Legislature(2017 - 2018)BELTZ 105 (TSBldg)
02/07/2017 01:30 PM Senate LABOR & COMMERCE
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| Audio | Topic |
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| Start | |
| SB45 | |
| Workers' Compensation Overview | |
| Adjourn |
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
| *+ | SB 45 | TELECONFERENCED | |
| + | TELECONFERENCED | ||
| + | TELECONFERENCED | ||
ALASKA STATE LEGISLATURE
SENATE LABOR AND COMMERCE STANDING COMMITTEE
February 7, 2017
1:33 p.m.
MEMBERS PRESENT
Senator Mia Costello, Chair
Senator Shelley Hughes, Vice Chair
Senator Kevin Meyer
Senator Gary Stevens
Senator Berta Gardner
MEMBERS ABSENT
All members present
COMMITTEE CALENDAR
SENATE BILL NO. 45
"An Act relating to an exemption from the regulation of
construction contractors."
- HEARD & HELD
WORKERS' COMPENSATION OVERVIEW
- HEARD
PREVIOUS COMMITTEE ACTION
BILL: SB 45
SHORT TITLE: EXEMPTION: LICENSING OF CONTRACTORS
SPONSOR(s): LABOR & COMMERCE
02/01/17 (S) READ THE FIRST TIME - REFERRALS
02/01/17 (S) L&C, FI
02/07/17 (S) L&C AT 1:30 PM BELTZ 105 (TSBldg)
WITNESS REGISTER
JULIANA MELIN, Staff
Senator Mia Costello
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Introduced SB 45 on behalf of the Senate
Labor and Commerce Committee.
JANEY HOVENDEN, Director
Division of Corporations, Business and Professional Licensing
Department of Commerce, Community and Economic Development
Juneau, Alaska
POSITION STATEMENT: Answered questions and provided information
related to SB 45.
AARON WELTALEN, representing himself
Fairbanks, Alaska
POSITION STATEMENT: Testified in support of SB 45.
JEFF TWAIT, licensed builder
Kenai Peninsula Builders Association
Kenai, Alaska
POSITION STATEMENT: Testified in support of SB 45.
BRANDON SNODGRASS, Director
Alaska State Home Building Association
Treasurer, Anchorage Home Builders Association
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 45.
JACK HÉBERT, Chief Executive Officer/Founder
Cold Climate Housing Research Center
Fairbanks, Alaska
POSITION STATEMENT: Provided supporting testimony on SB 45.
PATRICK DALTON, representing himself
Delta Junction
POSITION STATEMENT: Testified in opposition to SB 45.
PAUL MICHELSOHN JR. representing
Alaska State Homebuilding and
Anchorage Homebuilder Association
Anchorage, Alaska
POSITION STATEMENT: Testified in support of SB 45.
LINDA BRUCE, Attorney
Legislative Legal Services
Legislative Affairs Agency
Alaska State Legislature
Juneau, Alaska
POSITION STATEMENT: Answered questions related to SB 45.
HEIDI DRYGAS, Commissioner
Alaska Department of Labor & Workforce Development
Anchorage, Alaska
POSITION STATEMENT: Provided information during the overview of
the Workers' Compensation System.
MARIE MARX, Director
Division of Workers' Compensation
Department of Labor and Workforce Development
Juneau, Alaska
POSITION STATEMENT: Delivered an overview of the Workers'
Compensation System.
ACTION NARRATIVE
1:33:21 PM
CHAIR MIA COSTELLO called the Senate Labor and Commerce Standing
Committee meeting to order at 1:33 p.m. Present at the call to
order were Senators Stevens, Gardner, Meyer, Hughes, and Chair
Costello.
SB 45-EXEMPTION: LICENSING OF CONTRACTORS
CHAIR COSTELLO announced the consideration of SB 45. She advised
that the intent is to hear the bill, take public comment, and
hold it for further consideration.
1:34:54 PM
JULIANA MELIN, Staff, Senator Mia Costello, introduced SB 45 on
behalf of the Senate Labor and Commerce Committee paraphrasing
the following sponsor statement:
Senate Bill 45 provides better protections for
consumers purchasing a home from an unlicensed
builder.
