CS FOR SENATE BILL NO. 130(JUD) "An Act relating to a special deposit for workers' compensation and employers' liability insurers; relating to assigned risk pools; relating to workers' compensation insurers; stating the intent of the legislature, and setting out limitations, concerning the interpretation, construction, and implementation of workers' compensation laws; relating to the Alaska Workers' Compensation Board; assigning certain Alaska Workers' Compensation Board functions to the division of workers' compensation in the Department of Labor and Workforce Development and to that department, and authorizing the board to delegate administrative and enforcement duties to the division; providing for workers' compensation hearing officers in workers' compensation proceedings; relating to workers' compensation medical benefits and to charges for and payment of fees for the medical benefits; relating to agreements that discharge workers' compensation liability; relating to workers' compensation awards; relating to reemployment benefits and job dislocation benefits; relating to coordination of workers' compensation and certain disability benefits; relating to division of workers' compensation records; relating to release of treatment records; relating to an employer's failure to insure and keep insured or provide security; relating to workers' compensation proceedings; providing for a maximum amount for the cost-of- living adjustment for workers' compensation benefits; relating to attorney fees with respect to workers' compensation; providing for the department to enter into contracts with nonprofit organizations to provide information services and legal representation to injured employees; providing for administrative penalties for employers uninsured or without adequate security for workers' compensation; relating to fraudulent acts or false or misleading statements in workers' compensation and penalties for the acts or statements; providing for members of a limited liability company to be included as an employee for purposes of workers' compensation; establishing a workers' compensation benefits guaranty fund; making conforming amendments; providing for a study and report by the medical services review committee; establishing the Task Force on Workers' Compensation; and providing for an effective date." This was the first hearing for this bill in the Senate Finance Committee. SENATOR RALPH SEEKINS introduced the bill as chair of the Senate Judiciary Committee. The Judiciary Committee, indicating the effort invested, considered approximately 22 amendments to this bill. The Judiciary Committee discovered the volatility of the issue though the receipt of many telephone calls from small business operators. The increasing insurance costs have become too high for many businesses. Senator Seekins reported that Alaska companies pay the second highest rates in the nation for workers compensation insurance, following the state of California. The medium premium index is approximately two percent compared to the rates assessed in Alaska of 4.6 percent. The index for businesses operating in the state of North Dakota is the lowest in the nation at 1.08 percent. This demonstrates the higher cost to do business in Alaska. Senator Seekins remarked that Alaska has approximately the same "score" as North Dakota and asserted, "Something is terribly wrong with the system." 9:16:47 AM Senator Seekins qualified that the matter could not be fully solved at this time, but would rather require a continuing effort. This legislation provides that a task force would be formed over the following legislative interim charged with identifying additional cost savings. The task force would be comprised of an "optimum number of members" to allow for a "workable task force". However he envisioned additional professional input from non-voting participants would be encouraged. 9:18:49 AM Senator Seekins understood concerns would be raised, but assured the most important intent is to address needs of those injured workers. 9:20:45 AM Senator Olson pointed out that the language of the bill does not provide for a timeframe in which recommendations would be reported by the task force. 9:21:02 AM PAUL LISANKIE, Director, Division of Workers' Compensation, Department of Labor and Workforce Development, replied that the report and any recommendations would be due by December 1, 2005. 9:21:41 AM GREG O'CLARAY, Commissioner, Department of Labor and Workforce Development, testified that the Murkowski Administration is "pleased" with the progress made with this legislation. 9:22:11 AM Co-Chair Wilken asked for an overview of the differences between this bill and SB 360 of the previous legislative session. 9:22:27 AM Mr. Lisankie replied that beyond the intent of reforming the workers' compensation insurance system, the two bills are significantly different. The earlier bill, SB 360, dealt almost exclusively with procedural changes to solving disputes. This current bill attempts to make the process more efficient in an effort to save money. 9:23:04 AM Co-Chair Green asked the condition of the workers' compensation insurance system in Alaska and the consequences of making no changes. 9:23:32 AM Mr. O'Claray reported that three underwriters ceased offering insurance in Alaska, two of which are major underwriters. Escalating premium rates are putting pressure on small businesses and requiring owners to make decisions about providing this insurance. Some businesses are laying off workers or closing. Pressure has recently been placed on the Division of Insurance to reduce or freeze rates. If this occurs, the State would be in danger of loosing the remaining three underwriters operating in Alaska and would force the State to provide workers' compensation insurance. The Murkowski Administration is against assuming additional bureaucracy. 9:24:59 AM Senator Hoffman noted the language of Section 21 of the bill relating to penalties or fines for employers who fail to carry workers' compensation insurance. He asked the comparison of the proposed consequences with the current penalties and fines. He asked the implications to employers and their businesses that are unable to obtain the insurance. 