HB 378-WORKERS COMP AND WORKER SAFETY CHAIRMAN ROKEBERG announced the next order of business would be HOUSE BILL NO. 378, "An Act eliminating certain taxes under AS 21.09 on premiums from the sale of workers' compensation insurance; relating to the establishment, assessment, collection, and accounting for service fees for state administration of workers' compensation and worker safety programs; establishing civil penalties and sanctions for late payment or nonpayment of the service fee; and providing for an effective date." CHAIRMAN ROKEBERG asked Paul Grossi to explain the proposed amendments, which read as follows: Amendment 1 [1-GH2072\A.1, Ford, 3/2/00]: Page 5, following line 2: Insert a new subsection to read: "(g) The department shall grant a credit against the service fee imposed under (a) of this section to an employer if (1) the employer applies to the department for the credit on a form prescribed by the department; (2) the employer provides proof that the employer has paid a premium tax imposed under AS 21.09.210 on an insurance policy; and (3) the workers' compensation claims have been paid under the insurance policy described in (2) of this subsection and the claims are subject to the service fee imposed under (a) of this section. The credit allowed under this subsection is equal to the amount of the premium tax paid by the employer under the insurance policy, may not exceed the service fee imposed under (a) of this section, and only applies to premium taxes paid on or after January 1, 2000." [Note: The phrase "by the employer" was handwritten between "paid" and "on" in the final sentence on the committee's copy of the amendment.] Amendment 2 [1-GH2072\A.2, Ford, 3/2/00]: Page 6, following line 10: Insert a new bill section to read: "* Sec. 11. The uncodified law of the State of Alaska is amended by adding a new section to read: TRANSITION: COLLECTION AND REFUND OF PREMIUM TAX. Notwithstanding AS 21.09.210, the director of the division of insurance shall (1) beginning July 1, 2000, cease collecting quarterly premium taxes on workers' compensation insurance; and (2) subject to appropriation, refund premium taxes collected for workers' compensation insurance under AS 21.09.210 if the refund is required as a result of the application of the provisions of this Act." Renumber the following bill sections accordingly. Page 6, line 11: Delete "Section 10" Insert "Sections 10 and 11" Page 6, line 12: Delete "sec. 11" Insert "sec. 12" [End of Amendment 2] Amendment 3 [1-GH2072\A.3, Ford, 3/2/00]: Page 5, following line 2: Insert a new bill section to read: "* Sec. 7. AS 23.30.015(e) is amended to read: (e) An amount recovered by the employer under an assignment, whether by action or compromise, shall be distributed as follows: (1) the employer shall retain an amount equal to (A) the expenses incurred by the employer with [IN] respect to the action or compromise, including a reasonable attorney fee determined by the board; (B) the cost of all benefits actually furnished by the employer under this chapter; © all amounts paid as compensation and second-injury fund payments, and all service fees paid under  AS 23.05.067; (D) the present value of all amounts payable later as compensation, [(PRESENT VALUE TO BE] computed from a schedule prepared by the board; [),] and the present value of the cost of all benefits to be furnished later under AS 23.30.095 [(] as estimated by the board; [),] the amounts so computed and estimated to be retained by the employer as a trust fund to pay compensation and the cost of benefits as they become due and to pay any finally remaining excess sum to the person entitled to compensation or to the representative; and (2) the employer shall pay any excess to the person entitled to compensation or to the representative of that person." Renumber the following bill sections accordingly. Page 6, line 9: Delete "9" Insert "10" Page 6, line 11: Delete "10" Insert "11" Page 6, line 12: Delete "11" Insert "12" [End of Amendment 3] Number 1976 PAUL GROSSI, Director, Division of Workers' Compensation, Department of Labor and Workforce Development, came forward to explain the proposed amendments. He informed members that some self-insurers purchase excess insurance, which is a stop-loss insurance. The question asked in previous testimony on HB 378 was whether a premium tax is charged for that. He said the answer was yes. Amendment 1 provides a way for the employer to get credit on the annual fee for premium tax paid on any excess insurance. He brought a list [included in the bill packet] that shows the premium taxes collected. He said the division approximated the total amount of premium tax collected insurance to be $36,000 per year. CHAIRMAN ROKEBERG asked, "They want credit for it?" MR. GROSSI said that is correct. REPRESENTATIVE MURKOWSKI said the credit cannot exceed the service. She asked whether there is an occasion to have the credit exceed the service fee and then be able to carry the excess over to the next year to pay the service fee for that year. MR. GROSSI responded that it is unlikely to occur. In the event it does, the division does not want to have to owe any money. REPRESENTATIVE MURKOWSKI asked, "If it's in excess of, they don't get further credits?" MR. GROSSI answered no; that is the tax they would pay. He referred to Amendment 2. He said it addresses concerns with the transition period that a premium tax could be collected the same year that an annual fee is assessed. He explained that a premium tax is collected throughout the year. He stated: Let's just talk about the year 2000, which would be the first year that the user fee would be assessed on. The premium tax would be collected in increments over some of the larger