Following the housing market crash of the 1980s, the
Alaska State Legislature raised the standards for
homebuilders. Residential contractors were required to
obtain a state-license, a residential endorsement,
bonding, and insurance. In addition, programs on
energy ratings and efficiency were established through
the Alaska Housing Finance Corporation. These efforts
helped Alaska develop a home construction industry
that offers quality options for home buyers that are
efficient and affordable.
Currently state law provides an exemption that allows
individuals to build structures without a contractor
license. Alaska law AS 08.18.161 allows anyone to
build one structure every two years without a license.
While the exemption was intended to allow Alaskans to
build their own home, the industry is seeing a growing
number of individuals using the exemption to operate
construction businesses.
In 2013, the Mat-Su Home Building Association
estimated that almost one-half of all new construction
home sales in their area were from unlicensed
construction companies. Without a construction
contractor license, unlicensed builders avoid
requirements for bonding and insurance that apply to
licensed builders. The wording of the exemption
creates enforcement problems and allows for potential
abuse by those who would seek to build homes for sale
without the required state license.
Senate Bill 45 helps prevent abuse of this exemption.
The bill would require anyone who builds and sells a
home without a contractor license to disclose the fact
that they do not have a license to the state within
two years of completing construction. Senate Bill 161
does not prohibit owner-builder construction or
require any form of state approval, it simply calls
for disclosure to the Department of Commerce,
Community & Economic Development for builders selling
structures without a license.
SB 45 is supported by the Alaska State Home Building
Association.
1:37:06 PM
MS. MELIN provided a sectional analysis for SB 45.
Section 1 adds the following legislative intent
language:
It is the intent of the legislature that the
exemptions listed in AS 08.18.161, as amended by sec.
3 of this Act, be construed broadly to allow
individuals the freedom and ability to construct and
sell their own homes based on their own discretion.
Section 2 adds a new subsection (b) clarifying when
the Department of Commerce, Community and Economic
Development should investigate whether a home builder
who has listed his house for sale is operating a
business for which he/she would need a contractor's
license.
Section 3 makes a series of technical changes that
appear on page 2, lines 22-30. They make conforming
changes and add language that clarifies the
exemptions. Language is added on page 3, lines 2-6, to
clarify that a disclosure must be filed with the state
if an owner sells a structure or advertises it for
sale within two years after construction begins.
Section 4 adds an applicability section. For the
purposes of this law, it defines beginning of
construction as either when construction begins on a
structure or when an owner enters into an agreement
with another person to provide labor, act as a sub-
contractor, or provide materials for construction.
MS. MELIN listed the individuals available to testify and answer
questions.
1:39:28 PM
SENATOR GARDNER said she likes the bill but wonders what the
consequences are for somebody who fails to comply.
MS. MELIN deferred the question to Ms. Hovenden with the
Division of Corporations, Business and Professional Licensing.
SENATOR GARDNER said she reviewed the testimony from last year
when similar legislation was heard, and some people indicated
that the bill would have greater impact in rural Alaska where
there is less access to licensed builders. She asked if there
has been pushback from that area.
MS. MELIN replied some of the contractors will address the
effect in rural areas in particular.
1:40:48 PM
SENATOR MEYER asked how this bill differs from the one last
year.
MS. MELIN said the primary difference is that SB 45 defines the
two-year timeline as starting with the beginning of
construction. The bill last year was ambiguous in that regard.
SENATOR MEYER asked why the bill didn't pass last year.
MS. MELIN deferred the question.
CHAIR COSTELLO invited Ms. Hovenden to comment on the bill.
1:42:08 PM
JANEY HOVENDEN, Director, Division of Corporations, Business and
Professional Licensing, Department of Commerce, Community and
Economic Development (DCCED) responded to Senator Gardner's
question about the penalty for failing to comply with provisions
in the bill. She explained that circumventing the home builder's
law would fall under unlicensed practice in Title 08.
SENATOR GARDNER asked her to describe the consequences.
MS. HOVENDEN offered to follow up with the information.
SENATOR MEYER expressed interest in getting that information. He
asked if the zero fiscal note is realistic given the potential
need to investigate.
MS. HOVENDEN said the qualifier is the language that says, "when
circumstances indicate that the owner is operating a business
for which the owner is required to register." Any irregularity
would have to come to the division's attention and that is
happening now. She anticipates this form could be downloaded
from the division's website. Because the forms would be from
homeowners rather than licensees, the names would be listed in
an Excel spreadsheet and could be searched that way.