9:25:41 AM Mr. Lisankie replied that the language of Section 21 is a new provision. Currently, no fines could be assessed. This provision would give the Division a method for enforcement. 9:26:16 AM Senator Hoffman posed a scenario in which drastic changes in the marketplace occur and an employer is subsequently unable to secure adequate coverage for its workers. In this event, he understood that business would be shut down under the provision of Section 21. 9:26:48 AM Mr. Lisankie affirmed clarifying that current statute stipulates such business closures for an employer's failure to obtain adequate insurance. 9:27:07 AM Senator Hoffman asked if the Division would investigate emergency measures to allow businesses to continue operation if the employer was unable to obtain insurance between now and the date this legislation was enacted. 9:28:00 AM Mr. Lisankie responded that this has not been considered. The intent is to contain costs. Workers' compensation insurance is available to employers, albeit at a high cost. 9:28:20 AM Senator Hoffman predicted a probability that some employers would be unable to acquire the insurance coverage. He asked what actions the Division would take to assist these businesses. 9:28:40 AM Mr. O'Claray interjected that the purpose of this legislation is to implement changes that would contain costs. Statutory requirements exist that require businesses employing workers to carry workers' compensation insurance. The cost of this insurance is the current concern. The study is requested to provide lead time" to examine the data maintained by underwriters. This data would be analyzed to identify changes that would address costs. No exemptions are provided to allow an employer to not secure this insurance. 9:29:55 AM Senator Stedman remarked that additional efforts should be made to attract more underwriters to offer coverage within the State. He noted the deficit in the "pool" and asked how it would be addressed. 9:31:00 AM Mr. O'Claray told of the limited number of underwriters. The major concern of underwriters considering offering insurance in Alaska is the appeals commission. The Division has received complaints from employers asserting that cases are "skewed against them" and therefore appeals are not pursued. Another complaint is the inconsistency with the law. The current system involves a three- person panel that hears a claim and makes a determination, which could be appealed in superior court. If the inconsistency between decisions were eliminated, claims could be settled faster. This would allow those workers to make decisions sooner about whether to remain in their current career or to change professions. 9:33:17 AM LINDA HALL, Director, Division of Insurance, Department of Community and Economic Development, introduced herself for the record. 9:33:44 AM Senator Stedman inquired about the impending deficit in the event the current system was not restructured. 9:34:01 AM Ms. Hall clarified the deficit in question related to the guarantee association and was addressed in legislation passed the previous session. Reassessment of the situation revealed that the changes were successful and that a deficit no longer exists. Workers and employers are no longer at risk of unpaid claims. The intent of the bill currently before the Committee is to implement reforms to reduce the cost of claims. Until the overall cost of claims is reduced, premiums would continue to rapidly increase. 9:35:13 AM Ms. Hall referenced an annual report issued by the Division, the latest of which identified 96 insurance providers approved to write claims in Alaska. Of those only five seek to write claims in the State. If premium rates are not sufficient to cover the cost of claims, the potential exists that insurance companies would not offer policies. "Extremely" high claim costs have been incurred in the last five years with insurances companies paying out $1.54 in claims for every $1 collected in premium. An assigned risk plan is the "last resort". 9:37:41 AM Senator Stedman noted the proposed fine of $1,000 per day that an employer fails to carry workers' compensation insurance. He asked if a subcontractor on a project were found to be without coverage, what party would be responsible for payment of the fine: the subcontractor, the general contractor or another party. He also asked whether the fine would be imposed on each project an employer is working. 9:38:24 AM Mr. Lisankie replied that the subcontractor would be fined a maximum of $1,000 per day per employee. The proposed board would be given discretion to determine the circumstances and whether the full amount would be levied. For example, an employer who inadvertently allowed the policy to lapse would be fined less than an employee identified as a repeat offender. 9:39:13 AM Senator Olson asked if any small businesses have been denied workers' compensation insurance coverage. 9:39:27 AM Ms. Hall explained the "assigned risk pool", which requires insurers to offer coverage to all employers. The only reason an employer did not have this insurance would be from a failure to pay the premium 9:39:48 AM Senator Olson asked the number of employers included in the risk pool. 9:39:50 AM Ms. Hall answered that approximately 9,000 employers are included in the assigned risk pool. 9:40:00 AM Senator Olson asked the number of employers that did not pay their premium or were unable to secure the insurance. 9:40:08 AM Ms. Hall was unaware of any. She qualified that some disputes over eligibility for coverage did occur. 9:40:25 AM Senator Olson told of a medical field pool utilized to provide opportunity for physicians to obtain malpractice insurance. He asked if such an arrangement had been considered for the workers' compensation insurance system to make premiums more affordable. 9:40:57 AM Ms. Hall replied that the matter has been discussed. The aforementioned medical pool for doctors was purchased by a company and no longer qualified for tax-exempt status. As a result, the program has been discontinued. She reiterated that until the cost of claims is reduced, the basic cost of providing workers' compensation insurance would not decrease. Some states, including California and Utah have a high percentage of state-provided coverage. However, the intent for Alaska is to establish a "healthy" competitive marketplace, which a state-provided system would not accomplish. 