Legislature(2017 - 2018)BELTZ 105 (TSBldg)

01/24/2017 01:30 PM LABOR & COMMERCE

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Audio Topic
01:32:20 PM Start
01:32:37 PM Presentations: Economic Indicators and Trends
01:34:38 PM Alaska Travel Industry Association
02:13:13 PM Department of Transportation & Public Facilities Presentation: Alaska International Airport System
02:52:18 PM Division of Insurance Presentation: Alaska's Health Care Insurance
03:25:20 PM Adjourn
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ ECONOMIC INDICATORS & TRENDS TELECONFERENCED
Alaska Travel Industry Association
Presentation: Alaska Tourism Industry and Trends
Department of Transportation & Public Facilities
Presentation: Alaska International Airport
System - An Economic Engine
Division of Insurance
Presentation: Alaska's Health Care Insurance
Market
-- Testimony <Invitation Only> --
                    ALASKA STATE LEGISLATURE                                                                                  
          SENATE LABOR AND COMMERCE STANDING COMMITTEE                                                                        
                        January 24, 2017                                                                                        
                           1:32 p.m.                                                                                            
                                                                                                                                
                                                                                                                              
                                                                                                                                
MEMBERS PRESENT                                                                                                               
                                                                                                                                
Senator Mia Costello, Chair                                                                                                     
Senator Shelley Hughes, Vice Chair                                                                                              
Senator Kevin Meyer                                                                                                             
Senator Berta Gardner                                                                                                           
                                                                                                                                
MEMBERS ABSENT                                                                                                                
                                                                                                                                
Senator Gary Stevens                                                                                                            
                                                                                                                                
OTHER LEGISLATORS PRESENT                                                                                                     
                                                                                                                                
Senator Tom Begich                                                                                                              
Representative Chris Birch                                                                                                      
                                                                                                                                
COMMITTEE CALENDAR                                                                                                            
                                                                                                                                
PRESENTATIONS ON ECONOMIC INDICATORS AND TRENDS                                                                                 
     Alaska Travel Industry Association                                                                                         
     Alaska International Airport System                                                                                        
     Division of Insurance                                                                                                      
                                                                                                                                
     - HEARD                                                                                                                    
                                                                                                                                
PREVIOUS COMMITTEE ACTION                                                                                                     
                                                                                                                                
No previous action to record.                                                                                                   
                                                                                                                                
WITNESS REGISTER                                                                                                              
                                                                                                                                
SARAH LEONARD, President and CEO                                                                                                
Alaska Travel Industry Association (ATIA)                                                                                       
Anchorage, Alaska                                                                                                               
POSITION STATEMENT: Delivered a presentation on the trends of                                                                 
tourism in Alaska.                                                                                                              
                                                                                                                                
COLLEEN STEPHENS, At-Large Representative                                                                                       
Alaska Travel Industry Association;                                                                                             
President, Stan Stephens Cruises & Tours                                                                                        
Valdez, Alaska                                                                                                                  
POSITION STATEMENT: Participated in the ATIA presentation.                                                                    
                                                                                                                                
JOHN BINDER, Deputy Commissioner                                                                                                
Alaska Department of Transportation and Public Facilities                                                                       
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT: Discussed  the Alaska  International Airport                                                             
System (AIAS) as an economic engine.                                                                                            
                                                                                                                                
FRED PARADY, Deputy Commissioner                                                                                                
Department of Commerce, Community and Economic Development                                                                      
Juneau, Alaska                                                                                                                  
POSITION  STATEMENT: Participated  in  the update  on the  health                                                             
care insurance market in Alaska.                                                                                                
                                                                                                                                
LORI WING-HEIER, Director                                                                                                       
Alaska Division of Insurance                                                                                                    
Department of Commerce, Community and Economic Development                                                                      
Anchorage, Alaska                                                                                                               
POSITION  STATEMENT:  Provided  an  update  on  the  health  care                                                             
insurance market in Alaska.                                                                                                     
                                                                                                                                
                                                                                                                                
ACTION NARRATIVE                                                                                                              
                                                                                                                              
1:32:20 PM                                                                                                                    
CHAIR MIA COSTELLO called the  Senate Labor and Commerce Standing                                                             
Committee meeting  to order at 1:32  p.m. Present at the  call to                                                               
order were  Senators Gardner, Meyer,  Hughes and  Chair Costello.                                                               
She noted that Senator Begich was in the audience.                                                                              
                                                                                                                                
^PRESENTATIONS: ECONOMIC INDICATORS AND TRENDS                                                                                  
         PRESENTATIONS: ECONOMIC INDICATORS AND TRENDS                                                                      
                                                                                                                                
1:32:37 PM                                                                                                                    
CHAIR COSTELLO  stated that the  committee is continuing  to look                                                               
at the  Alaska economy and  the presentations today will  be from                                                               
industry.  She said  Alaska  is  in a  recession  that won't  end                                                               
anytime soon  so it is important  for the legislature to  look at                                                               
how its actions affect the economy.                                                                                             
                                                                                                                                
^Alaska Travel Industry Association                                                                                             
1:34:38 PM                                                                                                                    
                                                                                                                                
CHAIR COSTELLO invited Sarah Leonard  and Coleen Stephens to come                                                               
forward.                                                                                                                        
                                                                                                                                
SARAH  LEONARD,   President  and  CEO,  Alaska   Travel  Industry                                                               
Association  (ATIA), informed  the committee  that last  year the                                                               
state's marketing program  was transitioned to be  managed by the                                                               
ATIA  team. The  goals  are to  provide  efficient and  effective                                                               
marketing  resources,   professional  development  opportunities,                                                               
advocacy statewide for  members, and promote Alaska  as a quality                                                               
tourism destination.                                                                                                            
                                                                                                                                
1:36:38 PM                                                                                                                    
MS.  LEONARD  said  she  was invited  to  share  Alaska's  travel                                                               
trends.   She  started   by  reviewing   global  travel   trends,                                                               
transitioned  to  national  trends,  and  then  moved  to  Alaska                                                               
trends. Employment worldwide in  the travel industry was forecast                                                               
to grow nearly two percent in  2016 and continue that trend until                                                               
2026. The  World Travel  & Tourism  Council predicts  that within                                                               
that timeframe, 25  percent of the world  population will travel.                                                               
A  2015  national report  indicates  that  travel generated  $2.1                                                               
trillion for the U.S. economy.  It supported more than 15 million                                                               
jobs in the U.S. and accounted  for $928 billion in direct travel                                                               
spending  by domestic  and  international  travelers. In  Alaska,                                                               
that translates  to 47,000 peak-season  jobs, over $4  billion in                                                               
economic activity,  including $1.39 billion in  labor income. She                                                               
emphasized  that  this  upward trajectory  reflects  past  strong                                                               
investment in tourism marketing.                                                                                                
                                                                                                                                
She described  Alaska's tourism industry  as a  renewable natural                                                               
resource  and  a  major  contributor to  all  three  of  Alaska's                                                               
budgets:  the family  budget,  city &  borough  budgets, and  the                                                               
state budget.                                                                                                                   
                                                                                                                                
