Legislature(2005 - 2006)CAPITOL 17

03/22/2005 01:00 PM House 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
Heard & Held
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."                                                                                                                
2:16:19 PM                                                                                                                    
MICHAEL J.  JENSEN, Attorney at Law,   Law Offices of  Michael J.                                                               
Jensen, informed the committee that  [the committee packet should                                                               
include] a letter  dated March 16, 2005, from  himself and Joseph                                                               
Kalamarides, Chancy Croft, Steve  Constantino, and William Soule.                                                               
He   explained  that   he   and   the  aforementioned   attorneys                                                               
exclusively represent  injured workers and  workers' compensation                                                               
cases.  Mr.  Jensen said that he would limit  his comments to the                                                               
creation  of the  commission  and the  concern  the governor  has                                                               
raised  regarding  premium increases.    The  statistics used  to                                                               
justify  HB 180  specify the  following:   overall benefits  have                                                               
only increased 7 percent; the  number of injuries have decreased;                                                               
the  vocational rehabilitation  costs have  decreased; time  loss                                                               
claims have  decreased; indemnity benefits have  decreased; legal                                                               
expenses of the plaintiff's lawyer  have decreased; defense legal                                                               
expenses have  increased; and medical  benefits have  increased 8                                                               
percent.   Therefore, Mr.  Jensen opined  that it's  difficult to                                                               
understand  how  employers  can face  premium  increases  of  400                                                               
percent.   He  offered an  analogy  in which  natural gas  prices                                                               
increase 7 percent, but the electric  user has a rate increase of                                                               
400 percent.  The natural inclination  is to ask the regulator of                                                               
the utility why  the electric users would be  charged 400 percent                                                               
[more]  when  the  gas  prices  have only  risen  by  7  percent.                                                               
However, when  dealing with injured  workers, the  solution seems                                                               
to be to go after the workers and the physicians.                                                                               
MR.  JENSEN opined  that HB  180 doesn't  address the  legitimate                                                               
concerns of  Alaskan employers.   Although Alaskan  employers are                                                               
experiencing a dramatic increase  in premiums, it's not explained                                                               
by the  relatively modest  increase in benefit  costs.   In fact,                                                               
the  commission created  by  HB  180 will  increase  the cost  to                                                               
workers  and physicians  in  litigating claims.    This seems  to                                                               
create a  court and judges without  calling them such.   "For the                                                               
first time  in Alaska's  history, judges  will be  near political                                                               
appointees  not subject  to the  standards  of judicial  conduct,                                                               
preemption  would not  be allowed,  the commission  would not  be                                                               
subject  to the  present standards  of judicial  review; it  will                                                               
decide cases de  novo and the judges will never  be evaluated for                                                               
their ability  or fairness."   He highlighted  that the  power of                                                               
the board  to determine  credibility of  medical reports  will be                                                               
taken  away  by   this  Act.    "The   board's  determination  of                                                               
credibility will  be exclusively  limited to  testimony presented                                                               
by  a  witness at  hearing,"  which  will  increase the  cost  of                                                               
litigation  to employers  and employees  alike,  he pointed  out.                                                               
Mr.  Jenson further  pointed out  that  [AS 23.30.128]  clarifies                                                               
that  the  commission  will  review   de  novo  all  prior  board                                                               
decisions; permit parties to present  new or additional evidence;                                                               
permit easier granting of stays  without surety bonds; and ensure                                                               
that all adverse  board decisions will appealed by  the party who                                                               
lost  at   the  board  level.     He  opined  that  all   of  the                                                               
aforementioned will greatly increase  litigation costs as well as                                                               
medical costs  because physicians  will now have  to wait  one to                                                               
two years  for the litigation  to be concluded at  the commission                                                               
level.   He noted  that every  party that  lost before  the board                                                               
will be  compelled to appeal  for a chance  "at two bites  of the                                                               
apple."   "We  simply don't  see how  the governor's  proposal to                                                               
create this  commission will save  ... costs ..., time,  and will                                                               
make the system fairer for  injured workers and employers alike,"                                                               
he opined.                                                                                                                      
REPRESENTATIVE  ROKEBERG  suggested  that Mr.  Jensen  should  be                                                               
invited back  at another  time because  he represents  four other                                                               
counselors  who represent  the plaintiff's  bar.   Representative                                                               
Rokeberg  said he  would  like to  hear  suggestions regarding  a                                                               
solution  from Mr.  Jensen.    Representative Rokeberg  expressed                                                               
concern  that  Mr.  Jensen  admits that  there's  a  400  percent                                                               
premium increase, but denies what's causing it.                                                                                 
MR. JENSEN  said that he  and his colleagues have  addressed what                                                               
