Legislature(2017 - 2018)BELTZ 105 (TSBldg)

02/28/2017 01:30 PM Senate LABOR & COMMERCE

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* first hearing in first committee of referral
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<Bill Hearing Canceled>
Moved SB 45 Out of Committee
Heard & Held
Heard & Held
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-- Public Testimony --
              SB  40-OMNIBUS WORKERS' COMPENSATION                                                                          
1:46:29 PM                                                                                                                    
CHAIR  COSTELLO   reconvened  the   meeting  and   announced  the                                                               
consideration  of SB  40. She  stated  that the  intention is  to                                                               
receive  a presentation  by the  department, take  questions, and                                                               
hold the bill for further review.                                                                                               
1:47:15 PM                                                                                                                    
HEIDI  DRYGAS, Commissioner,  Department of  Department of  Labor                                                               
and Workforce Development  (DOLWD), stated that SB  40 will speed                                                               
up the resolution  of disputes, improve the  delivery of benefits                                                               
to injured  employees, deter workers' compensation  fraud, reduce                                                               
administrative  costs,  and  provide  adequate  funding  for  the                                                               
administration of  the system.  She related  that the  system has                                                               
not been significantly  changed in 10 years.  The improvements in                                                               
the  bill address  rising costs,  recent legal  developments, and                                                               
new approaches  to improve the system's  efficiency and fairness.                                                               
The bill focuses on efficiency.                                                                                                 
She  advised that  the department  would  address benefit  issues                                                               
such  as  reemployment  benefits  and medical  costs  in  another                                                               
legislative session.                                                                                                            
MARIE   MARX,  Director,   Division  of   Workers'  Compensation,                                                               
Department of Labor and Workforce  Development (DOLWD), began the                                                               
introduction of SB  40 by highlighting the pillars  of the Alaska                                                               
Workers' Compensation  system embodied  in the mission,  which is                                                               
to ensure the quick efficient,  fair, and predictable delivery of                                                               
benefits  to  workers at  a  reasonable  cost to  employers.  She                                                               
explained  what the  Division  of  Workers' Compensation  ensures                                                               
that  both  employees  and  employers   comply  with  the  Alaska                                                               
Workers'  Compensation Act.  They  also  conduct timely  hearings                                                               
when  there  is  a  dispute,  operate  an  appeals  program,  and                                                               
administer the fisherman's fund and the reemployment program.                                                                   
She advised  that Sections 10, 11,  12, 13, 18, 20,  and 39 speed                                                               
up  the dispute  resolution.  Sections  18 and  20  speed up  and                                                               
simplify the hearing process by  allowing the board to schedule a                                                               
hearing shortly  after a  claim is filed.  Under current  law the                                                               
division waits  for an employee  to request a hearing,  which has                                                               
led to inefficiencies.  Section 19 ends the  practice of allowing                                                               
non-attorneys  from representing  parties  before  the board.  An                                                               
individual may  still be  represented in  board proceedings  by a                                                               
parent,   guardian,   or   court-appointed   representative.   An                                                               
authorized employee of an employer  or medical provider currently                                                               
may  be self-represented  and that  will not  change. The  Alaska                                                               
Rules  of Professional  Conduct  currently allow  a  party to  be                                                               
represented by  an attorney or  a paralegal in their  employ, and                                                               
that will not change.                                                                                                           
1:52:18 PM                                                                                                                    
SENATOR  HUGHES asked  who as  a  non-attorney would  be able  to                                                               
represent someone.                                                                                                              
MS.  MARX  replied it  could  be  a  parent, guardian  or  court-                                                               
appointed  representative  of a  minor.  The  division will  also                                                               
continue  to  allow an  authorized  employee  of a  physician  to                                                               
appear in board proceedings.                                                                                                    
SENATOR HUGHES said  she heard concern about this  provision at a                                                               
town  hall meeting  in  Chugiak,  but that  party  may have  been                                                               
1:53:53 PM                                                                                                                    
SENATOR GARDNER  asked if excluding non-attorneys  would add cost                                                               
