SB 116-WORKERS' COMP.: COLL BARGAINING/MEDIATION  2:37:27 PM CHAIR EGAN announced the consideration of SB 116. He said the committee would consider an amendment by Senator Giessel. SENATOR GIESSEL explained that the proposed amendment [27- LS0549\X.1] would allow individuals to choose his or her own health care provider rather than bargaining away that patient choice. 2:38:40 PM LINDA HALL, Director, Division of Insurance, Department of Commerce, Community and Economic Development (DCCED), commented that she had done a lot of work with the Workers' Compensation system as it affects insurance costs in particular. She was concerned they were looking at a new system that will only apply to employers and employees that are engaged in a collective bargaining arrangement. Approximately 25 percent of the workforce would be impacted by this bill - if they choose to and they may not. Some provisions could be advantageous to other employers and she wasn't sure why they would adopt something for less than 25 percent of the state's workforce. 2:40:28 PM MS. HALL said that supporters of HB 116 have alleged there would be cost savings, but in working with the Division of Workers' Compensation, she hadn't found a study supporting that claim. A University of California Berkeley Study of California carve-outs since 1993 concluded that, "Overall carve-outs do not appear to harm employees, sometimes they help." Data analysis of one carve-out showed that it had no effect on costs in dispute rates. She said Alaska's costs are driven by the high cost of health care. Currently, 76 percent of the costs of our system are driven by medical costs in comparison to a 59 percent average nationwide. So if lawmakers allow a deviation from the current system that has any potential to reduce medical costs, she thought it should be something that all employers could engage in. MS. HALL said she had heard this system could cause a single employer to simultaneously run multiple workers' compensation systems. The Municipality of Anchorage, for instance, has about seven collective bargaining units. If they each decided to set up some type of this arrangement, the municipality would be running eight different systems (including the state system). It would be a "system run amuck." 2:43:18 PM She said these are general thoughts she has had. Another concern was that that they were considering implementing a new program and yet the Medical Service Review Committee, a group that was formed by this legislature, had made an extensive report with a lot of recommendations for changes in the system as a whole, and she hadn't seen any real debate of any of those measures. This committee spent months studying new systems, new ways to develop fee schedules and had a number of recommendations that were in HB 12. It proposed the adoption of an advisory committee to serve as a sounding board for the legislature to review proposals and make recommendations for various types of changes in an open and transparent environment. MS. HALL said a number of options had been put forward to improve our system including medical treatment guidelines and utilization guidelines. It appears, and it has been stated, that the administration of this new exemption program would be through some kind of trust. But the bill doesn't mention the trust or how it would be funded. With today's system costs and with Montana's reforms, she worried that Alaska would be back in first place as having the highest workers' compensation premiums in the country - and that is not a place we want to be. 2:45:07 PM MS. HALL said that SB 116 also provides for the identification of medical treatment providers, medical evaluators and vocational rehabilitation specialists who would be the exclusive source of treatment, but there weren't any principles or guidelines. So there is a potential for a multitude of little groups without any consistency, and that concerned her in an area as critical as workers' compensation. Basically, she wanted to see a system whose emphasis is on getting an injured worker back to work and didn't see this doing that. CHAIR EGAN asked if she had comments on the amendment. MS. HALL answered no. 2:46:22 PM PAUL GROSSI, lobbyist, Pipefitters and Iron Workers, said adopting the amendment to SB 116 would eliminate potential cost savings and they wouldn't be able to support it any longer.{ SENATOR PASKVAN asked what he thought of the director's concerns about limited application. MR. GROSSI responded that her concern was that all employers and employees wouldn't be affected, which is true, but that doesn't mean it shouldn't be tried. It could potentially be a "pilot project" from which things could be extrapolated for the larger population. So that is not a reason to stop it. He said the director's concern about it leading to two different systems isn't really accurate, because if an employer thinks this is not effective for them they could choose to not be a part of it. No one is being forced into this system. This is just enabling language. SENATOR PASKVAN asked his understanding of competing physicians being able to meet and communicate. 