01/30/2002 03:20 PM House L&C
| Audio | Topic |
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+ teleconferenced
= bill was previously heard/scheduled
ALASKA STATE LEGISLATURE
HOUSE LABOR AND COMMERCE STANDING COMMITTEE
January 30, 2002
3:20 p.m.
MEMBERS PRESENT
Representative Lisa Murkowski, Chair
Representative Andrew Halcro, Vice Chair
Representative Kevin Meyer
Representative Pete Kott
Representative Norman Rokeberg
Representative Harry Crawford
Representative Joe Hayes
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
HOUSE BILL NO. 262
"An Act relating to accounting for and appropriations of
receipts from fees collected by the Department of Labor and
Workforce Development for certain inspections and for certain
plumbing and electrical worker certificates of fitness;
establishing a building safety account; and providing for an
effective date."
- MOVED HB 262 OUT OF COMMITTEE
HOUSE BILL NO. 290
"An Act relating to membership in the Comprehensive Health
Insurance Association."
- HEARD AND HELD
PREVIOUS ACTION
BILL: HB 262
SHORT TITLE:BUILDING SAFETY ACCOUNT
SPONSOR(S): LABOR & COMMERCE BY REQUEST
Jrn-Date Jrn-Page Action
04/28/01 1310 (H) READ THE FIRST TIME -
REFERRALS
04/28/01 1310 (H) L&C, FIN
01/30/02 (H) L&C AT 3:15 PM CAPITOL 17
BILL: HB 290
SHORT TITLE:COMPREHENSIVE HEALTH INSURANCE ASS'N
SPONSOR(S): REPRESENTATIVE(S)ROKEBERG
Jrn-Date Jrn-Page Action
01/14/02 1951 (H) PREFILE RELEASED 1/4/02
01/14/02 1951 (H) READ THE FIRST TIME -
REFERRALS
01/14/02 1951 (H) L&C, FIN
01/14/02 1951 (H) REFERRED TO LABOR & COMMERCE
01/30/02 (H) L&C AT 3:15 PM CAPITOL 17
WITNESS REGISTER
REBECCA NANCE GAMEZ, Deputy Commissioner
Department of Labor & Workforce Development
PO Box 21149
Juneau, Alaska 99802-1149
POSITION STATEMENT: Presented HB 262 and answered questions.
RICHARD MASTRIANO, Director
Division of Labor Standards & Safety
Department of Labor & Workforce Development
PO Box 107021
Anchorage, Alaska 99510-7021
POSITION STATEMENT: Answered questions regarding HB 262.
CECIL BYKERK, Chair
Alaska Comprehensive Health Insurance Association
PO Box 240723
Anchorage, Alaska 99524-0723
POSITION STATEMENT: Testified in support of HB 290.
BOB LOHR, Director
Division of Insurance
Department of Community & Economic Development
3601 C Street, Suite 1324
Anchorage, Alaska 99503-5948
POSITION STATEMENT: Testified on HB 290.
KATIE CAMPBELL, Actuary L/H
Division of Insurance
Department of Community & Economic Development
PO Box 110805
Juneau, Alaska 99811-0805
POSITION STATEMENT: Offered additional information on the
state's participation in ACHIA.
ACTION NARRATIVE
TAPE 02-7, SIDE A
Number 0001
CHAIR LISA MURKOWSKI called the House Labor and Commerce
Standing Committee meeting to order at 3:20 p.m.
Representatives Murkowski, Halcro, Meyer, and Crawford were
present at the call to order. Representatives Kott, Rokeberg,
and Hayes arrived as the meeting was in progress.
HB 262-BUILDING SAFETY ACCOUNT
CHAIR MURKOWSKI announced that the first order of business would
be HOUSE BILL NO. 262, "An Act relating to accounting for and
appropriations of receipts from fees collected by the Department
of Labor and Workforce Development for certain inspections and
for certain plumbing and electrical worker certificates of
fitness; establishing a building safety account; and providing
for an effective date."
Number 0075
REBECCA NANCE GAMEZ, Deputy Commissioner, Department of Labor &
Workforce Development (DLWD), explained that HB 262 is basically
a fee-for-service account. Currently, the Mechanical Inspection
section takes in just over $1 million in general funds (GF) and
is allotted about $670,000 in GF. Due to the GF cut, the
mechanical inspectors have experienced cuts. Therefore, the
Mechanical Inspection section is grossly behind, particularly
with [the inspection of] boiler and pressure vessels. Ms. Gamez
said, "I think that we're on borrowed time right now." Ms.
Gamez announced the department's support of HB 262 because it
would enable the [Mechanical Inspection section] to catch up on
its backlog in about two years. Ms. Gamez concluded, "We think
that it's a really good thing, and very necessary thing in order
to ensure the safety of Alaskans throughout the state." She
explained that the account would collect the fees and be
dedicated for inspections, and therefore the Mechanical
Inspection section would become self-sufficient in terms of
funding.
Number 0225
CHAIR MURKOWSKI pointed out that DLWD requested the introduction
of HB 262 by the House Labor and Commerce Standing Committee.
MS. GAMEZ, in response to Chair Murkowski, estimated that the
backlog consists of about 5,000-6,000 boilers or pressure
vessels and about 350 elevators. She explained that when there
is a new elevator or boiler, those are placed at the top of the
list. She pointed out that the American with Disabilities Act
(ADA) has caused the number of elevators to roughly double in
the last eight years. Therefore, [the department] feels that
[HB 262] is necessary in order to address the backlog.
