Legislature(2013 - 2014)HOUSE FINANCE 519

04/07/2014 08:30 AM House FINANCE

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Heard & Held
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                  HOUSE FINANCE COMMITTEE                                                                                       
                       April 7, 2014                                                                                            
                         8:45 a.m.                                                                                              
8:45:05 AM                                                                                                                    
CALL TO ORDER                                                                                                                 
Co-Chair Stoltze called the  House Finance Committee meeting                                                                    
to order at 8:45 a.m.                                                                                                           
MEMBERS PRESENT                                                                                                               
Representative Alan Austerman, Co-Chair                                                                                         
Representative Bill Stoltze, Co-Chair                                                                                           
Representative Bryce Edgmon                                                                                                     
Representative Les Gara                                                                                                         
Representative David Guttenberg                                                                                                 
Representative Lindsey Holmes                                                                                                   
Representative Cathy Munoz                                                                                                      
Representative Steve Thompson                                                                                                   
Representative Tammie Wilson                                                                                                    
MEMBERS ABSENT                                                                                                                
Representative Mark Neuman, Vice-Chair                                                                                          
Representative Mia Costello                                                                                                     
ALSO PRESENT                                                                                                                  
Jane     Pierson,     Staff,    Representative     Thompson;                                                                    
Representative   Pete   Higgins,  Sponsor;   Deb   Erickson,                                                                    
Executive  Director,  Alaska  Health Care  Commission;  Kris                                                                    
Curtis, Legislative Auditor,  Alaska Division of Legislative                                                                    
Audit;  Dr.  Ward  Hurlburt,   MD,  Chief  Medical  Officer,                                                                    
Department of  Health and  Social Services;  Thomas Studler,                                                                    
Staff, Representative Higgins.                                                                                                  
PRESENT VIA TELECONFERENCE                                                                                                    
Matt Fonder, Director, Tax Division, Department of Revenue.                                                                     
HB 314    PASSENGER VEHICLE RENTAL TAX                                                                                          
          HB 314 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
HB 376    EXTEND ALASKA HEALTH CARE COMMISSION                                                                                  
          HB 376 was HEARD and HELD in committee for                                                                            
          further consideration.                                                                                                
SB 119    BUDGET: CAPITAL                                                                                                       
          SB 119 was SCHEDULED but not HEARD.                                                                                   
SB 178    PASSENGER VEHICLE RENTAL TAX                                                                                          
          SB 178 was SCHEDULED but not HEARD.                                                                                   
HOUSE BILL NO. 314                                                                                                            
     "An Act  relating to the  application of  the passenger                                                                    
     vehicle  rental tax;  and  providing  for an  effective                                                                    
8:46:01 AM                                                                                                                    
REPRESENTATIVE  THOMPSON,  SPONSOR,  introduced HB  314.  He                                                                    
recounted  that the  legislature passed  the rental  vehicle                                                                    
tax  in 2003  in order  to help  offset the  costs for  road                                                                    
repair and  maintenance. Since  passage of  the legislation,                                                                    
the statute was amended three  times due to the law's impact                                                                    
on Alaskans. He  indicated that the bill  clarified that the                                                                    
tax  only  applied  to passenger  recreational  vehicles  as                                                                    
defined in AS 43.52.010.                                                                                                        
JANE  PIERSON, STAFF,  REPRESENTATIVE  THOMPSON, provided  a                                                                    
sectional analysis of the  current transportation version of                                                                    
the bill:                                                                                                                       
     (1) Section 1 Amends  AS 43.52.010 and consolidates two                                                                    
     existing sections,  regarding the  terms "recreational"                                                                    
     and "passenger"  into one section.  Except for  the tax                                                                    
     rates,  the factors  are  the same  for  both types  of                                                                    
     (2) Section 2 Amends AS  43.52.010 by reducing the term                                                                    
     from 90  days to 28 days,  for which a lease  or rental                                                                    
     is  exempt  from  the  rental   vehicle  tax.  It  also                                                                    
     clarifies  that  all  renewals   and  extensions  of  a                                                                    
     vehicle lease are included when  determining if a lease                                                                    
     is more  than 28 days  and, therefore, exempt  from the                                                                    
     rental  vehicle tax,  as  long as  no  time has  lapsed                                                                    
     between  the  initial  end  date   and  the  period  of                                                                    
Ms. Pierson noted that the  changes aligned with the current                                                                    
contracts used  by rental companies  and that  most visitors                                                                    
rent cars for less than twenty-eight days.                                                                                      
     (3) Section 3 Amends  AS 43.52.020 to again consolidate                                                                    
     the  terms  "recreational"  and "passenger"  to  better                                                                    
     organize the statute. This  section clearly states that                                                                    
     passenger vehicles  are taxed  at 10%  and recreational                                                                    
     vehicles are taxed at 3%.                                                                                                  
     (4)  Section 4  Repeals AS  43.52.030 and  AS 43.52.040                                                                    
