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." 1:38:59 PM Co-Chair Foster noted the committee had adopted committee substitute (CS) version R and two amendments at the previous meeting. MARIE MARX, DIRECTOR, DIVISION OF WORKERS' COMPENSATION, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, was available for questions. Co-Chair Foster referenced the two fiscal notes from the Department of Labor and Workforce Development (DLWD). PALOMA HARBOUR, DIRECTOR, DIVISION OF ADMINISTRATIVE SERVICES, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, addressed the first fiscal note: OMB Component Number 344 for the Division of Worker' Compensation. The note reflected a revenue change for the department of $1.8 million from general funds to the Workers' Safety and Compensation Administration Account beginning in FY 19. The note also reflected a savings of $59,800 beginning in FY 20 resulting from a switch to electronic filing. Representative Wilson pointed to page two of the fiscal note where it specified the state would mandate the electronic filing of documents. She asked for verification that mandate was no longer required as a result of an amendment that had been passed by the committee. Ms. Harbour believed the department had the option to set the method for filing. She believed the division director could set the method as electronic filing. 1:42:48 PM Representative Wilson stated that perhaps she had misunderstood the amendment. She asked whether the commissioner or someone in the department could mandate the filing method. Ms. Harbour answered that it was pertaining to insurance companies or self-insured employers filing reports of injury. She recalled that Ms. Marx had specified that if an individual working through their employer was not getting their incident report filed, the division would work with the individual to receive their report in whatever way they could provide it. Representative Wilson stated that the money had previously come from general funds, which the bill would change to a designated general fund (DGF) account. She asked for verification that no savings would occur and that the switching of accounts merely constituted a fund source change. DAVID TEAL, DIRECTOR, LEGISLATIVE FINANCE DIVISION, answered that the fiscal note maintained the 2.7 percent premium tax; employers would not be paying any more than they had been. He elaborated that a larger percentage or $1.8 million of the 2.7 percent tax would go into the Workers' Safety Fund. There was a loss of GF revenue of $1.8 million because of the fund source change. The Legislative Finance Division (LFD) questioned the reason for the change - it did not see any spending of the fund, only a change of revenue. He questioned what good it did to merely put revenue into a fund. He asked where and how it got spent. He turned to a table on page 3 of the fiscal note [OMB Component Number 344] and referred to the bottom row "revenue less appropriations (negative indicates unsustainable spending)." He pointed out there were numerous negative numbers in the row, which meant that prior to FY 09 the Workers' Safety Fund had been building a balance as high as $11 million. Through higher expenditures than revenue, the balance had been spent down and it had fallen to $3 million in FY 18. Roughly over a ten-year period, the fund had been overspent by $8 million. He pointed out that by FY 20 there would be no balance. Mr. Teal explained that although there was no appropriation of the money, Workers' Compensation would continue to spend at approximately the current levels. The tables on page 3 and 4 of the fiscal note showed a slightly negative cash flow. He explained that LFD had asked why only $1.8 million would be taken because it looked like there was overspending by $2 [million] to $2.1 [million]. The answer from DLWD had been that it anticipated additional efficiencies. He noted that the only efficiencies shown on the fiscal note were on page 1 in the amount of $59,800 [annually) due to the elimination of one staff position. He did not know how additional savings would be shown; they should occur, but they were not on the fiscal note. He explained the division was already spending money and it was an awkward fiscal note to prepare. Mr. Teal summarized that the direct answer to Representative Wilson's question was yes - $1.8 million previously classified as GF would flow to the Workers' Safety Fund. 1:47:27 PM Representative Wilson referenced the deficit shown in the fiscal note tables and asked if committee members could assume that undesignated general funds (UGF) would be utilized. She reasoned that it was not possible to spend in the negative; therefore, she wondered if a growth in UGF would occur to make up the difference. Mr. Teal replied that the table on page 4 of the fiscal note showed several options including the governor's budget. He pointed out that the FY 23 beginning balance was highly negative [$5.4 million], which was not possible. Under the second option [column 2] that included the governor's budget with the Appeals Commission (HB 69), the account went negative as well. Under HB 79, the balance would remain positive. If both HB 69 and HB 79 passed, the balance would hold up well. He anticipated a $2 million request for GF if HB 79 did not pass. Representative Wilson surmised the $2 million request would be the same - instead of putting the money in the GF, it would go to "what it's being paid on behalf of." Mr. Teal answered in the affirmative. He detailed $1.8 million would be diverted from GF into the Workers' Safety Fund, which would spend as a designated fund; or the GF could be spent - it came out the same. 1:49:24 PM Ms. Harbour addressed DLWD fiscal note OMB Component Number 2342 related to the elimination of the Second Injury Fund. The note reflected savings anticipated in the future related to eliminating the Second Injury Fund program. She reported it would take time to realize savings because many of the injuries were permanent, partial disabilities; therefore, benefits to individuals lasted the recipient's lifetime. She explained that the eventual savings would