CS FOR HOUSE BILL NO. 79(FIN) "An Act relating to workers' compensation; relating to the second injury fund; relating to service fees and civil penalties for the workers' safety programs and the workers' compensation program; relating to the liability of business entities and certain persons 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 Alaska Workers' Compensation Board; relating to the authorization of the workers' compensation benefits guaranty fund 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 Alaska Workers' Compensation Board's approval of attorney fees in a settlement agreement; and providing for an effective date." 10:12:20 AM AT EASE 10:18:55 AM RECONVENED 10:19:55 AM Co-Chair MacKinnon stated that there was a letter from her husband in the packet, and the testifier was her niece. She wanted to ensure that there was not an appearance of impropriety. 10:21:30 AM LAURA BONNER, SELF, ANCHORAGE (via teleconference), spoke in support of the bill. 10:23:15 AM DON ETHERIDGE, AFL-CIO, JUNEAU, spoke in support of the legislation. 10:25:32 AM BARBARA HUFF TUCKNESS, DIRECTOR OF GOVERNMENT AND LEGISLATIVE AFFAIRS, TEAMSTERS LOCAL 959, JUNEAU, testified in support of the bill. Co-Chair MacKinnon CLOSED public testimony. 10:28:53 AM HEIDI DRYGAS, COMMISSIONER, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, stated that the bill should be considered an efficiencies bill. The bill would assist the department's ability to administer the workers compensation system. The bill focused mainly on efficiencies and modernizing the current system that had not been significantly reformed in more than ten years. She stated that the bill had been well vetted and been through several committees. MARIE MARX, DIRECTOR, DIVISION OF WORKERS COMPENSATION, DEPARTMENT OF LABOR AND WORKFORCE DEVELOPMENT, discussed the presentation, "Workers' Compensation: HB 79 Senate Finance Committee April 10, 2018" (copy on file). Ms. Marx highlighted slide 2, "What is Workers' Compensation?": A system of insurance that protects workers and employers from some of the losses caused by on-the-job accidents and job-related illnesses Ms. Marx displayed slide 3, "The 'Grand Bargain'": An employer provides prompt, necessary medical and wage loss benefits to an injured worker for a work- related injury. In exchange, the injured worker receives limited benefits and gives up the right to sue the employer. 10:30:45 AM Ms. Marx highlighted slide 4. She stated that the Worker's Compensation Act guided the division's administration, and more specifically guided the mission of the Worker's Compensation Act. The mission was to ensure the quick, efficient, fair, and predictable delivery of benefits to injured workers at a reasonable cost to employers. She stressed that any effort of the division was always balancing those five pillars. Ms. Marx discussed slide 5, "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 Ms. Marx addressed slide 6, "SPEED UP DISPUTE RESOLUTION: SECS. 8-10, 19-21, 39": Current law A party requests hearing on claim Non-attorneys may represent parties Board must approve attorney fees in settlement agreement Division petitions Board to assess a civil penalty against uninsured employer HB 79 Board will schedule a hearing shortly after claim is filed (Secs. 19, 21) Any person authorized by regulation of the Board (Sec. 20) Board does not need to approve if fees are sole issue that needs Board approval (Sec. 39) Division assesses civil penalty against uninsured or underinsured employer; party may appeal assessment to Board (Secs. 8-10) Ms. Marx discussed slide 7, "IMPROVE THE DELIVERY OF MEDICAL CARE: SECS. 14, 23, 25-26": Current law No language addressing if and when a provider's written request for medical care must be preauthorized No penalty for untimely preauthorization or denial Medical bills paid within 30 days HB 79 Requires an employer to preauthorize or deny medical treatment within 60 days of a medical provider's written request (Sec. 14) Penalty for untimely preauthorization or denial (Secs. 23, 25-26) NO CHANGE 10:35:41 AM Ms. Marx highlighted slide 8, "Why the Division is Tackling Misclassification": ? Worker safety Risk of uninsured losses ? Law-abiding employers bear greater financial burden Ms. Marx discussed slide 9, "STRENGTHEN FRAUD PROVISIONS: SECS. 7, 9, 10-11, 28-29, 32, 35-38, 40": Current law No definition of misclassification No affirmative duty to report work or wage-loss benefits No owner liability for benefits for some business entities and no civil penalty liability No definition of independent contractor and multifactor balancing test for employee status Co-Chair MacKinnon queried the definition of "independent contractor." 10:38:32 AM AT EASE 10:38:56 AM RECONVENED 10:39:01 AM Ms. Marx announced the definition of "independent contractor." She looked at page 17, line 1 of the bill: A person employed as an independent contractor; a person is an independent contractor for the purposes of this chapter only if the person: A) has an expressed contract to perform the services, B) is free from direction and control over the means and matter of providing services, subject only to the right of the individual for whom or entity for which the services are provided to specify the desired results, completion schedule, or range of work hours; or to monitor the work for compliance with contract plans and specifications, or federal, state, or municipal law, C) incurs most of the expenses for tools, labor, and other operational costs necessary to perform the services, except for materials and equipment that could be supplied, D) has an opportunity for profit and loss as a result of the services performed for the other individual or entity, E) is free to hire and fire employees to help perform the services for the contracted work, F) has all the business, trade, or professional licenses required by federal, state, or municipal authorities for a business or individual engaging in the same type of services as the person, G) follows federal Internal Revenue Service (IRS) requirements by i) obtaining an employer identification number if required; ii) filing business or self-employment tax returns for the previous tax year to report profit or income earned for the same type of services provided under the contract; iii) intending to file business or self-employment tax returns for the current tax year to report profit or income earned for the same type of