1:38:56 PM                                                                                                                    
MS.  LEONARD   reported  that  Alaska   has  had   a  competitive                                                               
destination  marketing  program and  a  record  2 billion  people                                                               
visited the  state in 2015.  That was  a 7 percent  increase over                                                               
the previous season. [According to  the McDowell Group, 2015] the                                                               
majority  of Alaska  leisure travelers  came by  cruise ship  and                                                               
air. These  visitors spend  money on a  wide range  of activities                                                               
from lodging to gifts to transportation.                                                                                        
                                                                                                                                
Initial indicators for  2016 show a 3 percent  increase in cruise                                                               
arrivals,  a  14 percent  increase  in  personal vehicle  Canada-                                                               
Alaska border traffic,  and an increase of 3  percent in outbound                                                               
enplanements.  Alaska Marine  Highway traffic  dropped 9  percent                                                               
and international air  travel increased 4 percent.  She noted the                                                               
latter might be a conservative  number. She emphasized that these                                                               
positive economic indicators are  partly due to the long-standing                                                               
competitive  destination   marketing  program  for   Alaska.  The                                                               
marketing strategies to  attract visitors to Alaska  focus on the                                                               
idea that Alaska is more  similar to an international destination                                                               
than a U.S. state.                                                                                                              
                                                                                                                                
1:40:37 PM                                                                                                                    
CHAIR COSTELLO recognized that Representative  Chris Birch was in                                                               
the audience.                                                                                                                   
                                                                                                                                
MS. LEONARD  discussed the trend  of decreased  tourism marketing                                                               
funding  from the  state  and  how it  impacts  the economy.  She                                                               
pointed out that in 2013-2015  tourism marketing funding from the                                                               
state  was  in the  $16  million  range. Last  year,  legislative                                                               
action and  the governor's veto  reduced the $4.5  million budget                                                               
to $1.5 million. It also  included language requiring the tourism                                                               
industry to  develop a plan  to reduce reliance on  state general                                                               
funds. By contrast, competitor  destinations are increasing their                                                               
tourism promotion.  Only the state  of Washington spends  less on                                                               
tourism marketing than Alaska.                                                                                                  
                                                                                                                                
She said  the tourism industry is  healthy right now and  that is                                                               
expected  to continue  into 2017.  However, Alaska  requires more                                                               
investment to  compete with  other domestic  destinations because                                                               
it is  a long-haul, exotic  yet safe destination that  takes time                                                               
to plan and visit. Alaska's  marketing strategies have focused on                                                               
these attributes and the economic benefits are being realized.                                                                  
                                                                                                                                
As destination marketing dollars diminish,  the fear is this will                                                               
affect Alaska's  share of the  market. It will reduce  the number                                                               
of visitors  Alaska is able  to attract generating  less spending                                                               
and  less economic  impact  in 2018,  2019  and beyond.  National                                                               
trends  also reflect  the impacts  of  reduced statewide  tourism                                                               
marketing  dollars.  Case  studies show  that  when  destinations                                                               
reduce their  tourism marketing dollars,  they lose  market share                                                               
and revenue. In  1993, Colorado repealed its  tourism funding and                                                               
within  two years  lost 30  percent  of its  U.S. visitor  market                                                               
share. Conversely,  Michigan doubled its state  tourism marketing                                                               
funding during a recession and  generated $6.6 billion in visitor                                                               
spending from 2006-2014.  She provided two other  examples of the                                                               
impact of reducing tourism funding.                                                                                             
                                                                                                                                
1:45:47 PM                                                                                                                    
MS.  LEONARD  reported  that  the ATIA  Board  of  Directors  and                                                               
industry  leaders  at  the Alaska  Tourism  Marketing  Board  met                                                               
several times since the last  legislative session to research and                                                               
discuss  different  revenue options  in  an  effort to  meet  the                                                               
legislative mandate  to become less  reliant on state  funds. The                                                               
focus was on  three guiding principles: any  new funding solution                                                               
must  be broad-based,  not  reliant on  one  industry or  funding                                                               
source; revenue  should focus primarily on  visitor activity with                                                               
the  least impact  on Alaskans;  and the  plan would  package new                                                               
revenue  with existing  revenue from  the current  vehicle rental                                                               
tax collected that can be allocated to tourism promotion.                                                                       
                                                                                                                                
These  conversations   gravitated  to  the   Tourism  Improvement                                                               
District  (TID)  Concept. She  explained  that  industry pays  an                                                               
assessment that  is collected  by government  and the  funding is                                                               
allocated for tourism  promotion. TIDs are governed  by those who                                                               
pay, managed  by an existing  nonprofit or  industry association,                                                               
and  payers can  vote to  stop the  assessment. She  relayed that                                                               
this concept has  been shared within industry and  a funding plan                                                               
for Alaska  destination marketing  based on  the TID  concept was                                                               
presented to the legislature just today.                                                                                        
                                                                                                                                
1:47:26 PM                                                                                                                    
MS.  LEONARD highlighted  general trends  in travel  that can  be                                                               
connected  to a  destination  like Alaska.  The Adventure  Travel                                                               
World Summit  was held in Anchorage  in 2016 and attracted  up to                                                               
750  tour   operators,  media  and  others.   Partners  at  Visit                                                               
Anchorage  provided a  statewide  experience for  this group  and                                                               
highlighted  Alaska as  an adventure  travel destination.  Multi-                                                               
generational  travel is  increasing.  There is  also a  continued                                                               
interest in culinary  and tasting tours that  feature local foods                                                               
and  goods. An  increase in  highway travel  may increase  if the                                                               
price of  gas remains low. There  is also an increase  in Chinese                                                               
visitors, particularly  students who  are interested  in visiting                                                               
Alaska and the  Arctic. ATIA has also had  discussions on tourism                                                               
development in the Arctic.                                                                                                      
                                                                                                                                
MS.  LEONARD  said  the  industry  believes  there  is  value  in                                                               
statewide  destination marketing  for  Alaska.  Revenue is  being                                                               
generated from  tourism-related activities  that filters  back to                                                               
communities.  She  emphasized   that  maintaining  a  competitive                                                               
marketing brand  is crucial to capture  market share domestically                                                               
and  worldwide. There  are  positive  returns in  infrastructure,                                                               
revenue  to  local  governments,  and jobs  that  are  benefiting                                                               
Alaska  communities and  Alaskans. We  want to  remain a  healthy                                                               
industry that supports Alaska jobs and Alaskans, she concluded.                                                                 
                                                                                                                                
1:49:47 PM                                                                                                                    
CHAIR COSTELLO  asked if  ATIA expects  fewer visitors  two years                                                               
from now  and therefore fewer  dollars in local economies,  or is                                                               
the  TID  plan expected  to  bridge  the more  austere  marketing                                                               
budgets.                                                                                                                        
                                                                                                                                
MS. LEONARD  said she can't predict  the lag time but  there is a                                                               
real fear that Alaska will  see reduced economic activity because                                                               
of  the  lower  tourism  marketing   budget.  She  suggested  Ms.                                                               
Stephens  offer her  perspective but  it's likely  that anecdotal                                                               
evidence will  show that individual businesses  will be affected.                                                               
Also,  it's likely  that Alaska  will see  less general  economic                                                               
activity as fewer visitors come to the state.                                                                                   
                                                                                                                                