2:50:55 PM MR. GROSSI replied that he is not an expert on this type of system, but to him it means that doctors would be permitted by law to form groups to bid on these types of systems to get this work. SENATOR GIESSEL said a 2009 report from the Minnesota Department of Labor indicated that the costs have actually gone up in Minnesota where this system is used over the past few years. Alaska has an even smaller pool of health care providers and although it's similar to Minnesota in that Minnesota is kind of rural, it has the Mayo Clinic and some large universities. She asked if he had run any numbers as far as costs. MR. GROSSI answered no; Director Hall talked about a small California study but he wasn't sure if it was accurate. Getting back to Minnesota, he said you have to look at costs relative to the rest of the system. He guessed that costs would still go up in Alaska, but they might not go up as much. While he didn't have any numbers on workers' compensation, itself, some of the labor groups and their employers have formed similar systems for their health care benefits that have shown a savings. SENATOR GIESSEL asked if overall he regarded the existing workers' compensation system as broken - excessively expensive and slow to settle claims. MR. GROSSI replied that he wouldn't couch it as broken yet, but it is becoming more expensive, and most of it is because of rising health care costs along with some litigation. At least there is the potential to improve by trying something different. The "broken" term could be used in the near future, if they don't start doing something. They should consider Director Hall's suggestions, too, because this measure is not the one answer to fix the system. 2:55:53 PM MIKE MONAGLE, Director, Division of Workers' Compensation, Department of Labor and Workforce Development (DOLWD), observed that Director Hall had mentioned the cost of benefits and how Alaska has been going back and forth with the State of Montana for the last 10 years on who is number one and two in the country on workers' comp costs. Last year, Montana put serious reforms for medical costs in place, and as a result, the National Council on Compensation Insurance, Inc. (NCCI), the rating organization that also rates Alaska, lowered the premium costs in Montana by 25 percent, and he had no doubt when the premium studies come out this year that Alaska will take over the number one spot on workers' comp costs again. He also observed that as the director, he often gets comments from injured workers that the system is difficult to navigate and complex and he fears that adding carve outs would complicate it more. 2:57:59 PM MR. MONAGLE said as far as the selection of medical doctors goes, he didn't see any incentive to bring costs down under this process. The Health Care Commission's study noted the biggest cost driver to the system was lack of competition. Just because you have a list of doctors who step forward to say they are interested in participating, that doesn't equate to an incentive to reduce their fees. And unless something is done to reduce fees, he didn't see any changes to the medical costs in the workers' comp system. Finally, Mr. Monagle said part of the legislation presupposes that a carve-out will reduce costs, but the 2002 Berkeley study mentioned by Director Hall and the 2012 State of California study found no significant differences between rates for a carve-out employer and the rates for an employer who received their benefits through the insurance marketplace. He had looked extensively and hadn't found a single study that said carve-outs will, in fact, reduce workers' comp rates. SENATOR PASKVAN said if you can reduce just the mediation costs (resolution without using lawyers) and the employer isn't required to use the new system, there is a chance that medical costs could be reduced a little bit, too. MR. MONAGLE referenced the California study that found no difference in the number of disputes in the carve-out process versus disputes under the workers' comp claim system. He said, although it's not in statute, the division already does mediations; he did 60 last year. One of the things that is concerning about the process is that although the bill doesn't mandate mediation, it does say once you choose to mediate, and once that process is broken off either by the hearing officer or the parties, it must go to arbitration. That process doesn't simplify the system, but it does add costs to it. 3:01:13 PM MR. MONAGLE explained that the prior version of SB 116 had an appellate provision saying that the arbitrator's decision could be appealed to the Workers' Comp Appeals Commission, but he didn't see that in the CS, where it would seem as though the arbitrator's decision would be final, and that could potentially lead to some additional administrative costs. CHAIR EGAN said the committee still had questions about Senator Giessel's amendment. He held SB 116 in committee.