     because they  are no longer  needed due to  the changes                                                                    
     made in Sections 1 and 3 together.                                                                                         
     (5)  Section  5  Provides for  an  immediate  effective                                                                    
Ms. Pierson  furthered that two  sections were  removed from                                                                    
the  current  version.  One   section  decreased  the  gross                                                                    
vehicle  weight  from  8,500 pounds  to  6,500  pounds.  The                                                                    
change increased the fiscal note  because light weight pick-                                                                    
up trucks  and some models  of sport utility  vehicles (SUV)                                                                    
fell  into the  weight class  and were  rented as  passenger                                                                    
cars. She  added that another  change pertained  to reducing                                                                    
the  rental term  from 90  days  to 28  days. Some  business                                                                    
vehicles were leased along with  heavy equipment used on the                                                                    
North  Slope or  for  mining and  weren't  driven on  public                                                                    
roads.  Decreasing the  lease period  excluded the  vehicles                                                                    
involved in business to business  leases. She noted that the                                                                    
provisions were supported in written testimony.                                                                                 
Representative   Holmes   recalled   that  last   year   the                                                                    
legislature dealt  with the tax  on leased  motorcycles. She                                                                    
asked whether the bill affected leased motorcycles.                                                                             
Ms. Pierson replied in the negative.                                                                                            
Representative  Gara stated  that he  liked the  legislation                                                                    
and  understood  the  purpose  of  the  bill.  He  supported                                                                    
addressing the  problem for  vehicle rentals  between Alaska                                                                    
business  to  Alaska  business and  the  language  regarding                                                                    
recreational and  passenger vehicles. He cited  page 1, line                                                                    
     (1) the initial lease or rental contract is for a                                                                          
     period of 28 days or more;                                                                                                 
Representative  Gara  deemed  that   28  days  was  not  the                                                                    
appropriate alternative  to solve the problem.  He indicated                                                                    
that many Alaska  visitors came for longer than  28 days and                                                                    
should  pay   the  tax.  He  suggested   crafting  different                                                                    
language that  applied an  exemption if  the rental  was for                                                                    
the purposes  of work with  another Alaska business  and not                                                                    
for recreational purposes.                                                                                                      
Ms. Pierson  replied that the  twenty-eight day  time period                                                                    
was chosen because  it was the shortest amount of  days in a                                                                    
month  and the  shortest  term of  a  commercial lease.  She                                                                    
stated   that   the   bill  had   "gone   through   multiple                                                                    
iterations." She shared a brief  summation of the issue. She                                                                    
cited a letter  from British Petroleum (BP)  (copy on file).                                                                    
She  cautioned that  a criminal  investigation was  underway                                                                    
around  the issue  which created  ethical challenges  during                                                                    
discussions   of  the   legislation.  The   business  rental                                                                    
vehicles  were  not driven  on  state  maintained or  public                                                                    
roads but  were being  taxed. The situation  was problematic                                                                    
for the  Department of  Revenue (DOR)  because they  did not                                                                    
have a way  to determine the end use of  the lease. Industry                                                                    
was receiving tax  notices for the rentals.  She was unaware                                                                    
of companies that collected the  tax, and did not submit the                                                                    
revenue to the state, but  if the scenario happened criminal                                                                    
charges should  ensue. She discerned that  the situation was                                                                    
problematic  for  when  taxes  were not  paid  for  vehicles                                                                    
destined  for the  North  Slope due  to  the description  of                                                                    
"highways"  in statute.  She noted  that statutes  contained                                                                    
three  different   definitions  of   highway.  Two   of  the                                                                    
definitions included  roads having public access  and public                                                                    
maintenance. One other definition  contained in AS 19.59.001                                                                    
described highway as follows:                                                                                                   
     (8) "highway"  includes a highway (whether  included in                                                                    
     primary  or secondary  systems),  road, street,  trail,                                                                    
     walk,  bridge,  tunnel,  drainage structure  and  other                                                                    
     similar or related structure or facility, and right-                                                                       
     of-way thereof, and further includes a ferry system,                                                                       
     whether operated solely inside the state or to connect                                                                     
     with a Canadian highway, and any such related                                                                              
Ms.  Pierson  wondered  whether   the  question  of  how  to                                                                    
interpret what a public highway  was would be best addressed                                                                    
by  the  Department  of  Revenue.  She  read  the  passenger                                                                    
vehicle tax statute:                                                                                                            
     The passenger vehicle is a motor vehicle as defined in                                                                     
     AS 28.90.990 that is driven or moved on a highway or                                                                       
     other public right-of-way of the state.                                                                                    
Ms. Pierson concluded that the issue was "hard to define."                                                                      
8:56:48 AM                                                                                                                    
Representative Gara mentioned the zero fiscal note.                                                                             
Ms. Pierson pointed out that  the fiscal note; FN1 (REV) was                                                                    