Number 0407
REPRESENTATIVE HALCRO recalled testimony from three years ago in
which the commissioner of DLWD said that there was difficulty in
retaining inspectors. He asked if that is still a problem.
MS. GAMEZ deferred to Richard Mastriano, Division of Labor
Standards & Safety, DLWD. She did mention that attraction and
retention in many of the positions of the state are difficult.
Number 0596
RICHARD MASTRIANO, Director, Division of Labor Standards &
Safety, Department of Labor & Workforce Development, remarked
that boiler inspectors are difficult to find nationwide. [The
department] recruits nationwide for boiler inspectors. He
explained that because of the difficulty in [recruiting, the
department] has allowed plumbing inspectors, through statute, to
do iron clad boilers and hot water heaters that they find during
their inspection process. This is allowed in order to try to
eliminate [some of the backlog]. Still, the retention of boiler
inspectors is difficult.
REPRESENTATIVE ROKEBERG noted that in the past there has been
discussion of privatization, that is using private contractors
for the boiler inspection program. He inquired as to whether
that has been pursued by the department. He also inquired as to
the scope and cost [of privatization].
MR. MASTRIANO informed the committee that the basic cost of a
boiler inspection is $40. He explained that [the $40 cost] is
averaged across all the boilers in the state. He said that the
department felt that the costs would be significantly [higher]
if the process was privatized. Mr. Mastriano continued, "If the
boiler inspections were, in fact, privatized ..., the private
companies would probably take the 'cream,' the less costly
inspections in the state would end up having to do the costly
inspections, and you wouldn't really be able to charge
adequately to recover the cost." Mr. Mastriano felt that such a
situation would impact the [department's] budgetary constraints
imposed by the legislature. He echoed Ms. Gamez's testimony
regarding the fact that [the Mechanical Inspection section] is
only allowed to keep $670,000 of the money that is collected.
He feels that [privatization] would be cost prohibitive later.
REPRESENTATIVE ROKEBERG related his understanding that the
intent of HB 262 is to [allow the department] to keep a greater
portion or all of the money [that is collected].
MR. MASTRIANO agreed with Representative Rokeberg's
understanding.
MS. GAMEZ interjected, "So that we can hire the folks to do the
inspections."
REPRESENTATIVE ROKEBERG remarked that in view of the backlog, he
would suggest privatizing [the process enough to address the
backlog] because this is a safety issue. He said that he feels
that [the department] could draft an RFP (request for proposals)
to overcome some of the aforementioned concerns surrounding
privatization. He asked if Mr. Mastriano's testimony is that
the department has never looked into privatization.
MR. MASTRIANO answered that privatization hasn't been reviewed
as long as he has been the director.
REPRESENTATIVE ROKEBERG pointed out that the contract could be
performance-based so that there would be no added cost to the
state. Representative Rokeberg asked if Mr. Mastriano had any
statistics about the various classes of boilers.
MR. MASTRIANO offered to provide that information later.
REPRESENTATIVE ROKEBERG related his belief that most of the
boilers [that are part of the backlog] are probably commercial
or large residential boilers.
MR. MASTRIANO interjected that [most] are commercial boilers.
Number 0870
CHAIR MURKOWSKI pointed out that there are elevator inspectors
within the Municipality of Anchorage, and those elevator
inspectors perform the inspections within the Anchorage area.
Therefore, she asked if such could be done with boiler
inspections.
MR. MASTRIANO clarified that the Municipality [of Anchorage]
doesn't perform boiler inspections, although electrical and
elevator inspections are done by [the municipality]. In further
response to Chair Murkowski, Mr. Mastriano explained that [the
municipality] doesn't have anyone qualified to perform boiler
inspections. It takes five years in the program to get a
commission to inspect a boiler. Currently, the department's
boiler inspectors are very experienced. These boiler inspectors
have been recruited from boiler inspection programs in other
states. Furthermore, Mr. Mastriano wasn't sure that the
municipality would want to inspect boilers because it would have
to inspect to the state standard.
MR. MASTRIANO informed the committee that there are some
privately owned companies, the oil companies, that have their
own inspectors on staff. However, those [boilers] still have to
be reinspected by the [department] every three years.
CHAIR MURKOWSKI recalled that the municipalities actually make
money off the elevator and electrical inspections. Perhaps the
municipalities would view this as an opportunity to enhance
their own revenues. Therefore, this may be worth discussing
with the municipalities.
Number 1019
REPRESENTATIVE ROKEBERG inquired as to the qualifications of
these boiler inspectors.
MR. MASTRIANO explained that [boiler inspectors] go through
training; acquire five years of experience; and pass two
national tests in order to become qualified. Mr. Mastriano
informed the committee of his own fear that private inspection
[companies] usually pay [their employees] more than the
[department]. Therefore, the [department] is liable to lose
some of its inspectors to the private sector.
REPRESENTATIVE ROKEBERG remarked that a private contract limited
to the backlog wouldn't seem to be an issue.
MR. MASTRIANO, in response to Representative Rokeberg, agreed
that there are private certified boiler inspectors in the
insurance industry as well as the private sector of Alaska. He
also agreed that there are different types of certification for
different types of pressure vessels.
REPRESENTATIVE HALCRO inquired as to the last time the fee was
raised for boiler inspections.
MR. MASTRIANO recalled that the fee was last raised a little
over two years ago. He didn't recall what the fee was before.
REPRESENTATIVE HALCRO commented that he didn't know how a boiler
inspection could be done for $40.
MR. MASTRIANO reiterated that the fee is averaged across the
entire state. To further clarify, Mr. Mastriano explained that
although the majority of the inspections are $40, some cost a
bit more because they are more difficult.
