HOUSE BILL NO. 79 "An Act relating to workers' compensation; repealing the second injury fund upon satisfaction of claims; relating to service fees and civil penalties for the workers' safety programs and the workers' compensation program; relating to the liability of specified officers and members of specified business entities for payment of workers' compensation benefits and civil penalties; relating to civil penalties for underinsuring or failing to insure or provide security for workers' compensation liability; relating to preauthorization and timely payment for medical treatment and services provided to injured employees; relating to incorporation of reference materials in workers' compensation regulations; relating to proceedings before the Workers' Compensation Board; providing for methods of payment for workers' compensation benefits; relating to the workers' compensation benefits guaranty fund authority to claim a lien; excluding independent contractors from workers' compensation coverage; establishing the circumstances under which certain nonemployee executive corporate officers and members of limited liability companies may obtain workers' compensation coverage; relating to the duties of injured employees to report income or work; relating to misclassification of employees and deceptive leasing; defining 'employee'; relating to the Workers' Compensation Board's approval of attorney fees in a settlement agreement; and providing for an effective date." 2:31:40 PM Co-Chair Foster invited testifiers to the table. GREG CASHEN, DEPUTY COMMISSIONER, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, introduced the PowerPoint presentation, "Workers' Compensation: HB 79" dated February 5, 2018 (copy on file). He spoke to Slide 3: HB 79: Workers' Compensation Efficiencies Bill  ? Speed up dispute resolution ? Improve the delivery of medical care to injured workers ? Strengthen provisions to prevent workers' compensation fraud by employers and employees ? Reduce administrative costs ? Ensure adequate funding for the administration of the workers' compensation and workers' safety programs Mr. Cashen shared that the legislature had consistently endeavored to create a workers' compensation system that delivered benefits quickly, efficiently, fairly, and predictably to injured workers at a reasonable cost to employers, as mandated by statute. He said that the system had not been significantly reformed in over 10 years; the improvements in the bill addressed rising costs, recent legal development, and new approached to improve the systems efficiency and fairness. He said that the bill focused mainly on efficiencies and modernization of the currently system, while recognizing that benefit issues like reemployment also needed attention. He related that reemployment benefits were being addressed in separate legislation. He described the various ways the department had worked with stakeholders to craft a comprehensive bill. 2:34:28 PM MARIE MARX, DIRECTOR, WORKERS' COMPENSATION, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, turned to Slide 2. She highlighted the pillars of the Alaska Workers' Compensation System as listed on the slide: • Quick • Efficient • Fair • Predictable • Reasonable Cost Ms. Marx asserted that balancing these pillars guided the divisions administration. She explained that that the division ensured compliance with the state workers' compensation act, conducted workers' compensation hearings, operated an appeals program, processed Fishermen's Fund claims, and administered vocational rehabilitation benefits and training program for injured workers. 2:35:37 PM Ms. Marx explained that HB 79 addressed all the statutory pillars, focusing especially on fairness, quickness, and efficiency in the workers' compensation process. 2:36:24 PM Ms. Marx addressed Slide 4 [Secretary Note: The numbered items under "Current Law" correlate with the numbered items under "HB 79" for the duration of this transcription]: Speeds Up Dispute Resolution:   Secs. 8-10, 19-21, 39  Current law  1. A party requests hearing on claim 2. Non-attorneys may represent parties 3. Board must approve attorney fees in settlement agreement 4. Division petitions Board to assess a civil penalty against uninsured employer HB 79  1. Board will schedule a hearing shortly after claim is filed (Secs. 19, 21) 2. Any person authorized by regulation of the Board (Sec. 20) 3. Board does not need to approve if fees are sole issue that needs Board approval (Sec. 39) 4. Division assesses civil penalty against uninsured or underinsured employer; party may appeal assessment to Board (Secs. 8-10) Ms. Marx explained that the board conducted hearings as part of a panel but separately had regulatory authority. 