Legislature(1997 - 1998)
05/08/1998 08:50 AM Senate FIN
| Audio | Topic |
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
MINUTES
SENATE FINANCE COMMITTEE
8 May, 1998
8:50 a.m.
TAPES
SFC 98 # 161, Side A (000-591)
Side B (591-000)
CALL TO ORDER
Senator Bert Sharp, Co-Chair, convened the meeting at
approximately 8:50 a.m.
PRESENT
In addition to Co-Chair Sharp, Senators Torgerson, Adams,
Parnell and Phillips were present when the meeting was
convened. Senators Pearce and Donley arrived shortly
thereafter.
Also Attending: Senator TIM KELLY; Representative BRIAN
PORTER; Representative PETE KOTT; Representative PETE KELLY;
DWIGHT PERKINS, Special Assistant, Office of the
Commissioner, Department of Labor; MARIANNE BURKE, Director,
Division of Insurance, Department of Commerce and Economic
Development; NANCY WELLER, Division of Medical Assistance,
Department of Health and Social Services; JIM BALDWIN,
Assistant Attorney General, Governmental Affairs Section,
Civil Division, Department of Law; JANICE ADAIR, Director,
Division of Environmental Health, Department of
Environmental Conservation; ALAN WILSON, Member, Alaska
Homebuilders Association; MIKE GREANY, Director, Division of
Legislative Finance and aides to committee members and other
members of the Legislature.
via Teleconference: From Anchorage: LINDA HALL,
Representative, Alaska Independent Insurance Agents and
Brokers; ROBIN WARD, Vice President, State Of Alaska
Homebuilders Association.
SUMMARY INFORMATION
Co-Chair Sharp explained the schedule for the meeting and
listed the bills he hoped to get through.
SENATE CS FOR CS FOR HOUSE BILL NO. 459(HES)
"An Act establishing new eligibility for medical
assistance for certain disabled persons and giving
their eligibility for services the highest priority
among optional services and groups under the medical
assistance program; amending the definition of
'personal care services in a recipient's home' as used
in the medical assistance program; moving midwife
services from being the first to being the 14th service
eliminated under the medical assistance program when
there is insufficient funding; and adjusting the
priority of optional services and optional eligible
groups under the medical assistance program in order to
reflect the new priorities given to the newly-eligible
disabled persons and to midwife services but without
otherwise changing the relative order of the other
optional services and optional groups."
This bill had been heard once before and held in committee.
Co-Chair Sharp called upon NANCY WELLER of the Division of
Medical Assistance to testify. She spoke to the fiscal note
as follows:
"This fiscal note combines the original fiscal note from the
department relating to the working disabled with the direct
entry midwives. And on page two of the fiscal note under
direct entry midwives in the middle of the page, it explains
the methodology that I used."
"The Midwives Association estimated that the midwives would
deliver 100 Medicaid eligible pregnant women per year. They
report that they're transport rate is between two and ten
percent so I assume five percent of the women would end up
being transported to a hospital and delivered there."
"I pulled our cost for hospital claims for the mother and
the infant. They totaled $2465. And that times the 95
women that we were projecting, would lead to a total of
$234,175 per year. However, we anticipate that because we
have to develop regulations in do system changes that would
be only a half-year implementation during fiscal year 99 at
best. And so I divided that number in half and also deleted
the $30,000 costs of implementing a new provider type within
our claims processing system for the first year savings of
87.1."
Co-Chair Sharp wanted to know if this fiscal note
incorporated the previous two notes. Ms. Weller affirmed.
Co-Chair Sharp compared the cost of hospital births versus
midwives births. His information stated that Medicaid would
only cover $1250 of midwife expenses and $2500 for hospital
births no mater what the total cost. Ms. Weller explained
that the hospital figure was determined using the average
claim for services. She was in the process of working with
the midwives to determine their estimated claim amounts.
Co-Chair Sharp asked how many certified midwives practiced
in the state. Ms. Weller replied that there were currently
15 licensed midwives in the state.
Senator Phillips said that he wished to withdraw Amendment
bill. Without objection, Co-Chair Sharp so ordered.
There was some discussion as to where the midwives services
would be placed on the priority list. Co-Chair Sharp
commented on how other services would qualify for coverage
using the savings realized on midwife births versus hospital
births. He didn't want to move the midwife services up the
list so far as to drop any currently funded services and
suggested placing it near the emergency services item. He
asked the department if they anticipated funding for all
currently funded services if the midwife services were
placed in that location. Ms. Weller responded that they
expected funding to still be available for the other
services.
Senator Phillips moved to insert midwife services on the
Medicaid priority list between lines 25 and 26, emergency
hospital services, and treatment of speech, hearing and
language disorders. This was titled Amendment #2.
Senator Parnell said he supported the bill as is, but would
also support the amendment with the understanding that all
other currently funded services continued if it helped move
the bill from committee.
Senator Adams objected, saying he wanted to make sure the
midwife services would be funded. He was assured they would
be and he removed his objection. So without objection,
Amendment #2 was adopted.
Ms. Weller pointed out that a title change would be
required. It was determined that the change could be made
in the Senate Rules Committee. Co-Chair Sharp asked if
there was any objection to having the Resolution for Title
Change written by the Rules Committee. There was none.
Senator Parnell offered a motion to move from committee, SCS
CS HB 459 (FIN) with new fiscal note. There was no
objection and Co-Chair Sharp so ordered.
SENATE CS FOR CS FOR HOUSE JOINT RESOLUTION NO. 44(JUD)
Proposing amendments to the Constitution of the State
of Alaska relating to redistricting and reapportionment
of the legislature; repealing obsolete language setting
out the apportionment schedule used to elect members of
the first state legislature.
Representative BRIAN PORTER was invited to join the
committee and speak to the bill, which he sponsored. His
comments were as follows:
"This bill basically does three things. It changes the
method of appointing the members of the redistricting now
board. It brings the constitution into conformance with US
Supreme Court decisions that have occurred since the
constitution was ratified and placed into existence. And
establishes in the constitution, single member House and
Senate districts basically the way they are configured
today."
