HOUSE LABOR AND COMMERCE STANDING COMMITTEE March 24, 1999 3:30 p.m. MEMBERS PRESENT Representative Norman Rokeberg, Chairman Representative Andrew Halcro, Vice Chairman Representative Jerry Sanders Representative Lisa Murkowski Representative John Harris Representative Tom Brice Representative Sharon Cissna MEMBERS ABSENT All members present COMMITTEE CALENDAR HOUSE BILL NO. 40 "An Act combining parts of the Department of Commerce and Economic Development and parts of the Department of Community and Regional Affairs by transferring some of their duties to a new Department of Commerce and Rural Development; transferring some of the duties of the Department of Commerce and Economic Development and the Department of Community and Regional Affairs to other existing agencies; eliminating the Department of Commerce and Economic Development and the Department of Community and Regional Affairs; relating to the Department of Commerce and Rural Development and the commissioner of commerce and rural development; adjusting the membership of certain multi-member bodies to reflect the transfer of duties among departments and the elimination of departments; creating the office of international trade and relating to its duties; and providing for an effective date." - COMMITTEE WAIVER DISCUSSED HOUSE BILL NO. 121 "An Act relating to patients' rights under a health care insurance plan or contract providing coverage for dental care, and prohibiting certain practices by health care insurers relating to dental care." - FAILED TO MOVE CSHB 121(L&C) OUT OF COMMITTEE * HOUSE BILL NO. 143 "An Act relating to the executive officer employed for the Real Estate Commission, to educational materials published by the Real Estate Commission, to the Real Estate Surety Fund, to contracts by the Real Estate Commission, and to disclosures in real property transactions." - HEARD AND HELD (* First public hearing) PREVIOUS ACTION BILL: HB 40 SHORT TITLE: DEPT OF COMMERCE & RURAL DEVELOPMENT SPONSOR(S): REPRESENTATIVES(S) KOHRING, Cowdery, Austerman, Therriault, Harris, Mulder Jrn-Date Jrn-Page Action 1/19/99 28 (H) PREFILE RELEASED 1/15/99 1/19/99 28 (H) READ THE FIRST TIME - REFERRAL(S) 1/19/99 29 (H) CRA, L&C, FINANCE 3/09/99 Text (H) CRA AT 8:00 AM CAPITOL 124 3/09/99 (H) BILL POSTPONED TO 3/18/99 3/16/99 484 (H) COSPONSOR(S): COWDERY 3/18/99 Text (H) CRA AT 8:00 AM CAPITOL 124 3/18/99 Text (H) HEARD AND HELD 3/18/99 Text (H) MINUTE(CRA) 3/24/99 561 (H) COSPONSOR(S): AUSTERMAN, THERRIAULT, 3/24/99 561 (H) HARRIS BILL: HB 121 SHORT TITLE: DENTAL CARE INSURANCE SPONSOR(S): REPRESENTATIVES(S) BUNDE Jrn-Date Jrn-Page Action 3/03/99 341 (H) READ THE FIRST TIME - REFERRAL(S) 3/03/99 342 (H) L&C, FINANCE 3/19/99 (H) L&C AT 3:15 PM CAPITOL 17 3/19/99 (H) HEARD AND HELD 3/19/99 (H) MINUTE(L&C) 3/24/99 (H) L&C AT 3:15 PM CAPITOL 17 BILL: HB 143 SHORT TITLE: REAL ESTATE:SURETY FUND & DISCLOSURES SPONSOR(S): REPRESENTATIVES(S) ROKEBERG Jrn-Date Jrn-Page Action 3/19/99 514 (H) READ THE FIRST TIME - REFERRAL(S) 3/19/99 515 (H) L&C, JUD, FIN 3/24/99 (H) L&C AT 3:15 PM CAPITOL 17 WITNESS REGISTER ROSEMARIE KALAMARIDES, Administrator Alaska Teamster Trust Fund P.O. Box 240887 Anchorage, Alaska 99524-0087 Telephone: (907) 565-8310 POSITION STATEMENT: Testified in opposition to HB 121. THOMAS G. HIPSHER, DDS Dimond Center Tower 800 East Dimond Boulevard, Suite 3-415 Anchorage, Alaska 99515 Telephone: (907) 349-5585 POSITION STATEMENT: Testified on HB 121. REPRESENTATIVE CON BUNDE Alaska State Legislature Capitol Building, Room 501 Juneau, Alaska 99801 Telephone: (907) 465-4843 POSITION STATEMENT: Testified as sponsor of HB 121. MARCI BURTON, Regional Director for Managed Care and Physician Integration Providence Health System 3200 Providence Drive Anchorage, Alaska 99519-6604 Telephone: (907) 261-3105 POSITION STATEMENT: Explained point-of-service option during HB 121 hearing. MARIANNE BURKE, Director Division of Insurance Department of Commerce and Economic Development P.O. Box 110805 Juneau, Alaska 99811-0805 Telephone: (907) 465-2515 POSITION STATEMENT: Answered questions regarding HB 121. ERIC DYRUD, Co-Chair Legislative Committee Anchorage Board of REALTORS 2509 Eide Street, Number 4 Anchorage, Alaska 99503 Telephone: (907) 258-8888 POSITION STATEMENT: Testified on HB 143. SUZANNE MANNIKKO We [?] Against Sexual Predators (WASP) HC33 Box 2859A Wasilla, Alaska 99654 (Teleconference gives incorrect telephone number; no listing) POSITION STATEMENT: Testified on HB 143. CATHERINE REARDON, Director Division of Occupational Licensing Department of Commerce and Economic Development P.O. Box 110806 Juneau, Alaska 99811-0806 Telephone: (907) 465-2536 POSITION STATEMENT: Testified on HB 143. ACTION NARRATIVE TAPE 99-29, SIDE A Number 0001 CHAIRMAN NORMAN ROKEBERG called the House Labor and Commerce Standing Committee meeting to order at 3:30 p.m. Members present at the call to order were Representatives