Legislature(2001 - 2002)
02/22/2001 01:30 PM Senate L&C
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ALASKA STATE LEGISLATURE
SENATE LABOR & COMMERCE COMMITTEE
February 22, 2001
1:30 p.m.
MEMBERS PRESENT
Senator Randy Phillips, Chair
Senator Alan Austerman
Senator Loren Leman
MEMBERS ABSENT
Senator John Torgerson
Senator Bettye Davis
COMMITTEE CALENDAR
Department of Labor and Work Force Development, Division of Workers
Compensation Audit by Division of Legislative Audit
WITNESS REGISTER
Ms. Pat Davidson, Auditor
Division of Legislative Audit
P.O. Box 113300
Juneau AK 99811
Mr. Paul Grossi, Director
Division of Workers' Compensation
Department of Labor & Workforce
Development
PO Box 21149
Juneau, AK 99802-1149
Mr. Bob Lohr, Director
Division of Insurance
Department of Commerce and Community Development
3601 C Street
Anchorage AK 99503
Ms. Barbara Williams, Executive Director
Alaska Injured Workers alliance
P.O. Box 101093
Anchorage AK 99510
Mr. Kevin Dougherty
Alaska Laborers
2501 Commercial Dr.
Anchorage AK 99504
MS. LAURA WALDON
Alaska Injured Workers Alliance
4120 Resurrection Dr.
Anchorage AK 99504
ACTION NARRATIVE
TAPE 01-7, SIDE A
Number 001
CHAIRMAN RANDY PHILLIPS called the Senate Labor and Commerce
Committee meeting to order at 1:30 p.m.
MS. PAT DAVIDSON, Legislative Auditor, said they completed the
review of the Division of Workers' Compensation in October 99. In
September 2000, they conducted a survey of agencies to determine
the status of prior recommendations. Page 47 contains the response
to the audit and she read:
The objective of the original report was to evaluate the
Workers Compensation Program and to assess the agency's
administration, enforcement and functional application of
the Alaska Worker Compensation Act. The scope of the
audit encompassed all major areas of the Workers'
Compensation Program including administration,
reemployment benefits, adjudicatory section, as well as
the regulation of insurance companies by the Division of
Insurance.
We found there was a major rewrite of the Workers'
Compensation Law in 1988. One of the policy goals was to
reduce the Workers' compensation costs. This goal has
been met. Since FY 89, rates have been reduced by over 40
percent.
Injured workers were also to be protected by strict
enforcement of the provision of the Workers' Compensation
Act. However, as a result of our audit, we found the
circumstances have developed that limited the protection
provided to the injured workers. These circumstances
included:
· Policing of uninsured employers was largely
ineffective due to shortcomings in the Division's
operation and the prosecutorial philosophy of the
Department of Law.
· That sanctions against frivolous controversions
had been rendered ineffective by the policies and
practices of the Division of Insurance.
· In addition to these administrative and
interagency coordination problems, in places where
the statute lacked clarity, they had been
interpreted and applied to the benefit of the
insurance companies, specifically, when
calculating penalties and penalty forgiveness
sections of the statute. Workers' Comp did it in a
manner that benefited insurance companies the
most.
Meanwhile, provisions put into the 1988 statute as part
of the legislative desire to control, if not lower
Workers' compensation rates, have over time become
increasingly contrary to the interests of injured
workers. Specifically, the caps on jury awards and barrel
costs set out in statutes in 1988 have eroded over time.
The complexity of the disputed claims process has
generally worked to the disadvantage of injured workers
who often cannot obtain appropriate representation.
Constraints on the eligibility requirement for injured
workers to qualify for retraining and reemployment
benefits have proven to be overly restrictive.
The report contains 12 individual recommendations. The
underlying themes to these recommendations are:
· Rebalance the interests of injured workers and the
employers; and
· Increase the operational efficiencies and
effectiveness in the Division of Workers'
Compensation.
SENATOR LEMAN said he didn't see an issue mentioned that has come
to his attention in the 12 recommendations. Some employers had told
him that the Workers' Compensation Board has recently almost
consistently sided with claims made by workers and in some cases
they were claiming injuries from previous employment which, on the
surface, seemed inappropriate. He asked her if this was something
they should be concerned about.