9:42:06 AM Senator Olson surmised this legislation attempts to decrease premium amounts; however if a worker is injured, the system must still have the ability to compensate that worker. 9:42:45 AM Ms. Hall stressed that the provisions in this legislation would not change benefits as to do so is not the intention. Providing medical care and prescription drug costs in Alaska is the second highest in the nation. Every employer would be required to maintain a minimum level of benefits. The intent is to provide good medical care for injured workers to allow them to return to work. 9:43:46 AM Senator Olson asked if unions and employees would agree that adoption of this legislation would not result in decreased benefits. 9:44:09 AM Mr. Lisankie qualified that some changes would be made to the maximum reimbursement amount allowed for certain procedures. This could be considered as affecting benefits. However, the basic underlying structure would not be "radically" changed. 9:44:56 AM Co-Chair Wilken shared his experience with the business he owns that employs 23 people. The cost of his workers' compensation premium rose 23 percent in the past year, 20 percent the previous year and 20 percent the year before that. The total cost of his premium is "up to six figures". This funding must be taken from the company's "bottom line". Co-Chair Wilken stressed that this legislation is an attempt to "stop that hemorrhage", which affects the "backbone of our economy" i.e. small businesses. Premium rates are assessed based on claim experience with the rates of an "unsafe shop" higher; however, discounts for infrequent claims have been eliminated as well as the option of employing an agent provider to "shop around" for the best policy at the lowest cost is no longer viable due to the lack of competition. This affects business operations and causes managers to delay purchase of inventory, new equipment and to increase wages, which contribute to a successful business. Instead these funds must be utilized to pay the workers' compensation insurance premium. Co-Chair Wilken remarked upon the continued testimony received emphasizing, "the worker does not get hurt" as a result of the provisions proposed in this legislation, as well as the statutory changes enacted after the previous legislative session. The bill before the Committee however, would make the workers' compensation program more "rigorous". Therefore, he concluded that this legislation would have no negative impact, while not changing the current system would result in "damage." 9:48:31 AM Amendment #1: This amendment deletes the language of Section 34 on page 21, lines 7 through 11, which reads as follows. Sec. 34. AS 23.30.205 is amended by adding a new subsection to read: (g) Claims for reimbursement may not be submitted to the fund after September 1, 2005. The fund shall continue to make reimbursement payments on claims accepted before July 1, 2006, or ordered by the board, until the fund's liabilities for the claim are extinguished. Co-Chair Green explained that department representatives proposed this amendment as a correction to changes made by the Senate Judiciary Committee. Co-Chair Wilken moved for adoption. The amendment was ADOPTED without objection. 9:49:20 AM DR WILLIAM PFIEFER, Alaska Chiropractic Society, testified via teleconference from an offnet location to four proposed amendments that the Society requests be adopted. The first relates to the lack of a chiropractic professional in the membership of the proposed task force on workers' compensation. Senator Seekins announced in the Senate Judiciary Committee that chiropractic care would be a major focus of the task force. However, Dr. Phiefer noted certain injuries that chiropractors treat comprise a large portion of the number of workplace injuries. The Society requests that a seat on the task force be designated for a chiropractor and be granted full voting privileges. Dr. Phiefer next addressed the proposed medical services review study and requested that the review committee include the professionals who provide chiropractic services. The study should also include data collection of valid and detailed information in which recommendations could be based. Without accurate data, recommended changes to the workers' compensation program would be of "little value." He told of the access the Society and the American Chiropractic Association have to research scientists and study results. Dr. Phiefer opposed the guidelines proposed for inclusion in this legislation, as they have been proven to be inaccurate and not comprehensive. The guidelines are narrow in scope and lack complete analysis of the current research. The conclusions do not reflect the studies listed in the bibliography. The Society recommends a compromise to allow for the Workers' Compensation Board to adopt regulations and new that reflect the most recent research findings when appropriate. The proposed guidelines should not be specified in statute. He understood the intent of the legislative committees hearing this bill to establish that treatment be in accordance with standards based on scientific and evidence-based medicine. Dr. Phiefer requested that "major" be replaced with "significant" in reference to "the aggravation question". This would reflect the status quo. The definition of major requires at least a 51 percent burden and such determination should not be made at this time. Another option would be consideration of imposing a higher burden in the determination of "disability" for preexisting conditions. 9:54:27 AM Co-Chair Wilken offered a motion to report CS SB 130 (JUD), as amended, from Committee with individual recommendations and new and accompanying fiscal notes. There was no objection and CS SB 130 (FIN) MOVED from Committee with zero fiscal note #5 from the Alaska Court System, zero fiscal note #7 from the Department of Commerce, Community and Economic Development, a new zero fiscal note dated 4/11/05 from the Legislative Affairs Agency and a fiscal note of $420,000 dated 4/9/05 from the Department of Labor and Workforce Development. AT EASE 9:55:05 AM/10:03:01 AM Co-Chair Wilken chaired the remainder of the meeting