to the person who requested the hearing.                                                                                        
MS.  MARX explained  that it  actually increases  costs for  both                                                               
sides when  people are represented  by non-attorneys who  are not                                                               
bound by ethical and professional rules.                                                                                        
SENATOR  GARDNER commented  that  the recommendation  for an  IRS                                                               
audit is to  send a delegate because they can't  speak to another                                                               
matter the auditor may bring up.                                                                                                
SENATOR HUGHES  asked if  the division  has tracked  the outcomes                                                               
for people who are represented by a non-attorney.                                                                               
MS.  MARX said  she  doesn't  have that  data  but her  anecdotal                                                               
observation is  that it tends  to cause  delays and draw  out the                                                               
proceedings by months if not years.                                                                                             
SENATOR  HUGHES  asked if  she  had  anecdotal information  about                                                               
outcomes and whether or not the non-attorney was helpful.                                                                       
MR. MARX  said anecdotally she  saw no better outcomes  with non-                                                               
attorney  representation. She  explained  that  the division  has                                                               
fulltime staff  to provide  assistance to  those parties  who are                                                               
unable to  retain an attorney.  Work comp technicians  answer the                                                               
phones  and   help  people   fill  out   forms  and   a  workers'                                                               
compensation  officer will  talk  in detail  about  the case  and                                                               
provide information  about how to  pursue their rights  under the                                                               
Alaska Workers' Compensation Act.                                                                                               
1:56:46 PM                                                                                                                    
MS. MARX advised that the  bill also speeds up dispute resolution                                                               
by  eliminating   the  requirement  for  the   board  to  approve                                                               
settlement agreements when  the only issue is  attorney fees. She                                                               
noted that  when both  sides are represented  by an  attorney the                                                               
settlement generally does not need board approval.                                                                              
Sections 16, 22, 24, and  25 offer further efficiencies. First is                                                               
to streamline  the process by  allowing the Division  of Workers'                                                               
Compensation   to  directly   assess   civil  penalties   against                                                               
uninsured employers  instead of  petitioning the board  and going                                                               
to a  hearing. The parties would  still have the right  to appeal                                                               
to the Workers' Compensation Board.                                                                                             
1:57:54 PM                                                                                                                    
The next efficiency is to  require an employer to preauthorize or                                                               
deny medical  treatment within  60 days  of a  medical provider's                                                               
written request.                                                                                                                
CHAIR  COSTELLO  asked if  there  is  any  exception if  it's  an                                                               
emergency or the treatment is time sensitive.                                                                                   
MS  MARX  clarified  that  preauthorization  is  not  needed  for                                                               
emergency  treatment. For  non-emergencies, 60  days was  seen as                                                               
adequate  for  an employer  to  review  the medical  records  and                                                               
decide  whether  to  authorize  or deny  the  request  without  a                                                               
SENATOR STEVENS expressed concern  about delaying treatment after                                                               
an injury and asked for  examples of medical treatment that could                                                               
be delayed 60 days without harm to the patient.                                                                                 
MS. MARX offered the example of  an employee who needs surgery to                                                               
repair a torn rotator cuff. The  employer would have a maximum of                                                               
60 days  to authorize  the treatment  before incurring  a penalty                                                               
for being untimely.  She said care may be delayed  by that 60-day                                                               
limit,  but  she  isn't  sure the  current  system  provides  the                                                               
benefit to an injured worker any better.                                                                                        
2:02:50 PM                                                                                                                    
COMMISSIONER DRYGAS explained that the  original idea was that 30                                                               
days  was sufficient  because  it's  the same  time  as paying  a                                                               
medical  bill.  However,  some stakeholders  argued  persuasively                                                               
that  paying  a  bill  timely is  different  than  going  through                                                               