be realized by employers - their premium costs would decrease. Self-insured employers (e.g. State of Alaska) would experience savings as savings occur. Co-Chair Foster asked to hear from the Department of Administration (DOA) and the Office of the Governor in relation to their fiscal notes. SCOTT JORDAN, DIRECTOR, RISK MANAGEMENT, DEPARTMENT OF ADMINISTRATION, addressed the DOA fiscal note, OMB Component Number 71. The costs in the note reflected the requirement to electronically file reports of injury. The cost in FY 19 would be $40,000 to cover forms that were billed out at $1.25 by a third-party administrator as well as the programming for the first year. The outyears were $12,900 that would cover $1.25 per form - the department anticipated about 1,900 forms per year submitted to the Division of Workers' Compensation. Representative Wilson remarked that the electronic filing would cost more. She asked if the electronic filing savings would be reflected on the Division of Workers' Compensation fiscal notes. Mr. Jordan answered that he could not comment on savings on the Division of Workers' Compensation side. Currently, doing the work manually was not costing DOA any more. Doing the work electronically would cost the department $1.25 per form to submit to the Division of Workers' Compensation 1:52:54 PM Representative Wilson wondered if it would cost the state more money to do the process electronically. She wondered if there would be savings as the committee had been told in one of the other fiscal notes. She surmised that DOA was fast at the forms and could do them manually just as quickly as it could electronically. Mr. Jordan answered that the process would not cost the department any more, but the third-party administrator submitting the forms to the Division of Workers' Compensation charged a $1.25 fee per form. It would cost DOA more to process the forms, but it would not require additional personnel. Representative Wilson asked which department would be paying interagency receipts. Mr. Jordan deferred to the Office of Management and Budget (OMB). Co-Chair Foster asked OMB to address fiscal note OMB Component Number 0. CAROLINE SCHULTZ, OFFICE OF MANAGEMENT AND BUDGET, OFFICE OF THE GOVERNOR, relayed that the interagency receipt funds that would go to the Division of Risk Management would come from all executive branch agencies. The Division of Risk Management was the state's self-insured workers' compensation manager. The division charged rates for all personal service budgets for all agencies. The rates were calculated annually; therefore, OMB had elected to reflect the costs in an OMB various note. 1:54:49 PM Co-Chair Seaton asked if overall, electronic filing would cost the state more or less. Mr. Teal answered that Risk Management would be spending an additional $12,900 per year to pay a third-party to handle the forms. The charge did not go only to the Division of Workers' Compensation - it went to every allocation in every agency. The change would mean a small percentage increase in the working reserve rate. The legislature could fund the fiscal note (the money would go to OMB to spread out to various agencies). He explained that the Division of Risk Management would incur costs that would be passed to other agencies (it reflected the nature of interagency receipts). He elaborated there had to be cash backing the payments to Risk Management - each agency would pay a small portion. Even if the legislature did not fund the fiscal note in FY 19, the rates would be built into personal service costs beginning in FY 20. The rates would go into the adjusted base - the committee really would not see them - it would see the transactions, but the committee would not discuss them because they were automatically assumed to be approved and each agency would receive a small amount of money to pay the costs. He reiterated it would cost an additional $12,900 to process the forms. Representative Wilson surmised that the increase was due to the third-party. She thought the purpose of the bill was to save money. She was trying to determine where the savings would come in. She wondered why the bill should be passed if there were no savings. Mr. Teal believed the question was probably better answered by DLWD. He stated that the Division of Workers' Compensation anticipated savings and the elimination of one position. Based on a table attached to DLWD fiscal note, OMB Component Number 344, anticipated savings were around $200,000 per year. Additionally, there was the elimination of the Second Injury Fund, which would save money for all employers including the state. Putting it all together was more difficult than one may think. He explained that every fiscal note was prepared by a single allocation and there had been some coordination problems trying to make them match. 1:59:19 PM Co-Chair Seaton MOVED to REPORT CSHB 79(FIN) out of committee with individual recommendations and the accompanying fiscal notes. Representative Wilson OBJECTED. She supported portions of the bill that she thought were needed. She was concerned about the representation of the person. She stated the representation of who it could be was based on the same committee the person would be in front of. She thought it was a conflict of interest. She thought it was better but had hoped an amendment would address the issue in a different way. Co-Chair Seaton clarified his motion pertained to version R as amended. Representative Wilson MAINTAINED her OBJECTION. A roll call vote was taken on the motion. IN FAVOR: Grenn, Guttenberg, Ortiz, Kawasaki, Foster, Seaton OPPOSED: Pruitt, Thompson, Tilton, Wilson Vice-Chair Gara was absent from the vote. The MOTION PASSED (6/4). There being NO further OBJECTION, CSHB 79(FIN) was REPORTED out of committee with three "do pass," two "do not pass," three "no recommendation," and two "amend" recommendations; and with two new fiscal impact notes from the Department of Labor and Workforce Development; one new fiscal impact note from the Office of the Governor; and one new fiscal impact note from the Department of Administration. 2:01:51 PM AT EASE 2:03:21 PM RECONVENED