Legislature(2005 - 2006)CAPITOL 17

03/09/2005 03:15 PM LABOR & COMMERCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Moved Out of Committee
Heard & Held
Bills Previously Heard/Scheduled
HB 180-WORKERS' COMPENSATION                                                                                                  
CHAIR ANDERSON announced  that the final order  of business would                                                               
be HOUSE BILL NO. 180, "An  Act relating to a special deposit for                                                               
workers'   compensation   and  employers'   liability   insurers;                                                               
relating   to  assigned   risk   pools;   relating  to   workers'                                                               
compensation  insurers; stating  the intent  of the  legislature,                                                               
and  setting  out  limitations,  concerning  the  interpretation,                                                               
construction, and  implementation of workers'  compensation laws;                                                               
relating to the Alaska  Workers' Compensation Board; establishing                                                               
a  division of  workers'  compensation within  the Department  of                                                               
Labor  and   Workforce  Development,  assigning   certain  Alaska                                                               
Workers'  Compensation Board  functions to  the division  and the                                                               
department, and authorizing the  board to delegate administrative                                                               
and enforcement  duties to the division;  establishing a Workers'                                                               
Compensation   Appeals   Commission;   providing   for   workers'                                                               
compensation   hearing   officers    in   workers'   compensation                                                               
proceedings; relating  to workers' compensation  medical benefits                                                               
and to charges for and payment  of fees for the medical benefits;                                                               
relating  to  agreements  that  discharge  workers'  compensation                                                               
liability; relating to workers'  compensation awards; relating to                                                               
reemployment benefits  and job dislocation benefits;  relating to                                                               
coordination  of  workers'  compensation and  certain  disability                                                               
benefits; relating to division  of workers' compensation records;                                                               
relating  to  release  of  treatment   records;  relating  to  an                                                               
employer's  failure  to  insure   and  keep  insured  or  provide                                                               
security;  providing   for  appeals  from   compensation  orders;                                                               
relating  to  workers'  compensation proceedings;  providing  for                                                               
supreme  court   jurisdiction  of   appeals  from   the  Workers'                                                               
Compensation Appeals  Commission; providing for a  maximum amount                                                               
for  the  cost-of-living  adjustment  for  workers'  compensation                                                               
benefits;   relating  to   attorney  fees;   providing  for   the                                                               
department to  enter into contracts with  nonprofit organizations                                                               
to  provide  information  services and  legal  representation  to                                                               
injured  employees; providing  for  administrative penalties  for                                                               
employers  uninsured or  without adequate  security for  workers'                                                               
compensation; relating to fraudulent  acts or false or misleading                                                               
statements in  workers' compensation  and penalties for  the acts                                                               
or  statements;  providing for  members  of  a limited  liability                                                               
company to  be included as  an employee for purposes  of workers'                                                               
compensation;  establishing  a   workers'  compensation  benefits                                                               
guaranty  fund;  relating  to  the  second  injury  fund;  making                                                               
conforming amendments;  providing for a  study and report  by the                                                               
medical  services   review  committee;   and  providing   for  an                                                               
effective date."                                                                                                                
GREG O'CLARAY,  Commissioner, Department  of Labor  and Workforce                                                               
Development (DOL),  said HB 180  is a  composite of hard  work by                                                               
members  of the  ad hoc  committee on  workers compensation,  DOL                                                               
staff, and  various other constituencies  in the state.   He said                                                               
2003 workers'  compensation costs were $23  million.  Legislation                                                               
last  year  concentrated  on readjustments  to  the  adjudicatory                                                               
system.  "It  really only dealt with about $11  million in costs,                                                               
or what turned out to be about 4.9 percent of the pie."                                                                         
4:32:24 PM                                                                                                                    
COMMISSIONER  O'CLARAY   said  testimony  last  year   asked  the                                                               
department why  it was not  examining medical costs, which  is 52                                                               
percent  of the  problem.   In  2004, medical  costs  will be  61                                                               
percent, he  noted.  He  said the  governor chose to  depart from                                                               
the ad  hoc two-year plan,  and present his  bill now.   He noted                                                               
that the ad hoc committee  is a volunteer citizen's committee and                                                               
has worked on workers' compensation issues for many years.                                                                      
4:35:17 PM                                                                                                                    
COMMISSIONER   O'CLARAY   said   it    is   important   for   the                                                               
administration  to have  a bill  this  year because  "we're in  a                                                               
situation where if  we are allowed to go  beyond this legislative                                                               