SENATOR MEYER asked how the two-year timeframe came about.
MS. HOVENDEN said she didn't know.
1:45:33 PM
SENATOR STEVENS noted that the committee heard that in 2013,
half of the construction in Mat-Su involved unlicensed builders.
He asked if she has statistics on the number of unlicensed
builders statewide.
MS. HOVENDEN said she did not have statistics on unlicensed
builders in Mat-Su or statewide.
1:46:12 PM
SENATOR HUGHES asked how the penalties compare to the cost of
the license and if there is anything to prevent repeat offenses.
MS. HOVENDEN offered to follow up with an answer.
1:46:56 PM
CHAIR COSTELLO opened public testimony on SB 45.
1:47:21 PM
AARON WELTALEN, President, Alaska State Home Building
Association and President, Interior Alaska Building Association,
testified in support of SB 45. Responding to an earlier question
about why the bill didn't pass last year, he said the sponsor
opted to pull the bill. He said these associations support the
bill to ensure that people can't build home after home without a
license or bonding. He emphasized that this is in the best
interest of consumers.
SENATOR STEVENS asked if the two-year window couldn't be
circumvented easily by starting excavation then waiting a year
and one-half to start building.
MR. WELTALEN said it's been a difficult issue, but he is
satisfied with the two-year timeline in SB 45.
CHAIR COSTELLO clarified that the bill went through the process
in the Senate and the sponsor withdrew the bill on the House
floor.
1:49:20 PM
JEFF TWAIT, licensed builder, Kenai Peninsula Builders
Association, testified in support of SB 45. He said a lot of
work has gone into this bill and it's time it passed. Other than
this being a consumer protection bill, it levels the playing
field by ensuring that people who build homes as a business
adhere to the licensing and bonding requirements. It's a matter
of fairness.
1:50:31 PM
BRANDON SNODGRASS, Director, Alaska State Home Building
Association and Treasurer, Anchorage Home Builders Association,
testified in support of SB 45. He said he is also in charge of
construction lending for First National Bank Alaska and has seen
the ramifications of owner-built homes on consumers. Last year
someone who was using a licensed builder applied for a loan but
couldn't be accommodated because the appraisal only used
comparables that were owner/builder homes and all of them had
sold for quite a bit below market. He opined that as more and
more homes built by unlicensed builders go on the market, all
home values will be affected. It will also make it more
difficult to obtain financing.
SENATOR STEVENS asked if all licensed contractors are members of
the Alaska State Home Building Association.
MR. SNODGRASS answered no
SENATOR STEVENS said he would like to see where the licensed
contractors are located and the size of communities where there
are few to no licensed contractors. He acknowledged that
wouldn't be Mr. Snodgrass's purview.
MR. SNODGRASS said the Department of Commerce, Community and
Economic Development would likely have that information. He
disclosed that he has financed homes for owner/builders for the
purpose of selling when it makes sense. He also described a
situation where a group was obviously skirting the rules and
getting preferential treatment.
1:54:45 PM
CHAIR COSTELLO asked what recourse a family has after they have
taken possession of an owner-built home and there are problems.
MR. SNODGRASS said there is no recourse if the builder is
unlicensed.
CHAIR COSTELLO asked if the requirement for an owner/builder to
fill out a form and submit it to the department is overly
onerous.
MR. SNODGRASS answered no, it's nothing compared to what he
requires for them to get a loan.
1:55:39 PM
SENATOR GARDNER observed that passage of this bill would
increase the cost of new homes for everyone.
MR. SNODGRASS opined that it will return prices to the level
they should be. He added that homes built by licensed builders
are generally a better product.
SENATOR GARDNER asked if an owner/builder who is not a licensed
contractor is able to offer workers' compensation benefits and
insurance coverage to someone working with him/her; and if the
owner/builder can offer a warranty that has backing.
MR. SNODGRASS said he didn't know for sure.
1:58:11 PM
SENATOR HUGHES asked if bankers and mortgage lenders will be
watching to ensure the owner/builder files the required form
because some people may not be aware it is a requirement.