CHAIR  COSTELLO  asked  what  percentage  of  the  state's  gross                                                               
domestic product  (GDP) comes from  tourism. Ms. Leonard  and Ms.                                                               
Stephens agreed to follow up with an answer.                                                                                    
                                                                                                                                
COLLEEN  STEPHENS,  At-Large   Representative  of  Alaska  Travel                                                               
Industry Association,  and President  of Stan Stephens  Cruises &                                                               
Tours, said the smaller, mostly  Alaskan owned tourism businesses                                                               
will miss  the outreach of  the state program to  the independent                                                               
traveler. In rural Alaska, ATIA's  current program will have less                                                               
communication  capabilities. The  goal is  to close  that gap  as                                                               
soon as possible, but ATIA will  be looking to the legislature to                                                               
keep  funding for  marketing as  high  as possible  for the  next                                                               
year, as it works  to have a TID in place to be  able to do those                                                               
collections.                                                                                                                    
                                                                                                                                
1:54:29 PM                                                                                                                    
SENATOR MEYER  expressed optimism  with the  concept of  TIDs and                                                               
asked if a bill has been introduced.                                                                                            
                                                                                                                                
MS.  LEONARD replied  there is  draft legislation  that could  be                                                               
ready to share next week.                                                                                                       
                                                                                                                                
SENATOR MEYER asked  if tourism brings $100 million  to the state                                                               
economy each year.                                                                                                              
                                                                                                                                
MS. LEONARD answered yes.                                                                                                       
                                                                                                                                
SENATOR   MEYER  commented   that   that  number   would  go   up                                                               
substantially if there were a statewide sales tax.                                                                              
                                                                                                                                
MS. LEONARD said ATIA is always  looking at ways to grow that pot                                                               
through visitor contributed economic activity.                                                                                  
                                                                                                                                
SENATOR MEYER asked if the  different entities that market Alaska                                                               
coordinate efforts to maximize the marketing dollar.                                                                            
                                                                                                                                
MS. LEONARD replied  ATIA manages a statewide  program to attract                                                               
visitors  to  Alaska  and  it  supports  local  organizations  to                                                               
highlight  their   amenities  and   attract  visitors   to  those                                                               
communities  and regions.  ATIA has  very good  partnerships with                                                               
many,   if  not   all,  destination   marketing  and   management                                                               
organizations.                                                                                                                  
                                                                                                                                
1:58:25 PM                                                                                                                    
SENATOR GARDNER asked if there is  any data about how budget cuts                                                               
have  impacted tourism.  She cited  anecdotal reports  of reduced                                                               
maintenance  and  services  and   voiced  concern  about  harming                                                               
industries that are healthy.                                                                                                    
                                                                                                                                
MS. LEONARD replied the positive  impacts of past healthy tourism                                                               
budgets is  still evident, but  it's unclear what will  happen in                                                               
2018  and  2019.  The  fear  is  that  the  cuts  in  destination                                                               
marketing will  result in reduced  community services  to support                                                               
infrastructure. If  we're not attracting visitors  and paying the                                                               
vehicle  rental car  tax, for  example,  there is  less money  to                                                               
support state parks  and roads, she said. ATIA  is advocating for                                                               
the tool for industry to  assess itself so the industry continues                                                               
to be healthy.                                                                                                                  
                                                                                                                                
SENATOR GARDNER  asked if  ATIA had  heard from  communities that                                                               
had been affected by the ferry cuts.                                                                                            
                                                                                                                                
MS.  STEPHENS replied  ATIA did  a survey  of impacted  members a                                                               
year and one-half ago when  ferry schedules started changing more                                                               
drastically, and  the anecdotal  reports were shared  with Alaska                                                               
Marine Highway staff.                                                                                                           
                                                                                                                                
SENATOR GARDNER asked if the committee could get that data.                                                                     
                                                                                                                                
MS. STEPHENS agreed to supply the information.                                                                                  
                                                                                                                                
CHAIR COSTELLO  requested ATIA update  slide [18] that  shows the                                                               
decline   in   tourism   marketing  funding   from   the   state.                                                               
Specifically, she asked how much  revenue the industry brought in                                                               
to the state  and the number of tourists that  visited Alaska for                                                               
the years between 2013 and 2017.                                                                                                
                                                                                                                                
2:02:06 PM                                                                                                                    
SENATOR  HUGHES asked  if ATIA  had looked  at the  impact Alaska                                                               
reality television shows have had  on the tourism industry and if                                                               
the interest those stimulate might  help bridge the gap until the                                                               
TID program is up and running.                                                                                                  
                                                                                                                                
MS.  LEONARD said  ATIA  has not  had the  resources  to do  that                                                               
specific  study  but  more   importantly,  the  tourism  industry                                                               
doesn't control those  marketing messages and often  they are not                                                               
authentic  Alaska stories.  She added  that there  the number  of                                                               
those shows  might have  decreased since  the Alaska  film office                                                               
closed two years ago.                                                                                                           
                                                                                                                                
SENATOR  HUGHES  asked  about   the  geographic  distribution  of                                                               
tourism  marketing  funding  and  if the  increased  interest  in                                                               
Arctic  travel will  have  a positive  economic  impact on  rural                                                               
communities. She asked the names of those communities.                                                                          
                                                                                                                                
2:04:54 PM                                                                                                                    
MS.   LEONARD   replied   the  funding   is   concentrated   from                                                               
Southcentral to  Southeast, but  it still has  a large  impact in                                                               
the regions that receive a  low percentage of the funding. "Where                                                               
1,500  jobs means  a lot  to Southwest  Alaska, that  would be  a                                                               
really low  number for Southeast  Alaska." She offered  to follow                                                               
up with  the specific  dollar amounts for  each region.  She said                                                               
there  is  growing  interest  in   the  Arctic  and  she's  heard                                                               
anecdotally that tour companies have  worked hard to partner with                                                               
local  communities. She  acknowledged that  some communities  are                                                               
not ready  to host  visitors and  that may be  a factor  in where                                                               
cruise ships visit.                                                                                                             
                                                                                                                                
SENATOR HUGHES  asked when she  thinks Arctic tourism will  be at                                                               
full throttle and economic benefits can be expected.                                                                            
                                                                                                                                
MS.  LEONARD  said the  first  cruise  ship went  through  Arctic                                                               
waters 18 months  ago and it is  a good idea for  ATIA to include                                                               
that area in the Alaska Visitor  Statistics Program to be able to                                                               
capture that data.                                                                                                              
                                                                                                                                
MS. STEPHENS added  that there is more opportunity  in the Arctic                                                               
than  just small  cruise  ships. Operators  north  of the  Arctic                                                               
Circle that  offer land  excursions are  in their  busiest months                                                               
right now  and they  are seeing  both national  and international                                                               
travelers.                                                                                                                      
                                                                                                                                
2:08:15 PM                                                                                                                    
CHAIR  COSTELLO said  she  is  encouraged to  hear  that ATIA  is                                                               
discussing a statewide plan for  tourism. The committee will hear                                                               
from  ARDORs on  Thursday and  can  ask if  they have  considered                                                               
tourism as part of their regional economic development plan.                                                                    
                                                                                                                                