services provided under the contract if the person's business was not operating in the previous year, and H) meets at least two the following criteria: i) the person is responsible for the satisfactory completion of services that the person has contracted to perform and is subject to liability for a failure to complete the contracted work, or maintains liability insurance to complete the contracted work or other insurance policies necessary to protect the employee's financial interest in customers to the person's business; ii) the person maintains a business location or a business mailing address separate from the location of the individual for whom, or the entity for which the services are performed, and iii) the person provides contracted services for two or more different customers within a twelve month period, or engages in any kind of business advertising, solicitation, or other marketing efforts reasonably calculated to obtain new contracts to provide similar services. Co-Chair MacKinnon wondered whether the section affected the most recent bill that was passed about ride sharing. Ms. Marx replied that the language would not affect the transportation network drivers, because that bill exempted them from the provisions of the Alaska Workers Compensation Act. Ms. Marx continued to discuss slide 9: Injured worker may file lien for benefits but Benefits Guaranty Fund may not HB 79 Defines misclassification and when it amounts to fraud (Sec. 36) Affirmative duty to report (Sec. 36) More business entity owner liability for benefits and civil penalties (Secs. 7, 37-38) Defines independent contractor and clarifies statutory definition of employee (Secs. 32, 40) Benefits Guaranty Fund may file lien for compensation and civil penalties (Secs. 28-29) Ms. Marx addressed slide 10, "STRENGTHEN FRAUD PROVISIONS CONT.: SECS. 7, 9, 10-11, 28-29, 32, 35-38, 40": Current law No penalty assessed for an employer who has engaged in fraudulent misclassification Maximum penalty of $1,000 for each uninsured employee workday 7 days to pay penalty Board suspends failure to insure penalties in full or in part and no guidelines for suspension No interest paid on payment plans HB 79 Division may assess a penalty (Secs. 9, 35) Maximum civil penalty of three times the premium an employer should have paid (Sec. 9) 30 days to pay penalty or appeal to Board (Secs. 10-11) Failure to insure penalties may not be suspended in full or in part (Sec. 11) Interest on payment plans (Sec. 11) 10:45:56 AM Vice-Chair Bishop wondered whether the experience rate was considered in the calculation. Ms. Marx replied in the negative. She explained that the calculation would be very simple. She noted that it would probably be less than the premium paid, because the premium included the building blocks. She stressed that the base rate was used. Co-Chair MacKinnon looked at Sections 9 and 35, and noted that there was concern about how the DLWD was allowed to do premium audits. Ms. Marx replied that she had not had an opportunity to address that concern. She felt that there may be a misunderstanding. She stressed that the department did not do premium audits, rather it investigated fraud and misclassification. Vice-Chair Bishop wondered whether it was for fraudulent and injured workers too. Ms. Marx replied in the affirmative. Ms. Marx announced that the department's goal was not to penalize. She stressed that the department's goal was education. 10:50:21 AM Co-Chair MacKinnon remarked that with no cap on attorney fees there was no incentive to settle, but she stressed that those were her words and not the letter's words. Ms. Marx replied that the bill did not remove the statute of limitations. She stated that there was currently a provision in the act that said that once a claim was filed, and if an employer denied it, the employee must ask for a hearing within two years. Co-Chair MacKinnon noted the more penalties and hostile business work environment. She asked for more information about Section 11. Ms. Marx reiterated that with the efficiencies there would be an end to the protracted litigation, which would reduce attorneys' fees. She stated that Section 11 sets forth the process for what happens after a civil penalty was assessed. She explained that the goal was not to put employers out of business, so it allowed for a payment plan. Co-Chair MacKinnon wanted to work to balance employees and employers interest. Ms. Marx agreed. Ms. Marx discussed slide 11, "REDUCE ADMINISTRATIVE COSTS: SECS. 2-6, 13, 15-18, 22, 24, 27, 30, 33-34, 41, 43": Current law An employer pays benefits by check Division may not require electronic filing Division approval needed for corporate executive officer workers' compensation coverage opt out HB 79 Does not prescribe a specific method of payment (Sec. 41) Division may prescribe filing format (Secs. 3-6, 16-18, 22, 24, 27) Division approval not required; not an employee if at least 10 percent ownership interest (Sec. 33) 10:55:25 AM Ms. Marx looked at slide 12, "REDUCE ADMINISTRATIVE COSTS CONT.: SECS. 2-6, 13, 15-18, 22, 24, 27, 30, 33-34, 41, 43": Current law Some medical publications not listed No deadline for reporting initial coverage; 10 day deadline for termination of coverage and no penalty if late Division administers contribution to and reimbursement from Second Injury Fund HB 79 Adds publications to list (Sec. 15) 30 day deadline to report initial coverage and termination of coverage, and penalty if late (Sec. 13) Phases out Second Injury Fund (Secs. 2, 30, 34, 41, 43) Ms. Marx addressed slide 13, "ENSURE ADEQUATE FUNDING: SEC. 1": Current Law Worker's compensation insurers pay a fee of 2.7 percent of net workers' compensation premium written 1.82 percent to WSCAA and 0.88 percent to Alaska Comprehensive Health Insurance Fund (ACHI) HB 79 NO CHANGE 2.5 percent to WSCAA and 0.2 percent to ACHI 10:58:10 AM Vice-Chair Bishop wanted an explanation of the Workers' Safety and Compensation Administration Account (WSCAA) funds. Ms. Marx replied that the funds were dedicated funding to ensure that workers' compensation and safety programs operated and sufficient funding. Co-Chair MacKinnon requested that a sectional analysis be presented the following day. Co-Chair MacKinnon queried closing comments. Commissioner Drygas replied in the negative. Co-Chair MacKinnon discussed the following meeting's agenda. CSHB 79(FIN) was HEARD and HELD in committee for further consideration.