided with a uniform, is provided with a vehicle to respond from, is provide the supplies and materials to do the job, and then also receives pay in some form (although that pay is just reimbursement from their own pocket to buy medical supplies or gasoline), that customarily causes an interpretation to be made by the wage and hour folks that that person is really an employee when, in fact, the entire intention of that individual is to volunteer. It is hard to recruit people because of this problem and makes it difficult from an organizational basis for there to be private, non-profit corporations to help with the administrative load to then be, in turn, identified as employers and then be encumbered with the large list of regulatory mandates they have to include like worker's compensation. MR. LEWIS said he has communicated with the Department of Labor in Fairbanks and this is their language. Number 192 MR. RANDY CARR, Department Labor, said this bill primarily affects those private non-profit organizations that provide fire and rescue squad services in some of the less populated areas of the State. About seven of those organizations would be affected by this bill. The private non-profit organizations are at a disadvantage because all the other volunteer fire departments and rescue operations are under the auspicious of a political subdivision and they already enjoy an exemption from the State Wage and Hour Act. He noted that they do not have any wage claims against the private for-profit entities; nor have they had any because they try to work with them. MS. MARTHA MOORE, Community Health and Emergency Medical Services, said they supported SB 137. Number 226 MS. VIRGINIA MCCARTHY, Tok EMS, said their Chief, Tom Dean, had to make an unexpected run to Fairbanks, and she was filling in. She explained that they make Anchorage and Fairbanks runs; the Fairbanks run takes 8 - 10 hours and the Anchorage run takes 12 - 15 hours and it's all voluntary. SENATOR KELLY asked how this interacts with the Worker's Compensation statute. MR. DWIGHT PERKINS, Department of Labor, said he would have to check to see if there is a correlation between the two. He didn't think there would be a problem. MS. KREITZER noted that she checked with the drafter and the Department of Labor and there isn't any impact on Worker's Compensation. SENATOR MILLER moved to pass SB 137 from committee with individual recommendations. There were no objections and it was so ordered. SB 104 OMNIBUS INSURANCE REFORM CHAIRMAN LEMAN announced SB 104 to be up for consideration. MS. MARIANNE BURKE, Director, Division of Insurance, testified that SB 104 is designed to bring some efficiency and effectiveness to a number of existing sections in the code, to eliminate some unintended barriers that had been created over the years, to add some clarification, remove some redundancy, and to even the playing field for insurers doing business in the State of Alaska. The first section recognizes the fact that the Division of Insurance routinely requests input from volunteers from industry, the community, and producers. Historically they have served on task forces at no cost to the Division and they might be challenged on that unless the intent was clarified to not pay transportation and per diem, etc. to these individuals. In many cases these people are paid for their time and expenses by the industry. This will just clarify what is and has been the practice for many years. Section 2 requires their annual report to contain certain information and is amended to reflect current practices which are far more complete and detailed. CHAIRMAN LEMAN apologized for the interruption to MS. BURKE and said they had Ms. Wyche on teleconference for the Board of Barbers and Hairdressers. Number 334 MS. ROSALYN WYCHE said she had been doing hair for the last 18 years and it's something she really loves and she thought she could bring her experience and expertise to the Board. CHAIRMAN LEMAN asked her if there were any issues the legislature should hear about. MS. BURKE replied that there were none. CHAIRMAN LEMAN thanked her and said her confirmation would be taken up at a joint session of the legislature. MS. BURKE said section 3 deals with the cost of the examination given to insurers. This section recognizes what is currently being done which is paying properly documented out-of-pocket expenses and allows the Division to charge for a portion of the overhead that occurs in the examination process. Sections 4 and 5 address premium tax, which approaches $30 million to the general fund, and is collected by the Division of Insurance on March 1 of each year. It was determined that by moving the collection date to a quarterly basis, as well as recognizing technology, and allowing electronic transfers of the funds, the State would be able to generate a significant amount of interest income. She added that she has personally talked to every "domestic" in the State and they have all known it was inevitable that they would pay on a quarterly basis. This is the norm in other states. Based on current rates of interest, this translates into more than $450,000 of interest revenue to the State each year. CHAIRMAN LEMAN asked if any companies were unable to make the transfer electronically. MS. BURKE replied that there were none. Section 6 just updates the statute and requests that if anyone holds a certificate of authority to do business in this State, that they provide the division with current information. There is currently no requirement on the books to inform the division of changes in Articles of Incorporation, addresses, etc. They feel that in order to regulate they need to know