SENATOR  GARDNER  questioned  the   benefit  of  having  the  TID                                                               
contributions  collected and  processed  through the  government.                                                               
"Can you  members not simply  contribute to your  functioning and                                                               
then you don't have to worry  about who's making the decision and                                                               
governing, who pays and how it's spent? It's all up to you now."                                                                
                                                                                                                                
MS. LEONARD  replied that will  likely be part of  the discussion                                                               
with the legislature going forward.                                                                                             
                                                                                                                                
CHAIR COSTELLO thanked the presenters.                                                                                          
                                                                                                                                
2:10:22 PM                                                                                                                    
At ease                                                                                                                         
                                                                                                                                
^Department of  Transportation & Public  Facilities Presentation:                                                               
Alaska International Airport System                                                                                             
2:13:13 PM                                                                                                                    
CHAIR COSTELLO reconvened  the meeting and invited  Mr. Binder to                                                               
come  forward. She  said Mr.  Binder was  invited to  discuss air                                                               
cargo, its  impact on  the economy,  and any  thoughts on  how to                                                               
keep that sector  strong and thriving during  this recession. She                                                               
noted that Commissioner Luiken was present.                                                                                     
                                                                                                                                
2:14:13 PM                                                                                                                    
JOHN   BINDER,   Deputy   Commissioner,  Alaska   Department   of                                                               
Transportation and  Public Facilities,  reported that  the Alaska                                                               
International Airport  System (AIAS) is thriving,  largely due to                                                               
low fuel  prices. He agreed  with the previous speakers  that the                                                               
tourism industry has  a large impact on airport  traffic and AIAS                                                               
has benefited.                                                                                                                  
                                                                                                                                
He informed  the committee that the  Department of Transportation                                                               
and  Public Facilities  (DOTPF) owns  and operates  242 airports.                                                               
The airports in Anchorage and  Fairbanks are separated by statute                                                               
as international enterprise systems  so they are self-sustaining.                                                               
The remaining 240  airports are referred to as  the rural system.                                                               
The  presentation today  is focused  on  the international  piece                                                               
with a few references to the rural system.                                                                                      
                                                                                                                                
MR.  BINDER displayed  the aviation  mission  statements for  the                                                               
Department of  Transportation and  Public Facilities,  the Alaska                                                               
International Airport System, and Statewide Aviation.                                                                           
                                                                                                                                
2:16:20 PM                                                                                                                    
He spoke to the AIAS vision and core values.                                                                                    
                                                                                                                                
                          Our Vision:                                                                                           
      By 2030, AIAS is a global nexus for aviation-related                                                                      
                            commerce                                                                                            
     •We  will  be   a  model  government-owned  enterprise,                                                                    
     adaptive and agile                                                                                                         
     •We will  proactively address global changes  and world                                                                    
     markets                                                                                                                    
     •We will operate safely while striving for efficiency                                                                      
     •We will optimize our  contribution to Alaska's economy                                                                    
     and quality of life                                                                                                        
     •We will  involve, value, and balance  the interests of                                                                    
     stakeholders                                                                                                               
     •We will be a coveted place to work                                                                                        
                                                                                                                                
                        Our Core Values:                                                                                        
     Integrity:  Honesty, dependability,  unity, and  a high                                                                  
     ethical standard                                                                                                           
     Enterprising:   Innovative,    proactive,   pioneering,                                                                  
     business-centric airport system                                                                                            
     Excellence:  Commitment to  improve  and  a passion  to                                                                  
     provide superior service and infrastructure                                                                                
     Respect:   Professional  regard   for  colleagues   and                                                                  
     customers                                                                                                                  
                                                                                                                                
2:17:02 PM                                                                                                                    
MR.  BINDER said  the international  airports  work together  and                                                               
benefit  each  other. Carriers  come  to  Anchorage knowing  that                                                               
Fairbanks is a ready alternate.                                                                                                 
                                                                                                                                
CHAIR   COSTELLO  related   that   the   Ted  Stevens   Anchorage                                                               
International  Airport  is  in  her  district  and  some  of  her                                                               
constituents have concerns about  communication with the airport.                                                               
She asked him to discuss  how the enterprise management structure                                                               
works to interact with the community.                                                                                           
                                                                                                                                
MR. BINDER  explained that as  deputy commissioner, he  serves as                                                               
the  executive  director  of  the  Alaska  International  Airport                                                               
System. The managers of the  two airports report directly to him,                                                               
but  have   complete  control   of  their   respective  airports.                                                               
Regarding  public  engagement,  the   governor  has  an  aviation                                                               
advisory board  that represents  the various  stakeholder groups.                                                               
These  include  representatives  for  passenger  airlines,  cargo                                                               
airlines,   regional  airlines,   communities,  the   unorganized                                                               
borough, and  organized boroughs.  The different  aviation groups                                                               
and air  carriers also have avenues  to both him and  the airport                                                               
managers. Because  DOTPF falls under the  Administrative Act, all                                                               
public engagement includes hearings and public notice.                                                                          
                                                                                                                                
CHAIR  COSTELLO   asked  if  he   believes  there  is   room  for                                                               
improvement  or if  he  is happy  with the  way  that process  is                                                               
working.                                                                                                                        
                                                                                                                                
MR. BINDER replied he is generally  happy with the way things are                                                               
working, but believes that communication can always be improved.                                                                
                                                                                                                                
CHAIR COSTELLO  said, "I actually  would be interested  in making                                                               
improvements  to  that   in  terms  of  outreach   to  the  local                                                               
community."  She  added that  she  would  be very  interested  in                                                               
meeting with  him to pursue  this further.  "It might be  time to                                                               
give  more  confidence  to  those neighbors  who  live  near  the                                                               
airport."                                                                                                                       
                                                                                                                                
MR. BINDER said he would be happy to discuss that further.                                                                      
                                                                                                                                
He  displayed  a depiction  of  a  world  map to  illustrate  the                                                               
strategic location of the Anchorage  and Fairbanks airports. They                                                               
are within  9.5 hours of  90 percent of the  industrialized world                                                               
and, except  for 9/11, these  airports have never been  closed at                                                               
the same time.                                                                                                                  
                                                                                                                                
2:21:20 PM                                                                                                                    
MR.  BINDER discussed  what an  economic engine  AIAS is  for the                                                               
Alaskan economy. The Ted  Stevens Anchorage International Airport                                                               
accounts for  1 in 10 or  15,577 jobs. It has  about $724 million                                                               
in  direct annual  payroll  and another  $303  million in  annual                                                               
payroll  for  jobs  in  the  community.  Fairbanks  International                                                               
Airport accounts  for 1 in  20 or 1,900  jobs. It has  about $225                                                               
million in  economic output and  in 2010  was ranked 85th  in the                                                               
nation in weight of total mail and freight.                                                                                     
                                                                                                                                
He said a  lot of that is  fed by the regional  impact. He listed                                                               
the  following:  just   2  percent  of  Alaska's   land  area  is                                                               
accessible  by road;  82 percent  of Alaska  communities are  not                                                               
connected  to  the  road  system;  and  year-round  transport  of                                                               
people, freight and mail is primarily by air.                                                                                   
                                                                                                                                