REPRESENTATIVE ROKEBERG said that this boiler [backlog] has been
a nagging public safety issue in the state for many years, and
he would like to have it solved. Therefore, he would support
the bill. However, he noted the temptation to add some private
RFPs to diminish the backlog on a self-sustaining basis. This
could be done via a conceptual amendment.
REPRESENTATIVE ROKEBERG, in response to Chair Murkowski,
explained that [such an amendment] would seem to require an
additional section in the bill. He predicted that [an
amendment] would require some uncodified law that included an
expiration date, as well as some intent language. He specified
the following language as a possibility: "ask the department to
enter into a short-term program to cut back the backlog on a
self-sustained contractual basis." He noted the possibility of
making the amendment, sending it the drafter, bringing the
amended bill back before the committee for comment from the
department.
CHAIR MURKOWSKI remarked that such a conceptual amendment is
quite a departure from the bill in front of the committee and
thus Representative Rokeberg's suggestion of bringing the
amended bill back before the committee wouldn't be a bad idea.
Chair Murkowski expressed the need to know that there are
individuals [in the private sector] that can do this before such
a change is made to the bill. Chair Murkowski announced that
she wouldn't be adverse to holding the bill in order to see what
could be drafted.
Number 1395
REPRESENTATIVE HALCRO posed a situation in which the department
is directed to try to find a private contractor to catch up on
the backlog. During the process, the RFP comes back and costs
far more than $40 a boiler. How would such be factored into a
fiscal note, he asked. Furthermore, what would happen if there
was no response to the RFP.
REPRESENTATIVE ROKEBERG said that [the language] should specify
that the contract would only be awarded if it was cost
effective.
MR. MASTRIANO, in response to Representative Rokeberg, answered
that the department's fee schedule is adjusted by regulation.
REPRESENTATIVE ROKEBERG asked if anything in HB 262 would
overcome that periodic adjustment by regulation. Representative
Rokeberg concluded that the regulation could be adjusted in the
bill. In response to Chair Murkowski, Representative Rokeberg
explained that the bill could be changed to allow the department
to periodically adjust its fees. Therefore, the department
could raise the fee to cover the cost by an administrative
process.
Number 1518
REPRESENTATIVE HAYES said if no one can perform [the boiler
inspections] for [$40], then he assumed that it would be cheaper
to do this in-house. Therefore, he questioned why [an RFP]
would be sent out if it's cheaper to do [boiler inspections] in-
house.
REPRESENTATIVE ROKEBERG commented, "I'm sure we all realize that
government can do things cheaper than the private sector, of
course." Representative Rokeberg reiterated that one could make
the assumption, despite the testimony, that [private boiler
inspections] could be done [for $40] and the contract wouldn't
be let if that wasn't the case.
REPRESENTATIVE HALCRO related his belief that there is some
merit in the department proceeding through a public process, per
regulations, when it wants to increase its fees. It's part of
the checks and balances, he said.
Number 1585
REPRESENTATIVE HAYES inquired as to who pays the fees.
MR. MASTRIANO explained that [private sector] boilers have to be
inspected and comply with the national standard. If, for
instance, there were problems with a business's boiler, then
that business would request that the problems be corrected.
Time would be given to abate the problem. For that, the boiler
owner would receive a certificate that specifies that the boiler
complies with the standard and can be operated. If [the
problems aren't corrected], then the boiler is "red tagged" and
cannot be operated.
REPRESENTATIVE HAYES related his understanding then that the
idea is to put out an RFP for a private company to bid for the
ability to check a private sector boiler, and raise the fee to
the private sector employer so that the private sector can do
something that the state was doing cheaper. Representative
Hayes said that didn't make sense to him.
CHAIR MURKOWSKI pointed out that part of the problem is whether
the $40 is a reasonable fee that [actually] covers [the cost].
MR. MASTRIANO reiterated that the $40 fee is an average of all
the inspections of all the boilers. In response to
Representative Rokeberg, Mr. Mastriano said that under HB 262
the backlog will be [eliminated] in approximately two years.
REPRESENTATIVE ROKEBERG asked if there was an RFP with private
contractors working on the backlog as well as the state, then
wouldn't the backlog be [eliminated] much faster.
MR. MASTRIANO said that he couldn't answer that, but conceded
that the backlog probably could be [eliminated] much faster.
REPRESENTATIVE ROKEBERG continued by saying that even having
three more private boiler inspectors would allow the [backlog to
be addressed] faster. Furthermore, if the contract specified
that it couldn't cost the state more [than $40], then why
wouldn't that be a good thing.
MR. MASTRIANO answered, "I think it would be."
Number 1750
CHAIR MURKOWSKI inquired as to how often a boiler has to be
inspected. Once the backlog is eliminated, can the three boiler
inspectors keep current, she asked.
MR. MASTRIANO explained that currently there are three boiler
inspectors and two plumbing inspectors who are qualified to
perform some of the boiler inspections. Currently, these
[inspectors] are maintaining the normal inspection process,
although not decreasing the backlog.
Number 1793
REPRESENTATIVE KOTT related his understanding that the current
three inspectors [and two plumbing inspectors] would be able to
maintain a level of inspections that ensures that "we" don't
fall any further behind.
MR. MASTRIANO agreed with Representative Kott's understanding.
REPRESENTATIVE KOTT inquired as to how [the department] came to
be in this predicament.