MR. SNODGRASS said he's not in the mortgage business, so he
didn't know if that's something they'd track.
2:01:06 PM
At ease
2:02:33 PM
CHAIR COSTELLO reconvened the meeting and recognized Patrick
Dalton as the next testifier on SB 45.
2:03:18 PM
At ease due to technical difficulties
2:06:36 PM
CHAIR COSTELLO reconvened the meeting and asked Mr. Hébert to
respond to Senator Gardner's earlier questions.
2:07:29 PM
JACK HÉBERT, Chief Executive Officer/Founder, Cold Climate
Housing Research Center, Fairbanks, Alaska, said he has been a
licensed general contractor with a residential endorsement for
40 years.
SENATOR GARDNER asked if he agrees with testimony last year that
the bill would have a greater effect in rural communities
because there are fewer licensed builders.
MR. HÉBERT said he didn't believe so; in rural areas, most of
the building other than by owner/builders is done by the housing
authorities.
SENATOR HUGHES asked if there is any concern that energy
efficient homes that are built by an unlicensed builder might
have ventilation problems that cause health issues. She noted
that this might be another consumer protection aspect.
MR. HÉBERT said that is a huge problem in both newer, tighter
homes and older homes that have poor ventilation. Solving the
problem is a matter of education and understanding that good
indoor air quality is essential. The Cold Climate Housing
Research Center has developed affordable systems such as
brHEAThe that provides fresh air and high efficiency heating in
an energy efficient building.
SENATOR HUGHES ask if there is a problem that Alaskans
unknowingly buy homes with poor air quality because some
owner/builders don't have the training and put in ventilation
systems incorrectly.
MR. HÉBERT said there are thousands of homes in Alaska that have
poor ventilation because of poor building science and lack of
builder education. It's particularly problematic when a builder
uses part of a technology but not the whole package. That's why
licensed contractors are required to take continuing education
in several areas including ventilation.
SENATOR HUGHES commented that we can conclude that people who
repeatedly sell their owner-built homes probably aren't getting
adequate training increasing the potential that Alaskans are
living in homes that don't have good air quality.
MR. HÉBERT added that the home is likely going to be unhealthy
throughout the life of the building.
SENATOR STEVENS asked how many hours of training it takes to
become a contractor.
MR. HÉBERT said 16 hours of continuing education is required
every two years.
2:13:58 PM
PATRICK DALTON, representing himself, Delta Junction, testified
in opposition to SB 45. He said he has no problem with this type
of regulation in the organized areas of the state, but he would
like an exemption for people living in the unorganized areas of
Alaska. He said the people that live in the unorganized areas
are different. "There is more of a liberty mindedness out here
... and we appreciate the absence of regulation." He maintained
that imposing unnecessary regulations on people that don't want
it will cost the state money. Requiring people to fill out
paperwork when they sell their house is going too far, he said.
He pointed out that the legislature sits as the assembly for the
unorganized borough and as such has the responsibility of
representing that population and listening to their requests. He
suggested providing incentives to get people to do a good job
when they build instead of passing unwanted regulations.
2:18:08 PM
PAUL MICHELSOHN JR., Alaska State Homebuilding, and Anchorage
Homebuilder Association, testified in support of SB 45. He
refuted the previous testimony arguing that the unorganized
areas need this type of regulations more than the organized
areas. He cited examples of problems he has seen when people
purchased owner-built homes. The first was a 14-month-old home
outside of Wasilla that had a failed septic system. Upon further
investigation he found some of the floors were out of level and
the walls were out of square. The builder of record could not be
found and the cost to replace the septic system and bring the
floors and walls up to standard cost about $23,000. The second
example was a home outside Soldotna in the unorganized borough.
This was the third house that owner/builder had sold. He was
asked to inspect the home and found 18 code infractions. These
included no bolts fastening the house to the foundation, a
bedroom egress window that was too small to meet fire codes, and
an undersized gas pipe to the house. He said he didn't know if
the house sold, but if it did it was probably a cash sale.
MR. MICHELSOHN said those are the kinds of issues that arise
when builders are unlicensed, and it's the end user that suffers
the consequences. Referring to earlier questions, he agreed with
Mr. Hébert that indoor air quality is a serious issue and that
continuing education is critical to ensure the health and safety
of the end user. When problems arise it's generally a matter of
the building not being constructed to code and there is usually
zero recourse other than filing a civil lawsuit.