they  believe  would  be better  solutions,  and  certainly  much                                                               
cheaper  and  speedier  solutions.    He said  that  he  and  his                                                               
colleagues have  some suggestions  regarding the  medical issues.                                                               
In  regard to  the  premium increases,  the  statistics from  the                                                               
Division of Workers' Compensation show  that the cost of benefits                                                               
have only increased  by 7 percent.  Therefore, there  seems to be                                                               
a  disconnect  between  what  employers   are  being  charged  in                                                               
premiums and what  those premiums are purchasing, he  opined.  No                                                               
one  is addressing  the aforementioned  concern, he  highlighted.                                                               
Mr. Jensen claimed  that HB 180 won't save  employers 400 percent                                                               
in premium increases.                                                                                                           
BOB FAVRETTO, Business owner; Board  Member, Alaska State Chamber                                                               
of  Commerce, informed  the committee  that he's  the twice  past                                                               
president  of  the  Kenai  Chamber of  Commerce.    Mr.  Favretto                                                               
relayed that  a hotel/restaurant/property management  business in                                                               
the  area had  workers' compensation  premiums in  the amount  of                                                               
about $16,000 in 2000, which  increased to about $36,000 in 2004.                                                               
Those premiums  are estimated to  increase another  20-30 percent                                                               
in 2005.   He then  turned to attention  to a local  machine shop                                                               
that  employs approximately  36  individuals and  had $40,000  in                                                               
[workers' compensation] premiums in  2001, which will increase to                                                               
in excess of  $100,000 this year.  Mr.  Favretto highlighted that                                                               
in  2001  the  McDonald's  franchises   on  the  Kenai  Peninsula                                                               
employed  approximately 130  employees of  which he  estimated 65                                                               
percent  to  be  part-time  employees.   In  2001,  the  workers'                                                               
compensation premium  was $24,000  and in  2005 the  premiums are                                                               
projected to be in excess of  $133,000.  Mr. Favretto then turned                                                               
to a  local fish processing plant  that had 233 employees  in the                                                               
year 2000  of which  90-95 percent are  part-time employees.   In                                                               
2000,  the local  fish processing  plant's workers'  compensation                                                               
premiums  were  a  little  over  $31,000.   In  2005,  this  fish                                                               
processing plant  will employ  less than  130 employees,  but the                                                               
workers' compensation premium will exceed $148,000.                                                                             
2:28:04 PM                                                                                                                    
MR. FAVRETTO  then related similar information  regarding his own                                                               
business.  He noted that  in any of the aforementioned businesses                                                               
he highlighted, there were no  catastrophic injuries to cause the                                                               
[workers'   compensation]  premiums   to  rise   to  the   levels                                                               
specified.   The  rise in  workers' compensation  premiums causes                                                               
employers   to  reduce   benefits  and   employees  and   require                                                               
participation of  employees and  their families to  subsidize the                                                               
premiums.  In  fact, small businesses are borrowing  money to pay                                                               
for their workers' compensation  premiums, which he characterized                                                               
as destined for failure.   In conclusion, Mr. Favretto encouraged                                                               
the committee  to pass HB 180  out of committee and  address this                                                               
matter this session.                                                                                                            
REPRESENTATIVE   CRAWFORD  informed   the   committee  that   the                                                               
[workers' compensation] premium for  one of his rental properties                                                               
was $197 per year and it had  no claims against it.  However, two                                                               
years later the  premium increased to $856,  although there still                                                               
had been no claim.   He related that he has  heard that costs are                                                               
increasing  by  7-15  percent  a  year,  although  premiums  have                                                               
increased approximately 400  percent in that same  timeframe.  He                                                               
asked if this  is different from workers' compensation.   He also                                                               
asked  if  [the  legislature]  should  also  go  after  insurance                                                               
companies  for  increasing  the insurance  rates  on  homeowners'                                                               
insurance.  He asked if another  factor could be at play, such as                                                               
the loss of $7 trillion in the stock market.                                                                                    
2:31:17 PM                                                                                                                    
MR.  FAVRETTO  empathized  with   Representative  Crawford  as  a                                                               
business owner  and commented that  everyone is  experiencing the                                                               
same thing.   He acknowledged that  there is a lack  of carriers,                                                               
but expressed the  need to do what's possible to  correct as much                                                               
as can be corrected.                                                                                                            
JOHN DAVID RAGAN suggested that  premium rate increases in Alaska                                                               
aren't  being  driven  by  cost increases  in  Alaska.    Rather,                                                               
insurance companies  paid out massive claims  after the terrorist                                                               
attacks  of September  11, 2001  and suffered  massive investment                                                               
losses due  to the  stock market  crash.   Furthermore, companies                                                               