session,  that the  rate increases  and  premiums that  employers                                                               
will be  looking at next  year, will force more  small businesses                                                               
to close  their doors and  put more workers  on the street."   He                                                               
said the  administration feels that  it is  near crisis.   Of the                                                               
16,000  active businesses  that  are reported  by  DOL, "I  would                                                               
venture  to  say,  I  don't  know of  one  that  wasn't  impacted                                                               
adversely by workers' comp rates."                                                                                              
4:36:42 PM                                                                                                                    
REPRESENTATIVE LYNN  asked about  the ad hoc  committee meetings,                                                               
and  why Commissioner  O'Claray said  the committee  has not  met                                                               
lately except for this past interim.                                                                                            
COMMISSIONER  O'CLARAY asked,  "Where have  they been  since 1995                                                               
when this problem was continuing to loom?"                                                                                      
REPRESENTATIVE LYNN said,  "But they did meet this  time, is that                                                               
4:38:07 PM                                                                                                                    
COMMISSIONER  O'CLARAY  said  they   did,  and  "frankly,  I  was                                                               
pleased."  They  put a lot of time in  examining issues that need                                                               
to be  dealt with.  They  wanted to meet because  they recognized                                                               
the problems  with workers' compensation  insurance rates.   They                                                               
worked very  hard and Commissioner  O'Claray said he  was pleased                                                               
with the progress they made, "to a point."                                                                                      
4:38:52 PM                                                                                                                    
COMMISSIONER O'CLARAY  said, "When we received  the product [from                                                               
the  ad  hoc committee],  they  had  apparently made  a  decision                                                               
fairly early  in the process, that  they would not deal  with any                                                               
issues that either  the labor side or the  management side raised                                                               
or took  issue with."   The main issue  they decided not  to deal                                                               
with was medical  costs.  He read the last  paragraph of a letter                                                               
from the ad hoc committee:                                                                                                      
     We would  also like  to point out  that there  are more                                                                    
     issues involving workers' compensation  that we will be                                                                    
     addressing in  the future.   These include  group self-                                                                    
     insurance, medical  cost containment (the  medical cost                                                                    
     portion  of workers'  compensation  payments in  Alaska                                                                    
     have  more than  doubled  between 1988  and 1992,  from                                                                    
     approximately  $20   million  to   in  excess   of  $50                                                                    
     million), review of  presumption of compensability, and                                                                    
     review of  benefits including health insurance.   These                                                                    
     issues will take  further research and a  great deal of                                                                    
     discussion with various groups,  but they must be dealt                                                                    
     with  to  ensure  that Alaska's  workers'  compensation                                                                    
     system  adequately   protects  injured   workers  while                                                                    
     maintaining an equitable program for employers.                                                                            
4:41:09 PM                                                                                                                    
COMMISSIONER  O'CLARAY  said  he  is pleased  the  committee  has                                                               
reconvened, but  the governor was  not pleased with the  result -                                                               
"not because  they didn't work  hard, but because it  didn't meet                                                               
his goal of  trying to arrest the escalating rates."   He said he                                                               
informed  the committee  of the  decision the  governor made  and                                                               
invited members to participate in  the drafting process "over the                                                               
COMMISSIONER  O'CLARAY said  when  the ad  hoc committee  members                                                               
began discussing  strategy about their  own bill, they  asked the                                                               
DOL person to leave the room.                                                                                                   
REPRESENTATIVE  LYNN  said  the  governor  drafted  his  bill  in                                                               
February  and asked  how  long it  was worked  on  before it  was                                                               
COMMISSIONER O'CLARAY said  "We started working on,  I believe it                                                               
was  Sunday morning,  and we  worked through  the night  into the                                                               
next  day, which  was  a  state holiday  for  everyone  else.   I                                                               
believe  we  had  an  actual bill  completed,  that  we  actually                                                               
presented, first to the advocates...on  Wednesday.  Then we had a                                                               
press conference on February 21."                                                                                               
REPRESENTATIVE  LYNN asked  how  many working  days  it took  the                                                               
governor to prepare his bill.                                                                                                   
COMMISSIONER O'CLARAY  said, "Well, state employee  working days,                                                               
at seven and a  half hours a day, probably six,  within a two and                                                               