"The first apportionment or redistricting board method of
appointment has gone through several iterations and the one
that is in front of the committee today is the final I hope
version of that. It basically recognizes that the state has
had in place a method of appointment that favored the
Governor. The intent of course in changing that is to try
to make it a more balanced and fair representation on that
board."
"Since the history of the state each time we have had a[n]
apportionment board appointed and proclaiming a
redistricting plan. It has been litigated the last time
quite extensively to the point that the Superior Court ended
up actually drawing the redistricting plan that was used for
the election. And even it was not satisfactory to the
Department of Justice when it went through the election -
federal election law review."
"What this iteration does I think, is keep in place to the
extent possible to still have fairness, the Governor's
appointment but takes away the ability of the Governor to
independently take the board's plan and rewrite himself or
herself, whatever the case is."
"So at this point it's the same number as the constitution
has now of board members. But it would be two appointed be
the Governor, one appointed each by the President and
Speaker, and one appointed by the Chief Justice of the
Supreme Court."
"I'd be happy to answer any questions you might have on
specific matters, but that is a general description of the
bill."
Senator Donley said he liked the proposal. He wanted
clarification on the timeline of the development of the plan
and how it related to the one-year residency requirement of
candidates. He wanted to reduce the politics of the plan.
One suggestion was to require the plan be released before
the filing for office deadline, he felt.
Representative Porter offered Representative Eldon Mulder's
staff member, TIM SULLIVAN, to address the issue. Mr.
Sullivan spoke as follows:
"The timeline begins either on September first or when we
receive the information from the census, whichever occurs
last. The board has to be appointed by September fist of a
centennially census year. And then when we receive the
census data, then the timeline begins."
Senator Donley asked what year the ten-year census was
usually completed. Mr. Sullivan explained that the next
census would be taken in April of 2000 and the data was
required to be delivered by December 31 of that year. Once
the data was received, if before September, there would be
thirty days allowed appointing the board. Senator Donley
figured the timeframe and concluded that the board might not
be in place by the end of February 2001. Mr. Sullivan
stated that the latest a plan would be produced was February
1, 2001. The board must be appointed no later than
September 2000 and they would have thirty days to develop a
plan once the data was received. After that, a sixty-day
public testimony period would occur and then they would
release a proclamation on their plan, according to Mr.
Sullivan.
Senator Donley continued figuring the timeline. He liked
the direction it gave the court that this was a priority.
It required the Superior Court to clear their docket to
address redistricting. His one concern with the system was
the speed with which the court dealt with the matter at that
point. He wanted to know if consideration had been given to
imposing timelines on the court.
Mr. Sullivan responded that with the removal of the ninety-
days previously granted the Governor to review the plan,
most time crunch worries would be alleviated. He spoke of
the primary election in 1992 where the court ordered a later
election date because of the length of time it took the
redistricting process. He did not feel this would be a
problem in the future under the proposed structure.
Senator Donley spoke of Section 9, the timeframe allowed for
appeals. He wanted to know when the thirty-day timeline
began. Representative Porter replied that it began upon the
issuance of the proclamation.
Senator Donley voiced other concerns about the one-year
residency requirement for candidacy. He realized the appeals
process would allow a candidate to challenge any
gerrymandering.
He again asked if a deadline for court action had been
considered. Representative Porter said the bill's process
began with the intent of keeping things simple. It evolved
into trying to address every issue and went back to trying
to keep things simple. Trying to anticipate every court
action, appeal and other obstacles was impossible, he
concluded.
Senator Donley suggested fixing a time for the original
Superior Court decision. This would not include the appeal
process. Representative Porter said they considered it, but
believed that requiring the court to clear their docket was
adequate. The plan could become very involved and they did
not want to require a decision before allowing the court an
opportunity to fully consider the plan.
Co-Chair Sharp felt that placing definite deadlines could be
construed as infringing on the separation of powers between
the Legislature and the Court.
Representative Porter said that this legislation requests
that the court return its decision directly to the board
rather than the Governor. He felt this would avoid some of
the litigation seen during the last reapportionment.
Senator Pearce indicated that she supported makeup of the
board set out in the original version of the bill and
wondered if the House would concur if they adopted that
version. Under that proposal, the Supreme Court Justices
would appoint the board and keep the elected officials out
of the process completely. Representative Porter listed two
considerations. The first was to get the constitutional
amendment adopted and draft a plan the voters would approve.
The other was the importance of having a board make-up of
bipartisan or nonpartisan members. Since the Governor
appointed the judges in this state, there was potential for
partisanship in board appointments. Co-Chair Sharp felt the
current delegation to each branch allowed for the most
balanced board makeup. He stressed that "balance" was the
key word. Representative Porter spoke also of the
geographical balance requirements.
Senator Donley approved of the current balance of
appointment authority. He again addressed the one-year
residency issue suggesting that the district residency for
candidacy could be shortened to six months. One-year
Alaskan residency would still be required. Representative
Porter said the Legislature could do that statutorily rather
than changing the constitution. However, he felt that this
proposal would prevent gerrymandering.
Co-Chair Sharp called upon JIM BALDWIN from the Department
of Law to comment. He testified as follows:
"I have a few comments about the resolution as it came from
the Judiciary Committee. I think the sponsor has done a lot
of work here in attempting to meet the criticism of the
resolution. Has I think acted in good faith on many of the
comments that we've been raising as this matter has moved
through the Legislature."
"There is still a basic philosophical difference that the
Administration has with the sponsor over the resolution as
it reads. And that's basically the choice that's being made
here is that in existing constitution, the approach is that
an advisory board to a statewide elected official makes the
initial - proposes the initial plan that goes to the
Governor after a 90-day period. And there's a period of
time for the citizens to petition the Governor for any
changes. And that provides an important safety valve to the
reapportionment process that the resolution before you would
no longer have."
"That was the idea that the initial framers of the State
Constitution had that there should be some safety valve to
protect the citizens from people who get all bound up in the
concept of boundaries and districts and social economic
considerations and they just plain forget about the people.
And the decision was that statewide - a statewide elected
official, the Governor would be the one best suited to
protect the interest of the people."