insuring in  Alaska have also  had serious financial  problems in                                                               
other  states.    Therefore,  cutting costs  in  Alaska  may  not                                                               
actually impact those premiums, he  opined.  As a firefighter and                                                               
a  laborer,  Mr.  Ragan  said  that  firefighters  and  emergency                                                               
medical  technicians  (EMTs)  deserve   the  best  possible  care                                                               
available when  injured in  the line of  duty, which  falls under                                                               
workers' compensation.   Mr. Ragan characterized  the freezing of                                                               
the medical  reimbursement rates  that physicians can  charge for                                                               
specific injuries  as a major  problem.  The aforementioned  is a                                                               
very bad idea,  which he predicted would produce  poor or second-                                                               
rate  medical care  for  workers'  compensation patients  because                                                               
many  physicians   will  simply  choose  not   to  take  workers'                                                               
compensation patients  as is often  done with  Medicare patients.                                                               
Mr. Ragan  emphasized that "fixing  up" workers and  getting them                                                               
back to  work after being  injured on the  job is merely  part of                                                               
the  cost of  the job  and part  of the  cost of  doing business,                                                               
which is what workers' compensation is about.                                                                                   
MR. RAGAN  urged the committee  to provide  workers' compensation                                                               
patients the best medical care  possible by opposing this medical                                                               
reimbursement  cap  at the  1999  level.   He  characterized  the                                                               
aforementioned  as  the smart  thing  to  do because  second-rate                                                               
medical  care will  increase medical  and nonmedical  costs.   He                                                               
informed the committee that almost  all of the studies performed,                                                               
including  one  performed  by the  International  Brotherhood  of                                                               
Electrical  Workers (IBEW),  have  concluded that  the most  cost                                                               
effective way  to deal with  workers' compensation is  to provide                                                               
the injured  worker the best  medical care available and  get the                                                               
worker  back to  work as  quickly as  possible.   Therefore, this                                                               
legislation,  which caps  the medical  reimbursement  cap at  the                                                               
1999  level, doesn't  make sense.   Furthermore,  the legislation                                                               
deducts pension money from workers' compensation payments.                                                                      
2:36:04 PM                                                                                                                    
MR. RAGAN maintained that personal  assets, such as an employee's                                                               
pension,  shouldn't   be  attacked  because  of   the  employee's                                                               
accident.  He stressed that  it's not appropriate to punish those                                                               
who  have   prudently  set  aside   money  in  a   pension  plan.                                                               
Furthermore, it's  not [appropriate]  to punish those  who, after                                                               
retirement,  stay   productive  by  getting  another   job.    In                                                               
conclusion, Mr. Ragan related his  understanding that there was a                                                               
very   good,  bipartisan,   ad   hoc   committee  consisting   of                                                               
representatives  of   employees  and   laborers  who   made  some                                                               
excellent suggestions.   However, somehow those  suggestions were                                                               
brushed aside  and HB  180 was introduced.   He  characterized HB
180  as a  "knee-jerk punitive  approach".   Mr. Ragan  suggested                                                               
that HB  180 be  killed and  the committee return  to the  ad hoc                                                               
committee's recommendations.   He  further suggested that  if the                                                               
desire is to  cut costs, it should be done  with massive emphasis                                                               
on  safety  in the  workplace  and  training.   Current  law,  he                                                               
charged, doesn't do enough to reward safe employers.                                                                            
MARJORIE  LINDER,  Rehabilitation  Counselor,  expressed  concern                                                               
with HB 180,  which seems to take out the  profit margin that the                                                               
insurance  companies  want.   She  related  her belief  that  the                                                               
reemployment  benefit  is  being   amended  based  on  erroneous,                                                               
unreliable,  and unverifiable  data.   The  data  is filled  with                                                               
nonrehabilitation related  costs, such as  settlement inducements                                                               
so that  employers can avoid  paying a 6 percent  assessment into                                                               
the second injury fund.   The reemployment benefits administrator                                                               
can only find one-third of the  cost reported by the carriers for                                                               
claimants under the program he administers.                                                                                     
2:39:14 PM                                                                                                                    
MS. LINDER  said that  this faulty  data is  being used  to raise                                                               
rates  for employers  and  reduce benefits  for  employees.   She                                                               
noted that the  committee should have her  testimony and exhibits                                                               
illustrating this faulty  data.  She informed  the committee that                                                               
her fees  were reported to be  $75,761 one year when  in fact she                                                               
was   paid  $43,478.     Some   carriers  have   reported  paying                                                               
rehabilitation   providers  over   $20,000  for   an  eligibility                                                               
evaluation,  which typically  cost $1,500  to $2,000.   She  then                                                               
turned attention  to exhibits two  and three, which  are examples                                                               