medical records  and evaluating whether  or not to  authorize the                                                               
treatment. That's  how the 60-day  timeframe came about,  but the                                                               
legislature has the prerogative to shorten it, she said.                                                                        
SENATOR   STEVENS  continued   to   express  reservations   about                                                               
potentially waiting  60 days to  receive treatment for  a painful                                                               
SENATOR HUGHES asked  what recourse a worker has  if treatment is                                                               
MS. MARX said the injured worker  could go ahead with the surgery                                                               
and potentially assume the cost if  it's found to be unrelated to                                                               
work, or  they could request  a hearing on  the preauthorization.                                                               
That is the current process and it takes longer than 60 days.                                                                   
CHAIR COSTELLO asked why it takes so long.                                                                                      
MS.  MARX replied  it's largely  the delay  during the  discovery                                                               
2:05:40 PM                                                                                                                    
SENATOR  HUGHES  asked if  the  board  members have  the  medical                                                               
expertise to make authorization decisions.                                                                                      
MS. MARX  explained that the  board doesn't make  the complicated                                                               
medical evaluations, but they do  weigh the expert testimony from                                                               
the medical doctors representing each side.                                                                                     
She  returned  to  the  discussion   about  improvements  to  the                                                               
delivery of  medical care in Sections  16, 22, 24, and  25. SB 40                                                               
provides a penalty  for untimely preauthorization or  denial of a                                                               
request for  treatment; it  provides that  benefits will  be paid                                                               
every 21 days;  and it continues payment of  medical bills within                                                               
30 days.                                                                                                                        
2:07:55 PM                                                                                                                    
SENATOR   STEVENS    asked   if   the   penalty    for   untimely                                                               
preauthorization or  denial is connected  to the  60-day timeline                                                               
for preauthorization or denial.                                                                                                 
MS. MARX  replied an  employer or  insurance company  must either                                                               
pay or  deny within 60  days to avoid  a 25 percent  penalty. The                                                               
same  language  currently  exists  for  medical  bills,  but  the                                                               
deadline is 30 days.                                                                                                            
2:08:58 PM                                                                                                                    
She  stated   that  the  division   is  tackling  the   topic  of                                                               
misclassification   because:  fraudulent   misclassification  can                                                               
result in  the death  or severe  injury of  workers; the  risk of                                                               
uninsured  losses can  put a  company out  of business;  and law-                                                               
abiding  employers  should   not  have  to  pay   the  price  for                                                               
misclassification.  She  emphasized  that SB  40  only  addresses                                                               
independent contractors with regard to workers' compensation.                                                                   
MS. MARX  reviewed the fraud  strengthening provisions in  SB 40.                                                               
Sections  9,  11,   14,  28,  29,  31,  34-38,   and  40:  define                                                               
misclassification  and  when  it  amounts  to  fraud;  impose  an                                                               
affirmative  duty on  employees  receiving workers'  compensation                                                               
benefits to report  work or other types of  wage loss replacement                                                               
benefits;  and  define  independent contractor  and  clarify  the                                                               
statutory  definition of  employee.  She noted  the division  met                                                               
with  various  stakeholder  groups  and  is  in  the  process  of                                                               
refining the definition of independent contractor.                                                                              
SB 40 also grants the Benefit  Guarantee Fund the right to file a                                                               
lien to ensure that assets are  available to pay the benefits for                                                               
compensation as  well as civil  penalties if the  employer didn't                                                               
carry workers' compensation  insurance. Injured workers currently                                                               
have this right.                                                                                                                
SENATOR HUGHES asked if the  definition of independent contractor                                                               
would be applicable to just these statutes.                                                                                     
MS.  MARX  confirmed  it  only applies  to  the  Alaska  Workers'                                                               
Compensation Act.                                                                                                               
She said  SB 40  also strengthens  fraud provisions  by expanding                                                               