a half day period, because we worked around the clock."                                                                         
REPRESENTATIVE  LYNN asked  how many  days the  ad hoc  committee                                                               
worked on its bill.                                                                                                             
4:45:18 PM                                                                                                                    
COMMISSIONER  O'CLARAY said  he doesn't  know, but  he does  know                                                               
they spent  a lot of  time on it.   "Remember, they had  given us                                                               
the results  of their particular  fruits of their  labor...and we                                                               
used a major portion of that  information in our bill," he added.                                                               
He said he  got input from consultants and  state underwriters as                                                               
4:46:00 PM                                                                                                                    
COMMISSIONER O'CLARAY gave  an example of a  health facility that                                                               
doubled its premium rate.   "Obviously their charge-out rates had                                                               
to go  up as well.   The statute requires that  employers provide                                                               
that particular insurance,"  he added.  He then  gave the example                                                               
of a  business of less than  25 people, where premium  rates went                                                               
from $5,900 to  $10,232.  A small general  contractor business in                                                               
Sitka had premiums in 2002 of  $146,950, and in 2004 it jumped to                                                               
4:47:07 PM                                                                                                                    
COMMISSIONER O'CLARAY then  gave an example of  the Kodiak Island                                                               
Borough where  workers' compensation  rates went from  $24,000 in                                                               
2002 to $95,234 in 2005.                                                                                                        
4:47:57 PM                                                                                                                    
COMMISSIONER O'CLARAY said  new hires in Kodiak  have been placed                                                               
on a  maximum of a  30-hour week to  save on costs,  which denies                                                               
workers access to benefits.                                                                                                     
4:48:30 PM                                                                                                                    
COMMISSIONER O'CLARAY  referred to a newspaper  article about the                                                               
closure of an  Anchorage restaurant, and the owner  said that she                                                               
could not afford workers' compensation insurance.                                                                               
LINDA  HALL,  Director,  Division  of  Insurance,  Department  of                                                               
Commerce, Community,  and Economic  Development, said  last year,                                                               
when  workers' compensation  rates increased  by 21  percent, she                                                               
got angry calls  from employers.  Later, she  received calls from                                                               
employers telling  her they were  at the  verge of having  to cut                                                               
health insurance  because they could  not afford to  provide both                                                               
that and  workers' compensation.   Now calls are coming  in about                                                               
employers contemplating closure of  their businesses.  "These are                                                               
wrenching calls  for me to  deal with," she  said.  She  said she                                                               
wants to  be able to  tell people that  the state is  trying stop                                                               
the increase in insurance rates.                                                                                                
REPRESENTATIVE  LYNN  said  workers'  compensation  needs  to  be                                                               
controlled, and the question is how.                                                                                            
4:52:47 PM                                                                                                                    
COMMISSIONER  O'CLARAY said  the governor's  bill deals  with the                                                               
rollback of  the reimbursement  rates for  medical costs  on page                                                               
18, line 30.                                                                                                                    
4:54:19 PM                                                                                                                    
COMMISSIONER  O'CLARAY said  he  wants to  explain the  rationale                                                               
behind  the  fee  reimbursement  rollback to  the  December  1999                                                               
reimbursement  rate.   "The medical  reimbursement schedule  that                                                               
the Division uses to pay  claims for various procedures...whether                                                               
it  be surgical,  whether  it be  pharmaceutical,  whether it  be                                                               
hospital  care, is  published in  a rather  large...book, and  it                                                               
details the  rate of reimbursement  that is  paid out."   He then                                                               
noted  comparison  to  other northwestern  states,  and  he  said                                                               
Oregon's reimbursement rate of $1,500  for arthroscopy is half as                                                               
much   Alaska's  1999   rate.     Oregon  uses   a  Medicare-plus                                                               
multiplier, and Alaska considered  doing that but decided against                                                               
COMMISSIONER O'CLARAY said  the 2004 rate for  the same procedure                                                               
in Alaska is $3,800, and the 2005  rate is $4,100.  "This kind of                                                               
gives  you  some  idea  of the  increases  in  Alaska's  workers'                                                               
compensation  charges and  reimbursement rates  between 2000  and                                                               
2005 - a 27-percent increase," he said.                                                                                         
4:56:55 PM                                                                                                                    
COMMISSIONER O'CLARAY  said there  is lack of  real data.   There                                                               