MS. GAMEZ explained that a couple of boiler inspector positions
had to be cut over the last seven years because those were the
only GF that were available. [General funds were only
available] in the Division of Labor Standards & Safety or the
Division of Workers' Compensation. The other divisions are
primarily federally funded. Therefore, when faced with across
the board cuts, [the boiler inspector positions] were the only
option. The result was a decrease in the level of service by
almost half, and therefore [the backlog was created].
REPRESENTATIVE KOTT asked if the increased fees would allow for
additional inspectors to be placed on the rolls. If the backlog
were to be eliminated, what is the department's plan to do with
those additional inspectors.
MS. GAMEZ pointed out that there are many Baby Boomers retiring,
which she assumed to be the case with the boiler inspectors in
the next few years. Therefore, she doubted that there would be
too many boiler inspectors, particularly in light of the
difficulty in recruiting and training them. Ms. Gamez said that
she had hoped to cultivate some people to replace the workers
that have been [a boiler inspector] for a while.
MR. MASTRIANO added that there have already been a couple of
[boiler inspectors] who have addressed the fact that they are
close to retirement. Those folks have been asked to stay, and
they have agreed.
REPRESENTATIVE KOTT, recalling Representative Rokeberg's earlier
suggestion regarding privatization, inquired as to why having
three private sector personnel would be more efficient in
reducing the backlog versus [the department] hiring three more
[boiler inspectors].
MR. MASTRIANO said that he didn't know that it would.
REPRESENTATIVE ROKEBERG clarified that he had assumed that the
state wouldn't add any more [boiler inspectors if an RFP went
out]. Representative Rokeberg emphasized that the only way to
[eliminate] the backlog is to put on additional people. He
pointed out that the contract would mandate that the only way
the contract would be let is if it saved money. Furthermore, it
seems that the fee schedule needs to be reviewed. He didn't
believe that the fee schedule was competitive with the private
sector. "No wonder the state has a backlog, nobody else wants
to inspect boilers because they can't do it for $40 a pop. So,
something's not right," he charged.
Number 2026
REPRESENTATIVE CRAWFORD remarked that it seems that the fees
should be kept as low as possible for as long as possible.
Therefore, if the state can do it for $40, why do it for $89 in
the private sector.
REPRESENTATIVE ROKEBERG emphasized that the reason is the 6,000
backlogged inspections. This backlog has been around for some
time.
REPRESENTATIVE CRAWFORD highlighted the fact that presently the
[boiler] inspections bring in $1 million, but that section is
only given $670,000 with which to operate. "We are making a
$330,000 profit. With that $330,000 profit it seems to me that
we could put on another inspector or two or whatever it takes to
get the backlog done," he said.
REPRESENTATIVE KOTT pointed out that the department has found it
difficult to find qualified individuals to work for state wages.
Perhaps this would provide some opportunity to attract more
people to [become boiler inspectors]. He suspected that there
aren't very many boiler inspectors that are [looking] for work
with the state. Representative Kott also pointed out that lack
of successful recruitment would return to today's predicament,
the continuing backlog, in which case maybe the private sector
should be explored via an RFP.
Number 2128
REPRESENTATIVE HALCRO inquired as to the composition of the
backlog. Are most of the backlogged boiler inspections located
in government facilities or private facilities, he asked.
MR. MASTRIANO answered that the overdue [inspections] are spread
throughout the community. He explained that boilers come up for
inspection and as they are inspected they are placed at the
bottom of the list, and they move up the list again. Mr.
Mastriano indicated that a boiler has to be inspected every two
years. However, the [department] may not be able to get to it
for two-and-a-half years to four years.
REPRESENTATIVE HALCRO inquired as to why the [department]
wouldn't adopt a policy of self-inspection. This would be
similar to providing a certificate of insurance.
MR. MASTRIANO noted that self-inspection is done with some of
the larger companies, the oil companies. However, [the
department] is still required to periodically check those
boilers as well. Although Mr. Mastriano agreed that some of the
backlog could be addressed through self-inspections, he didn't
believe it would significantly [reduce the backlog].
REPRESENTATIVE HALCRO said that he wasn't sure how self-
inspections wouldn't help in a significant way. He explained
that under a self-inspection system, the owner of the boiler
would be responsible for finding someone to come in to inspect
the boiler. Therefore, it wouldn't impact the [department's]
fees or [staff]. Upon inspection, the owner of the boiler would
provide [the department] with the certificate.
MR. MASTRIANO echoed earlier testimony in regard to the
difficulty in finding a qualified individual to do the
inspection. Although there are some private inspectors, Mr.
Mastriano wasn't sure that people could afford them. However,
he guessed that if self-inspection legislation were passed,
folks would have to do it.
CHAIR MURKOWSKI highlighted the fact that boiler inspections are
a public safety issue. She mentioned the possibility of boiler
owners not taking the initiative to hire an inspector and thus
wouldn't be in compliance, which is a public safety concern.
Although the state could come in and inspect the boiler at this
time, the boiler owner would only pay $40 and may determine it's
a better deal [more economical] to wait for the state to inspect
the boiler.
MR. MASTRIANO pointed out that if the boiler was in really bad
shape, then the boiler could be red tagged. If the facility was
a 12-plex, the residents would have to find homes until the
boiler was brought up to code.
REPRESENTATIVE HALCRO remarked that the liability issue alone
would be a huge motivating factor for an individual to make sure
that their boiler is maintained.
MS. GAMEZ recalled a situation in which a boiler was red tagged,
and only when the department informed the business that it would
be closed due to concerns of injury or fatality did the business
make the changes. The changes were made three months after the
boiler was red tagged. She pointed out that regardless of who
inspects the boilers, they must inspect to the state standards.