indeterminate for  changes in revenue. She  related that the                                                                    
changes reflected  in the legislation resulted  in a minimal                                                                    
reduction  in the  vehicle rental  tax  collected. A  costly                                                                    
fiscal note was associated with  the previous version of the                                                                    
bill.   The   weight   restriction  provision   alone   lost                                                                    
approximately $750 thousand in revenues for the state.                                                                          
Representative  Gara asked  whether a  business to  business                                                                    
rental would pay the rental for the first 28 days.                                                                              
Ms. Pierson  replied in  the affirmative.  She added  that a                                                                    
business vehicle rented  for less than 28 days  on the North                                                                    
Slope would also be taxed according to DOR.                                                                                     
Representative Gara referred to page  1, line 12. He deduced                                                                    
that if  the rental  was longer  than twenty-eight  days the                                                                    
leasee would  qualify for a  refund for the  initial twenty-                                                                    
eight  days.  He  wondered  why  the  initial  28  days  was                                                                    
exempted from the tax.                                                                                                          
Ms. Pierson disagreed and stated  the provisions in the bill                                                                    
specify  the  conditions  of  exemption  for  a  lease  over                                                                    
twenty-eight days. She read the  conditions [page 1, line 12                                                                    
through page 2, line 5]:                                                                                                        
     (1) the initial lease or rental contract is for a                                                                          
     period of 28 days or more;                                                                                                 
     (2) the initial lease or rental contract is in                                                                             
     writing; and                                                                                                               
     (3) the lease or rental contract is not terminated                                                                         
     before the expiration 1 of 28 days.                                                                                        
          (c)  An extension  of a  lease or  rental that  is                                                                    
          exempt under (b) of this  section is exempt if the                                                                    
          extension is agreed upon  before the expiration of                                                                    
          the  initial 28-day  lease  or  rental period  and                                                                    
          there is  no break between the  initial period and                                                                    
          the period of the extension.                                                                                          
Ms. Pierson  noted that  some vehicles  arrive at  the North                                                                    
Slope and never leave.                                                                                                          
Representative Gara  requested clarification. He  pointed to                                                                    
the conditions  on [Section 2]  page 1, lines 11  through 14                                                                    
and  page   2,  lines  1   through  5  [listed   above]  and                                                                    
ascertained that the  leasee was exempt from  the initial 28                                                                    
day  period  if  the  conditions were  met.  He  recommended                                                                    
inserting a  provision that the  leasee was not  exempt from                                                                    
the initial twenty-eight days of tax accrual.                                                                                   
Co-Chair  Stoltze  agreed  with  the need  for  clarity.  He                                                                    
recollected  the  floor  debate  on the  original  bill  and                                                                    
stated  that  there was  not  debate  about the  legislation                                                                    
affecting leased North Slope vehicles.                                                                                          
Co-Chair   Austerman  expressed   hesitancy  regarding   the                                                                    
language. He requested clarity on Section 2.                                                                                    
MATT FONDER,  DIRECTOR, TAX DIVISION, DEPARTMENT  OF REVENUE                                                                    
(via     teleconference),     relayed    the     departments                                                                    
interpretation that if the vehicle  was initially rented for                                                                    
at  least 28  days all  of  the tax,  including the  initial                                                                    
twenty-eight  days  was  exempted. He  understood  that  the                                                                    
total exemption was the intent of the bill.                                                                                     
Co-Chair  Austerman  asked  whether a  recreational  vehicle                                                                    
(RV) that was  rented for thirty days was  exempted from the                                                                    
Mr. Fonder replied in the affirmative.                                                                                          
Representative Gara stated that  many tourists rent vehicles                                                                    
for  time periods  of  thirty days  or  more. He  suggesting                                                                    
adding the  following language to  the provision on  page 1,                                                                    
line 11:  "…starting on  the 29th rental  day." The  tax for                                                                    
the initial twenty-eight day period would not be exempted.                                                                      
Representative Thompson  stated that the  suggested language                                                                    
defeated the purpose of the  legislation. He voiced that the                                                                    
bill was modeled  after the bed tax collected  in the state.                                                                    
The bed  tax was waived if  the visitor stayed over  30 days                                                                    
and  was  not  collected  for  the  first  thirty  days.  He                                                                    
believed that the provision "would  change the whole picture                                                                    
of the bill."                                                                                                                   
Representative Holmes  asked why the ninety  day period from                                                                    
the initial bill was shorted to twenty-eight days.                                                                              
Co-Chair  Stoltze  interjected  that  the  twenty-eight  day                                                                    
period   was  chosen   due  to   the   fear  of   unintended                                                                    
Ms.  Pierson  clarified  that the  twenty-eight  day  period                                                                    
attempted to address the  Alaska businesses leasing vehicles                                                                    
to  other Alaska  businesses rental  issue  but capture  the                                                                    