Referring to Senator Steven's question, he said the two-year
timeline was a compromise. The problem with the bill last year
was that the starting point for the timeline was subjective. SB
45 establishes that the timeline starts at the beginning of the
project, which is customarily when the footing and foundation is
put in place. He urged the committee to pass the bill, adding
that it should have happened last year.
2:28:08 PM
CHAIR COSTELLO asked if his understanding is that the bill
places no additional requirements on an owner/builder who builds
his/her own home. She cited the new language on page 3, lines 2-
6, that requires the owner/builder to file a form with the
department indicating that they are "not engaged in a business
for which the owner is required to register as a contractor
under this chapter;". She asked if he agrees that other than
dating, signing, and filing the form no other requirements are
imposed on the owner/builder.
MR. MICHELSOHN said that's correct. He added that the
legislature not only sits as the assembly for the unorganized
borough, it also sits as the representative of all the citizens
of the state. Thus it sits to represent the uneducated buyers of
these homes. The bill simply clarifies the rules for
owner/builders who sell their home and are not registered as a
contractor.
CHAIR COSTELLO asked if he agrees that the bill does not provide
a penalty. Filing the form with the department simply provides
information for consumer protection purposes.
MR. MICHELSOHN said he understood the department representative
say she didn't know if there was a penalty but would follow up
with an answer. He said he believes there should be a penalty,
but he didn't want to slow the bill by suggesting that that
amendment.
CHAIR COSTELLO asked if owner/builders are unique to Alaska or
if this is an issue in other states.
MR. MICHELSOHN said the requirements vary, but the issue is not
as prevalent in other states.
SENATOR HUGHES asked if there would be a penalty for innocent
lack of knowledge of the requirement if the person clearly was
not engaged in a business. She expressed hope that those
individuals would not be penalized; they would just be asked to
submit the form.
MR. MICHELSOHN said he didn't know but he believes that
infractions tend to occur when there isn't a penalty for an
infraction.
SENATOR HUGHES clarified that she is asking about a person who
is not running a business but must sell within the two-year
timeframe.
MR. MICHELSOHN said he believes the bill has a provision to
addresses that.
CHAIR COSTELLO asked Ms. Bruce to respond to the last two
questions.
2:35:56 PM
LINDA BRUCE, Attorney, Legislative Legal Services, Legislative
Affairs Agency, Alaska State Legislature, said this version of
the bill does not include anything related to an exception to
the exemptions [listed in AS 08.18.161}. Regarding the penalty,
she said it appears that a person who didn't submit the form
could be issued a citation for a violation under AS 08.18.117.
SENATOR HUGHES asked what the fine would be. She clarified that
she was talking about a well-meaning person who was not engaged
in a business and didn't know to submit the form.
MS. BRUCE said she couldn't answer that at this time, but it
would be minimal.
SENATOR GARDNER said she isn't sure there is any consequence
whatsoever for violating the statute should the bill pass.
Someone could get a citation and go on and build another house.
MS. BRUCE explained that if the department investigated and
found the owner was running a business without registering as a
contractor under that chapter, additional provisions might
apply. For example, the department could issue an administrative
fine or petition the superior court to issue a civil penalty or
injunction. Under certain facts the person may be guilty of a
class B misdemeanor.
2:39:10 PM
SENATOR GARDNER asked if adding language authorizing a penalty
would result in a positive fiscal note.
MS. BRUCE deferred the question to the department.
SENATOR STEVENS said he, too, would like more information
because cities and boroughs also have building codes. In his
community substantial fines are attached to those violations.
MR. MICHELSOHN offered to serve as a resource to the committee
members going forward.
2:40:39 PM
CHAIR COSTELLO closed public testimony on SB 45 and held the
bill in committee.
2:40:56 PM
At ease
^Workers' Compensation Overview
Workers' Compensation Overview
2:45:13 PM
CHAIR COSTELLO reconvened the meeting and announced the next
order of business is an overview of workers' compensation by
Heidi Drygas the Commissioner of the Alaska Department of Labor
& Workforce Development and Mari Marks, the Director of the
Division of Workers' Compensation. She noted a bill was
forthcoming.