insurance carriers; and I believe those dates are May 31, August 31 and November 30. What these provisions will do, will allow for the collection to stop on July 1, and it will also make sure that the Division of Insurance has a mechanism so that they can return the premium taxes that were collected. Premium taxes are collected through the year, but they're not actually due until March 1 of the following year. Number 2236 CHAIRMAN ROKEBERG asked which year. MR. GROSSI said it would be any year. [He illustrated concepts for the committee on a whiteboard. No hard copy was referenced.] He explained that the taxes are actually due on March 1. Some collections do occur on May 31, August 31 and November 30. CHAIRMAN ROKEBERG asked, "So, they're paying in arrears, basically?" MR. GROSSI said yes; he likened it to an income tax. The employer pays portions of the workers' compensation insurance policy. They pay a premium, but there is a tax on that premium. CHAIRMAN ROKEBERG indicated July 1 is a concern because it is the end of the fiscal year. He asked Mr. Grossi to show how a $1.5 million surplus is obtained in FY01, starting with July 1, 2000. MR. GROSSI explained that Amendment 2 allows for the collection of the premium tax to cease on July 1, 2000; it also allows for the refund of premium taxes. CHAIRMAN ROKEBERG wondered if there is a larger company that can do this on a quarterly basis. MR. GROSSI said yes. If HB 378 passes, the fee will be due March 1, 2000, based on any and all claims paid throughout the year. CHAIRMAN ROKEBERG said he thought the bill would become effective January 1. MR. GROSSI affirmed that. In response to a further question, he said there is no fee income until March 1, 2001. CHAIRMAN ROKEBERG stated, "There's a fiscal note with a $2 million (indisc.) fee?" MR. GROSSI explained: What is needed for both workers' comp[ensation] and for OSH, or safety programs, is approximately 3.5 ...[ends midspeech because of tape change.] TAPE 00-24, SIDE B ... and that's why we can reduce our budgets by $1.5 million in 2001. CHAIRMAN ROKEBERG asked what happens if refunding begins after July 1. He asked if the general fund would have lower revenue. MR. GROSSI replied, "There's never been a time." REPRESENTATIVE HALCRO said: That's why on Monday, when he talked about it, he talked about how the budget subcommittee really wanted this pushed forward, because they were going to be counting the fact that they only had to fund a portion of the fiscal year, because that last March through July they would obviously collect fees. CHAIRMAN ROKEBERG noted that a letter from Bob Lohr, Director, Division of Insurance, Department of Community and Economic Development, explains the time line proposed in HB 378. Number 0089 MR. GROSSI addressed subrogation of fees: The employer has the right to [recover] all the workers' comp[ensation] that they pay if there's a third-party malfeasor out there who's responsible for the injuries, say, if it's an automobile accident and there's someone at fault or a product liability or anything. ... So, what this amendment does [Amendment 3 - 1-GH2072\A.3, Ford, 3/2/00], we think that there's probably enough authority to collect this fee as well, but this clarifies that, and it ... names that fee as part of what can be collected as the result of a third- party lawsuit. CHAIRMAN ROKEBERG asked whether "the term recovered by the employer under an assignment" includes the rights of subrogation. MR. GROSSI responded yes. He clarified that an employee can make a claim against the third party or the employer can do it, if the employee chooses not to. Number 0171 BOB LOHR, Director, Division of Insurance, Department of Community and Economic Development, testified via teleconference from Anchorage. He said the division had provided an explanation of the time line in a concrete example [included in the bill packet] with the hope of clarifying that there would already be some funds paid under the premium tax, which would be necessary to refund if the proposed cut-over dates in HB 378 were adopted. CHAIRMAN ROKEBERG asked whether Mr. Lohr was comfortable with Amendment 2. MR. LOHR replied yes. REPRESENTATIVE MURKOWSKI said she thought Mr. Grossi was also going to look into tightening up the definition of a claim. MR. GROSSI said he believes the definition is tightened up. He referred to Section 6, page 3, lines 23 through 24, regarding the payment of the fee to the department each year at the time the annual report is filed. This is outlined in AS 23.30.155(m). He noted that he had a copy of the annual report form [included in the bill packet] which outlines all of the payments. For 12 years, payers have used these forms. Number 0312 BRAD THOMPSON, Director, Division of Risk Management, came forward to testify on HB 378. He commented: We, as a self-insured employer, an authorized self- insurer, file this annual report as do other self- insured or commercial insurers. Annually, under the law, and it's cited here under section (m) that we are required to report the total amount of all compensation by type. The compensation by type is detailed in the Department of Labor's reporting form, so each employer that is self-insured or a commercial insurer is required to complete for each claimant that is paid any amount of money in these categories or compensation by type, we need to file each year with the department. And this is a practice that is explicitly clear to those that do and file these reports. I think the confusion earlier in the week was from a question: ... What is the basis of the new fee assessment? It will be based on the total amounts reported in this annual filing. This is not unlike an IRS filing for those employers or insurers that