where the people are located that they are regulating. Number 403 Section 7 spells out that all insurers must retain their records and they must be available for examination. Currently, all domestics are subject to this and they are just requesting that it is extended to all insurers who do business up here. This is consistent through-out the states. Section 8 basically requires that an alien insurance company who wants to do business in Alaska must get a particular certification from their country. They found that only one country provides that certification, the U.K., and it was never the intention to exclude every other insurer in the world. She pointed out that they are still subject to certification by their independent auditors and independent verification. It is not their intent to treat one country differently from another. Section 9 defines the fact that stop loss insurance is health insurance which is a barrier they have in statute. Right now only property and casualty companies can write stop loss insurance and it is a very frequently used form of insurance in health. SENATOR KELLY asked her to define stop loss insurance. MS. BURKE explained it means that an individual or company can decide they will cover all of their losses up to some predetermined amount, then they want to be insured for everything that goes over that amount. SENATOR KELLY asked if it was like reinsurance. MS. BURKE said there were some significant differences in that this will never kick in unless you hit a specific dollar amount on each claim or in the aggregate. SENATOR KELLY asked if the State receives the 2.7% premium tax on stop loss insurance. MS. BURKE replied that now we do not unless it is reported by the company. There is a massive debate going on in the states on whether or not stop loss is insurance. However, the division is defining it as insurance. SENATOR KELLY asked if they currently regulate self insureds. MS. BURKE replied no, that they are preempted by ERISA. SENATOR KELLY asked if stop loss insurance was defined as insurance, would they begin to regulate the self-insureds. MS. BURKE answered no, and said it is specifically designed not to do that because they would run head on into the federal preemption. She noted that right now it is not legal to buy stop loss insurance in the State of Alaska that is sold by a health writer. But they do it and it's a common practice. She can see no regulatory reason why the State should hang the availability on a technicality like that. SENATOR KELLY asked if the legislature defined stop loss insurance as insurance, would the Division be able to collect the 2.7% premium tax. MS. BURKE said she couldn't answer that definitively, but she would pursue the legality of doing that without bringing down the preemption of the federal government. She said she has been in contact with other states on this issue and the problem has been the dollar amount at which it becomes insurance. For instance at $250 it becomes merely a deductible. There have been a number of cases heard in court and so far they have all gone against the states and for as high as $10,000. She said they are continuing to push this through the NAIC. SENATOR KELLY asked if they passed this would they still have to go to court to try to collect the premium tax. MS. BURKE responded that passing this would help. CHAIRMAN LEMAN asked if the $10,000 was per person per incident or per year, or what. MS. BURKE replied that the case she was citing was in Illinois and was $10,000 per occurrence. Number 475 Section 10 defines the stop loss as she has just discussed with them. Section 11 brings some efficiencies by deleting the need for the Division to formally request a risk based capital report. She said they need one every year. Section 12 also brings some efficiencies by making it clear that instructions for filing a risk based capital report that are adopted by the NAIC are the ones that should be used instead of doing instructions by regulation every year. CHAIRMAN LEMAN asked what supplemental information the director might request on these filings. MS. BURKE said there is some State specific information they request. For example they require that the companies let them know of investments in the State of Alaska. CHAIRMAN LEMAN asked if there had been any challenge regarding the risk based capital instructions. MS. BURKE replied no and most states are moving toward this more efficient way of doing business. Section 13 sets up minimum reserves for health insurance. Sections 14 and 15 are highly technical actuarial requirements for the policy and claims reserves. She noted that some claims are not filed and they should be accounted for. SENATOR KELLY said regarding section 14 he gets awfully nervous when something is repealed and reenacted and there's generally a reason for that like a major change that someone doesn't want you to see. He asked if this section conforms to provisions of other states or is it special to Alaska. MS. BURKE replied that this is a minimum standard in all the states. Section 16 is to assist the domestics because there is nothing in statute that requires the custodian of a trust to indemnify the insurer if there's a loss from theft, defalcation, or negligence and this requires the custodian to replace the asset or the value of that asset. It additionally provides that a bank, a trust company, or a securities firm may serve as a custodian if it's authorized by the insurer and approved by the director. CHAIRMAN LEMAN asked what the difference was between defalcation and embezzlement. MS. BURKE said for both it gets down to the fact that it has been misappropriated. She said she would