"And I think there's a real danger here that this resolution
would promote a process that - where the people might be
overlooked in the reapportionment process. I think there
has been an attempt to achieve balance and for that I think
that the sponsor's need to be commended."
"There are a couple points I want to make because we have -
this is a finance committee and we have submitted some
fiscal notes and we would like you to consider those fiscal
notes favorable if you're going to move this resolution on."
"In this resolution there is a policy choice that's been
made that - and it's not readily apparent from the body of
the resolution, but it's a policy choice that the state
should, in the reapportionment process, not be involved in
what are known as military surveys, which is an attempt to
try to balance the populations between urban districts and
rural districts to account for the concentration of perhaps
nonvoting military personnel and their dependants who are
clustered in the military bases near urban areas of the
state."
"What a court decision has stated in the past is that we are
obligated to go through that exercise to first determine if
we can do it. For the last reapportionment we determined -
we went through the exercise and determined we couldn't do
it. As I read this resolution it's telling us to count
every - to base our counts exclusively on the census. And
there was testimony throughout the various committees that
it the intention of the sponsors that we not deduct from
those totals, military personal who were not voting - not
qualified voters in the state. And that, depending on what
would be determined by a military survey may have the affect
as much as a single -as a district - a House district of
voters, people who would be counted in the ideal district
size that you would deduct from the totals and therefore the
rural areas of the state would benefit from such a practice
and the urban districts would not benefit from such a
practice."
"And we thing that might raise voting rights act
preclearence problems and for that reason, we submitted a
fiscal note of some $68 - $67. What we would use that money
for is to try to bring other - is to try to integrate the
information that we're gonna have from the census bureau
with our voting - what's known as our VREMS system V-R-E-M-S
that's in Voter Registration Maintenance System so that we
have other factors working together with the census
information that we're going to have so that when we go to
defend our plan, that we will have something more than just
ethnic data to support our lines. We need to start that
work soon. And it will also come in handy and will no doubt
need to preclear this resolution if it's adopted by the
voters with the US Department of Justice. And it's likely
that we will face a challenge to that from interests who
will feel that they are not benefited by this. And those
funds will assist us in obtaining whatever expert assistance
we need in developing our defense of the preclearance
application."
"Then we also have a note in our fiscal note to you saying
that we can't place an exact dollar amount on it. But if
you look in the resolution, what it says is that the
redistricting board as reconstituted in this resolution, is
to obtain independent legal services. And in the past, the
offices of the Attorney General has provided the legal
staffing for the reapportionment board. I'm not sure the
sponsor's want to stay with that now because this has
carried from the beginning of the early versions of this
where it was exclusively a legislative agency. Then it kind
of migrated to be a judicial agency. And now it's sort of a
mixture of all three branches of government. Our note to
you in our updated supplement to the fiscal note states,
'well, if you're going to contract with outside law firms
you're looking at $175 to $200 an hour. If you have the
Attorney General's office do that kind of work you're
looking at about ninety some dollars an hour - ninety-odd
dollars an hour.'"
"So we point out that you have a potential here with the
litigation - the cost of litigation, potential a couple
hundred thousand swing on the cost of legal services to
staff this board."
"So I think I could say more but it's all been said before
and I - if you have any questions, I'll be glad to take
them."
Senator Parnell addressed the safety valve aspect Mr.
Baldwin raised with the current system. The senator felt
the current system was the most partisan the state could be
engaged in where a Governor, whoever that was, was going to
be a member of a political party. He disagreed that
considering the public's opportunity to appeal to the
governor was an adequate safety valve. He felt that the
true safety valve was the court, who had the least political
interest in the districting process. Mr. Baldwin conceded
the point, but argued that the court system was part of the
current safety valve.
Tape #161 Side B, 9:35 a.m.
Senator Donley expressed a desire to work further with the
bill sponsor on the residency requirement, but that he
wanted to move the bill out of this committee today.
Co-Chair Sharp asked the committee for opinions about the
DOL's fiscal note on potential court challenges. Senator
Pearce offered that if needed, funding could be allocated in
a supplemental budget request.
Senator Phillips wondered if the fiscal noted would be
needed if the voters turned down the constitutional
amendment. Mr. Baldwin replied that the constitutional
amendment still needed to obtain preclearance from the US
Department of Justice to be allowed on the ballot.
Senator Donley offered a motion to move from committee, SCS
CS HB 44 (JUD) with accompanying fiscal notes. Senator
Adams objected and said he felt it was amazing that the
committee would spend this amount of time on a
constitutional amendment when it would not spend any time on
a subsistence constitutional amendment, which should be
first priority. While this bill was noted for it's balance
and fairness, he disagreed referring to the Legislature's
actions taken the previous day in passing legislation to
change the rules to accommodate a Senator who failed to file
APOC papers before the deadline. He argued that under this
resolution, the Legislature could change the makeup of the
reapportionment board through legislation in the future to
suit it's political desires.
Co-Chair Sharp requested a roll call. The bill moved from
committee by a vote of 6-1 with Senator Adams casting the
nay vote.
SENATE CS FOR CS FOR HOUSE BILL NO. 116(JUD)
"An Act relating to workers' compensation self-
insurance."
Co-Chair Sharp noted that when this bill was last heard in
committee, public testimony was still being taken when the
meeting ended. He therefore invited Senator TIM KELLY to
give his comments on the bill. Senator Kelly spoke as
follows:
"The idea behind this bill has been imported from the
Homebuilders national headquarters in Washington DC. They
are trying to build their membership dues and increase their
revenues from their state and local organizations to help
offset the increasing expenses of maintaining a rather
ostentatious headquarters building back there."
"It's not a bad idea. If they could organize all the
homebuilders associations throughout the US into a series of
self-insuring workers comp groups and skim off a two-percent
royalty on all premiums paid like they do in this proposal,
they could increase their national revenues by millions of
dollars a year. They would work quite nicely for the
national organization, thank you. But unfortunately,
without a large cash capital from - cash capital base from
somewhere for these local organizations, it doesn't
adequately protect either the injured workers, their
families, or the individual homebuilders who have to put
their personal and family assets at risk under the joint and
several liability clause inherent in this legislation."