MS. DAVIDSON replied that evaluations of individual decisions by
the Workers' Compensation Board wasn't included in this audit. They
were looking more at processes than individual determinations.
SENATOR LEMAN said if there was a pattern, he thought it might be
good to look at it.
MR. PAUL GROSSI, Director, Division of Workers' Compensation, said
essentially he agreed with most of the findings and recommendations
in the audit and introduced HB 419 increasing benefits and HB 378
dealing with funding and administrative shortcomings.
HB 419 dealt with recommendations 2, 4 and 5. Number two dealt with
inadequacies of the benefits - permanent and partial impairment
($135,000 since 1988) - not keeping up with inflation. That was
also true of the retraining benefits. HB 419 increased benefits to
$177,000 although the audit suggested $189,000. But they used the
Anchorage CPI to address the shortcoming; the audit used the
national CPI.
The funeral benefit had been $2,500 and the legislature changed
that to $5,000 for a funeral and an additional $5,000 to the
survivor, in addition to the weekly benefits a survivor would get.
The audit also suggested that the benefits be tied to indexing
under the CPI, which wasn't accomplished in the bill, although the
maximum compensation, minimum compensation, and the weekly
retrianing compensation was indexed to the Alaska average weekly
wage. This resulted in a $700 maximum compensation to a $762
maximum in July 2000. It went up in January of 2001 to $768. There
were some increases in reemployment benefits from 60 percent of the
spendable weekly wage to 70 percent and the maximum was increased
and tied to an indexing factor under the Alaska average weekly
wage.
The widow, widower and orphan benefits were increased from 80
percent of the spendable and that's what it still is for a single
widow, but for a widow and a child, it's 90 percent of the
spendable (net income) - with two children, it's 100 percent of the
spendable weekly wage. That's also true of an orphan.
Number 900
MR. GROSSI said one of the issues that weren't addressed in the
audit was the interim compensation being allowed when a case is
contested. This is a very complicated issue and solves the problem
of an employee who is involved in litigation, but if the employee
was entitled to the benefits, that would be fine. However, if the
employee is not entitled to the benefits, the problem is how to
make the employer whole. The legislature could do it, but it's a
matter of social policy, which would solve some problems, but
create others. It would probably increase the cost to employers and
there would be increases for administration of that item and
hearings.
Recommendation number 4 provides a penalty for untimely notice of
coverage. Part of the reason for this suggestion was to make sure
the coverage was there and knowing who was and who wasn't covered
for investigation of uninsured employers. These problems have come
a long way in being rectified with the new computer system and the
new system for investigation. In FY 98, there were 107 uninsured
employer injured workers and in FY 00 there were 39 with the new
system.
MR. GROSSI said the other suggestion that wasn't addressed in any
way was empowering the Board to sanction uninsured employers with
some sort of penalty. The suggestion was to amend AS 23.30.075 and
also talked about a 50 percent penalty to the uninsured injured
worker. Mr. Grossi thought that was a better alternative, because
the penalty would go to the injured worker who is the person who is
most harmed.
MR. GROSSI said that the rest of the recommendations were
administrative and many of them have been addressed, but it would
help to not have any further budget cuts and to actually get some
increments in the future.
One of the auditor's suggestions was on electronic data interchange
(EDI), which is turning out to be one of the best suggestions for
his Division. He said he was talking with his counterpart in Utah
who has a system for electronic data interchange that automatically
puts information into their system. They would give it to Alaska,
if it would work up here.
Number 1200
SENATOR LEMAN asked if he had seen any evidence of a pattern of
these types of decisions. He wants injured workers to get
compensation for their injuries, but he didn't want them to get
compensation for things that shouldn't count.
MR. GROSSI answered that this issue comes up periodically, so he
had staff review decision orders two different times. It has come
up real close to 50/50 on the decisions.
SENATOR LEMAN thought maybe every once in a while they just "blow
it" because the evidence isn't very strong. He also noted last year
the legislature put an almost immediate effective date on it and
told the Department to make regulations. In November they were
finished and there was a retroactive application. Many employers,
then, had to pick up the costs in the cases where they could have
recovered them from their clients. It could have been handled a lot
better than it was.