get the definitions to him. TAPE 97-13, SIDE B MS. BURKE said that Section 17 is an editorial revision. Section 18 removes a redundancy. It clarifies that an attorney-in- fact of a reciprocal insurer who meets the qualifications to be exempt from licensure as an attorney-in-fact is not required to be licensed again under AS 21.27. CHAIRMAN LEMAN asked if Section 17 has created any challenges. MS. BURKE said it did not. Section 19 codifies a current procedure that requires an applicant to certify under oath that the information provided on a license application is true and correct. CHAIRMAN LEMAN asked if this took in to account certain religious beliefs against swearing. MS. BURKE responded that they use the word "oath" to avoid that. Section 20 says if you are a licensee there are certain requirements that you can't do kick-backs, but they want it to apply to all people, not just licensees. So they want to change the word "licensee" to "person." She said they have had one complaint where that was the case. Section 21 conforms temporary licensing procedures with what's necessary to issue the temporary license under the welfare reform bill that was passed last year. Section 22 updates procedures to allow the director the flexibility to provide service of notice to a person in the most effective and efficient way. Right now they are required to serve notice with a certificate of mailing. Section 23 asks for authority to fine a person who illegally transacts business of insurance in Alaska. She said that usually industry informs them of this, but they have no recourse other than to ask them politely to please not do that. CHAIRMAN LEMAN asked what happened if the financial benefit involved more than $25,000. MS. BURKE said there were several things that could happen. If they are licensed in another state, which is usually the case, they notify the other state which takes action against them. If they are just an individual who is not licensed in any state, there isn't any way they can take action on an administrative level. However, they can be reported to appropriate authorities for criminal prosecution if they took the money under false pretenses. Section 24 is another catch-22 they have discovered. Third-party administrators are an organization that provides administrative services to a self-insured entity and are currently required to have two-years of audited financial statements before they can be licensed in the State. There are a number of entities that are spin-offs from highly reputable companies that have not been in business for two-years and are precluded from coming into the State of Alaska. They want to remove that barrier and apply the same rigorous review process they do to any licensee and have them provide them with financial statements for all the time they have been in business. Section 25 establishes solvency requirements for each syndicate or insurer of Lloyds or a similar operation. Right now if a syndicate is going to do business in the U.S., they must have in trust in an American Bank the equivalent of the premium dollars spent so it won't be tied up in a foreign court. Number 456 Section 26 clearly indicates that if you are part of a syndicate that's part of an insurance exchange, the change in the name from Lloyds to syndicates does not get you out of the requirements. Sections 27 and 28 addresses the premium tax issue and applies to surplus lines tax of 1% which is in addition to the 2.7% premium tax. They would like it collected on a quarterly basis and with electronic payments. She explained that surplus lines are usually paid as incurred and many of them pay electronically now. SENATOR KELLY asked if industry disagreed with these two prepay provisions. MS. BURKE said she has had no complaints at all; they are already set-up to pay on a quarterly basis. Some states do it on a monthly basis. Section 29 is to replace a generic term with a specific term. Section 30 incorporates a requirement established by the NAIC Model Unfair Trade Practices Act for an insurer to maintain records regarding the complaints it receives. The record will assist the division in evaluating an insurer's consumer practices. Section 31 clarifies that an insurance policy may only be non- renewed on an anniversary date. This applies to property and casualty. Section 32 states that rates on personal auto insurance cannot be changed more often than every six months even if its written for a shorter term and says that an anniversary period is one year six months. SENATOR KELLY asked what happens in the case of a DWI. MS. BURKE replied your rates would go up at renewal time. Section 33 adds a requirement that insurers and other licensees report producer defalcations, embezzlements, or violations to the director in much the same manner as currently is required for reporting claim fraud. Currently, licensees are not required to report. Section 34 clarifies that the credit scale recognizing differences in wages paid applies only to the construction industry. SENATOR KELLY asked what the purpose was. MS. BURKE explained that construction workers, because of their high wages and their overtime, were actually paying higher worker's comp premiums than would be indicated based on their risk basis. She said the construction industry pushed for this section. Section 35 clarifies that rates for individual health insurance are not subject to approval consistent with current statutes that do not provide a mechanism or guidelines for such rate review. They do review, as required by federal law, the medicare supplemental insurance. Section 36 requires that benefits provided under health insurance contracts be coordinated. This