2:45:58 PM
HEIDI DRYGAS, Commissioner, Alaska Department of Labor &
Workforce Development (DOLWD), said the department was asked to
present an overview of workers' compensation: how it works, a
lookback at key numbers, an update on the Medical Services
Review Committee, and a discussion of the challenges the
division is facing. She noted that Ms. Marx would deliver the
overview.
2:46:55 PM
MARIE MARX, Director, Division of Workers' Compensation,
Department of Labor and Workforce Development (DOLWD) explained
that the division administers the Alaska Workers' Compensation
Act, the intent of which is set out in statute. She read the
mission statement which is to ensure quick, efficient, fair and
predictable delivery of benefits to injured workers at a
reasonable cost to employers. She relayed that workers'
compensation is a system of insurance that is designed to
protect workers and employers from losses caused by job-related
accidents and illnesses. All 50 states have these laws.
She described the insurance system as the grand compromise. The
employer pays medical and wage replacement benefits to an
injured worker. In exchange, the injured worker receives limited
benefits and gives up the right to sue the employer. It is a no-
fault system that does not provide compensation for non-economic
or punitive damages.
2:48:25 PM
MS. MARX said the benefits include medical care, wage
replacement benefits, death benefits, and retraining benefits.
In the event of an injury, the employee notifies the employer of
the injury, the employer reports the injury to the division, and
the employer begins to pay benefits. In the event of a dispute,
the injured worker files a claim with the Alaska Workers'
Compensation Board. The employer may admit or deny the claim. If
the claim is denied, the parties engage in discovery and submit
the records to the board. If the case isn't settled, either
party may request a hearing. The entire board has 18 members,
but the hearing is conducted by a board panel consisting of one
labor member, one industry member and one attorney staff member
who chairs the hearing and rules on evidence. The board
evaluates the opinions from the employee's doctor and the
employer's medical evaluator. If those opinions disagree, the
parties can request a second independent medical evaluator. The
panel deliberates and issues a decision.
2:50:58 PM
MS. MARX said the workers' compensation requirements say that an
employer with one or more full or parttime employees must
purchase and maintain insurance policies to cover their
employees. This includes employees who are friends and family.
Independent contractors are not employees and as such they are
responsible for the losses they may experience. She highlighted
that some employers try to avoid paying premiums by
misclassifying their employees as independent contractors. This
gives those employers an unfair economic advantage. Current law
does not define independent contractor, but the current,
multifactor test is set out in board regulation.
An employer who fails to insure their employees may be subject
to civil penalties. She highlighted that the special
investigation unit's priority is to ensure that insurance
policies are in place to prevent uninsured losses thereby
protecting both employees and employers. The division gives
general and industry-specific employer workshops to help
employers understand how to protect themselves against uninsured
injuries.
2:52:42 PM
MS. MARX provided data on the number of Alaska workplace
injuries reported, claims filed, and total compensation payments
made. She pointed out that injury frequency has generally
declined from 2006-2015. In each of those years the division
received about 20,000 injury reports and about 1,200 claims were
filed. Total compensation payments have increased over time; in
2015 just over $300 million in workers' compensation benefits
were paid.
2:53:31 PM
MS. MARX reviewed the program challenges the division is
actively working to address. The first is rising medical costs
and their impact on workers' compensation premiums. She said
Alaska has one of the highest workers' compensation premium
rates in the nation and the primary cost driver is medical
costs. For Alaska that represents approximately 76 percent of
the total claim costs. To help contain those costs the
legislature in 2014 passed House Bill 316 that established the
Medical Services Review Committee (MSRC). The committee made
recommendations regarding the workers' compensation fee schedule
that were put into regulation. This resulted in an estimated
reduction in overall system costs of 3.7 percent. As required by
the governing legislation, the committee will continue to meet
annually and make recommendations on how to adjust the fee
schedule.
Providing timely dispute resolution is another program
challenge. The governor introduced SB 40 that will address these
inefficiencies and speed up the dispute resolution process.