"This national homebuilders self-insurance proposal's like a
big tidal wave that begin in the East, travel west and
finally made it's way several years later north to Alaska.
It's like a fad but by the time it arrived up here, it
already had begin to recede from where it came from. As
Marianne Burke of the Division of Insurance will explain, in
one of the just four states that has enacted similar
legislation to the national model act, no new groups have
formed since 1994. And in another, no new groups have
formed since 1996. And in fact, some are beginning to
dissolve."
"The reasons are simple. Many homebuilders aren't prepared
to risk the personal liability of the long-term financial
exposure and the economics of scale in a healthy competitive
insurance market don't allow a small association to compete
financially with a large well-capitalized and fully reserved
insurance company. It's like the under-capitalized
Anchorage Telephone Utility trying to compete with AT&T. It
doesn't work unless you have a monopoly and there is no
monopoly in this bill as the homebuilders are free to stay
with the large insurance companies if they so chose."
"So I call on the National Association of Homebuilders to
put up or shut up. If they are expecting individual Alaska
homebuilders to risk a personal and family financial
security, so as to increase the revenues to the national
association 4,000 miles away, then they should provide the
cash capital that is necessary to give the local groups a
fighting change to succeed."
"As you already know, the homebuilders in Alaska don't need
this legislation to self-insure. They could do so tomorrow
under existing Alaska law by raising a million and a half
dollars in capital and forming their own reciprocal. End of
story, they're self-insured."
"But there are at least two problems associated with this
approach. They don't have, or won't invest the capital
required. And two, the national association wouldn't be
able to siphon off their two percent a year."
"Alaskan homebuilders could also, by the way, get together
and organize a group called a purchasing pool and go out to
bid on a combined volume basis for the lowest rate among the
many workers comp carriers. There is no shortage of workers
comp insurance companies in Alaska. It's a very competitive
market. That's exactly how one of Alaska's two existing
reciprocals, AERCA, began before evolving into the
successful reciprocal it is today. That's called starting
small and growing big. But of course, it's unacceptable to
the Washington DC crowd because they wouldn't get their two
percent skim that they call a royalty."
"Reciprocals work in Alaska as shown by the timber exchange
and AERCA but before they became successful they had several
rough times when they had to dip into their capital
reserves. The initial capital contribution and a strong
oversight by the Division of Insurance is why they became
successful."
"The proposed legislation before you has none of the first
and not enough of the second. This proposed legislation has
the promise to pay but doesn't have any real reserve ability
to do so. They hope to get lucky and live off of policy
premiums alone. That's not my idea of sound public policy."
"Remember the tradeoff in workers compensation. And injured
worker gives up the right to sue for damages in a court of
law for the security of immediate payment of loss wages and
medical treatment. There is simply not enough security for
injured workers and their families in this proposal for them
to give up that right to sue and you shouldn't force them
to."
"Not a single committee in this Legislature has taken a
serious look at the financial ability of these relatively
small self-insured groups to survive economically. Most
everyone else has been sort of overcome by a well organized
grass roots lobbying effort and have simply ignored the
bottom lined financial inadequacy."
"Until this Legislation addresses the financial security of
injured workers and their families, and about ten percent of
our workers get injured a year, and the financial security
of the Alaska Homebuilders as well, I will continue to
oppose it. I am counting on this committee to fix the
financial responsibility issue. I have asked Senator Adams
to submit five amendments for me that I have been working on
with the Division of Insurance. There is good reason why
those commercial - those that commercially promise to insure
others are among the most heavily regulated of all of our
industries. And that reason as centuries of experience has
shown that without adequate capital in reserves, average
people will get ripped off and not just by the fraudulent
companies, but by those with every good intention as well."
Co-Chair Sharp next called upon LINDA HALL of the Alaska
Independent Insurance Agents and Brokers to testify via
teleconference from Anchorage. She spoke as follows:
"I want to give a very brief description of our
organization. Our members are independent insurance agents
across the state. We represent insurance agencies with
several hundred employees. These are small business people
in every community in the state. We are in Fairbanks,
Bethel, Kenai, Homer, Sitka, Juneau, Anchorage. These are
people who provide services who work with employers, who
work with the consumers."
"We've listened and had discussion on this bill for the two
years it's been in the Legislature. You've heard discussion
and most of you heard me. You've read our position papers
as we've discussed the issue. Richard Block gave testimony
last week. Director Burke will be talking today. I see no
reason for me to take your time in reiterating the financial
intricacies of this bill."
"I would like to focus on two issues today. One are the
allegations that there are few in opposition to this bill.
I've heard it said that there are only three people that
oppose the bill: Director Burke, Linda Hall and one single
for-profit insurance company. I would submit to you that
there are many people who oppose this bill but as you
understand what political suicide is, my members understand
what business suicide is. These are small business people.
They write the insurance for the homebuilders along with
many other business people. It's very difficult to stand up
and oppose the bill and not have ramifications."
"Our organization unanimously opposes the bill. As
individuals, it's difficult to put together opposition
letters and sign them because it has an impact. I would
submit that this is become an emotional power struggle.
There have been reams of data showing why this bill is
financially unsound. Division of Insurance has repeatedly
testified to that."
"The other issue that I would like to address today is who
pays. Who pays for the administration of this bill? I have
heard testimony that all of the safeguards in the bill are,
'by approval of director', 'upon the approval of the
director'. That requires a tremendous amount of staff time
and the director's time. I don't see any provision to
reimburse the state for those administrative and oversight
costs. A very expensive process."
"As Senator Kelly indicated, this is a highly regulated
industry. And we work with those regulators on a daily
basis. We are all subject to those regulations and it's
very expensive to do that. It's expensive to regulate and
it's expensive to be regulated."
"The other 'who pays issue.' If this bill passes, self-
insurance are groups formed and they fail, who pays? We've
heard testimony that it can't fail. There are safe guards
in place. But they do fail. There have been failures in
states. Alaska is very small. We have a small number of
people we have a small marketplace. We've seen stats from
New Mexico that there are 125 participants in their self-
insurance plan has grown to 1500. By their own newsletters,
the Homebuilders Association only has 360 total members.