Rokeberg, Halcro, Sanders, Murkowski, Harris and Cissna. Representative Brice arrived after the call to order. HB 40 - DEPT OF COMMERCE & RURAL DEVELOPMENT Number 0113 CHAIRMAN ROKEBERG announced the committee's first order of business is discussion regarding the possible committee waiver of HB 40, "An Act combining parts of the Department of Commerce and Economic Development and parts of the Department of Community and Regional Affairs by transferring some of their duties to a new Department of Commerce and Rural Development; transferring some of the duties of the Department of Commerce and Economic Development and the Department of Community and Regional Affairs to other existing agencies; eliminating the Department of Commerce and Economic Development and the Department of Community and Regional Affairs; relating to the Department of Commerce and Rural Development and the commissioner of commerce and rural development; adjusting the membership of certain multi-member bodies to reflect the transfer of duties among departments and the elimination of departments; creating the office of international trade and relating to its duties; and providing for an effective date." The chairman expressed his desire to waive HB 40 out of committee. The waiver has been requested by the House leadership because the bill has been heard in the House Community and Regional Affairs Standing Committee (House C&RA). Chairman Rokeberg questioned if the bill had moved out of C&RA. REPRESENTATIVE HALCRO, Co-Chairman of the House Community and Regional Affairs Standing Committee, informed Chairman Rokeberg that HB 40 is scheduled for a second hearing tomorrow, March 25, 1999. CHAIRMAN ROKEBERG commented this is a waiver pending referral. He noted he will be out of town on March 26. Chairman Rokeberg explained HB 40 is a consolidation bill and was basically written the previous session by the House Labor and Commerce Standing Committee (House L&C). House leadership wants to move the bill to the House Finance Standing Committee (House Finance); Chairman Rokeberg indicated it is his understanding the Governor will present the Administration's proposal on consolidation there. Chairman Rokeberg noted the bill's length and commented he does not think the committee would be absolving its statutory authority on the area. If all the committee members agreed to a waiver, it would avoid a lot of work for the committee. Chairman Rokeberg indicated the bill would be changed in Finance even if L&C closely examined the legislation. Number 0266 REPRESENTATIVE HALCRO expressed his concern about waiving HB 40 out of L&C before seeing what transpires in C&RA. He noted C&RA had just received the Administration's fiscal note. Representative Halcro indicated C&RA members have concerns there are no rural members on L&C, and that the previous legislation [HB 400] had not gone to C&RA. He noted two other C&RA members sit on L&C. Representative Halcro said he cannot sign the waiver until he sees what comes out of C&RA. CHAIRMAN ROKEBERG stated it would be Representative Halcro's responsibility to read the waiver across the House floor on Friday [March 26] and requested Representative Halcro resolve this. Chairman Rokeberg noted with that he would circulate the waiver, indicating there is a problem because L&C does not meet again before Finance wants to hear HB 40. Number 0361 REPRESENTATIVE HALCRO understands, but indicated again that he is uncomfortable waiving the legislation. He has made some commitments; he has assured members of his committee that their concerns would be taken into consideration. CHAIRMAN ROKEBERG referred to the presence of the other co-chairman of House C&RA. Number 0395 REPRESENTATIVE HARRIS, Co-Chairman, House Community and Regional Affairs Standing Committee, stated he has no problem waiving the legislation. House C&RA will not move the legislation unless the committee is happy with it. Representative Harris indicated the bill before C&RA is the previous session's HB 400 that was basically rewritten by House L&C, and those HB 400 hearings were pretty well-documented. Representative Harris noted three L&C members would be very familiar with the legislation once it leaves C&RA. CHAIRMAN ROKEBERG thinks that is a good idea and he would recommend the co-chairmen of C&RA speak to leadership about this issue so they have a clear appraisal of what is happening. Number 0464 REPRESENTATIVE CISSNA voiced her personal objection to signing the waiver, noting that although the previous session's committee may have reviewed the bill, she would like to look at it. REPRESENTATIVE BRICE thinks they had the discussion last year, and his stance is pretty much the same. They are making small government big and schizophrenic at the same time; he feels that term of art is probably applicable. He does not support the concept or the legislation, with nothing against the sponsor's