2:37:45 PM Ms. Marx spoke to Slide 5: Improve the Delivery of Medical Care:   Secs. 14, 23, 25-26    Current law  1. No language addressing if and when a provider's written request for medical care must be preauthorized 2. No penalty for untimely preauthorization or denial 3. Medical bills paid within 30 days HB 79  1. Requires an employer to preauthorize or deny medical treatment within 60 days of a medical provider's written request (Sec. 14) 2. Penalty for untimely preauthorization or denial (Secs. 23, 25-26) 3. NO CHANGE 2:38:24 PM Ms. Marx moved to Slide 6; Why the Division is Tackling Misclassification    ? Worker safety ? Risk of uninsured losses ? Law-abiding employers bear greater financial burden Ms. Marx stated that a great disservice was done to both workers and law-abiding businesses when the issue was ignored. She said that when workers were misclassified, workers died or were severely injured, and uninsured losses could put companies out of business. She relayed that the bill defined "independent contractor' and did not keep true independent contractors from existing and flourishing. The bill did not change the definition but clarified what was already in place, which would help workers clearly understand what it meant to be an independent contractor. 2:39:31 PM Ms. Marx advanced to Slide 7: Strengthen Fraud Provisions:   Secs. 7, 9, 11, 25-26, 29, 32-35, 37  Current Law  1. No definition of misclassification 2. No affirmative duty to report work or wage-loss benefits 3. No owner liability for benefits for some business entities and no civil penalty liability 4. No definition of independent contractor and multi-factor balancing test for employee status 5. Injured worker may file lien for benefits but Benefits Guaranty Fund may not HB 79  1. Defines misclassification and when it amounts to 2. fraud (Sec. 33) 3. Affirmative duty to report (Secs. 33) 4. More business entity owner liability for benefits and civil penalties (Secs. 7, 34-35) 5. Defines independent contractor and clarifies statutory definition of employee (Sec. 29, 37) 6. Benefits Guaranty Fund may file lien for compensation and civil penalties (Secs. 25-26) Representative Wilson asked whether the same definition for "independent contractor" was used as found in statute. Ms. Marx answered that there was currently no definition, which had been a problem. The bill would add a definition, which had been reached through a collaborative process involving many stakeholders. Representative Wilson asked for verification that a definition for "independent contractor" was located nowhere in statute. Ms. Marx could not speak to other departments. She clarified that under the Alaska Workers' Compensation there was no definition of "independent contractor." She said that the goal of defining something for workers' compensation was different than defining something for the Internal Revenue Service (IRS). Representative Wilson thought there had been several definitions of "independent contractor" in statute. She wanted to be as consistent as possible between departments. 2:42:46 PM Ms. Marx answered that the bill was clear that the definition only applied to the Alaska Workers' Compensation Act. Representative Pruitt wanted to know why the definition differed between the IRS and the Worker's Compensation Act. Ms. Marx answered that the goal of the act was to protect injured workers and employers from huge uninsured losses, which differed greatly from the goals of the IRS. She said that every state in the nation worked this way. She stated that there was simply not a "one size fits all" definitions because of the narrow application of the term. Representative Pruitt understood that there could be varying definitions of "independent contractor" based on who needed to pay taxes in a certain way, and still another definition based on how they should be covered under the Workers' Compensation Act. He felt that there could be a uniform definition across state systems. Ms. Marx used the definition of "resident" as a parallel. There were many different definitions of "resident" that were used under different circumstances. She submitted that the definition of "independent contractor" for workers' compensation purposes should be very narrow, considering that the issue was protecting injured workers and employers from huge uninsured losses that would put them out of business. 2:47:22 PM Ms. Marx addressed Slide 8: Strengthen Fraud Provisions CONT.:   Secs. 7, 9, 11, 25-26, 28, 31-35, 37  Current Law  1. No penalty assessed for an employer who has engaged in fraudulent misclassification 2. Maximum penalty of $1,000 for each uninsured employee workday 3. Board suspends penalties in full or in part and no guidelines for suspension 4. No interest paid on payment plans HB 79  1. Division may assess a penalty (Secs. 9, 32) 2. Maximum civil penalty of three times the premium an employer should have paid (Sec. 9) 3. Penalties may not be suspended in full or in part (Sec. 11) 4. Interest on payment plans (Sec. 11) 2:50:11 PM Co-Chair Seaton asked whether the penalties on Slide 8, pertained solely to civil penalties. Ms. Marx answered in the affirmative. She elaborated that she was talking about an employee's failure to maintain workers' compensation insurance as required by law. She furthered that those penalties went into the injured worker fund. The fund needed the ability to file liens because often by the time it came to collect penalties that were due the assets were depleted. Co-Chair Seaton understood that if an employee did not have workers' compensation insurance then administrative costs would need to be recovered. Ms. Marx answered in the affirmative. Whenever there was an uninsured injury the employer was required to pay the benefits whether there was insurance or not. If employers did not pay, those amounts were paid by the injured worker fund, which in turn sought reimbursement of the costs from the employer. Ms. Marx turned to Slide 9: Reduce Administrative Costs:   Secs. 