MR. GROSSI said HB 419 was the bill in question and it went into
effect July 1. He agreed with Senator Leman that it was an
unintended consequence. An Ad Hoc committee wanted an immediate
effective date. There were contractors who had contracts and
planned on the premium being at a certain rate, but it got changed.
For the future he thought it wise to always make the effective date
January 1.
SENATOR LEMAN agreed with him.
MR. BOB LOHR, Director, Division of Insurance, said that finding
number six identified that in the past the Division has not
strictly enforced the provisions of AS 23.30.155 (o), the payment
system for claims. It says, "The Board shall promptly notify the
Division of Insurance, if the Board determines that the employers
insurer has frivolously or unfairly controverted compensation due
under this chapter. After receiving notice from the Board, the
Division of Insurance shall determine if the insurer has committed
an unfair claim settlement practice under AS 21.36.125."
He explained, if the Workers' Compensation Board has found there
has been unfair or frivolous controversions in a case pending in
front of it, they refer the matter to the Division and they follow
up under their statute to determine whether there has been an
unfair claims settlement practice or not. They agree that
enforcement needs to be "beefed up" and they have developed a
timetable and schedule for handling cases.
MR. LOHR said they disagreed with the statutory interpretation of
their unfair claims practice.
The audit suggested that the Division has ample
enforcement authority under the statute to go ahead and
issue a fine at that point. Based on regulations that
the Division had adopted many years ago, the pattern or
practice is what was required in order to be able to take
enforcement action. That is where things stood until
January 1 of this year. At that point, Senator Donley's
SB 177 was adopted and that bill made a single act, as
opposed to a general business practice, in violation of
AS 21.36.125. That act passed the legislature and took
affect on January 1, 2001. As a result of that, any
decision of the Workers' Compensation Board identifying
unfair controversions, where the facts of the
controversion by the employer or the insurer occurred
after January 1 this year. The Insurance Division's
enforcement of referrals under Workers' Compensation
statute 155.0 will be much more straightforward. The
Division intends to review each case referred from the
Workers' Comp Board based on the finding of frivolous
controversion to determine whether the facts of the case
establish a violation of our 125. If they do, we will be
sending a letter to the insurance company or the adjuster
identifying this and inviting their reply. The goal here
would be to put a plan in place to eliminate future
controversions by that company. If there were a
recurrence by the same company, then administrative
action by the Division would be appropriate.
MS. BARBARA WILLIAMS, Executive Director, Alaska Injured Workers
Alliance, said they have 500 members and have processed thousands
of requests for information yearly. She was personally active in
requesting this audit and worked hard to help the Legislative Audit
Division to understand some of the complex issues. She said:
We have known from the beginning that workers have had a
hard time obtaining their benefits as well as
understanding the complex legal process. Many workers are
affected by this system statewide and we are grateful
that the audit was done. Regarding the audit's
suggestions, she commented:
· 1. The alternate resolution dispute would greatly assist
workers who lose benefits. It could potentially be used to
decide the need for medical treatment and other payment issues
for workers.
· 2. The latest law change will benefit insurers and again
reduce benefits to workers. Workers are still earning below
poverty wages. The average worker on the low end will only
receive approximately $20 and on the high end about $70. This
still does not equal anything close to inflation or meaningful
economic relief for workers. Workers waited 12 years for any
sort of adjustment. Other legislative changes made it much
easier for the employers doctors to interfere or dictate the
care workers will receive while injured. She said that
rehabilitation waivers are another issue. How are workers to
evaluate without clear information what the benefits can
entail. They may be unable to realize the benefits they may be
waiving.
· 3. They are still without basic education for workers and
health care providers. All the parties are required to provide
tasks, but there's no clear idea available to educate the
parties as to their responsibilities. Complex legal issues for
the regular workers are hard enough, but combine that with
brain injuries and mental health issues, and the task becomes
impossible for many. Education is the key and the Alliance is
the only organization providing education to workers and
health care providers. They make Title 23 available for as
many people as possible in written form and have the rules and
information needed to process claims. Many providers don't
have a clear idea of their legal requirements and how to
pursue them. None of the new legislation begins to attempt to
address this issue.