Number 2365
CHAIR MURKOWSKI pointed out that no one has really commented or
objected to the creation of a building safety account per HB
262. The question seems to be revolving around how to best
address the backlog. She recalled Representative Rokeberg's
suggestion, but also recalled Representative Kott's concern that
if an RFP fails to find inspectors or creates complications,
then the backlog would [continue to mount]. "It seems to me
that this is something that if we can move on it, now is better
than later," she said.
REPRESENTATIVE ROKEBERG posed the possibility of requesting that
the department inform the committee on the feasibility of doing
a contract on a pilot basis. He commented that he wasn't even
sure that the department would need legislative authority to [do
a contract on a pilot basis]. Once the department reviews the
situation, it could be determined whether it merits any further
work on the part of the legislature. This legislation basically
provides the department with the authority to hire two
additional boiler inspectors. Such a request would allow the
legislation to move forward while the department reviews the
situation.
CHAIR MURKOWSKI agreed that it doesn't hurt to see whether [an
RFP] would be feasible.
TAPE 02-7, SIDE B
REPRESENTATIVE MEYER asked if the legislature would have to
appropriate the money from the building safety account to DLWD.
MS. GAMEZ clarified that the money would be appropriated to the
building safety account. In further response to Representative
Meyer, Ms. Gamez said that she believes that the building safety
account would work the same as the workers' compensation
section. Therefore, the money would go to a dedicated account
as opposed to a transfer from the GF every year and thus there
wouldn't have to be an annual allocation.
REPRESENTATIVE KOTT asked if a boiler owner can currently
acquire certification in the private sector and send that
certification to the department.
MR. MASTRIANO answered that the boiler would have be checked by
the [department] at some point. In further response to
Representative Kott, Mr. Mastriano explained that the boiler
would probably be inspected in three years to ensure that the
inspection was done to the state standard.
Number 2402
REPRESENTATIVE KOTT inquired as to whether the state assumes any
liability in these overdue inspections.
MR. MASTRIANO replied that he didn't know.
MS. GAMEZ said that she couldn't speak to Representative Kott's
question in terms of the backlog. However, the state has
liability when, after an inspection, the state fails to red tag
a boiler that is potentially dangerous. She offered to research
the state's liability with the backlog, and report to the
committee on that issue.
CHAIR MURKOWSKI asked if past problem boilers are placed on a
higher priority list.
MR. MASTRIANO explained that if a problem was found with the
boiler and the individual was given a period of time to abate
the problem, the individual is then given a card where he/she
notes the date the problem was abated. That card is returned to
the department and filed. If an inspector is in the area and
there is suspicion that false information was provided on the
abatement card, then the inspector will double check [that the
problem was resolved]. However, most of time the department
relies on self-audits and will believe the individual.
CHAIR MURKOWSKI asked whether that would place the department in
a liability situation.
MR. MASTRIANO specified that a red-tag situation is different
because a red-tagged boiler can't be operated. If a boiler is
found in operation before the boiler is repaired, then the
business is closed and the Department of Public Safety is
notified. A red-tagged boiler is different than a boiler that
has some problems, problems that aren't life threatening, that
need to be abated.
Number 2257
REPRESENTATIVE MEYER inquired as to who would pay the travel
costs if a school in an outlying area needed its boiler
inspected.
MR. MASTRIANO answered that the state pays all the travel costs,
which is included in the travel budget. He agreed with
Representative Meyer's understanding that the inspection fee
covers the cost of the employee only.
REPRESENTATIVE MEYER commented that $40 does seem rather cheap
and perhaps the fee could be raised in order to cover some of
the travel costs.
Number 2206
MR. MASTRIANO pointed out that although the fee could be raised,
if the [department] is only allowed to keep $670,000, then the
result would be more money in the coffers of the legislature.
REPRESENTATIVE KOTT remarked that it seems somewhat unreasonable
that [the state] absorbs the travel costs to inspect boilers in
the outlying areas. Representative Kott expressed the need to
have a revenue neutral, break even, situation. A service is
being provided to the public, and the public should expect that
it's getting its money's worth. However, he felt that $40 is a
bit low.
CHAIR MURKOWSKI recalled the suggestions presented today. There
was the suggestion that the department investigate the
feasibility of a pilot project involving an RFP to obtain
private inspectors. She noted that she [will] check with the
Municipality of Anchorage as to whether it would be interested
in making some money [by doing the boiler inspections in the
area].
REPRESENTATIVE ROKEBERG expressed his agreement to merely direct
the department to investigate the feasibility of a pilot project
involving an RFP to obtain private inspectors rather than an
amendment.
CHAIR MURKOWSKI inquired as to the will of the committee.
Number 2050
REPRESENTATIVE KOTT moved to report HB 262 out of committee with
individual recommendations and the accompanying fiscal note.
There being no objection, HB 262 was reported from the House
Labor and Commerce Standing Committee.
HB 290-COMPREHENSIVE HEALTH INSURANCE ASS'N
CHAIR MURKOWSKI announced that the final order of business
before the committee would be HOUSE BILL NO. 290, "An Act
relating to membership in the Comprehensive Health Insurance
Association."