2-6, 13, 15, 19, 21, 24, 27, 30-31, 38, 40  Current Law  1. An employer pays benefits by check 2. Division may not require electronic filing 3. Division approval needed for corporate executive officer workers' compensation coverage opt out HB 79  1. Does not prescribe a specific method of payment (Sec. 38) 2. Division may prescribe filing format (Secs. 3-6, 19, 21, 24) 3. Division approval not required; not an employee if at least 10% ownership interest (Sec. 30) 2:54:57 PM Ms. Marx moved to Slide 10: Reduce Administrative Costs CONT.:   Secs. 2-6, 13, 15, 19, 21, 24, 27, 30-31, 38, 40  Current Law  1. Some medical publications not listed 2. No deadline for reporting initial coverage; 10 day deadline for termination of coverage and no penalty if late 3. Division administers contribution to and reimbursement from Second Injury Fund HB 79  1. Adds publications to list (Sec. 15) 2. 30 day deadline to report initial coverage and termination of coverage, and penalty if late (Sec. 13) 3. Phases out Second Injury Fund (Secs. 2, 27, 31, 38, 40) Ms. Marx turned to Slide 11: Ensure Adequate Funding:   Sec. 1  Current Law  1. Workers' compensation insurers pay a fee of 2.7% of net workers' compensation premium written 2. 1.82% to WSCAA and .88% to Alaska Comprehensive Health Insurance Fund (ACHI) HB 79  1. NO CHANGE 2. 2.5% to WSCAA and .2% to ACHI 2:57:12 PM Co-Chair Foster hoped that electronic filing issues related to limited internet in rural Alaska had been considered. Ms. Marx answered that reports of injury were filed by either insurance companies, r third party administrators, or self-insured employers. She shared that injured workers never filed directly with the division. She furthered that if an injured worker was not given a response form the employer, a paper form was available from the division in order to file directly. She related that the bill would allow the division to clarify for insurance companies and self-employed insurers to standardize the business process. Representative Wilson pointed to Section 1, page 9 of the bill. She asked whether there were instances there an attorney for an employee could be paid for by the state. Ms. Marx answered that there was a statutory provision in the Workers' Compensation Act that allowed for a guardian to be appointed for the purpose of resolving the workers' compensation claim. Representative Wilson thought that it could be important to allow for non-attorneys to represent an injured worker. She thought that people who could not afford an attorney could be at a disadvantage. 3:00:24 PM Ms. Marx replied that the balance was between allowing those who had filed claims to work their way through the system and working to keep system operations efficient. She added that most tribunals had process guidelines related to who could efficiently represent parties before them. She suggested that there could be an amendment to provide a list of allowable representation included non-attorneys. She said that in her experience non-attorneys made the process less efficient. Representative Wilson thought that the injured worker should be prioritized over efficiency. Ms. Marx responded that there were systems in place to assist injured workers. She said that the division had staff whose job was to provide assistance to unrepresented parties. She related that the division had a duty under the law to inform injured workers about their right to benefits, and how to pursue their right to compensation under the law. She reiterated her suggesting of crafting a list of allowable representatives. 3:04:16 PM Co-Chair Foster noted Paloma Harbour, Director, Division of Administrative Services, Department of Labor and Workforce Development was available for questions as well. Representative Kawasaki referenced Slide 11. He noted that the handouts were different than the presentation. Ms. Marx agreed and noted she had made a correction on the record. Representative Guttenberg asked whether it had been disruptive for claimants to be represented by a non- attorney. Ms. Marx asked for clarification. Representative Guttenberg wondered whether non-attorney representation had been productive for claimants. 3:06:55 PM Ms. Marx replied that, in her experience, non-attorney representatives did not understand procedures and available benefits, which made it difficult to bring cases to resolution in a timely fashion, if at all. She asserted that the bill would provide for a more efficient process. 3:08:37 PM Representative Pruitt referenced letters from several parties who initially had concern but were now supportive. He wondered if the letters were still valid. Ms. Marx understood that the stakeholder groups that wrote the letters maintained their support of the legislation. 3:10:00 PM Co-Chair Foster OPENED public testimony. CHARLES MCKEE, SELF, ANCHORAGE (via teleconference), shared that he was currently navigating the system. He relayed his case number. He offered a series of personal comments on the issue of workers' compensation. Co-Chair Foster CLOSED public testimony. He asked members to submit any amendments to his office by Monday, January 12, 2018. HB 79 was HEARD and HELD in committee for further consideration. 3:16:15 PM AT EASE 3:17:05 PM RECONVENED Co-Chair Foster relayed that amendments on HB 79 were due on Tuesday, February 6 at 5pm and the bill would be heard again on Thursday.