2:22:10 PM                                                                                                                    
CHAIR  COSTELLO asked  if any  federal changes  regarding weather                                                               
reporting stations  or the  FAA have  affected cargo  delivery to                                                               
communities that only have an aviation option.                                                                                  
                                                                                                                                
MR.  BINDER said  DOTPF is  always striving  to get  more weather                                                               
reporting stations in Alaska and  it continues to be a challenge.                                                               
They continually  strive for more  stations. Most of  the freight                                                               
and all the  mail is part of  the USPS Bypass Mail  System and is                                                               
always subject to cuts.                                                                                                         
                                                                                                                                
CHAIR COSTELLO summarized  that he is not aware of  any recent or                                                               
upcoming changes that would affect access to those communities.                                                                 
                                                                                                                                
MR. BINDER said that's correct.                                                                                                 
                                                                                                                                
He reviewed  the economic contribution  of aviation from  2009 to                                                               
2012. During  that timeframe, aviation  accounted for  about $3.5                                                               
billion  or 8  percent of  the gross  state domestic  product and                                                               
almost 10 percent of the statewide annual average employment.                                                                   
                                                                                                                                
2:24:58 PM                                                                                                                    
MR.   BINDER   reviewed   the   attributes   of   the   Anchorage                                                               
International  Airport.  It  has three  10,500-foot  runways;  60                                                               
wide-body  parking positions;  CAT IIIb  ILS; 24/7  operation for                                                               
immigration,  air  traffic,  and   U.S.  Customs;  multiple  fuel                                                               
suppliers;  and an  in-ground fuel  hydrant system.  Anchorage is                                                               
the number  2 airport in  North America for landed  cargo weight;                                                               
number 1  for excellence  for 5  years running;  number 4  in the                                                               
world  for cargo  throughput, and  a five-time  recipient of  the                                                               
award for excellent snow and ice control.                                                                                       
                                                                                                                                
Anchorage International  Airport has  about 5  million passengers                                                               
that  enplane and  deplane  each year;  cargo  throughput is  2.4                                                               
million tons;  and about 70  wide-body freight aircraft  land and                                                               
takeoff each  day. It is a  major gateway for FedEx  and UPS, and                                                               
most of  the cargo  traffic through  Anchorage and  Fairbanks are                                                               
Asian carriers.                                                                                                                 
                                                                                                                                
He displayed  data from the  Airports Council  International that                                                               
shows   that  Anchorage   International   Airport  ranks   second                                                               
domestically  and  fourth  worldwide  for metric  tons  of  cargo                                                               
moved.                                                                                                                          
                                                                                                                                
2:27:13 PM                                                                                                                    
MR.   BINDER   reviewed   the   attributes   of   the   Fairbanks                                                               
International Airport.  It has one  11,800-foot runway;  CAT IIIb                                                               
ILS;  33 aircraft  parking positions;  97  percent Visual  Flight                                                               
Rules  (VFR); 24/7  operation for  immigration, air  traffic, and                                                               
U.S.  Customs;  ground service,  deicing,  catering  to all  size                                                               
aircraft,  a convenient  1,065,800 square  foot cargo  apron; and                                                               
five heavy cargo parking positions.                                                                                             
                                                                                                                                
Fairbanks  International Airport  has over  1 million  passengers                                                               
that  enplane and  deplane each  year; is  a vital  connection to                                                               
rural Alaska;  is a  popular winter  tourism destination  and the                                                               
gateway  to  Denali  Park;  is a  premier  cold  weather  testing                                                               
location;  and  has an  active  GA  area with  multiple  surfaces                                                               
including  a 6,000-foot  runway, a  ski  strip in  the winter,  a                                                               
gravel strip in the summer and a float pond water strip.                                                                        
                                                                                                                                
2:28:02 PM                                                                                                                    
MR. BINDER  explained that commencing  July 1, 2013,  29 airlines                                                               
signed a  ten-year operating agreement  with AIAS.  The signatory                                                               
carriers  share  financial  risk  in  exchange  for  capital  and                                                               
operating input and they receive  reduced landing rates and fees.                                                               
The rates  and fees are set  to meet the anticipated  budget each                                                               
year.  There  are quarterly  meetings  during  which there  is  a                                                               
complete financial review.                                                                                                      
                                                                                                                                
He reviewed the  cargo/passenger activity from FY07  to FY17. The                                                               
peak  was 2007  and 2008  and  it's been  down 20  percent to  30                                                               
percent since  then. He pointed  out that  the slide is  based on                                                               
weight  of  aircraft and  freight  landed.  As the  industry  has                                                               
continued to  upgrade, it takes  fewer aircraft to move  the same                                                               
amount  of cargo.  Thus, the  total landed  weight has  decreased                                                               
while the amount of cargo,  primarily international, has remained                                                               
constant.  Instate  freight  is  constant at  about  100  million                                                               
pounds  and international  passenger traffic  has slacked  off as                                                               
passenger carriers  have improved  their fleets to  aircraft that                                                               
don't need to stop to refuel.                                                                                                   
                                                                                                                                
2:30:20 PM                                                                                                                    
MR. BINDER explained  that overall activity is  measured based on                                                               
certified maximum gross  takeoff weight (CMGTW). This  is how the                                                               
carriers  are assessed  landing fees.  He noted  that things  are                                                               
going well in the current year (FY17).                                                                                          
                                                                                                                                
He displayed  a pie  chart that depicts  the FY16  carrier market                                                               
share by CMGTW. He pointed  out that Cathay Pacific Airways, UPS,                                                               
China Airlines,  and Korean Air  tend to dominate, and  that most                                                               
carriers are not American. He  displayed a depiction of the globe                                                               
to illustrate why carriers stop  in Anchorage for fuel. "You draw                                                               
the lines  connecting Asia  and North  America and  you're flying                                                               
right  over the  top  of  Alaska." Carriers  have  the option  of                                                               
flying half  full and avoiding a  stop in Anchorage to  refuel or                                                               
flying  completely full  and stopping  for fuel.  Generally, it's                                                               
more profitable to take on full weight and stop to refuel.                                                                      
                                                                                                                                
MR. BINDER  pointed to  data that  illustrates the  importance of                                                               
the Asian  market. He highlighted that  almost 80 percent  of all                                                               
cargo that passes between North  America and Asia, passes through                                                               
Anchorage,  and that  most of  the revenue  comes from  cargo. He                                                               
displayed a  chart showing that  passenger activity was  up about                                                               
4.5 percent in  FY16 and is slightly down  through December FY17.                                                               
Alaska  Airlines dominates  the passenger  market. He  pointed to                                                               
the  domestic and  global destinations  that have  direct service                                                               
from Anchorage and Fairbanks. While  there are quite a few direct                                                               
flights  to  Asia,  they  are charters.  The  direct  flights  to                                                               
Frankfurt and Reykjavik are scheduled, but seasonal.                                                                            
                                                                                                                                