Number 2011
REPRESENTATIVE ROKEBERG, testifying as the sponsor of HB 290,
informed the committee that he became aware of the existence and
necessity of the Alaska Comprehensive Health Insurance
Association (ACHIA) during his time as chair of the House Labor
and Commerce Standing Committee. He pointed out that ACHIA is
the insurer of last resort. The state is required under the
Health Insurance Portability and Accountability Act of 1996
(HIPAA) to have a plan such as ACHIA or another plan, a more
costly plan as Representative Rokeberg understood it, available
for those who can't obtain insurance. He explained that all
businesses covered by the Employee Retirement and Income
Security Act of 1974 (ERISA), particularly self-insured
businesses or those with larger groups, are now exempt from
paying their premium to keep the ACHIA plan going. The ACHIA
plan is funded by an assessment on the premiums of all the
health insurance underwriters in the state. The ERISA-covered
groups, which he estimated to be the bulk of all the covered
lives in the state, pay nothing towards this program. This was
made most acutely aware to the program when the state decided to
withdraw their support, which amounts to as much as 20 percent
or $400,000 plus. Therefore, the burden on other private
insurers in the state was increased.
REPRESENTATIVE ROKEBERG noted his desire to keep Alaska as
friendly to the underwriting business as possible because Alaska
has very few insurers. He estimated that Blue Cross [in]
Washington and Alaska has at least 50 percent of the market. A
few other insurers have a substantially smaller amount of the
market, and therefore Alaska is a very uncompetitive market. He
noted that in ACHIA's last fiscal year it took in $4.5 million
in guaranteed premiums from the existing health insurers in the
state. He explained that the public employees and the other
large self-insured people in the state aren't contributing to
the health care plans of the state, which he believes to be
wrong. Furthermore, he was concerned that the [Knowles]
Administration allowed the collective bargaining units to go
their own way with health insurance. That action broke down the
system of health care for all state employees and retirees,
which could result in jeopardizing the viability of the ACHIA
plan because of the diminishment of the number of health
insurers in the state, not to mention those insurers that won't
enter the state due to the ever-increasing premiums to ACHIA.
REPRESENTATIVE ROKEBERG explained that [HB 290] simply tries to
get all self-insured employers who may offer a major medical
coverage on an expense-occurred basis to come in. "In other
words, anybody we can throw ... a net out and get under ERISA to
come in, and then plus the State of Alaska," he clarified. He
expressed his belief that the State of Alaska should come back
in and pay its fair share. Representative Rokeberg turned to
the administration's indeterminate fiscal note and noted that it
has a $3.18 a month assessment on each individual. He [assumed]
that the aforementioned cost would be passed on to every state
employee, and therefore he would be viewed as causing an
increase in the health plan. He didn't feel that was correct;
the State of Alaska should pay that and not pass it on to the
employee.
Number 1717
CECIL BYKERK, Chair, Alaska Comprehensive Health Insurance
Association, informed the committee that he has been the chair
of ACHIA since mid-1994. He noted that he works for Mutual of
Omaha. Mr. Bykerk explained that [ACHIA] began operation in
1993 and has gradually grown over the past ten years to 439
policyholders at the end of 2001. Policyholders are charged
premiums that are higher than those that they could obtain in
the marketplace if these persons were insurable. However, these
policyholders aren't charged what it would take to support the
pool because it would defeat the purpose of a high risk pool.
The shortfall is spread across those insured in the state. He
echoed earlier comments that ACHIA is unable to access self-
funded plans.
MR. BYKERK explained that HB 290 attempts to broaden ACHIA's
assessment base, which he believes to be critical to the success
of ACHIA in Alaska. He pointed out that there is a greater and
greater burden on the insured population, which mainly consists
of small employers or individuals. Additionally, the
marketplace in Alaska is extremely fragile [because] there
aren't many carriers in the state. Mr. Bykerk informed the
committee that the alternative to ACHIA, as far as compliance
with HIPAA, would be some other mechanism that would undoubtedly
be a guarantee issue environment. Based on observations of
other states, Mr. Bykerk said that such an environment would
likely result in a number of carriers withdrawing from the
state. Therefore, the options would be further narrowed. Mr.
Bykerk said that he is fully supportive of [HB 290's] particular
way to broaden the assessment base because currently all the
employees of self-funded employers in the state have access to
ACHIA. If such an employee leaves an employer and has 18 months
of continuous coverage, that employee has the option of coming
into ACHIA without serving a preexisting condition, and the
employee is guaranteed access to ACHIA's pool. Therefore,
[self-funded] employers are receiving the benefit of ACHIA
without contributing, which means that the burden is transferred
to the remaining insured population in the state.
Number 1471
CHAIR MURKOWSKI asked whether any other options had been
identified beyond broadening the assessment base, as is done
with HB 290, or raising the premiums.
MR. BYKERK pointed out that there are a number of ways to gain
access to the self-insured employers. The language in Section
1(3) seems to leave [the avenue to gain access to the self-
insured employers] open. He noted that there are approaches
that aren't based on premium but rather based on covered lives.
Such an approach gains access to some of the self-insured. Some
states use a general revenue appropriation approach, but it's a
"dicey" issue. He informed the committee that one state has
attempted to [impose] a provider tax, which he likened to a per
visit or per head tax. Unfortunately, such a tax gets labeled a
"sick tax" and thus isn't well-received.
Number 1343
REPRESENTATIVE HALCRO referred to the sponsor statement, which
states that ACHIA generated about $3 million of which $2 million
was from contributions from members and $1 million in
contributions from individual premiums. However, the sponsor
statement goes on to say that ACHIA paid out $3.9 million in
claims. Therefore, it seems that ACHIA was left $900,000 short.
Who would make up that difference, he asked.
MR. BYKERK answered that there are some accounting issues that
could be addressed at a later time. He explained that ACHIA
tries to keep the number of assessments down during the year so
that administrative [costs are kept down]. For example, ACHIA
recently sent out an assessment for $2 million. However, it's
unlikely that $2 million will carry ACHIA through 2002 and thus
later in the year ACHIA will make another assessment, which he
estimated would be for $2 million. Some of the second $2
million assessment will be for 2003. Mr. Bykerk mentioned that
the numbers Representative Halcro is using are on a cash basis.