· 4. She said the AWCB should be using more proactive measures
to see that the uninsured employer pays benefits to those who
are entitled to them. Mr. Jerry Flock had an employer who not
only denied his benefits, but took out a contract on his life
in order not to pay benefits owed. To this day, Mr. Flock has
not received benefits and wishes the state pursued the claim
against the employer for his misconducts. The state could make
sure in this instance the employer could post bonds to cover
certain costs for employees. More should be done to see that
employers are and stay insured. In the above referenced
incident, the employer was allowed to uninsured 16 consecutive
times. This is in no way acceptable.
· 5. Without sanctioning employers for failure to insure, the
state is allowing them to not follow the law and there are no
consequences in place to punish them.
· 6. The Division of Insurance should be held accountable for
assisting in prosecution of uninsured employers. They should
be looking out for the consumers and the public at large.
· 7. There is still a great need for information on the annual
report and the information needs to be verified in some
fashion.
· 8 - 12. Effective penalties need to be addressed by the
Division of Workers' Compensation. Many insurers and employers
laugh at them because of the inadequate and ineffective
measures for measuring penalties. Overwhelmingly, the audit
concluded that the Division of Workers' Compensation works
with insurers, employers and risk management, but the most
critical portion of the equation that's missing is the worker
and how it affects them.
MS. WILLIAMS said the workers have to survive on these benefits.
Many insurance adjusters are playing Russian roulette with these
peoples' livelihood. Page 19 of the audit says the legislature
achieved its policy objective of lowering Workers' compensation
costs. However, in achieving this goal, situations have developed
through a variety of circumstances that have left the injured
worker disadvantaged by the statute. This is an unintended
consequence of the 1988 legislation, but nevertheless more
consideration is provided to employers and insurance companies than
to workers.
MS. WILLIAMS said finally, that many people have testified to the
committee, but last year legislative changes were made by the Ad
Hoc committee and not one injured worker sits on that committee.
The Alliance was consulted on the sly and they didn't like that.
They want to be part of the bargaining table when the laws are
made. HB 419 greatly reduces worker benefits this year, although
some financial issues were addressed.
CHAIRMAN PHILLIPS thanked her for her concise testimony.
MR. KEVIN DOUGHERTY, Alaska Laborers and Ad Hoc member, said he was
available to answer questions.
MS. LAURA WALDEN, Alaska Injured Workers Alliance, said her concern
is that injured workers are being left out of the loop when policy
decisions are being made. She was also concerned that an insurance
adjuster works for the insurance company and is employed by the
state at the same time and that didn't seem right if they are
supposed to be unbiased.
MS. WALDEN informed them that some injured workers, like herself,
are still waiting to get medical care and are being denied by the
hospitals and clinics, because they don't have insurance or incomes
to pay for it. A lot of people are on suicide lists. She asked the
committee to help find a remedy for the uninsured who were injured
on the job and the employer refuses to pay for it. She said the
health providers, "can go in, strip those peoples' bank accounts,
take their permanent fund for something that the insurance
companies and Workers' Compensation should be taking care of…. When
you strip them of everything, then you make them homeless."
CHAIRMAN PHILLIPS asked her to fax her testimony to him and asked
if anyone else wanted to speak. He asked Mr. Dougherty which other
groups were on the Ad Hoc Committee.
MR. DOUGHERTY replied that the Ad Hoc Committee had disbanded since
they only meet when there are issues. Last session, at the last
one, they had labor management representation. He served as co-
chair, Jim Robertson, David Ford from the Iron Workers, John Chuki
and from the Electrical Workers in Fairbanks were on the committee.
From the employer side, they had Judy Peterson, Mary Shields,
Willie VanHemert, Sally Ann Karey, and John Garrett from Alyeska.
CHAIRMAN PHILLIPS asked who was representing the injured workers on
the committee.
MR. DOUGHERTY said in his job he represents injured workers all day
long and of the four labor people on the committee, the other three
had been hurt on the job and he has had a death in the family from
a work place related situation. They are familiar with the law and
with the benefits it sometimes provides.
CHAIRMAN PHILLIPS asked about unorganized labor.
MR. DOUGHERTY replied that they take input from anyone.
CHAIRMAN PHILLIPS said he would hold the bill for further work.
TAPE 01-7, SIDE B
CHAIRMAN PHILLIPS adjourned the meeting at 2:20 p.m.
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