2:33:35 PM                                                                                                                    
The  AIAS FY16  revenue  from airline  and  tenant customers  was                                                               
$141.9 million.  He reiterated  that the system  does not  have a                                                               
profit  mindset;  the revenue  generated  is  based on  projected                                                               
costs.  He noted  that [revenue]  exceeded the  planned costs  by                                                               
about $20 million; $10 million  was better than expected activity                                                               
and the other  $10 million related to revenue  that was collected                                                               
for capital costs.                                                                                                              
                                                                                                                                
MR.   BINDER  reported   that  the   FAA,  through   its  Airport                                                               
Improvement Program (AIP), allocates  about $200 million to DPTPF                                                               
airports.  About  $50 million  goes  to  Anchorage and  Fairbanks                                                               
International  Airports and  the remaining  $150 million  goes to                                                               
the  remaining 240  airports in  the rural  system. He  explained                                                               
that airports receive these funds  based on how much cargo passes                                                               
through as a  percentage of the overall national  total. There is                                                               
also  a  passenger  entitlement  based  on  the  national  total.                                                               
Another  factor is  airports that  are not  hubs. By  law, Alaska                                                               
receives   a   state  apportionment   and   there   is  also   an                                                               
apportionment based on population.  The FAA also apportions funds                                                               
based on nationwide priorities.  The current priorities in Alaska                                                               
are rural access and safety.                                                                                                    
                                                                                                                                
2:35:42 PM                                                                                                                    
MR.  BINDER  described the  economic  development  study that  is                                                               
underway  and noted  that  he has  been working  on  it with  the                                                               
Municipality of  Anchorage. The  goal is  to find  business areas                                                               
where value can be added to  the things that are happening at the                                                               
airport. For example,  it would benefit the airport  and state to                                                               
find ways  to have more impact  on the cargo that  passes through                                                               
the airport. Figuring out what  those business propositions might                                                               
look like and finding the  appropriate target is another piece of                                                               
the  challenge.  Right  now,  they are  working  on  an  aircraft                                                               
maintenance facility.                                                                                                           
                                                                                                                                
2:37:19 PM                                                                                                                    
MR.  BINDER discussed  the master  plans. He  explained that  the                                                               
AIAS  Strategic  Plan  is focused  on  results  based  alignment,                                                               
market   indicators,    revenue-expense   ratios,    and   system                                                               
optimization. The  annual review is scheduled  for February 2017.                                                               
Lake Hood is also part  of Anchorage International Airport. It is                                                               
the  largest seaplane  base in  the world.  The Lake  Hood Master                                                               
Plan is a process required by  the FAA every 10 years. The public                                                               
comment period for the draft plan  ended January 16, 2017 and the                                                               
final plan will be released in early spring 2017.                                                                               
                                                                                                                                
CHAIR COSTELLO asked if Lake  Hood is managed with more community                                                               
input than the rest of the airport.                                                                                             
                                                                                                                                
MR. BINDER replied the Lake  Hood manager works for the Anchorage                                                               
airport manager, and  there is also a Lake Hood  users group that                                                               
is involved with the community groups.                                                                                          
                                                                                                                                
He reviewed  the future aviation challenges.  These include fleet                                                               
changes both  international and instate, climate  change impacts,                                                               
and increasing federal compliance requirements.                                                                                 
                                                                                                                                
2:41:57 PM                                                                                                                    
CHAIR COSTELLO cited  the new $40 million  Alaska Airlines hanger                                                               
and asked how he is actively  trying to grow opportunities at the                                                               
airport.                                                                                                                        
                                                                                                                                
MR.  BINDER replied  the new  Alaska Airlines  hanger is  the big                                                               
news,   but  the   department  is   encouraging  opportunity   by                                                               
advertising that land is available to lease.                                                                                    
                                                                                                                                
SENATOR  MEYER asked  if raising  the fuel  tax would  impact the                                                               
number of international flights that might land at the airport.                                                                 
                                                                                                                                
MR. BINDER said no because  current statute exempts international                                                               
traffic from the state fuel tax.                                                                                                
                                                                                                                                
SENATOR MEYER asked  if the state gets landing fees  from all the                                                               
airports.                                                                                                                       
                                                                                                                                
MR.   BINDER  replied   Anchorage  and   Fairbanks  International                                                               
Airports and airports  that are run by the  local communities all                                                               
charge landing fees, but not the other state-owned airports.                                                                    
                                                                                                                                
SENATOR MEYER asked if the  [board] continues to favor increasing                                                               
the aviation fuel tax instead of the landing fees.                                                                              
                                                                                                                                
MR. BINDER said  that was the discussion last year  and the board                                                               
still generally  feels that a  fuel tax  for the industry  is the                                                               
most equitable way to collect revenue.                                                                                          
                                                                                                                                
SENATOR MEYER  said he isn't sure  what the impact would  be if a                                                               
landing  fee was  charged at  all the  airports. He  assumed that                                                               
most of the maintenance costs are in the rural airports.                                                                        
                                                                                                                                
2:47:00 PM                                                                                                                    
SENATOR  HUGHES  asked  if  he  has  considered  where  to  spend                                                               
additional federal funds  for airports if they do  come about for                                                               
Alaska.                                                                                                                         
                                                                                                                                
MR. BINDER  said AIAS has  a prioritized list should  those funds                                                               
become available.                                                                                                               
                                                                                                                                
SENATOR HUGHES asked if economic  benefit is part of the criteria                                                               
to prioritize a project.                                                                                                        
                                                                                                                                
MR. BINDER  replied that is  one criteria, but safety  and runway                                                               
structural problems will dominate the scale.                                                                                    
                                                                                                                                
SENATOR HUGHES said  she understands that most  iPhones that come                                                               
into the  U.S. come  through Alaska  and there is  a lot  of talk                                                               
about  the  space that's  available  on  the return  flight.  She                                                               
identified that as an opportunity.                                                                                              
                                                                                                                                
MR. BINDER  replied that  is a perfect  example of  the potential                                                               
opportunity to  have a distribution  center in Alaska  that would                                                               
add  value to  a product.  In general,  aircraft flying  east are                                                               
full and have  been partly empty on the return  partly due to the                                                               
lack  of  demand  for  North American  goods.  However,  that  is                                                               
gradually changing.                                                                                                             
                                                                                                                                
2:51:41 PM                                                                                                                    
CHAIR COSTELLO thanked Mr. Binder.                                                                                              
                                                                                                                                
^Division  of   Insurance  Presentation:  Alaska's   Health  Care                                                               
Insurance                                                                                                                       
                                                                                                                                
               Division of Insurance Presentation                                                                             
                                                                                                                                
CHAIR COSTELLO  welcomed Ms.  Wing-Heier and  Deputy Commissioner                                                               
Parady who were invited to talk about health care insurance.                                                                    
                                                                                                                                
2:52:18 PM                                                                                                                    
FRED  PARADY,   Deputy  Commissioner,  Department   of  Commerce,                                                               
Community   and  Economic   Development   (DCCED),  thanked   the                                                               
legislature for  passing House Bill  374 during the  last special                                                               
session,   and   appropriating   $55  million   to   the   Alaska                                                               
Comprehensive  Insurance   Association  fund  to   stabilize  the                                                               
individual  insurance market.  At that  time, Alaska  had just  a                                                               
single health insurance carrier  and had experienced two previous                                                               
years of 35-40  percent rate increases in  the individual market.                                                               
He said he is happy to  report that the effort succeeded, and the                                                               
anticipated 42 percent increase dropped to 7.3 percent.                                                                         
                                                                                                                                