They can't possibly grow to 1500. There is a size necessary
to make these types of plans successful and I don't think we
have that in Alaska."
"The other problem with who pays is, if we have a self-
insurance plan and they're very selective about who can
participate in that plan to make sure they're willing to
abide by safety regulations and consideration for their
fellow employees, what happens to rest of the people who
can't participate? Do we really expect an insurance
industry to insure only the quote, undesirable employees?
That doesn't seem to make sense."
"As my bottom line, I would echo Senator Kelly's - there are
other methods available, this is unnecessary. Reciprocals
are available. [Undecipherable] timber exchanges has been
very successful. Purchasing groups are also allowed under
state statute. The ability to join together and take
advantage of group size to purchase and negotiate discounted
insurance with none of the risks."
"Again, I appreciate the opportunity to testify and I tried
to keep it brief. And I would be happy to answer any
questions regarding."
Next, ROBIN WARD, Vice President of the State of Alaska
Homebuilders Association, also connected to the meeting via
teleconference from Anchorage, was called upon to testify.
Her comments were as follows:
"I appreciate the opportunity to testify today. There are
several things that I would like to clarify for the
committee. It has been mentioned that the National
Homebuilders Association would be involved. I need to
clarify that they are not involved. The only thing that
they have done, is share models, language for the bill."
"Any royalties that we could afford to our state association
or local associations would stay in the state. So there is
no financial involvement with our national group."
"This type of legislation is allowed and working in 37 other
states. And if you'll notice the bill is not the
homebuilder's bill. We just happen to be the first trade
association to push this type of legislation. But any trade
association that qualifies would be able to start this,
whether it be the miners or truckers or general contractors.
So it's not actually not just the homebuilders that would be
using this. We've identified at least eight other trade
associations that would have the membership to be able to
actually start and work a group like this."
"I also need to clarify that we do have 897 members
statewide. We do expect it to grow probably to 1300-1500 by
the time that we can get something like this up and
rolling."
"I do want to make sure that people understand again this
not our bill. This is a trade association bill. We want the
opportunity to research the ability to get into business. We
can't do that until we have the legislative rights to do
that."
"I will be happy to answer any questions."
Senator Phillips asked about the issue of the royalties paid
to the national headquarters and wanted to know if this bill
would prohibit any future contributions. Ms. Ward said it
would not.
Co-Chair Sharp then called upon MARIANNE BURK the Director
of the Division of Insurance. She testified as follows:
"For the past two legislative sessions there have been
literally hours of testimony about this bill. And I will
not take this committee's time to rehash all of the various
points. I do however, feel that it's extremely important
that we address some critical issues especially on the
financial side of this proposed legislation."
"And I would start by reminding this group of something that
I know you all already know. But for the members, all of
our constituents, I would just like to again start my
testimony with the fact that we need to keep in mind, the
workers have given up their rights to sue their employers
for the assurance that they will have medical treatment and
they will have some money for living expenses. That is in
my opinion, the heart of this issue."
"We've had testimony that the rates in this state are high.
I would submit, and this is verifiable by official records,
that since the major legislation that was enacted in 1988,
making massive changes in the workers comp statutes, that
the rates have continued to go down. One year there was
zero change. Two years there were increases. One, 2.4 and
one, 2.6. Other than that, the rest of the seven years,
each one has been a decrease. In the past three years the
decreases have been quite significant for the homebuilders
themselves. And I would acknowledge that this bill is
available to any trade association. But the testimony has
been geared toward the homebuilders."
"I would like to point out for the record that, of the three
classifications that the homebuilders are in, such as
carpentry, detached one, two-story dwellings, carpentry
dwellings three stories or less, end carpentry installation
of cabinets. These rates have continued to go down in the
past ten years. One category, installation of cabinetwork,
nine out of ten years, there's been a decrease. It's gone
from $14.76 per hundred, to $6.71. Carpentry two-story,
seven of the ten years it's gone down. It's gone down from
$17.66 to $11.22. For the other carpentry category again,
seven out of the ten years it's decreased. From $18.80 to
$11.88. This is official record and this is what the
individual employers have been starting at their manual
rate."
"There has been a lot of testimony about the fact that
workers comp is extremely profitable in the State Of Alaska.
In fact, testimony was introduced that it was 20-30 percent
profit. I introduced at an earlier committee meeting, the
National Association of Insurance Commissioners' profit
ability by line, by state, which showed that 30 of the
states either are more profitable or equal to Alaska. And
the profitability for workers comp in Alaska is 11.4. Quite
a difference from the 20-30 plus percentage that has been
presented."
"There has been testimony that we should allow
entrepreneurial activities. I wholeheartedly support
entrepreneurial activities. In fact, Mr. Chairman, members
of this committee, I have formed for an employer, self-
insurance. So it does have a place in the scheme of things.
However, again we must be sure the employees are protected.
If you're an individual employer in the state you can be
self-insured. But you've got to have a net worth of $5
million. And it's got to be proven by audited financial
statements every year."
"If you are a group of small employers and you want to form
a purchasing group, you can. There is nothing standing in
your way. You can group together and market for your
coverage. This is true entrepreneurialship."
"Reciprocals are also available, and I won't dwell on those.
I just want to point out that we do have two outstanding
examples in this state. The Alaska Timber, which started out
with full capitalization by their members, today has $6.8
million in surplus. The AERCA, which again is an excellent
example of entrepreneurialship in it's finest. This group
started out again, with proper capitalization. And actually
their premium base is similar with the premium base that is
called for in this legislation. Today, they again are one
of the outstanding examples of making it work. They've
plowed their profits back in to reducing their workers comp
premiums. Today they have almost $14 million in their
capital [undecipherable]."
"A lot of testimony has been given about the NAIC model law.
The NAIC did adopt this law at a time where in many states;
there was genuine prices in the workers comp market.