original intent of the bill  aimed at tourism. She indicated                                                                    
that the  Alaska business vehicle rentals  were mostly long-                                                                    
term contracts  and that the  shortest business  leases were                                                                    
28 days  long based on the  shortest month of the  year. The                                                                    
language  in   the  bill  was  taken   directly  from  DOR's                                                                    
regulations.  She  would  welcome committee  suggestions  to                                                                    
find "a better way" to write the bill.                                                                                          
9:08:11 AM                                                                                                                    
Representative  Holmes  understood   the  issue  and  wasn't                                                                    
suggesting that  the initial twenty-eight day  period should                                                                    
be taxed,  but she  expressed concern that  the twenty-eight                                                                    
day period  was too short.  She noted the statutes  cited in                                                                    
Section  1: AS  43.52.010 and  Section 2:  AS 43.52.010  and                                                                    
reported the lack  of subsection (a), which  did not conform                                                                    
to the original statute. She asked for clarity.                                                                                 
Ms.  Pierson  deduced  that  the  omission  was  probably  a                                                                    
drafting error.                                                                                                                 
Representative    Guttenberg    relayed   personal    rental                                                                    
experience  regarding  taxation.  He  believed  that  "there                                                                    
wasn't any way around…  the difference between extensions of                                                                    
a few  days versus  not having  to pay any  of the  tax." He                                                                    
wondered whether the  intent of the bill could  be met under                                                                    
any situation.                                                                                                                  
Ms.  Pierson stated  that she  was open  to suggestions  for                                                                    
Co-Chair Stoltze  understood that  a considerable  amount of                                                                    
vetting occurred  between the sponsor and  DOR. He suggested                                                                    
that Commissioner Rodell testify on  the issue. He wanted to                                                                    
avoid  any   further  "unintended  consequences"   with  any                                                                    
proposed solutions.                                                                                                             
Representative Munoz  asked what the amount  of the business                                                                    
to business tax collected annually was.                                                                                         
Ms. Pierson  replied that  the total  annual rental  car tax                                                                    
collected was $7  million. She remarked that DOR  had no way                                                                    
to determine where  the vehicles were located  in the state,                                                                    
which made  it difficult  to bracket  the tax.  She believed                                                                    
that   differences  in   the  legislative   intent  affected                                                                    
implementation of  the tax throughout  the years.  She hoped                                                                    
the original  intent regarding passenger vehicle  rental car                                                                    
use  on  Alaska's  roads  could  be  accomplished  with  the                                                                    
Representative   Munoz    suggested   deleting    the   word                                                                    
"passenger" and focus on recreational vehicles.                                                                                 
Ms.  Pierson  stated  that  deletion  of  "passenger"  would                                                                    
exempt  every   single  rental  car.  She   referred  to  AS                                                                    
43.52.099 that defined passenger vehicle and read:                                                                              
     (2)  "passenger  vehicle"  means  a  motor  vehicle  as                                                                    
     defined in  AS 28.90.990 that  is driven or moved  on a                                                                    
     highway or other public right-of-way  in the state, but                                                                    
     does not include…                                                                                                          
Ms. Pierson  stated that the  sponsor could not  find proper                                                                    
language for an additional exclusion.                                                                                           
Co-Chair  Stoltze  wanted the  discussion  to  focus on  the                                                                    
equity  issue, intended  purpose,  and whether  it was  good                                                                    
Co-Chair  Austerman  expressed  similar  concern  about  the                                                                    
legislation opening a loophole in  the law allowing a person                                                                    
renting RV's to avoid paying  taxes. The leasee would merely                                                                    
have  to extend  the  contract before  the twenty-eight  day                                                                    
period expired.                                                                                                                 
Ms. Pierson suggested dividing the  sections and keeping the                                                                    
recreational  vehicles in  a  separate  category. She  would                                                                    
confer with DOR on the language.                                                                                                
Co-Chair Austerman  understood the issue, but  felt that the                                                                    
bill did not meet the intention of the legislation.                                                                             
Representative Gara addressed the  underlying purpose of the                                                                    
legislation.  He commented  that  most of  the real  Alaskan                                                                    
businesses bought  its own vehicles. If  the legislation was                                                                    
focused  on  the  oil  industry,  he  did  not  believe  the                                                                    
industry needed  another tax break. The  legislature spent a                                                                    
lot of  time debating  oil tax breaks  last year.  He voiced                                                                    
that the "state  was in the red" and he  was not comfortable                                                                    
with that aspect of the bill.                                                                                                   
HB  314  was  HEARD  and   HELD  in  committee  for  further                                                                    
Co-Chair Stoltze  commented that  the leasing  agencies were                                                                    
the   "broader   concern"   of  the   legislation.   Alaskan                                                                    
businesses   were  in   a   "precarious"   state  with   the                                                                    
uncertainty  of the  law pertaining  to lack  of enforcement                                                                    
and collection.                                                                                                                 