2:54:10 PM                                                                                                                    
LORI   WING-HEIER,  Director,   Alaska  Division   of  Insurance,                                                               
Department of Commerce, Community  and Economic Development, said                                                               
it's been  an active time for  the division since June  2016 when                                                               
House  Bill 374  passed and  allowed for  the Alaska  Reinsurance                                                               
Program. It was  a lot of work to promulgate  regulations and get                                                               
the contract for  the grant agreement with ACHIA  to operate, but                                                               
it has been completed and the program is operating.                                                                             
                                                                                                                                
She clarified that the program was  intended to run on a calendar                                                               
year and  the funds were appropriated  for a fiscal year  so none                                                               
of the  $55 million has  been spent. The funds  were appropriated                                                               
on July  1, 2016 and  the policies related to  that appropriation                                                               
began  January 1,  2017. She  explained that  the money  is being                                                               
held by the  state until Premera receives a claim.  At that time,                                                               
Premera would  pay the claim  and then it  would be ceded  to the                                                               
Alaska Reinsurance Program.                                                                                                     
                                                                                                                                
MS. WING-HEIER  agreed with Mr.  Parady that passage of  the bill                                                               
had  an  immediate result.  The  anticipated  40-42 percent  rate                                                               
increase became  an average  7.3 percent  rate increase.  It also                                                               
gave  the division  the authority  to  apply for  a Section  1332                                                               
waiver which  will likely provide  funding for the  program going                                                               
forward. The application was deemed complete a week ago.                                                                        
                                                                                                                                
2:57:50 PM                                                                                                                    
MS.  WING-HEIER  directed  attention  to slide  3  that  contains                                                               
language that repeals  what was in the budget  last year. Section                                                               
10 in  the Governor's  FY18 Budget  re-appropriates the  money in                                                               
FY17  and  asks for  an  additional  $55  million for  FY18,  but                                                               
allowing  it  to  be  spent  over  the  calendar  year  when  the                                                               
insurance  policies  actually run.  For  example,  if someone  is                                                               
treated December 30,  2017, that claim will not be  paid in 2017.                                                               
It will  likely be  ceded to  the re-insurer  in March  2018. She                                                               
emphasized the importance  of allowing time for that  claim to be                                                               
processed, ceded to the re-insurer and administered correctly.                                                                  
                                                                                                                                
2:59:52 PM                                                                                                                    
She turned  to slide 4  that relates  to the proposed  budget and                                                               
request for  funding for  FY17 and FY18.  She clarified  that the                                                               
$55  million for  FY17 was  to pay  high-cost claims  incurred in                                                               
calendar year 2017.                                                                                                             
                                                                                                                                
MS.  WING-HEIER  discussed  the  Section  1332  waiver  that  the                                                               
division could  apply for under  House Bill 374. This  waiver was                                                               
not allowed  to be  granted until January  2017. There  have been                                                               
just three applications: Hawaii  was granted a waiver, California                                                               
withdrew its  application, and Alaska's was  deemed complete. All                                                               
the  waivers have  been different.  Hawaii's had  to do  with the                                                               
small  group,  California's  had  to  do  with  immigration,  and                                                               
Alaska's has to do with re-insurance.                                                                                           
                                                                                                                                
She directed attention to the description  of a waiver on Slide 6                                                               
and noted  that the language  is ambiguous  as to when  to apply.                                                               
"We were kind of going somewhat  by the seat of our pants, hoping                                                               
that we  could convince them  that our [reinsurance  program] was                                                               
going  to be  a  viable  waiver." What  can  be waived  includes:                                                               
benefits and  subsidies, marketplace and qualified  health plans,                                                               
the  individual mandate,  and the  employer mandate.  Each waiver                                                               
application  must satisfy  four criteria:  1) it  must be  budget                                                               
neutral,   2)  it   cannot  discriminate,   3)  it   must  remain                                                               
affordable, and 4) the coverage must remain comprehensive.                                                                      
                                                                                                                                
3:02:05 PM                                                                                                                    
MS. WING-HEIER  explained that Alaska's  application met  all the                                                               
requirements  that the  secretary  of Health  and Human  Services                                                               
asked the  division to  provide. This  included a  description of                                                               
the legislation that  passed and an analysis and  overview of the                                                               
program.  She  noted the  link  at  the  bottom  of slide  9  for                                                               
Alaska's 200-page waiver application.                                                                                           
                                                                                                                                
During the deliberation  on House Bill 374,  Senate Finance asked                                                               
the division to find alternative  funding in two years to support                                                               
the reinsurance  program. "So, we  knew we  had our work  cut out                                                               
for us."                                                                                                                        
                                                                                                                                
3:03:24 PM                                                                                                                    
MS. WING-HEIER  directed attention to the  Oliver Wyman Actuarial                                                               
Report on slide 11 to explain  Alaska's waiver. It shows that the                                                               
estimated premium  tax credits  in Alaska  were $233  million for                                                               
2018, and with  the waiver they are $182  million. The department                                                               
is asking  the federal  government to  return that  $51.6 million                                                               
difference  to the  state to  fund the  reinsurance program.  She                                                               
clarified that the  entire $51 million will not come  back to the                                                               
state, but  that is  what the waiver  represented to  the federal                                                               
government.                                                                                                                     
                                                                                                                                
She reported  that this idea  has stimulated  tremendous interest                                                               
because it  worked so  well and stabilized  the market.  The bill                                                               
was innovative,  and it was even  more innovative to ask  for the                                                               
waiver. The argument  was that the federal  government would have                                                               
paid  this money  to Alaska  consumers if  the state  hadn't done                                                               
this and the  waiver is necessary because  the Alaska legislature                                                               
has said  it wouldn't fund  the program forever.  The application                                                               
was  deemed  complete  by Health  and  Human  Services  Secretary                                                               
Burwell a week ago.                                                                                                             
                                                                                                                                
3:06:43 PM                                                                                                                    
SENATOR HUGHES asked if the bill and the waiver were her idea.                                                                  
                                                                                                                                
MS. WING-HEIER replied, "I work with an incredible team."                                                                       
                                                                                                                                
SENATOR  HUGHES asked  if  she  is getting  good  vibes that  the                                                               
waiver will be approved.                                                                                                        
                                                                                                                                
MS. WING-HEIER  answered yes. The  Trump transition  team reached                                                               
out in December because they liked the  idea and she took it as a                                                               
positive sign that this reinsurance  program and funding from the                                                               
federal government has a chance of surviving.                                                                                   
                                                                                                                                
SENATOR  HUGHES asked  if the  division  would come  back to  the                                                               
legislature  for  continued  funding  if  this  weren't  to  come                                                               
through.                                                                                                                        
                                                                                                                                
MS. WING-HEIER replied,  "There is a real possibility  in that to                                                               
stabilize the market."                                                                                                          
                                                                                                                                