The declining Workers' Safety and Compensation Administration
Account (WSCAA) balance is another program challenge. This
program was established in 2000 to create a stable funding
source for the state's workers' compensation and worker safety
programs. Revenue is collected through service fees from
insurance companies and it provides economic incentives for
employers to provide safe work environments. The WSCAA balance
has declined over time. One reason is that revenue into the
account was not increased when the legislature created the
Workers' Compensation Appeals Commission. Should the governor's
legislation to repeal the Workers' Compensation Appeals
Commission pass, WSCAA costs would be reduced by about $440,000
per year. That bill is SB 29. The governor's omnibus bill also
addresses the declining balance by allocating to the department
a larger percentage of the annual service fees insurers pay.
Prosecuting civil and criminal worker misclassification and
failure to insure cases is a very costly challenge. Current
statutory penalties are extremely high and don't withstand
review on appeal. They are often contested which increases
litigation costs and employer defaults. The governor's omnibus
bill will streamline the process of imposing civil penalties by
changing the calculation and the maximum civil penalty to an
easier calculation.
2:57:12 PM
MS. MARX highlighted the pillars of the Alaska Workers'
Compensation System - quick, efficient, fair, predictable, and
reasonable cost, that guide the division's administration of the
Workers' Compensation Act. She said the governor's omnibus
workers' compensation bill addresses all the pillars focusing on
fairness, efficiency, and quickness in the process. This is done
by speeding up dispute resolutions, improving delivery of
benefits to injured workers, strengthening fraud prosecutions
and employer compliance, and reducing administrative costs. She
offered to answer questions.
2:58:12 PM
SENATOR MEYER asked if injury frequency in Alaska is still over
20,000 per year.
MS. MARX replied it was very close to that mark in 2015.
SENATOR MEYER asked where those injuries are occurring.
MS. MARX said back injuries are most common. They must be
reported even though a majority do not require time off work or
medical care.
SENATOR MEYER asked if one occupation or industry accounts for
the most injuries. He recalled that at one time the fishing
industry was the most dangerous, but he didn't know about the
number of injuries.
MS. MARX said the high hazard industries have higher premium
rates because their employees are more at risk. Premiums for
clerical work would be much lower than construction, for
example.
3:00:44 PM
COMMISSIONER DRYGAS offered to provide specific data on the
occupations where injuries are occurring more frequently.
SENATOR MEYER said he'd appreciate getting that information. He
expressed concern that the graphs show that injury frequency has
been declining since 2006 but compensation payments are
increasing. He asked if it's a matter of fewer, but more serious
injuries or a matter of higher medical costs.
COMMISSIONER DRYGAS replied it is medical costs.
SENATOR GARDNER asked if an owner/builder is required to carry
workers' compensation insurance on someone they hire if they
aren't covered by another company.
MS. MARX explained that the Alaska Workers' Compensation Act
covers employers, which is a person or a company engaged in
business. A homeowner who calls a plumber to do work is not
engaged in business, so the plumber's injury would not be
covered by the Alaska Workers' Compensation Act. She advised
that anyone who is engaged as a business contractor should have
workers' compensation coverage in place. Even independent
contractors. If they have employees and they fail to cover
themselves for those employees' work place injuries, Alaska law
has a provision that requires the contractor to pay for that
work injury to ensure the burden doesn't fall on the injured
worker.
SENATOR STEVENS asked what SB 29 does and where it is in the
process.
MS. MARX replied SB 29 repeals the Alaska Workers' Compensation
Appeals Commission. If it passes, it will save about $440,000
per year. A second governor bill focuses on making the worker
compensation dispute process more efficient and cost saving. She
clarified that both are governor's bills.
CHAIR COSTELLO asked what the budget is for the workers'
compensation division and who pays for their salaries.
COMMISSIONER DRYGAS said they would follow up with specific
information, but most of the division is funded by the Workers'
Safety and Compensation Administration Account (WSCAA).
3:06:15 PM
CHAIR COSTELLO asked what she sees as the main drivers to reduce
medical costs; and what can the legislature do to assist.
COMMISSIONER DRYGAS said the department has struggled with how
to address rising medical costs while balancing the pillars that
guide the Division of Workers' Compensation through statute. The
Medical Services Review Committee has helped to bring down
premium costs for employers, but it's a work in progress. She
mentioned the conversion factors that the committee works on and
deferred further explanation to Ms. Marx.
CHAIR COSTELLO asked if data on worker compensation claims is
gathered on forms an employee fills out in the doctor's office.