Senator Kelly pointed out that only four states have adopted
similar legislation. This documentation is attached to the
model act and I would be happy to introduce this into the
record. The model act has on the back, those states that
have adopted model or similar legislation. There're only
four. Those four are Pennsylvania, New York, Tennessee and
New Mexico."
"I have talked to the departments to get information about
how this has worked for them. Pennsylvania only requires
$500,000 of premium to form one of these entities. However,
you must pay the full $500,000 up front day one. The
legislation before you requires only 25 percent of a million
dollars or $250,000. Pennsylvania also requires surety
bonds to be as high as $800,000. Since they adopted this
legislation, 25 groups in total have formed. No new groups
have formed in the past few years. When I questioned why, I
was told because workers comp rates are going down and the
workers comp is cheap enough that who wants to go on risk
individually. They have had four groups go out of
business."
"Tennessee has twelve groups. Four of those groups have
been dissolved. Two more are likely in the near future.
All members of those groups must be approved by the
Department of Insurance, something that is not called for in
this legislation."
"New Mexico however has been held out as an example in
several different committee meetings. New Mexico has had no
new groups since 1994. They raised their net worth - the
combined net worth from one million dollars, which is what
this bill calls for, to three million dollars. But probably
the most significant difference is the level of benefits.
In New Mexico, the maximum per week benefit to an injured
worker is $353. In Alaska it's $700. The minimum benefit
is $36. In Alaska it's $154. I submit that that in itself
is a significant difference on whether or not there is
sufficient money to protect the workers."
"I would also submit, but I have no evidence to prove -
support this, that in all likelihood the medical care in New
Mexico is not as high as it is in Alaska."
"We have this bill before us and with the chairman's
permission, I have a handout that I would like to share with
the committee members, which will analyze this proposed
legislation."
"This has been prepared by the Division of Insurance and I
would like to stress that I will identify for you the number
that we came up with. However, the categories of expenses
and the percentages are directly from experts that the
homebuilders hired to come up and testify. And I will tell
you up front that the credentials of their experts have been
excellent. I do not disagree with the qualifications of
their experts in any way."
"The first page says the analysis of the premium proposed.
And I urge you to keep these numbers in mind. Seventy
percent of a million dollars must, according to the proposed
legislation, buy excess insurance and pay the claims.
Thirty percent is available to pay the administrative
expense. And on day one, will have one quarter or $250,000.
Will have $75,000 for the administrative claims and $250,000
to buy the reinsurance - or buy the excess insurance and pay
claims. Mr. Chairman, members of the committee, excess
insurance must be paid for when you buy it. You cannot get
an installment plan."
"The second page is especially important and I want to make
sure that I give credit to where the numbers and categories
did in fact come from. On your left, you have a list of
expenses. Then you have percentages and that percentage
applied to $1.3 million of premium. Now why $1.3 million?
The consultant that came up to testify for the homebuilders
who is with the Frank Gates Service Company, a well-
established reputable third-party administrator, said that
is what they had just done so the numbers were as current as
he could get. I asked him why he didn't use the one
million. And his response to me was that they would be
uncomfortable with anything less than a million dollars.
But back to this page, as you can see, they have provided
categories, none of which I would dispute would be necessary
for the implementation and running of this program."
"He did include royalties to the associations and that is
two percent. He said it is two percent of the premium,
whether it's a million dollars or ten million dollars is two
percent."
"You can see that the total percentage is below the 30
percent. However, there are expenses that are called for in
this legislation that he did not include. And if I could
direct the committee meeting to the page titled 'analysis of
expenses of self-insurance group'. These are expenses that
are required by this proposed legislation. We have crossed
referenced them to the specific section in the bill. The
second injury fund payment is required. And it by the way
is required of anyone insuring in the state. The guarantee
fund assessment is a one-time only five- percent payment.
That's $50,000. Now that money, according to the
legislation, is to be set aside as a safety net. When we
start day one that's all they have to have as a safety net,
$50,000 in that guarantee fund."
"It also calls for surety bond of $450,000. We have checked
with a variety of insurance companies and bonding companies
and this amount is on the low end. This is a number we got
from riders in the State Of Alaska. The legislation also
calls for fidelity bond errors and omissions and performance
bonds. Again, these are numbers that we called Alaskans to
get quotes for. Keep in mind we're getting quotes. They're
not necessarily what they would have to pay because this is
a start-up group and they could be higher but I would be
extremely surprised if they were lower."
"So when we can take those costs, not optional costs, but
costs that are called for in the legislation and bring them
over again to the analysis. We are in a situation of where
we have additional expenses in additional to what their
experts have called for."
"Now if I could direct your attention to the right-hand side
of this page. There is the million-dollar premium this
proposed legislation calls for. If a cost if fixed, we
simply brought that cost over as it was. And I do not
believe that - I do not want to infer that we think these
are reasonable costs. I find it very problematic that the
estimate for legal fees is only $3,250. I can speak for my
own profession in that I find it highly unlikely they would
be able to get the accounting services and the audit for
$10,010. But I am using their numbers. Where the expense
is a function of premiums, i.e., two percent of the premium,
that's what we used."
"You'll come down and then also add in those costs, which I
reviewed for you that are called for in the legislation.
We've exceeded the 30 percent. Middle of the column there.
My point in bringing this out is one of the strong pillars,
if you will, that has been given as support for shortfalls
of funds to pay claims, has been 'we'll go back to excess
administrative funds.' Assuming these - they can buy these
services for this amount, there are no excess funds."
"Now to the bottom right-hand corner. Excess insurance is
called for in this proposed legislation and the homebuilders
again brought up an expert from a company that is well known
and highly respected for writing workers comp reinsurance
and excess insurance. I talked in my office to both of
these gentlemen. They came over and asked to speak with me.
They recognized and in fact followed up with a letter,
saying they recognized my concern on the funding."
"I asked them to give me what it would cost for what they
had testified to as the best this group could hope to get.
They testified the best attachment point for single injury -
and by that I mean the group has to pay every dollar up to a
point - was $350,000 per occurrence and in the aggregate,
$900,000. So let's say we had 100 $5,000 injuries. We're
going to pay all of that. And then we have a big one that's
$350,000. We'll pay up to the $350,000. When the group has
paid, in a policy year, $900,000 their reinsurance kicks in.