HOUSE BILL NO. 376                                                                                                            
     "An Act extending the termination date of the Alaska                                                                       
     Health Care Commission; and providing for an effective                                                                     
9:18:26 AM                                                                                                                    
REPRESENTATIVE   PETE  HIGGINS,   SPONSOR,  introduced   the                                                                    
legislation.  He discussed  that  health care  costs in  the                                                                    
state  were high  and  noted the  importance  of the  Alaska                                                                    
Healthcare  Commission. The  commission  was established  to                                                                    
address  affordability  and  access  to  healthcare  and  to                                                                    
identify  strategies   for  improving  the  health   of  all                                                                    
Alaskans. He  stressed the importance  of the  commission in                                                                    
gathering  information,  which  enabled the  legislature  to                                                                    
make more  informed decisions on  the issue  and recommended                                                                    
the commission's extension.                                                                                                     
KRIS  CURTIS,   LEGISLATIVE  AUDITOR,  ALASKA   DIVISION  OF                                                                    
LEGISLATIVE  AUDIT, stated  that  the sunset  review of  the                                                                    
commission was  performed on May,  2013. The purpose  of the                                                                    
audit was  to determine  whether the commission  was serving                                                                    
the public's interest and whether  the sunset date should be                                                                    
extended.  Background  information  on  the  commission  was                                                                    
included on page  5 of the report because the  audit was the                                                                    
first sunset  review of the  commission. The  commission was                                                                    
established  by   administrative  order  in  2008   and  re-                                                                    
established  in statue  in  2010.  The legislature  intended                                                                    
that  the  commission  accomplish  reform  by  developing  a                                                                    
statewide  health  plan.  The original  commission  believed                                                                    
that it  was not its  responsibility to develop  a statewide                                                                    
plan  and   instead  focused   on  making   specific  policy                                                                    
recommendations.   In  2010,   the  commission   decided  to                                                                    
continue   the   prior   commissions  work   and   collected                                                                    
information for  various cost studies, developed  high level                                                                    
policy recommendations, and  established general priorities,                                                                    
which  evolved into  a  strategic  framework. The  strategic                                                                    
framework was included in the  audit report as "Appendix A."                                                                    
The  audit concluded  that the  commission  operated in  the                                                                    
public  interest but  improvements in  the development  of a                                                                    
state  health plan  was necessary  to justify  its continued                                                                    
existence.  She  reiterated  that the  legislature  proposed                                                                    
that  the commission  develop  a  comprehensive health  care                                                                    
plan  in  conjunction  with the  Department  of  Health  and                                                                    
Social Services (DHSS).                                                                                                         
Ms.   Curtis   continued   that  although   various   policy                                                                    
recommendations  were  developed  the commission  failed  to                                                                    
develop a  statewide health plan and  collaborate with DHSS.                                                                    
The  audit  recommended   a  three-year  extension  allowing                                                                    
adequate  time to  develop a  comprehensive plan.  The audit                                                                    
concluded that the commission  was active, conducted several                                                                    
studies,  and  developed  the  foundation  of  a  plan.  The                                                                    
framework  lacked components  necessary for  implementation:                                                                    
specific  actions  were  not identified,  no  timeframe  for                                                                    
completion,   no  entities   responsible   for  action   was                                                                    
identified,  no  definitions  of  successful  outcomes  were                                                                    
included,  or  plans  for   measuring  progress.  The  audit                                                                    
further concluded that without  a health plan the commission                                                                    
may  not affectively  change healthcare  in  the state.  The                                                                    
audit recommended  that the  commission coordinate  with the                                                                    
commissioner  of   DHSS  to  identify  agencies   roles  and                                                                    
responsibilities   in  developing   a   plan  and   initiate                                                                    
development   of  the   plan.   She  identified   additional                                                                    
administrative  recommendations to  improve the  noticing of                                                                    
public meetings  and to ensure that  annual reports included                                                                    
all statutorily required elements.                                                                                              
Co-Chair   Stoltze  questioned   the   criticism  that   the                                                                    
commission was not  coordinating with DHSS "when  a top DHSS                                                                    
official was heading the commission."                                                                                           
Ms.  Curtis  stated  that   the  department  only  partially                                                                    
concurred   with  the   audit's  findings.   The  department                                                                    
considered that  the commission's  progress was  much closer                                                                    
to a comprehensive plan. She  agreed that the commission was                                                                    
active and  the foundation was complete  but reiterated that                                                                    
what was developed  did not meet the requirements  of a plan                                                                    
and more  coordination with the department  was necessary to                                                                    
achieve the outcome.                                                                                                            
Representative Wilson  wondered why the audit  recommended a                                                                    
three-year extension instead of a  one year extension due to                                                                    
failure to develop the plan.                                                                                                    