coordination is applicable only when an individual is covered under more than one health insurance contract. This will help prevent individuals receiving reimbursement from more than one company for the same thing. She explained that companies have the data bases already. If it's big dollars, they coordinate. She said industry is very embarrassed about this when it's pointed out. Section 37 clarifies that insurance coverage changes required by a law change become effective at renewal unless the law provides an earlier effective date for the changes. Number 225 Section 38 requires that rates for group health insurance contracts not be excessive, inadequate, or unfairly discriminatory to provide a consistent standard for all group health insurers. SENATOR KELLY asked who makes the determination of unfairly discriminatory. MS. BURKE replied that insurance by its nature is discriminatory and there are some discriminatory actions that are permitted by statute, like a 17-year old male driver or a 55-year old driver, for instance. You can't be unfairly discriminatory; it has to have a statistical basis to spread risk. Section 39 allows the director to determine the method of payment of premium taxes to reflect technology changes such as electronic payments and to collect premium taxes quarterly. Section 40 adds investment income as one of the elements to be considered when evaluating the rates charged by title insurers. Section 41 is specifically for a domestic insurance company located in Barrow, but their business address is in Anchorage. The law says they must have their annual meeting where their principal business is conducted. They have asked to have it in Barrow and this section would allow the director, upon showing of good cause, to allow an annual to be held in another location within the State. Section 42 requires director approval for an insurer to borrow funds when a written agreement requires that the money be repaid only out of the insurer's excess surplus and removes permission for an insurer to borrow money in this manner for any purpose of the insurer's business. Section 43 expands the exception for being licensed as an attorney- in-fact to all reciprocal insurers. TAPE 97-14, SIDE A Number 001 The exemption is allowed when the attorney-in-fact is a wholly- owned subsidiary of the reciprocal insurer who only acts for the one reciprocal. Attorneys-in-fact who operate more than one reciprocal insurer must be licensed under this section. Section 45 allows for the report filed by the joint insurance arrangement with its board of directors and the director to be an audit based on generally accepted accounting principles rather than requirements established by the director. A report filed with the director is open to public inspection unless specifically precluded by statute. Section 46 extends the period of disapproving claims to 120 days. She said this language was developed by the NAIC and has been enacted in many states to reduce litigation over claims. Sections 47 and 48 update terminology to reflect the fact that there are some managed care compensation arrangements. Number 100 Section 49 conforms filing requirements for medical and hospital service corporations to similar requirements for their insurers subject to form filing. Section 50 allows the director discretion to protect medical and hospital service corporations from competitive disadvantage that may arise from disclosing rating formulas when other health insurers are not required to file rates for approval and disclose rating formulas. Section 51 requires that hospital or medical service corporations have minimum reserve standards and reporting consistent with other health insurers. Section 52 clarifies that the requirements of AS 21.36.210 - 21.36.310 do not apply to seven-day policies. Section 53 is important for Alaskans, because some insurance companies are saying they are not issuing policies, but they are issuing certificates of insurance and, therefore, they are not subject to Alaska's Title 21. Title 54 specifies what "certified financial statement" means in licensing requirements. MR. KEVIN SMITH, Risk Manager, Alaska Municipal League Joint Insurance Association, supported a proposed amendment to section 45 which would be impossible to comply with if adopted as written because 60-days is an inadequate amount of time for the actuaries to do their magic. He suggested either picking December 1 of each year which would be easy for them to comply with or to pick a number like 150-days as a time to provide an annual report to the Division of Insurance. CHAIRMAN LEMAN asked if there were any other anticipated changes. MS. BURKE replied that they supported 150-days because it would depend on what the year-end was. Number 232 MR. REED STOOPS, Aetna, said he hadn't had a chance to review his client's questions with the director, but he would come back when the bill was heard again with suggestions. CHAIRMAN LEMAN said they would probably have it back next Thursday. SENATOR KELLY remarked that there was a proposal floating around dealing with rental car insurance and making certain that the primary responsibility for the rental car insurance was the rentee. MS. BURKE responded that the wording for that would make the personal policy primary and the rental car company's insurance secondary. The Division does not object to that, but she thought it would detract from the current bill. SENATOR KELLY asked her to get that language for the committee. He said he was also concerned that the title to HB 104 was so broad. CHAIRMAN LEMAN said there was nothing more to come before the committee and adjourned the meeting at 3:32 p.m.