the  division's ability  to  assess a  civil  penalty to  include                                                               
employers who: are under insured  because they have misclassified                                                               
workers   to  attain   artificially  low   workers'  compensation                                                               
premiums;  misrepresented  the  nature   of  their  business;  or                                                               
engaged in deceptive leasing practices.                                                                                         
SENATOR  GARDNER,  noting  that classification  can  be  complex,                                                               
asked   if   employers  have   an   opportunity   to  confirm   a                                                               
classification  with  the  Department   of  Labor  and  Workforce                                                               
MS.  MARX answered  yes.  She  explained that  when  there is  an                                                               
investigation  the  employer  provides information  about  proper                                                               
codes and  classification. Any penalty assessment  would be based                                                               
on substantial evidence.                                                                                                        
COMMISSIONER  DRYGAS advised  that  there is  an opportunity  for                                                               
employers to contact the department  if they have questions about                                                               
workers'  compensation  or  wage  and hour  to  ensure  they  are                                                               
operating correctly.                                                                                                            
MS. MARX added  that the division is very  proactive in providing                                                               
help to  employers to ensure  they do not have  uninsured losses.                                                               
The fraud  provisions in  SB 40  are aimed  at employers  who are                                                               
fraudulently trying  to get lower workers'  compensation premiums                                                               
to underbid  a project.  This creates  an un-level  playing field                                                               
for law-abiding employers.                                                                                                      
SB  40 also  changes the  maximum  civil penalty  for failing  to                                                               
carry workers' compensation insurance  to three times the premium                                                               
the  employer  would  have  paid   for  each  uninsured  employee                                                               
workday.  This reasonable  deterrent will  take into  account the                                                               
employer's size, the nature of  their business, and the financial                                                               
gain   they  realized   by   operating   without  full   workers'                                                               
compensation insurance.  The bill clarifies that  civil penalties                                                               
may  not  be  suspended,  but  allows for  a  payment  plan  with                                                               
interest at the state rate for judgements.                                                                                      
CHAIR COSTELLO asked what the interest rate is right now.                                                                       
MS. MARX noted that the  governing statute is AS 09.30.070(a) and                                                               
offered to follow up with the information.                                                                                      
2:17:42 PM                                                                                                                    
MS. MARX discussed the topic  of reducing administrative costs in                                                               
Sections 2-8, 15,  17, 21, 23, 26, 27, 30,  32, and 33: employers                                                               
may  pay  benefits electronically,  saving  time  and costs;  the                                                               
division may  prescribe the  filing format  of reports  of injury                                                               
and compensation  payments; and corporate executive  officers are                                                               
no longer  required to seek  division approval before  opting out                                                               
of workers'  compensation coverage for themselves,  provided they                                                               
have at least 10 percent ownership interest.                                                                                    
SENATOR STEVENS asked if someone could  be a 10 percent owner and                                                               
still opt to carry workers' compensation insurance.                                                                             
MS.  MARX  confirmed that  anyone  who  isn't required  to  carry                                                               
coverage can always  opt in. She added that  is always encouraged                                                               
and more  than pays  for itself  in the  event of  a catastrophic                                                               
SB  40  also  reduces  administrative  costs  by  adding  medical                                                               
publications  to  a  list the  department  can  incorporate  into                                                               
regulation. The  particular version  of the codes  for procedural                                                               
terminology book that  will be used is  identified through public                                                               
notice. The bill  also extends to 30 days the  time for insurance                                                               
companies  to  report initial  and  termination  coverage to  the                                                               
department, and imposes  a penalty for failure  to report timely.                                                               
Finally,  SB 40  phases out  the Second  Injury Fund  because its                                                               
purpose  is  met by  the  Americans  with Disabilities  Act.  She                                                               
clarified that the fund will continue  to be used to pay existing                                                               