Ms.   Curtis   stated   that  the   recommendation   was   a                                                                    
collaborative   effort   with   the   commission   and   the                                                                    
department, who concluded that three  years was necessary to                                                                    
bring a  plan forward.  She explained  that the  issues were                                                                    
complex and  that although much  work was  accomplished more                                                                    
was needed in order to establish a plan.                                                                                        
Co-Chair  Austerman asked  whether the  original legislation                                                                    
included any timeframes for developing a plan.                                                                                  
Ms. Curtis answered that no time limit was designated.                                                                          
Co-Chair  Austerman  asked   whether  the  legislation  only                                                                    
addressed the creation of a plan.                                                                                               
Ms.  Curtis  replied  that  the  language  in  the  original                                                                    
legislation required  that the commission  should coordinate                                                                    
with  DHSS  and  "may"  develop the  plan.  The  legislative                                                                    
intent  stipulated   that  DHSS  and  the   commission  work                                                                    
together to create a plan,  but the language was "not strong                                                                    
in a  definitive sense  to require"  development of  a plan.                                                                    
However,  the purpose  of the  commission's creation  was to                                                                    
create a healthcare plan.                                                                                                       
9:28:26 AM                                                                                                                    
DR. WARD HURLBURT, MD, CHIEF  MEDICAL OFFICER, DEPARTMENT OF                                                                    
HEALTH AND SOCIAL  SERVICES, noted that he was  the chair of                                                                    
the commission. He stated that  the commission felt that the                                                                    
audit process was very constructive.  He maintained that the                                                                    
health care commission did not  interpret the legislation as                                                                    
mandating   establishment  of   a  plan.   He  opined   that                                                                    
healthcare  plans "become  documents that  sit on  a shelf."                                                                    
The focus of the commission  for the previous five years was                                                                    
to  provide  clear  and specific  recommendations  regarding                                                                    
health care. The audit findings  were taken seriously by the                                                                    
commission.  The commission  was  working  closely with  the                                                                    
commissioner to develop a beneficial  plan. He believed that                                                                    
the commission's work was valuable to the legislature.                                                                          
Dr. Hurlburt related that the  average increase in teacher's                                                                    
salaries in the  Anchorage School District over  the last 15                                                                    
years increased 1  percent per year and the  cost of medical                                                                    
care   coverage  for   school  district   employee  coverage                                                                    
increased  15 percent  above inflation  over  the same  time                                                                    
period. He pointed out that  the reason the state was facing                                                                    
financial  challenges  was  largely   due  to  increases  in                                                                    
medical care  costs similar to the  increases experienced by                                                                    
the   school   district.   The  federal   government   spent                                                                    
approximately  18  percent  of the  Gross  Domestic  Product                                                                    
(GDP) of the United States  (US) on healthcare and the state                                                                    
spent 21  percent to  22 percent of  its GDP  on healthcare.                                                                    
Other industrialized  countries spent  between 9  percent to                                                                    
l2 percent of  their GDP in comparable ratios.  The US would                                                                    
have saved approximately $15 trillion  if the US expended as                                                                    
much on healthcare as Switzerland or Norway.                                                                                    
Dr.  Hurlburt continued  that the  only state  spending more                                                                    
than   Alaska  was   Massachusetts   which   had  an   older                                                                    
population.  He  added  that  97  percent  of  Massachusetts                                                                    
residents were insured due to  its "Romney Care" program and                                                                    
the state had  more physicians than any  other state. Alaska                                                                    
was  mid-range  among  the  states in  terms  of  number  of                                                                    
physicians.  He  relayed  that  studies  revealed  the  main                                                                    
reason  Massachusetts  had  the  most  expensive  healthcare                                                                    
costs was the rapid increase in pricing.                                                                                        
Dr.  Hurlburt  cited  the   Milliman  study  concluded  that                                                                    
Alaska's high cost  statistics were also due  to pricing. He                                                                    
explained  that the  members of  the Health  Care Commission                                                                    
were   comprised   of   representatives   from   physicians,                                                                    
hospitals,   nursing   homes,  behavioral   health,   health                                                                    
insurers,  tribal  health,  federal health  care,  community                                                                    
clinics,    the   public,    the   legislature,    and   the                                                                    
administration.  He  voiced  that  the members  had  done  a                                                                    
commendable  job  sharing  their knowledge  and  working  on                                                                    
behalf  of  all  Alaskans.   He  communicated  that  British                                                                    
Columbia  had   a  population  of  4.8   million  and  spent                                                                    
approximately $25 billion less than  the US would have spent                                                                    
on the  same number  of people. The  information illustrated                                                                    
that the  US was forced to  make choices on how  to allocate                                                                    
all  funding   needs  to  accommodate  the   high  costs  of                                                                    
healthcare.  The commission  was searching  for an  American                                                                    
market-based solution.  The commission  gathered information                                                                    