intentions. Representative Brice indicated he would not be interested waiving the legislation out of committee because he does not think the bill is appropriate business. Number 0539 CHAIRMAN ROKEBERG indicated he would not normally waive a bill if committee members objected. However, as he understands it, the leadership has spoken with the Governor, and the Governor, basically as the chairman was told, wants to have the legislation recast in Finance. REPRESENTATIVE BRICE indicated the chairman has been very good about not waiving legislation in this type of situation. He further indicated he had received no communication from the Administration regarding this matter. CHAIRMAN ROKEBERG explained waiving legislation is left to the pleasure of the chair. He has done what he could to satisfy the concerns of the members of the committee; therefore, if members do not want to waive the legislation, that is their prerogative. Chairman Rokeberg noted this project would be left in the hands of Representative Halcro, because the chairman will be in Anchorage the next two days. Chairman Rokeberg asked Representative Halcro to talk with the Speaker about this matter; the chairman would rely on Representative Halcro to coordinate with the leadership and see what is to be done. Chairman Rokeberg understands that the rule of the chair is the official ruling with regard to waiving a bill from committee, and nothing requires unanimous consent on a waiver. [HB 40 WAS NOT WAIVED BY THE COMMITTEE] HB 121 - DENTAL CARE INSURANCE Number 0671 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 121, "An Act relating to patients' rights under a health care insurance plan or contract providing coverage for dental care, and prohibiting certain practices by health care insurers relating to dental care." He indicated the first witness, Ms. Kalamarides, had wished to testify at the March 19, 1999, hearing but the teleconference had been mistakenly disconnected through a miscommunication. Number 0718 ROSEMARIE KALAMARIDES, Administrator, Alaska Teamster Trust Fund, testified via teleconference from Anchorage in opposition to HB 121. Ms. Kalamarides noted the trust fund opposes the legislation but would not be impacted by it. She stated, "This fund represents more than 100 employers and more than 8,000 covered lives, and we understand that when ... small employers cannot afford to buy insurance to cover dental expenses, then the unpaid costs often shift to employers like those in our plan. I'm not aware of any dental PPOs [preferred provider organizations] in Alaska. However, they are negotiating such arrangements in the Lower 48 and it creates a very strong competitive marketplace. Dentists who choose to participate in these PPOs are selling their services at lower prices in exchange for some assurance by employers that they will get more patient traffic. Those who have not agreed to participate are seeing their patients go to the preferred group of doctors. Therefore, I understand why some Alaskan dentists are afraid of PPOs. According to a Daily News [Anchorage Daily News] article just last year, dentists in Alaska enjoy the distinction of being the highest paid professionals in the state. If I were in their shoes, I wouldn't want to lose that distinction either. Number 0802 MS. KALAMARIDES continued, "We understand why they are seeking protection from competition, why they are attempting to regulate their industry here in Alaska. However, we must oppose it because ultimately those who can least afford it will pay for the protection. I heard testimony last week advocating that this legislation would protect small businesses and I think it was directed at dentists as being small business people, and that's certainly true that this would protect them but it would be at the expense of other small business people. Insurance companies are not going to pay the extra costs. I think the sponsor bill made a reference that the insurance companies would be paying this, but the insurance companies are not going to pay the extra costs for this. When a small business person goes to the market place to buy insurance, the insurer for the insurance company sells them insurance based on the cost experience in that market place. So, if they were buying an insurance product with a PPO ... their premium's gonna be less than it would be without a PPO. ... If this proposed legislation is passed, then providers are not gonna negotiate into PPOs because there's no assurance then that they would get the volume. It's a real simple concept. Discounted rates for volume referral. Number 0884 MS. KALAMARIDES continued, "By creating regulations which do not permit employers to negotiate lower health care costs then you directly impact their ability to compete with other Alaskan companies who do not provide insurance, or outside companies who enjoy lower health care costs. What happens then is