SENATOR HUGHES asked how much is in the fund right now.                                                                         
CHAIR  COSTELLO  also  requested  the  balance  in  the  Benefits                                                               
Guarantee Fund.                                                                                                                 
MS. MARX  advised that  as of  FY2016 the  balance in  the Second                                                               
Injury Fund  was $3.792 million  and the balance in  the Benefits                                                               
Guarantee Fund was $2.207 million.                                                                                              
SENATOR HUGHES asked if this will save employers money.                                                                         
MS. MARX said  it would be a cost saving  for insurance companies                                                               
or employers who  get more in reimbursement than  they are paying                                                               
SENATOR HUGHES asked the length of the phase-out.                                                                               
MS. MARX said it could be  some time because most of the payments                                                               
will  go on  throughout  the claimants'  lives.  The fiscal  note                                                               
assumes a  life expectancy  of 80  and that  two or  three claims                                                               
will close each year.                                                                                                           
SENATOR HUGHES  asked if it could  be decades before the  fund is                                                               
completely phased out.                                                                                                          
MS. MARX answered yes.                                                                                                          
2:27:23 PM                                                                                                                    
MS. MARX stated that the provisions  in Section 1 of SB 40 ensure                                                               
adequate  funding   for  the   administration  of   the  Workers'                                                               
Compensation  Safety  Administration  Account.  SB  40  does  not                                                               
change current law  that provides that insurers pay a  fee of 2.7                                                               
percent  of the  net workers'  compensation premium  written. The                                                               
bill  does change  the amount  that goes  to the  Workers' Safety                                                               
Compensation Administrative Account (WSCAA)  from 1.82 percent to                                                               
2.5 percent. It also changes the  amount that goes to the general                                                               
fund  from .88  percent to  .2 percent.  This will  replenish the                                                               
WSCAA  account  that  has  been declining  since  2005  when  the                                                               
Workers' Compensation Fraud Unit  and the Medical Services Review                                                               
Committee were established and funded  through the WSCAA account.                                                               
The  bill addresses  the decline  by allowing  the department  to                                                               
receive  a greater  percentage  of the  annual  service fee  that                                                               
insurers pay.                                                                                                                   
2:29:02 PM                                                                                                                    
SENATOR GARDNER asked  why any of the annual service  fee goes to                                                               
the general fund.                                                                                                               
MS. MARX said  the previous division director told  her that 1.82                                                               
percent was sufficient to cover the  needs in 2000 when the WSCAA                                                               
account was established.                                                                                                        
CHAIR COSTELLO asked  if the legislation has a  plan should there                                                               
be any residual funds after all the claimants have passed.                                                                      
COMMISSIONER DRYGAS  explained that  the fund  will be  closed to                                                               
additional  beneficiaries, but  it will  continue to  pay out  to                                                               
claimants currently receiving benefits from the fund.                                                                           
CHAIR COSTELLO asked  what the plan is should  there be remaining                                                               
funds after all the claimants have passed.                                                                                      
MS. MARX  said that any  residual would  go to the  general fund,                                                               
but the  idea is  to adjust  the contribution  rate to  match the                                                               
existing liabilities.                                                                                                           
COMMISSIONER DRYGAS  recounted that the formula  that was devised                                                               
in   2000    didn't   have    an   adjustment    for   additional                                                               
responsibilities  such  as   the  Workers'  Compensation  Appeals                                                               
Commission and an enhanced Workers' Compensation Fraud Unit.                                                                    
2:32:44 PM                                                                                                                    
CHAIR  COSTELLO   thanked  the   presenters  and   opened  public                                                               
testimony on SB 40.                                                                                                             
2:33:17 PM                                                                                                                    
AVES THOMPSON,  Executive Director, Alaska  Trucking Association,                                                               
Anchorage,  Alaska,   testified  in  opposition  to   SB  40.  He                                                               