Now their reinsurance - and again this is an important - the
excess insurance it's important to point this out - you have
to pay the claim first and then you are reimbursed."
"These are the estimates they provided me. If you look at
this analysis again, based on either the expert testimony of
the homebuilder's experts or quotes from people doing
business in the State Of Alaska, you'll find that on day one
we have a negative position to pay claims. We've overspent
for the excess insurance out of our $175,000 and we're a
hundred - I'm sorry - $71,000 in the hole for the year. And
I think it's important to consider the entire year."
"The maximum amount that's gonna be available to pay claims
is $454,000. Keep in mind there aggregate attachment point
is $900,000 and their individual attachment point $350,000."
"So in summary, the administrative expenses exceed 30
percent. The only options are to eliminate costs that are
called for in the legislation or are in their expert's
opinion necessary, use claims money for the administrative
costs, which would require the approval of the director, or
immediately assess their members. And again in summary, I
would just like to say that that does leave only $454,000 to
pay the claims."
"The entrepreneurial, the arguments for the fact that this
is a very profitable line, we have presented evidence
provided by independent sources. We are deeply concerned
that the workers needs will not be met and will not be met
on a timely basis. The guarantee fund, as established by
this legislation, should not be confused with a guarantee
fund that the workers of Alaska that are insured have. If
they get into trouble the full fate of all other property
and casualty insurers throughout the country are there to
make good. Alaska Pacific Marine, ten years ago, was a
workers comp insurer that had reinsurance that was properly
capitalized. It still failed. Fortunately, it was an
insurer. It was - the workers were protected."
Tape #161 Side A, 10:25 a.m.
Senator Parnell commented that he felt it was irresponsible
for the Division of Insurance to wait until a year into the
legislation's process to bring forth the figures. However,
he was glad to finally have them. He referred to page 3 of
the spreadsheet, the "Amount to Pay Claims on Day One",
saying that the needed $71,000 that was not available and
the needed $454,000 to pay claims for the year. He then
asked if all the expenses listed above those numbers were
paid up front or throughout the year. Ms. Burke replied
that the excess insurance must be paid up front and resulted
in the negative $71,000. She defended the lateness of the
spreadsheet, citing the experts hired by the homebuilder's
association only recently supplied the information to them.
Prior to then, the division testified there was not
sufficient money to run the program.
Senator Parnell questioned the accuracy of the spreadsheet,
saying that it assumed that all the expensed must be paid up
from, where he felt most of them could be spread out over
the first year. Ms. Burke said the specific insurance
amounts of $50,000 and $110,000 must be paid on day one.
Senator Parnell asked if practically speaking, would the
group have to pay claims on day one. Ms. Burke said no,
they would not write a check on day, however some of the
other expenses would have to be paid. She noted commissions
of 3.5 percent, legal cost to get the program started, and
royalties, if they were due right away, as some.
Senator Parnell wanted to know if the division had done an
analysis on the anticipated claims and the amount necessary
to pay those claims. Ms. Burke replied that the Workers
Comp Division provided actual computer runs showing the
claims that had been paid in prior years. She added that if
it was known who would be participating in the group, their
claim history could be used to make an actuarial
determination. She thought even the homebuilder's
themselves didn't yet know who would be a part of the group.
Senator Parnell surmised that the current $454,000 might not
be enough to pay the claims. Ms. Burke agreed stating that
it was never known how much would be needed, that workers
comp insurance was a risky business.
Senator Parnell asked if the division had performed an
actuarial determination. Ms. Burke again said they couldn't
without knowing who would be participating.
Senator Donley spoke of the Uniform Act and how it was said
the act was not adequate to protect the injured workers. He
wondered, if that were true, why it wasn't amended. Ms.
Burke responded that there was no enforcement of the act,
but that it actually did call for $1 million premium.
Senator Donley had a copy of the act and said it was only
$500,000. Ms. Burke corrected her comments, saying that
$250,000 was required the first year and $250,000 the second
year. She added that no state had adopted the model plan
"as is". Each state tightened the requirements and she
explained those changes. In her opinion, it was
irresponsible to not tailor the act to the specific needs of
each state. Senator Donley argued that if there were any
problems with the act, it would have been amended. Ms. Burke
countered that the only times the acts were revised was when
federal regulations changed. Until then, the act was
customized for each state. Senator Donley and Ms. Burke
continued their discussion on the matter. Ms. Burke's final
comment was to stress that since no state had adopted the
model act, the insurance commission had no need to address
whether or not it needed to be amended. Senator Donley felt
the examiners would review their recommendations to ensure
they are still applicable.
Senator Donley next addressed the level of reinsurance
issue. He said the issue of royalty was settled, therefore
it should not be included in the spreadsheet. He then
referred to the calculated $900,000 aggregate attachment
amount. Ms. Burke confirmed the amount saying that Ed
Smith, the homebuilder's expert testified was the lowest
they could get. Senator Donley thought there would be lower
amounts available in the marketplace. He wanted to hear
more testimony telling him lower amounts could be had. He
thought the director could require a lower amount, since the
bill provided the director complete discretion to determine
if the reinsurance amount was adequate. Ms. Burke responded
that she could require it, but if it were not available it
wouldn't work and she would be subject to criticism of
abusing her position. She continued speaking on the details
of reinsurance and information provided by the homebuilder's
experts.
Senator Adams reminded the committee he had five amendments.
After the committee had heard all public testimony, he
requested the director be allowed to return to the table to
speak to the amendments. Co-Chair Sharp said he had
requests from other committee members to be given time to
review the amendments and the new information provided by
the department.
Senator Donley wanted the sponsor and witnesses to have an
opportunity to respond to the department's testimony. ALAN
WILSON, member of the Alaska State Homebuilders, came to the
table and commented as followed:
"I sat on the executive board and have been working on this
piece of legislation for the last couple of years. And I
would certainly be glad to answer questions specifically
regarding the excess."
"I was told or heard testimony earlier that - concerning the
attachment points and the costs of the reinsurance.