the Alaskan company must shift the costs to their employees and in the end the patient pays for this protection bestowed on them, or, when the insured patient does not or cannot pay, the provider simply shifts the costs to plans who are paying. If you pass this legislation, then small employers who have no choice but to buy insured products will not have the cost benefit of these preferred arrangements. Our membership task force, by the way, and these are rank and file members, looked at this legislation and they quickly recognized that this was simply a cost shift from the patients' pocket to the doctors' pocket. Please keep in mind that Alaskans pay more for medical costs ... than in any other state and the only way we can keep costs down is by negotiating preferred arrangements. Please do not regulate this industry and preclude the opportunity for competition among health care providers. I want to quote Henry Aaron again, and I've done that in the past at similar hearings, because Henry Aaron of the Brookings Institute [Henry J. Aaron, Senior Fellow, Brookings Institution] put it best when he said, 'This legislation is not about consumer choice or consumer protection. It is, quote, meant to prevent the impairment of doctor's income.' And in closing, please remember that the support for this bill has come from doctors. The patients or consumers are eerily absent and of course the employers oppose it, so thank you very much for your time, and thanks for the extra time too." CHAIRMAN ROKEBERG confirmed there were no questions for Ms. Kalamarides. The chairman confirmed the next witness, Dr. Hipsher, had not previously testified on HB 121, although Dr. Hipsher noted he had testified on the previous session's HB 300. The chairman indicated there are materials in bill packet from Dr. Hipsher. Number 1020 THOMAS G. HIPSHER, DDS, testified next via teleconference from Anchorage. He said he is a general dentist in Anchorage. Dr. Hipsher stated that the Alaska Dental Society and most of the dentists in Alaska are not anti-PPO or anti-HMO [health maintenance organization], but rather are pro-patient which is what HB 121 is about. Dr. Hipsher offered the following statements in response to issues mentioned at the March 19, 1999, hearing on HB 121, using his March 24 letter to the committee as the basis for his remarks: "Dentistry versus medicine: Everyone in the insurance industry categorizes dentistry the same as medicine when in fact they are very different. Here are the differences: "Medicine is reactive whereas dentistry is preventive. In medicine there are a high number of specialists, a low number of generalists, whereas in dentistry just the opposite. In medicine we see a high number of catastrophic incidents whereas in dentistry we rarely ever see catastrophic claims. Does medicine meet the criteria for insured risk? Absolutely. Does dentistry meet the criteria for an insured risk? Absolutely not. The average claim amount for medicine is usually high whereas ... with dentistry it is usually low, whereas with medicine [it] is usually quite high. Dentistry has done an excellent job with prevention and education to minimize oral disease. Cavity rates in children have been reduced significantly over the years and more older people than ever still have their teeth. "Insurers say they will lose ... patient control if HB 121 passes: Insurers will not lose patient control, meaning patients will not leave PPOs and HMOs in droves as a result of the passage of this bill. There is a financial disincentive for patients to leave their PPOs and HMOs because when they see a non-participating provider, they will have to make up the difference between what the insurance company pays and what the provider charges. If many people elect to leave their PPO and HMO, and are willing to pay the difference, then there's something fundamentally wrong with the PPO or the HMO. It should be the patients' choice as to whether or not they want to spend their own money to see another provider. "Insurers also say they will not be able to guarantee participating providers adequate numbers of patients if this bill passes: The truth of the matter is, is that of all of the contracts that I have seen inviting me to join a PPO or HMO, not a single one has mentioned, let alone guaranteed, any patients as a condition of my signing the PPO or HMO contract. I'm sure that if you ask any provider, you will find the same is true with them. The insurance industry is simply not telling the truth about this matter. "Insurers say they will not be able to attract providers to join their PPOs and HMOs: Dentistry is very competitive business and many providers spend $2,000 to $3,000 per month on advertising in an effort to attract patients. There are those that will join a PPO (indisc.) HMO for [the] free advertising it provides in exchange for the reduced fees. In the case of United Concordia