are unchallengeable  conclusions, he said,  but does not  want to                                                               
wait another year  for more data.  The bill  suggests rolling the                                                               
reimbursement rates back and requires  a study to be completed by                                                               
2007.    That will  provide  the  data  to determine  the  proper                                                               
schedule of reimbursement, he said.                                                                                             
4:59:21 PM                                                                                                                    
COMMISSIONER  O'CLARAY  said he  hopes  for  assistance from  the                                                               
medical  community.   He  said he  is  concerned about  specialty                                                               
surgeons deciding on their own to deny service.                                                                                 
REPRESENTATIVE LYNN said he shares that concern.                                                                                
COMMISSIONER O'CLARAY said the workers'  compensation system is a                                                               
sole  remedy  system; an  injured  worker  must go  through  this                                                               
particular system, and workers cannot sue their employers.                                                                      
REPRESENTATIVE  LYNN  said  workers'  compensation  came  to  his                                                               
rescue when he was an injured police officer.                                                                                   
5:03:20 PM                                                                                                                    
COMMISSIONER O'CLARAY  said we cannot  afford to let  this system                                                               
break down.  We  need to act on reforms this year,  he said.  The                                                               
governor's  bill  creates  an appeals  panel  consisting  of  one                                                               
professional  hearing  officer,  one layperson  representing  the                                                               
employee, and one person representing the employer.                                                                             
5:04:43 PM                                                                                                                    
COMMISSIONER  O'CLARAY  said  the   issue  of  predictability  is                                                               
important.   Certain  types  of  injuries will  be  awarded at  a                                                               
certain level, he said.                                                                                                         
5:05:18 PM                                                                                                                    
COMMISSIONER O'CLARAY said  without this, one side  or other will                                                               
try to push  the decision to their benefit.   The governor's bill                                                               
uses an  in-house "super panel," and  from there the cases  go to                                                               
the supreme court.   The appeals panel will be  empowered to make                                                               
legal precedent.                                                                                                                
5:06:24 PM                                                                                                                    
COMMISSIONER O'CLARAY  said access  to the superior  court delays                                                               
settlement of  cases up  to a year  and a half.   The  two things                                                               
that  the  bill  concentrates  on   is  making  the  system  more                                                               
efficient and  more reactive to  injured workers'  concerns about                                                               
early settlement, and  making the system more  affordable for the                                                               
5:07:59 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  asked the administration to  create an                                                               
organizational chart of the new structure.                                                                                      
REPRESENTATIVE LYNN  asked for a  side-by-side comparison  of the                                                               
governor's bill the ad hoc bill.                                                                                                
COMMISSIONER O'CLARAY said yes to both.                                                                                         
5:08:49 PM                                                                                                                    
REPRESENTATIVE  CRAWFORD  said he  has  worked  under the  Oregon                                                               
system, and  it is not very  good.  People do  the dangerous work                                                               
for  us, putting  their lives  at risk,  and we  need a  workers'                                                               
compensation system that takes care of these people, he said.                                                                   
REPRESENTATIVE LYNN said he agrees.                                                                                             
5:11:08 PM                                                                                                                    
REPRESENTATIVE  GUTTENBERG brought  up job  safety, and  wondered                                                               
what the state was doing.                                                                                                       
COMMISSIONER O'CLARAY  said the existing rate  structure does not                                                               
provide an incentive  to employers to have  good safety programs.                                                               
He  said  a sawmill  in  Ketchikan  paid  well over  $400,000  to                                                               
workers' compensation  and it  had less  than $50,000  in claims.                                                               
Some  businesses  have  zero  claims,  and  he  suggested  having                                                               
incentive for a great record.                                                                                                   
REPRESENTATIVE LYNN said  everyone in the room  agrees that there                                                               
is a  serious problem with  the workers'  compensation situation.                                                               
He quoted the bible that says, "Come let us reason together."                                                                   
COMMISSIONER O'CLARAY said  the governor is the kind  of man that                                                               
likes to come out with a solution.   He said this bill is not the                                                               
perfect  solution; it  is subject  to  the deliberative  process.                                                               
The administration is able to work on it this session.                                                                          
[HB 180 was held over.]                                                                                                         

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