Number 1230
MR. BYKERK informed the committee that for 2001 ACHIA received
approximately $1.7 million in premiums from policyholders, paid
$4.45 million in claims, and incurred administrative expenses.
[In 2001] ACHIA assessed $3,525,000 of which $400[,000] would be
allocated to either the year 2000 or the year 2002. Therefore,
ACHIA assessed about $3.25 million on an accrual basis.
REPRESENTATIVE HALCRO related his understanding that when there
is a shortage members are assessed for that balance.
MR. BYKERK replied yes. In further response to Representative
Halcro, Mr. Bykerk agreed that the $4.4 million paid in claims
in 2001 is an increase of 15 percent from 2000. Over ACHIA's
nine years of existence, the program has grown steadily with a
few growth spurts.
Number 1089
REPRESENTATIVE ROKEBERG asked when the state removed itself from
ACHIA, and what was the premium at that time.
MR. BYKERK recalled that when the state removed itself from
ACHIA it created a significant impact on ACHIA's assessment
base. Although he noted that he would have to review the
records, he agreed with Representative Rokeberg that there was
at least a 20 percent impact when the state removed itself. He
estimated that the impact was probably more like 25-30 percent.
Number 1013
JACK McCRAE, Blue Cross Blue Shield, speaking via
teleconference, recalled that the state moved out of the pool
[ACHIA] in 1998.
REPRESENTATIVE HALCRO inquired as to the state's contribution at
the time it moved out of the pool.
MR. McCRAE referred to a document that said that prior to [the
state leaving], Blue Cross of Alaska paid about one-third of the
pool and [Blue Cross's] share would increase to about one-half
of the pool. Mr. McCrae ultimately said that he would have to
obtain more information to answer the question.
Number 0930
BOB LOHR, Director, Division of Insurance, Department of
Community & Economic Development (DCED), recalled that the state
paid $369,000 in 1997. He also recalled that the state became
self-insured in the middle of 1998. Although there were
payments [to ACHIA] in subsequent years, those payments were
lower because there were fewer state employees covered. In
response to Representative Rokeberg's question regarding the
premium at the time the state pulled out of the pool, Mr. Lohr
offered to run the numbers in order to determine what [the
premium] would have been as a percent of the total for that
year.
KATIE CAMPBELL, Actuary L/H, Division of Insurance, Department
of Community & Economic Development, explained that when the
state became self-insured in the middle of 1997, the assessments
in 1998 used 1997 data. Therefore, [the numbers] have to be
reviewed over a couple of years because there is half a year's
premium that was counted until the next year. About $130
million of the base was state employee premium. At that time,
the assessments were about 30 percent. After the state became
self-insured [the assessments] dropped to .5 percent of the
premium for all the other insurers. In the next year it moved
to .82 percent of the premium.
Number 0766
MR. LOHR began by seconding Representative Rokeberg's and Mr.
Bykerk's comments regarding the importance and effectiveness of
the ACHIA program. Nationally, there is a niche where certain
individuals are unable to obtain insurance through the private
insurance market because of medical conditions. Therefore, the
national approach has been to establish programs such as ACHIA
to provide coverage at a higher cost than the standard premium
for standard insurance. However, it's unrealistic to expect
that would cover the entire cost of the program. Therefore, the
statute provided for an assessment, which is currently based on
the total amount of premium for medical insurance written by
health insurers in the state. He explained that as a condition
of writing major medical policies in the state, [the insurance
company] must participate in ACHIA. As mentioned earlier, the
assessments have been around $3 million per year, which amounts
to approximately 1 percent of the premium. "It's expected to
probably level out somewhat at that $3 million level," he said.
MR. LOHR pointed out that if the assessment becomes too large,
as a percentage of total premium, it begins to impact insurance
decisions by those that are purchasing private insurance in the
market. One percent is probably reaching the flinch point.
Typically, the insurers pass ACHIA's assessment costs to their
members. Therefore, everyone subject to the assessment is part
of a group policy and would share in the cost of ACHIA.
However, HB 290 attempts to assess self-insured employers and
add them to [ACHIA's] assessment base to the extent permitted
under federal law. The Department of Law (DOL) has reviewed
this for the [division], and DOL doesn't believe that the
employers can be reached under the ERISA program. The ERISA
program deals primarily with pensions, as well as employee
benefits. "To the extent that the federal government has
occupied that field, they have, in fact, preempted state
regulation of those programs," he explained. The [division's]
interpretation, as guided by DOL, is that the federal government
has preempted the opportunity to compel participation in an
assessment. Therefore, the legislation would only [be able to]
include state health plans that aren't union health trusts in
the assessment base.
MR. LOHR specified that [HB 290] wouldn't include the state plan
that covers all employees when unions have not elected to
establish their own union trusts.
CHAIR MURKOWSKI related her understanding that ASEA [Alaska
State Employees Association] wouldn't be included [under HB
290].
MS. CAMPBELL replied yes, and noted that basically the General
Government Unit (GGU) went to the union trust, as well as
several others. Therefore, anyone administered by AETNA [would
be included under HB 290].
REPRESENTATIVE ROKEBERG mentioned the possibility of amending
it.