use computers; there's a specific data file layout that we have to comply to. There's no question as to the amounts and types of payments that need to be reported in this filing, which will be the basis for the new fee. REPRESENTATIVE MURKOWSKI said: Recognizing that anything that's on the annual report is part of what will be construed as a claim, I used the term the other day, the one that makes me "squishy" is number 21, which is "other". What could go there? ... This is a form that is part of Department of Labor's; you came up with the form. I'm sure there's some regulations to it, but couldn't you decide tomorrow that you wanted to change this form ...? MR. GROSSI specified that it does have to conform with the statute in terms of the type. REPRESENTATIVE MURKOWSKI asked Mr. Grossi to address the issue regarding what could be considered "other". MR. GROSSI commented that travel could be part of "other". MR. THOMPSON interjected: There are other specific reimbursable expenses. ... I can tell you that for the state's report, I have a copy of our filing. There's few costs included in the "other" column. They're mostly in the first four categories, which is the medical, and then the types of disability payment: temporary total, temporary partial or permanent partial impairment disability awards. That's the significant sums. The others are pretty nominal. But, again, the insurance carriers or the self-insureds understand and do file. Number 0449 REPRESENTATIVE MURKOWSKI stated: You say you're tied to what's in the statute, and that's correct. But if you're still allowing for an "other", and that other may include, to use a specific example, travel, ... I don't necessarily see how that's tied into the statutory language here. That's my concern with how we're defining claim. I don't want claim to be defined by a form that could be changed willy-nilly. MR. GROSSI handed out a summary of the totals for the last five years on all the various categories [included in bill packet]. He pointed out, "If you wanted to limit them to certain types of things, you'd need to change the formula in some fashion, which is fine. There's nothing wrong with doing it that way." REPRESENTATIVE MURKOWSKI indicated it helped, but she still had a problem with the "other" category on the annual report form. MR. GROSSI stated, "It would be up to the committee if you wanted to limit it to certain payments, but then we'd have to adjust the formula to deal with that." CHAIRMAN ROKEBERG asked, "In this report, if you had a small business, and you have more employers that get injured, do you have to fill this report out?" MR. GROSSI replied that for a self-insurer, yes. Generally, small employers will not be self-insurers. CHAIRMAN ROKEBERG said, "No, you'd go to your underwriter." MR. GROSSI answered, "Actually, it's the insurance company that would sell this. You'd be part of that pool." CHAIRMAN ROKEBERG commented, "Right. Then they fill out the form for you. That's part of their premium. So, it's not a burden or even a technical problem for a small business." MR. GROSSI replied: This is already being done. ... That's why we did it this way, actually, and that's what led to the March 1 problem, is because we didn't want to change the way we did business or the way that the employers and insurance companies did business. And so it does have that snafu period. CHAIRMAN ROKEBERG asked, "And your testimony was that the self- insureds submit to this currently?" MR. GROSSI answered yes. CHAIRMAN ROKEBERG wondered, "So, it's your responsibility to make sure they're fulfilling their obligation to the employee?" MR. GROSSI said that is correct. Number 0649 CHRIS ROSS, Corporate Health, Safety and Environmental Manager, NANA Development Corporation, came forward to testify on HB 378. He stated that the amendments fix all of the problems he previously had concerning subrogation. REPRESENTATIVE HALCRO made a motion to adopt Amendments 1, 2 and 3 [text provided earlier.] There being no objection, Amendments 1, 2 and 3 were adopted. Number 0710 REPRESENTATIVE HALCRO referred to previous testimony on HB 378 from Kevin Ritchie, Alaska Municipal League, and Kevin Smith, Joint Insurance Association (JIA). He pointed out that both had said passage of HB 378 would have negative effects on the JIA. He stated: As a matter of fact, in Mr. Ritchie's written testimony he says that "additional state mandates without raising taxes or cutting local services cannot be absorbed." And I noticed in Mr. Smith's correspondence he writes, "Unless there is an increase in services, I see no reason to cost shift from the private insurance industry to the public sector at a time when local government entities are struggling for their survival." But ... before we pass the tin cup for the [JIA], I'd like to bring to your attention a position paper dated just three weeks earlier for another piece of legislation, HB 404, where the executive director of the [JIA] says, and I quote, "The [JIA] presently exceeds all national pooling standards by a significant margin and has admitted assets of approximately $16 million. Since the [JIA] is never exposed to more than $250,000 on any loss, it would take more large losses in a single year than we have experienced in the past 12 years to exhaust the financial resources of the organization." So, ... in response to their concerns about financial harm, I would say that it looks like they're in pretty solid shape and they should be able to pay some fees. REPRESENTATIVE BRICE made a motion to move HB 378, as amended, out of committee with individual recommendations and the attached fiscal notes. There being no objection, CSHB 378(L&C) moved out of the House Labor and Commerce Standing Committee.