expressed  concern  with the  new  language  in Section  31  that                                                               
defines the  tests to determine  when a person is  an independent                                                               
contractor  for purposes  of workers'  compensation coverage.  He                                                               
outlined the  decisions that  a trucking  business owner/operator                                                               
makes and  emphasized that the  proposed changes to  the workers'                                                               
compensation statute  preclude the use of  owner/operators in the                                                               
trucking  business  in  a  number  of ways.  He  pointed  to  the                                                               
provisions in AS 23.30.230(a)(11)(A)(E)  and (F) as examples that                                                               
preclude  an owner/operator  of  a trucking  business from  being                                                               
recognized as an independent contractor.                                                                                        
He recommended providing an exemption  for truck drivers from the                                                               
provisions  of the  Act in  the same  way that  taxi drivers  and                                                               
network transportation  drivers are  exempted in current  law and                                                               
the proposed  law under  SB 14.  He noted  that the  ATA provided                                                               
language   to   address   this  issue   for   trucking   business                                                               
owner/operators. He  also recommended  adopting a  distinct truck                                                               
driver independent  contractor owner/operator  definition instead                                                               
of  tests. He  noted the  ATA has  provided specific  language to                                                               
Commissioner Drygas in that regard.                                                                                             
MR.  THOMPSON  informed  the  committee that  the  ATA  has  been                                                               
working with  Commissioner Drygas  and the  Workers' Compensation                                                               
Division to  address these  concerns and  some progress  has been                                                               
SENATOR HUGHES  asked if  he provided  the suggested  language to                                                               
the chair of the Labor and Commerce Committee.                                                                                  
MR. THOMPSON replied he would email it today.                                                                                   
2:39:35 PM                                                                                                                    
SHELLY ERICKSON,  representing herself, Homer,  Alaska, testified                                                               
in opposition to  SB 40. She stated that she  is a small business                                                               
owner who has  a claim against her  workers' compensation policy.                                                               
She maintained that  the law is written in favor  of the employee                                                               
regardless of  the situation.  She asked the  committee to  add a                                                               
section on employee fraud to SB  40; require new hires to release                                                               
their  workers' compensation  records, particularly  when special                                                               
certifications are  required; and rewrite the  language to ensure                                                               
that boat owners  aren't assumed to be  negligent. She maintained                                                               
that the laws  are written such that insurance  companies have to                                                               
"cave"  even  when  they  know  a deckhand  is  in  a  fraudulent                                                               
situation.  She emphasized  the importance  of fair  consequences                                                               
for both employers and employees if they break the law.                                                                         
2:42:41 PM                                                                                                                    
BRONSON FRYE,  Union Local 1959, Anchorage,  Alaska, testified in                                                               
support  of SB  40. He  stated  strong support  for having  clear                                                               
definitions    for    both     "independent    contractor"    and                                                               
"misclassification,"  opining that  it is  particularly important                                                               
in the  construction industry. He claimed  that certain employers                                                               
in   this  industry   are  misclassifying   their  employees   as                                                               
independent  subcontractors and  described  the unfair  advantage                                                               
this  creates in  the bidding  process. He  maintained that  this                                                               
either forces employers  out of business or causes  them to adopt                                                               
this  unscrupulous  business  model.  He  also  pointed  out  how                                                               
misclassification can jeopardize the health  and safety of unwary                                                               
employees.  He  concluded  that workers'  compensation  insurance                                                               
protects both employees and employers  when workers are correctly                                                               
2:49:23 PM                                                                                                                    
CHAIR  COSTELLO closed  public testimony  on SB  40 and  held the                                                               
bill in committee for further consideration.                                                                                    

Document Name Date/Time Subjects
2017.02.28 - Sen L&C SB 40 Revised Presentation.pdf SL&C 2/28/2017 1:30:00 PM
SB 40
DOL&WD Response to Senator's Questions.pdf SL&C 2/28/2017 1:30:00 PM
DOL&WD Response to Senator's Questions - Budget Charts.pdf SL&C 2/28/2017 1:30:00 PM
SB 45 - DCCED Response to Senator's Questions.pdf SL&C 2/28/2017 1:30:00 PM
SB 45