of different  reporting practices for  the sample carriers.   The                                                               
overall benefit is  7.4 percent, although she  mentioned that the                                                               
aforementioned  figure  can't  be  trusted because  they  are  so                                                               
disparately reported.  However,  when one reviews Freemont, which                                                               
contributed to the situation in  which Alaska finds itself today,                                                               
the data specifies it paid  15.45 percent in rehabilitation costs                                                               
[of the  eligibility costs].   The  reason the  aforementioned is                                                               
reported is  because the insurance  carrier can avoid paying  a 6                                                               
percent  assessment  on  rehabilitation  costs  into  the  second                                                               
injuries  fund,   and  therefore  non-rehabilitation   costs  are                                                               
characterized as rehabilitation costs.                                                                                          
2:42:33 PM                                                                                                                    
MS.  LINDER  turned  attention to  Wausau  (ph),  which  reported                                                               
paying 5.1 percent of its  claim dollar to monitor rehabilitation                                                               
plans  for  which  it  paid   no  one  to  write.    Furthermore,                                                               
Lieberman's  Mutual reported  paying .45  percent for  plan costs                                                               
that it paid no one to  write.  Still, these companies have large                                                               
amounts in  041k, which is  typically a waste basket  for placing                                                               
settlement  inducements.   Although the  aforementioned money  is                                                               
characterized  as rehabilitation  costs,  it isn't.   Ms.  Linder                                                               
said that  if she were an  employer, she would be  very concerned                                                               
because  the  Division  of Vocational  Rehabilitation  is  making                                                               
these insurers report  costs under the correct  column.  However,                                                               
these  are used  to  raise  rates on  employers  and  now to  cut                                                               
benefits.  These  costs aren't real, she emphasized.   Ms. Linder                                                               
directed attention  to exhibits  4 and  5, which  illustrate that                                                               
overall rehabilitation  costs have  decreased from 2002  to 2003,                                                               
yet [insurers] are  acting as if rehabilitation  costs are rising                                                               
and out of control and the  reason for this 400 percent increase.                                                               
She highlighted  exhibit 6,  which notes  Commissioner O'Claray's                                                               
written comment  that he has  found 155  people in 2002  who were                                                               
paid  rehabilitation  costs but  weren't  even  eligible for  the                                                               
benefit.   Exhibits  7  and 8  illustrate  that the  reemployment                                                               
benefit  administrator who  administrates  the  program can  only                                                               
find  one-third of  the  costs  reported by  the  carrier in  the                                                               
legitimate program that the administrator administers.                                                                          
MS.  LINDER suggested  that the  committee  ensure that  insurers                                                               
report  their costs  accurately  and in  a standardized  fashion.                                                               
Furthermore,  she   suggested  that  the  Division   of  Workers'                                                               
Compensation and  the Insurance Commission ensure  that the costs                                                               
are reported correctly before making more problems.                                                                             
2:46:20 PM                                                                                                                    
MS.  LINDER announced  that  she has  three  amendments that  she                                                               
would propose and fax to the committee.                                                                                         
2:47:23 PM                                                                                                                    
CHAIR  ANDERSON   announced  that  he  intended   to  review  the                                                               
physician  issues  brought  up  by  Mr.  Ragan  as  well  as  the                                                               
recommendations of the ad hoc  committee in order to develop some                                                               
amendments.   Chair Anderson  expressed his  desire to  hear more                                                               
testimony and  entertain amendments next Wednesday.   However, he                                                               
noted that there  is other legislation that  the committee [needs                                                               
to hear as well].                                                                                                               
2:47:57 PM                                                                                                                    
REPRESENTATIVE GUTTENBERG  highlighted that there are  people who                                                               
have  been waiting  to testify  for four  days, and  therefore it                                                               
might be  prudent to  have a meeting  dedicated to  taking public                                                               
testimony on HB 180 only.                                                                                                       
CHAIR  ANDERSON clarified  that that's  the [tentative]  plan for                                                               
next Wednesday.                                                                                                                 
2:49:01 PM.                                                                                                                   
REPRESENTATIVE GUTTENBERG pointed out  that there is concern from                                                               
small  businesses  regarding  increased  [workers'  compensation]                                                               
rates.   However, he said that  he didn't get a  sense that small                                                               
business [owners]  understand HB  180 and its  complexity, rather                                                               
they merely  want relief.  Representative  Guttenberg related his                                                               
perspective that HB 180 "doesn't  get there" with regard to lower                                                               
[workers' compensation] rates.                                                                                                  
[HB 180 was held over.]                                                                                                         

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