COMMISSIONER DRYGAS replied many physicians opt to ask if the
injury is work-related.
CHAIR COSTELLO asked if the same injury costs more if it is a
workers' compensation claim compared to private insurance.
COMMISSIONER DRYGAS said there generally is a difference.
"Oftentimes services provided through the workers' compensation
system are higher than services provided to individuals who are
not suffering from a work-related injury or illness." The
Medical Services Review Committee is using the conversion
factors to bring down the cost of reimbursement to providers
because many of those reimbursements are out of whack relative
to private insurance. She cited the example of a broken arm.
SENATOR STEVENS commented that problems with workers'
compensation have been around since the First State Legislature
in 1959.
SENATOR HUGHES asked if she said that the cost of a broken arm
billed through workers' compensation insurance would be higher
that if it was billed through private insurance.
MS. MARX replied the lack of transparency regarding what
providers bill and what insurers pay is a big challenge for all
states. There is no opportunity for comparison shopping. "We
don't really know what that group health data is. We can pay and
get some data but it's not easy to get that group health
comparison." The data the division has been able to get shows
that workers' compensation costs more than group health. The
Medical Services Review Committee has found that costs are
substantially more in certain areas of practice such as surgery
and radiology. The committee is looking at how to contain those
costs while maintaining the injured worker's access to quality
medical care. The idea is to phase in changes over a few years.
CHAIR COSTELLO asked if an injured worker would be sent outside
the state if the cost for the procedure or treatment was less
than in Alaska.
MS. MARX explained that the employee can choose their physician
wherever he/she may be, but the fees are subject to the Alaska
Workers' Compensation Act. The bill that passed in 2014 had a
provision that said the maximum reimbursement is according to
the fee schedule in the state that the service is provided.
3:16:04 PM
CHAIR COSTELLO asked where the Medical Services Review Committee
is in the process for providing recommendations.
MS. MARX advised that the Medical Services Review Committee held
its first meeting shortly after House Bill 316 passed. They have
held 12 meetings that are open to the public and have a public
comment period. The recommendations were forwarded to the Alaska
Workers' Compensation Board to go through the regulatory
process. The board held two meetings, public comment was taken,
and the recommendations were finalized in March 2016.
The strategy going forward is to annually hold meetings in the
summer to develop the next round of recommendations. One will be
a joint meeting of the Medical Services Review Committee and the
Alaska Workers' Compensation Board to ensure consensus.
Thereafter the regulatory process will go forward so they are in
effect in January of each year. She urged anyone who has public
comment on how to reduce costs or suggestions for the conversion
factor recommendations to attend the meetings.
CHAIR COSTELLO asked if it is correct that workers' compensation
does not have in-network and out-of-network providers.
MS. MARX said that is correct; the Workers' Compensation Act
allows both the employer and the employee to have a choice of
physician. Each party is allowed one change without getting
permission from the other party.
CHAIR COSTELLO asked how many employers in the state pay into
the workers' compensation program.
MS. MARX offered to follow up with the answer.
SENATOR HUGHES asked if anything would prevent an employer from
having a list of preferred providers.
MS. MARX replied employers absolutely can supply a list, but the
injured worker can select outside that list.
CHAIR COSTELLO thanked the presenters.
3:20:15 PM
There being no further business to come before the committee,
Chair Costello adjourned the Senate Labor and Commerce Standing
Committee meeting at 3:20 p.m.
| Document Name | Date/Time | Subjects |
|---|---|---|
| SB 45.PDF |
SL&C 2/7/2017 1:30:00 PM |
SB 45 |
| SB 45 - Sponsor Statement.pdf |
SL&C 2/7/2017 1:30:00 PM |
SB 45 |
| SB 45 - Fiscal Note.pdf |
SL&C 2/7/2017 1:30:00 PM |
SB 45 |
| SB 45 - Support Letter - ASHBA.PDF |
SL&C 2/7/2017 1:30:00 PM |
SB 45 |
| SB 45 - Support Letter BEMA.PDF |
SL&C 2/7/2017 1:30:00 PM |
SB 45 |
| 2017.02.07 - DOL&WD Workers' Comp. L&C Overview.pdf |
SL&C 2/7/2017 1:30:00 PM |
Wrokers Comp |