and  analysis and  provided a  set  of recommendations  each                                                                    
year in January  in an annual report to  the legislature and                                                                    
governor. He reported that  the commission collaborated with                                                                    
other  groups  and  human   resource  directors  for  larger                                                                    
employers  to  reach  out to  the  business  community.  The                                                                    
commission   identified   regulations  and   statutes   that                                                                    
"mitigated against  a free marketplace in  negations between                                                                    
providers and  payers." He offered that  the state purchased                                                                    
about  $2.6  billion  in  healthcare  per  year.  There  had                                                                    
historically  been  relatively little  coordination  between                                                                    
agencies,  but  recently  collaboration had  increased.  The                                                                    
state had  a "lot of  potential leverage" as a  purchaser of                                                                    
healthcare as opposed to a regulator of healthcare.                                                                             
Dr.  Hurlburt  voiced  that  the  state  needed  a  "robust"                                                                    
healthcare system in light of  the valuable service provided                                                                    
by  committed healthcare  professionals.  He concluded  that                                                                    
healthcare   in   Alaska    was   priced   excessively   and                                                                    
unsustainably high  and correcting  the problem  would cause                                                                    
"tensions."  Unique ethical and  moral dimensions existed in                                                                    
the  healthcare  industry  even   though  healthcare  was  a                                                                    
business.  The  commission  believed  that  because  of  the                                                                    
ethical  and  moral  dimensions the  leadership  needed  for                                                                    
change   would   come   from  within   the   industry.   The                                                                    
commission's  efforts  assisted   in  facilitating  industry                                                                    
Co-Chair  Stoltze asked  whether  the commission's  workload                                                                    
was  proactive  in  defining efficiencies  or  "reactive  to                                                                    
external  policies from  other political  jurisdictions" and                                                                    
how   the  workload   was  apportioned   in  attaining   the                                                                    
committee's goals.                                                                                                              
Dr. Hurlburt  responded that  the commission  as established                                                                    
by  Governor Palin  was  smaller, and  was  expanded by  the                                                                    
legislature. Much effort and time  was expended in gathering                                                                    
information  and  analysis  and educating  the  commission's                                                                    
members  and the  public.  He saw  education  as an  ongoing                                                                    
responsibility  of  the  commission.  The  commission  would                                                                    
continue  its efforts  to reach  out  to identify  different                                                                    
entities for collaboration. He saw  the commission's role to                                                                    
serve as  a "convener" of interested  entities in healthcare                                                                    
issues. He conveyed that in  prior years when the commission                                                                    
established  specific   findings  and   recommendations  the                                                                    
commission  was  careful   not  to  assign  responsibilities                                                                    
because  of  the  belief  that  was  not  the  role  of  the                                                                    
commission.  He stated  that the  commission worked  closely                                                                    
with  the   DHSS  commissioner.   He  emphasized   that  the                                                                    
commission "responded  and embraced" the audit  findings. He                                                                    
saw more  work for  the commission moving  forward resolving                                                                    
the audits recommendations.                                                                                                     
9:40:25 AM                                                                                                                    
Co-Chair  Stoltze  asked  how the  commission  was  actively                                                                    
dealing  with the  evolving federal  healthcare policies  or                                                                    
mandates.  He  wondered  what  challenges  federal  policies                                                                    
created  for the  commission and  whether  its response  was                                                                    
reactive or proactive.                                                                                                          
Dr. Hurlburt  replied that the  commission engaged  with the                                                                    
military healthcare  and tribal healthcare systems  and with                                                                    
its  commissioners  from  those sectors  of  healthcare.  He                                                                    
informed the  committee that each  of the  commissioners was                                                                    
constantly updated on  the Affordable Care Act  but that the                                                                    
commission  had not  taken a  proactive  role regarding  the                                                                    
issues surrounding the  law. The commission did  not feel it                                                                    
was the  best forum to formulate  recommendations partly due                                                                    
to "political sensitivities."                                                                                                   
Co-Chair  Stoltze  characterized  the  commission's  actions                                                                    
towards  the Affordable  Care Act  as a  "cautious defensive                                                                    
Dr. Hurlburt replied in the affirmative.                                                                                        
Representative Guttenberg  discussed the  difference between                                                                    
recommendations   and   policy.   He  believed   that   both                                                                    
recommendations and  policy were  "shelved." He  judged that                                                                    
proactively  examining health  care policy  concentrating on                                                                    
increasing  efficient   health  care  delivery   and  higher                                                                    
quality  care   could  not  be  accomplished   without  some                                                                    
confrontation   and   criticism.   He  expected   that   the                                                                    
commission would take proactive  stances and make definitive                                                                    
statements regarding road blocks  to competition or creating                                                                    
efficiencies. He wanted the commission  to identify what was                                                                    
impeding the  delivery of  quality affordable  healthcare so                                                                    