Attachment points from individual two separate companies
that we have worked with. One of those individuals was
represented before this body last week or last hearing.
Their attachment point is at the 300,000 that the director
of Insurance just testified to."
"Another individual quoted us some numbers regarding
attachment point at 200,000. What I've learned in this
industry is that the attachment point can be whatever amount
we would want it to be. It's just a matter of are we
willing to pay the cost of that."
"We had some documents presented to us that represented a
million dollar premium that showed a $200,000 attachment
point with the expense of $50,000-75,000 for both your
specific and your aggregate insurance."
Senator Donley asked if Mr. Wilson's testimony was that the
spreadsheet could be dramatically altered and the bottom
line reduced, by shopping around for a more effective rate
and lower attachment point. Mr. Wilson affirmed. He
referred to the spreadsheet's million-dollar column listing
a five-percent for specific, and 11 percent for excess
insurance. His organization's quotes had been five to eight
percent for both. Therefore, he believed the figure shown
on the spreadsheet could be halved.
Co-Chair Sharp clarified that the eight percent, $104,000
figure shown on the left-hand side was equivalent to the
$160,000 shown on the right-hand side. Mr. Wilson affirmed.
Co-Chair Sharp wanted to know if the $104,000 was documented
as firm quotes to provide excess insurance at the $1.3
million level. Mr. Wilson detailed the specifics of the
figure and where it was obtained.
Senator Phillips saw Ms. Burke shaking her head and wanted
to hear her observation of the last comments. Ms. Burke
returned to the table and stated that the eight-percent was
the amount that the TPA estimated. It was not a quote in
any way. The people who provided the quote were not
insurers, but merely provided estimates, she stressed. She
believed the estimates to be very low. The only firm quote
received was from National Safety Insurance, Ed Smith and
gave the percentages of five and eleven. If there were
other quotes, they had not been provided to the Legislature
or the division, she stated. They could be purchased, she
admitted, but only at a very high cost. Co-Chair Sharp
offered that the high premium costs would then eat up all
potential savings and thus making the program unfeasible.
Senator Donley thought it looked like there was a lot of
middle ground and a lot of room to work with. He detailed
the different options where the group could shop around and
get lower prices. Co-Chair Sharp responded that if that was
the case, then the lower quotes should be brought before the
committee as proof.
There was some discussion as to the chair's intention with
this bill. Co-Chair Sharp listed the members' schedule for
the remainder of the day, and expressed a desire to return
later in the afternoon to finish work in the bill. He noted
committee members' requests to have some time to review the
Division of Insurance's figures plus the amendments. He
ordered the bill held in committee.
Mr. Wilson made a final comment relating to the five-percent
figure stating quotes had been given from multiple
companies. He wanted the committee to hear testimony to
that fact when it reconvened. Co-Chair Sharp requested
written verification if they were not in Juneau to testify.
SENATE CS FOR CS FOR HOUSE BILL NO. 144(RES)
"An Act relating to the authority of the Department of
Environmental Conservation to charge fees; and
providing for an effective date."
Senator Pearce moved for adoption of the "C" version
Workdraft for consideration by the committee. There was no
objection and Co-Chair Sharp so ordered.
Senator Torgerson moved for adoption of Amendment #1.
Senator Adams objected, and asked for an explanation of the
amendment. Senator Torgerson spoke to the proposed changes
on page 2 line 7 where "...if the systems are located within
a municipality..." was deleted, and, "...except as provided
in E-4 of this section..." was inserted. He detailed the
provisions of E-4. With that explanation, Senator Adams
removed his objection.
Co-Chair Sharp asked if the department had reviewed the
amendments. Senator Torgerson said they had and that the
department was satisfied. JANICE ADAIR, Director of the
Division of Environmental Health, was called to the table
and she reiterated Senator Torgerson's statement that the
department was happy with the proposed amendments. She did
want to point out there was a significant typographical
error on one of the amendments, however it was not on
Amendment #1.
Without objection, Amendment #1 was adopted.
Senator Torgerson moved for adoption of Amendment #2.
Senator Adams again objected, asking for an explanation.
Senator Torgerson detailed the deletion on page 3 line 2,
"...if the systems are located outside a municipality..."
and the insertion of, "...if the system serves only a
discrete industrial operation..." The reason for this
change was that originally, they intent was to apply only to
areas located outside municipalities. After further review,
he learned there where many municipalities that had remote
locations and that they wanted operators to negotiate fixed
rates with DEC, he stated. The next change was to page 3
line 3 and inserted the letter "e" after "a", which referred
to the earlier section. The last change was made on line 4
and added, "...after provided "a" or "3"..."
Senator Adams removed his objection and the amendment was
adopted.
Senator Torgerson moved for adoption of Amendment #3 and
Senator Adams objected. Ms. Adair pointed out the error on
line 3, which should read, "preapplication" instead of,
"reapplication." Senator Torgerson offered the change as a
technical amendment to Amendment #3. Senator Adams removed
his objection to the amendment with that correction. There
was no objection and amended Amendment #3 was adopted.
Senator Torgerson moved for adoption of Amendment #4 and
spoke to the proposed change. It applied to Section 1 of
the act, the direct marketing fishing vessels and the fee
applied to them, and gave it an immediate effective date.
He wanted the act to become effective for this season.
There was no objection and Amendment #4 was adopted.
Senator Torgerson said he had worked with all the parties on
this legislation and it reflected compromise by each
interest. It had the approval of everyone involved, he
surmised. Ms. Adair added that the bill was acceptable to
the department and they would submit a revised fiscal note.
Senator Torgerson predicted the new fiscal note would be
substantially less.
Senator Torgerson offered a motion to move from committee,
SCS CS HB 144 (FIN) with revised fiscal note. Without
objection it was so ordered.
Co-Chair Sharp announced that HB 393 and HB 284 would be
held pending anticipated changes. He restated his desire to
meet again in the afternoon to continue working on
legislation.
ADJOURNMENT
Co-Chair Sharp recessed the meeting to the call of the chair
at approximately 10:55 a.m.
SFC-98 (25) 5/08/98 am
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