3:09:08 PM                                                                                                                    
MR.  PARADY directed  attention to  the January  17, 2018  letter                                                               
from  Secretary Burwell  to Governor  Walker  that cautions  that                                                               
approval of the  waiver is contingent on  enacting legislation in                                                               
Alaska  that appropriates  the funds  for the  Alaska Reinsurance                                                               
Program.  He said  the department  is exploring  ways to  develop                                                               
language   that   satisfies   the  federal   government   without                                                               
requesting a blank check from the legislature.                                                                                  
                                                                                                                                
He  explained that  the  table on  slide 14  that  shows how  the                                                               
Alaska  Reinsurance Program  and  the Section  1332 Waiver  would                                                               
work is for  illustrative purposes. It combines  the Oliver Wyman                                                               
actuarial analysis and an ISER  economic analysis to come up with                                                               
an estimate of the savings to  the federal government and what it                                                               
may  be willing  to pass  back to  the state.  The best  estimate                                                               
right now is there  will be an $11 million bill  to the state and                                                               
a $44-45 million cost-share with the federal government.                                                                        
                                                                                                                                
He summarized  that the hope  is to  see some sort  of cost-share                                                               
agreement with  the federal  government where  80 percent  of the                                                               
funds  come back  to  the state  and 20  percent  remain a  state                                                               
obligation.  Importantly,  the  individual market  in  Alaska  is                                                               
sustained for Alaskans. He said  it isn't that you're subsidizing                                                               
500 of the sickest individuals,  it's the 23,000 Alaskans who are                                                               
in  that market,  a third  of whom  are not  subsidized, who  see                                                               
insurance rates  that are  larger than  their mortgage.  He added                                                               
that this also  helps ensure that Alaska has  a carrier available                                                               
to provide coverage.                                                                                                            
                                                                                                                                
CHAIR COSTELLO asked Ms. Wing-Heier  to talk about the 80 percent                                                               
rule  and how  Alaska can  get  a handle  on the  rising cost  of                                                               
health care.                                                                                                                    
                                                                                                                                
3:14:50 PM                                                                                                                    
MS. WING-HEIER explained that regulation  says that insurers will                                                               
pay out-of-network  claims at the  80th percentile. That  has led                                                               
to allegations  that providers that  have little  competition are                                                               
setting the  80th percentile and  driving up the cost  of claims.                                                               
"It's been a very emotional  topic between the insurance industry                                                               
and the medical providers and,  of course, the consumers are left                                                               
in the middle."                                                                                                                 
                                                                                                                                
MS. WING-HEIER related that earlier  this month the division held                                                               
scoping hearings to  find out what people thought  about the 80th                                                               
percentile and  if it was  benefiting Alaskans. The  two hearings                                                               
were  well  attended, and  more  than  60 written  comments  were                                                               
submitted.  The  takeaway  was  that  insurers  are  seeing  that                                                               
certain  providers  appear to  be  driving  the market.  However,                                                               
providers  who  are  not  specialists  testified  that  they  are                                                               
charging well below  the 80th percentile and  they are struggling                                                               
to make ends  meet. "So, you've got this mixed  bag; you hear the                                                               
insurers  on   one  part  and   you've  got  a   divided  medical                                                               
community."                                                                                                                     
                                                                                                                                
CHAIR COSTELLO  asked if she  is suggesting that  the legislature                                                               
should also address cost transparency.                                                                                          
                                                                                                                                
MS. WING-HEIER  replied it must  be addressed at some  point, but                                                               
it  may  be  taken  care  of  depending  on  what  comes  out  of                                                               
Washington, D.C.                                                                                                                
                                                                                                                                
MR. PARADY  added that while  transparency is a  major discussion                                                               
point, the  division is  still sorting out  the testimony  on the                                                               
80/20 question and trying to develop ideas.                                                                                     
                                                                                                                                
3:19:22 PM                                                                                                                    
SENATOR GARDNER  asked how quickly  the federal  government would                                                               
move if it  decided to pick up on the  transparency issue. "Do we                                                               
have a  couple of years  in which we  still have to  address this                                                               
locally?"                                                                                                                       
                                                                                                                                
MS. WING-HEIER said she can't imagine  that it would be less than                                                               
a year.  She added,  "We are looking  at it and  I think  that we                                                               
were surprised  by the  number of comments  that we  received and                                                               
the varying opinions from  consumers and, certainly, transparency                                                               
was one of them."                                                                                                               
                                                                                                                                
She  related  that  she  asked   the  House  Labor  and  Commerce                                                               
Committee to  introduce the Governor's  bill to update  the Model                                                               
520 Act  for the  Alaska Life  and Health  Guarantee Association.                                                               
This  is the  entity  that would  step  in to  pay  claims if  an                                                               
insurer fails financially.  The Model 520 Act was  adopted by the                                                               
National  Association of  Insurance  Commissioners  in 2009,  but                                                               
Alaska has  yet to adopt those  updates. The bill also  asks that                                                               
the state  add hospital and  medical service corporations  to the                                                               
list  of those  that can  be assessed  to pay  these claims.  She                                                               
explained the reasoning.                                                                                                        
                                                                                                                                
Insurance  companies that  want  to transact  business in  Alaska                                                               
file  in  one of  two  ways:  as an  insurance  company  or as  a                                                               
hospital  or medical  service corporation.  Alaska  has one  very                                                               
large  insurer in  the  individual  market that  has  filed as  a                                                               
hospital and  medical service corporation.  If that  insurer were                                                               
to fail  in medical,  there are not  enough remaining  members to                                                               
pay claims.                                                                                                                     
                                                                                                                                
CHAIR COSTELLO asked if she  had additional comments on the broad                                                               
topic of health care.                                                                                                           
                                                                                                                                
MS. WING-HEIER replied things are  coming fast and furious out of                                                               
Washington, D.C. and  the division is trying to  stay abreast and                                                               
provide comments  to the Alaska delegation  regarding health care                                                               
for all Alaskans.                                                                                                               
                                                                                                                                
3:24:38 PM                                                                                                                    
CHAIR  COSTELLO  thanked  Ms.   Wing-Heier  and  Mr.  Parady  and                                                               
reviewed the agenda for Thursday.                                                                                               
                                                                                                                                
3:25:20 PM                                                                                                                    
There being  no further  business to  come before  the committee,                                                               
Chair Costello  adjourned the Senate Labor  and Commerce Standing                                                               
Committee meeting at 3:25 p.m.                                                                                                  

Document Name Date/Time Subjects
2017.01.24 - ATIA Labor and Commerce Travel Trends.pdf SL&C 1/24/2017 1:30:00 PM
Economic Indicators
2017.01.24 - AIAS Economic Engine.pdf SL&C 1/24/2017 1:30:00 PM
Economic Indicators
2017.01.24 - Div. of Insurance Healthcare Insurance Update.pdf SL&C 1/24/2017 1:30:00 PM
Economic Indicators
2017.01.24 - Div. of Insurance Annual Report 2016.pdf SL&C 1/24/2017 1:30:00 PM
Economic Indicators
2017.01.24 - Presenter Bios.pdf SL&C 1/24/2017 1:30:00 PM
Economic Indicators