lawmakers could act.                                                                                                            
Dr.  Hurlburt   observed  that  he   saw  movement   on  the                                                                    
commission's recommendations. Changes  would create tensions                                                                    
due to  deeply held beliefs  and the large amounts  of money                                                                    
at stake.  He mentioned the commission's  recommendation for                                                                    
greater transparency which could  be accomplished through an                                                                    
all payer  claims database. The database  required payers to                                                                    
report  what they  were paying  for healthcare  services. He                                                                    
delineated   that  a   bill  was   recently  introduced   in                                                                    
Washington  State to  establish the  data base.  Premera and                                                                    
Regents  insurance companies  were  the  main opponents  and                                                                    
killed the bill. The bill  that was signed only required the                                                                    
state to report its  healthcare costs. Conflicts of interest                                                                    
were problematic.  He noted  possible conflicts  of interest                                                                    
between commission  members and the industry  they work for.                                                                    
He  mentioned that  Commissioner  Jeff Davis  was the  Chief                                                                    
Executive Officer (CEO) of Premera  in Alaska and a valuable                                                                    
commissioner working for the best  interest of all Alaskans.                                                                    
He  thought that  a similar  bill  would place  Commissioner                                                                    
Davis in  a conflict of interest.  The commission identified                                                                    
high  profit   margins  for   urban  hospitals.   The  urban                                                                    
hospitals  were run  by  outstanding  individuals but  would                                                                    
choose  to  continue  to   maintain  the  profitability.  He                                                                    
indicated  that  some   regulatory  and  legal  restrictions                                                                    
existed i.e., workman's  compensation required that payments                                                                    
were  made at  the 90th  percentile of  market pricing.  The                                                                    
requirement enabled a medical  specialty with relatively few                                                                    
providers to control the  pricing. He referenced legislation                                                                    
by Rep. Olsen's that required  that the state employ a cost-                                                                    
based methodology rather than  provider pricing. He remarked                                                                    
that  the issues  created controversy.  He  stated that  the                                                                    
issues noted were examples  of concrete recommendations that                                                                    
came from the commission.                                                                                                       
Representative Guttenberg  related hearing  complaints about                                                                    
inadequate  Medicaid reimbursement  rates.  He wondered  how                                                                    
accurate the claim was.                                                                                                         
Dr. Hurlburt  responded that Medicaid and  Medicare utilized                                                                    
a cost  based methodology  for payments. Outside  of Alaska,                                                                    
the Medicaid payments were much  lower. Washington State was                                                                    
40 percent lower than Alaska.  He mentioned discussions with                                                                    
a  hospital administrator  who expressed  that Medicare  was                                                                    
the  larger  problem.  In  Alaska,  Medicaid  payments  were                                                                    
higher than  Medicare payments. He stated  that Medicaid and                                                                    
Medicare  payments were  significantly lower  than insurance                                                                    
reimbursement in any state.                                                                                                     
9:51:05 AM                                                                                                                    
Representative  Guttenberg asked  whether a  study regarding                                                                    
the actual  costs of  delivering a  service was  compared to                                                                    
the actual Medicaid and Medicare reimbursement rates.                                                                           
Dr. Hurlburt  answered that the  cost based  methodology was                                                                    
exactly what  Medicaid and Medicare  took into  account. The                                                                    
data  employed   was  derived  from  the   American  Medical                                                                    
Association and  came directly from  the provider's  side of                                                                    
the equation.                                                                                                                   
Representative  Gara stated  that  annually  Alaska had  the                                                                    
highest healthcare  cost increases in the  country. He asked                                                                    
whether the statement was accurate and why it occurred.                                                                         
Dr. Hurlburt  stated that the  costs were driven by  a human                                                                    
tendency to charge what can  be charged in any business. The                                                                    
competition in  the state was  limited and had a  history of                                                                    
high cost. Premera reported more  pressure from employers to                                                                    
send people  to other states  because of the high  costs. He                                                                    
restated that  Alaska should maintain  a quality  and robust                                                                    
health care sector and provide services within the state.                                                                       
Co-Chair Stoltze  noted that  SB 13  was the  companion bill                                                                    
and would be heard by the committee soon.                                                                                       
HB  376  was  HEARD  and   HELD  in  committee  for  further                                                                    
9:56:34 AM                                                                                                                    
The meeting was adjourned at 9:56 a.m.                                                                                          

Document Name Date/Time Subjects
HB 314 - Correspondence between BP and DOR.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
HB 314 - HB 271 Sponsor Statement 23rd legislature.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
HB 314 - Letter of Support AOGA 3.11.14.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
HB 314 - NSLP Map.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
HB 314 - Relevant Excerpts from the Legislative History.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
HB 314 - Sectional Analysis 4.4.14.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
HB 314 - Sponsor Statement ver. O 4.4.14.pdf HFIN 4/7/2014 8:30:00 AM
HB 314
2013AnnualReportFINAL.pdf HFIN 4/7/2014 8:30:00 AM
HB 376
AHCC audit rpt-2013.pdf HFIN 4/7/2014 8:30:00 AM
HB 376
HB 376 Sponsors Statement.pdf HFIN 4/7/2014 8:30:00 AM
HB 376
Resolution.pdf HFIN 4/7/2014 8:30:00 AM
HB 376