MR. LOHR informed the committee that [under HB 290] the
assessment base would increase from 300 million to 510 million
if the State of Alaska's active and former employees were
included. The state's premium would amount to approximately 40
percent, $1.2 million, or $45 per employee per year. Therefore,
those insurance companies currently paying assessments would
have their assessment reduced from approximately one percent to
six-tenths of a percent of their total health insurance premium.
Mr. Lohr said that he believes [HB 290] is a sound concept and
worth pursuing, if it can be done on an equitable basis. Being
equitable is the challenge with the ERISA preemption.
MR. LOHR recalled Mr. Bykerk's mention of an alternative
mechanism of funding, the stop loss coverage. He explained that
stop loss insurance is one mechanism to broaden the base of the
assessment, bring in more premium to the policy, and
redistribute the assessment in a equitable fashion. Therefore,
it is essentially a covered lives formula, which attempts to
take the number of individuals covered by health insurance in
various forms and eliminate the duplication in that count and
use it as the basis for assessing a premium for CHIA. He
acknowledged that any method of assessment is fairly complex
[and therefore] there would need to be a requirement to report
covered lives. Mr. Lohr specified the aforementioned as one
suggested revision to HB 290 if that approach was pursued.
MR. LOHR explained that under a covered lives approach, stop
loss insurers would be assessed on the number of lives covered
under the underlying self-insured or union trust plans.
Therefore, stop loss insurers would be assessed the same amount
per covered life as other insurers, which is presumably passed
on to the insured population. This is one mechanism that the
[division] believes to be more equitable and could result in
lower premiums for those already forced to pay into the [ACHIA]
program while reducing the impact on the insured who aren't
directly participating in the [ACHIA] plan. In conclusion, Mr.
Lohr related his belief that [ACHIA] is a ray of light in the
attempts to increase the availability of health insurance to the
uninsured in Alaska. Any mechanism that can ensure the
continued success of [ACHIA] is well worth examining.
Number 0139
REPRESENTATIVE HALCRO recalled that [DOL] has provided [the
division] with an opinion that a certain percentage of the state
employees can't be reached. He asked if those 8,400 union-
sponsored self-insured plans are the employees that can't be
reached.
MR. LOHR clarified that the opinion says that [the division]
can't reach the employer. He explained that ERISA is designed
to encourage employers to provide health benefits and other
insurance benefits to employees. When the national pattern was
reviewed, there was a wide degree of variation in the individual
state insurance that was available. Therefore, [the federal
government] decided to do a federal system that they hoped would
provide incentives to provide the coverage. "So, it is any
employer that is self-insured, that is that chooses to absorb
the cost of health insurance as part of what they provide as
opposed to hiring an insurance company to provide that
coverage," he said. If [the business] elects to provide
insurance through a private insurer, as the state did before
mid-1997, then they wouldn't be subject to ERISA and thus would
be subject to the state's jurisdiction.
MS. CAMPBELL pointed out that the State of Alaska plan can be
regulated under ERISA.
TAPE 02-8, SIDE A
REPRESENTATIVE ROKEBERG referred to a memo from Mike Ford,
Attorney, Legislative Legal Counsel, Legislative Legal and
Research Services, regarding the ERISA preemption and the
attorney general's opinion. He read the following portion of
the memo:
There has been considerable litigation over the
application [and] interpretation of the ERISA
preemption revision. Some courts have held that even
private self-insured benefit plans are subject to
state laws regulating insurance. Therefore, it is
possible that even private self-insured health care
plans would have to participate in the state health
care plan as contemplated in this draft.
REPRESENTATIVE ROKEBERG returned to the issue of the stop loss
coverage. He asked, "Couldn't we now, if we could expand this
bill, place it upon the stop loss insurance of some of these
other self-insured companies?"
MR. LOHR answered that he believes that could be done. In
further response to Representative Rokeberg, Mr. Lohr said that
he didn't know that covered lives for the premium would have to
be used. However, he believes there are several [reasons] to
recommend it as an approach. In regard to the legal battle, Mr.
Lohr related his understanding that the case has been overturned
by subsequent decisions and thus the Sixth Circuit Court of
Appeals has recognized that fact. Mr. Lohr offered to provide
Representative Rokeberg with the agreement in writing.
Number 0211
REPRESENTATIVE ROKEBERG clarified that currently the only people
paying for [the ACHIA] premium are individuals with small group
policies that aren't under ERISA or some governmental self-
insured program or a union trust. In Representative Rokeberg's
opinion, 70-75 percent of the people with health insurance in
Alaska don't contribute to the ACHIA program, which is the
largest problem. He asked if Mr. Lohr conceptually agreed with
that statement.
MR. LOHR answered that he agreed with the characterization that
a large percentage of Alaskans aren't covered directly or
indirectly by the assessment. In terms of the impact of that on
the private insurance market, Mr. Lohr said he believes
Representative Rokeberg [to be correct]. Mr. Lohr related his
belief that broadening the base of that assessment would be in
the public interest.
REPRESENTATIVE ROKEBERG remarked that he believes the cost to
the individuals or small groups that do go to those could
actually be reduced if this was adopted.
MR. LOHR mentioned that he would like to leave the Department of
Administration to testify to the State of Alaska plan. However,
in general he felt that broadening the assessment base would
make the ACHIA program stronger and reduce the disincentive to
stay covered under private and group health insurance policies.
Number 0366
REPRESENTATIVE HALCRO inquired as to whether the ability for
unions to offer union-sponsored plans was part of a collective
bargaining agreement.
MR. LOHR deferred to the Department of Administration.
[HB 290 was held]
ADJOURNMENT
There being no further business before the committee, the House
Labor and Commerce Standing Committee meeting was adjourned at
5:00 p.m.
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