in Alaska, not a single dentist joined their PPO because their initial fee schedule was far too low for Alaska standards. What they simply did was raise their fee schedules and they had a drove of young dentists join. ... The cost of providing dental care in Alaska is extremely high and, as businessmen, we must make a profit in order to stay in business, the same as any other business." Number 1213 "A couple of other major points I'd like to say. The insurance industry has convinced employers and legislatures [legislators] that HB 121 and HB 300 is Any Willing Provider legislation. I prepared a detailed explanation comparing those two pieces of legislation. The comparison is included in your packet of letters. I ask that you carefully review this comparison to see that HB 121 is not (indisc.) Any Willing Provider legislation. "... Patient Testimony: It was alluded to that when HB 300 was introduced last year and a public hearing held, patients did not show up to testify. It is likely they won't show up to testify for HB 121 as well. Patients are intimidated by the process and fear retaliation by their insurance companies. Just as patients rely on providers to sort out the mess that occurs with dental claims, they rely on their providers to carry out (indisc.) message to the legislature [3/24/99 letter: "... carry their message to ..."]. Patients don't live in a political (indisc.) [3/24/99 letter: "... political world nor do they live in a dental world."]. As such, they feel uncomfortable when asked to speak up about problems they are faced with their insurance. Therefore, who else will stand up for them if not their providers? "And for Employers, if employers listen: Since dental care does not meet the criteria as an insured risk, there are several other alternatives that employers can pursue that will allow employees complete freedom of choice, freedom to have the dental care they need without interference from a third party, and save money at the same time. If employers will only take the time to listen, there is a lot to be learned about this matter." DR. HIPSHER noted that the Teamsters are a great situation for this. The Teamsters can contact the American Dental Association (ADA) to learn how to provide a dental benefit plan which provides dental care at a lower cost than that which can be purchased from insurance companies. Number 1320 CHAIRMAN ROKEBERG pointed out that the committee packet includes letters from Dr. Hipsher dated March 17 and March 24, 1999. The chairman believes that is what Dr. Hipsher referred to as the analysis regarding "any willing provider." REPRESENTATIVE MURKOWSKI noted that she has had conversations with both sides of this issue and has received conflicting information regarding whether HB 121 is "any willing provider." Representative Murkowski understood that if she choose to go to a dentist that is not on a preferred provider list, she can do so and would pay the difference. She asked how this would take her dentist out of the "any willing provider" category. Number 1409 DR. HIPSHER explained the main distinction between any willing provider legislation and HB 121 is that any willing provider legislation would allow any dentist to join a PPO. The dentist would merely ask to join the PPO and the dentist would be a member. Normally, providers are invited to join a PPO in order to limit the number of providers allowed in the PPO. Therefore, those people in the plan are directed to the PPO providers. Any willing provider legislation dilutes the small number of doctors and in effect destroys the PPO. On the other hand, HB 121 allows PPOs to exist. Dr. Hipsher indicated dentists have no problems with the existence of PPOs, as long as the patient obtains care matching his or her needs and to the patient's satisfaction. If a patient seeing a PPO doctor is dissatisfied with the care, then the patient should be able to utilize his or her benefit, at least to the same level the patient would have received under the PPO, to obtain the appropriate care. Dr. Hipsher believed there is a financial disincentive for patients to do that. He noted he has patients in his practice who have left to join PPOs and subsequently returned because the patients were not receiving the level of care he provides. Dr. Hipsher further clarified for Representative Murkowski that the main distinction is any willing provider legislation allows any doctor to join the PPO which dilutes the number of patients that the doctors can see. However, in a true PPO there may be only a few doctors and a wealth of patients. In that situation, the PPO doctors are seeing many patients in exchange for reduced fees. Whereas in the other situation it is the opposite. MS. KALAMARIDES offered to add to that. Number 1571 CHAIRMAN ROKEBERG noted Ms. Kalamarides could bring a statement to his attention and he would provide her an opportunity shortly. The chairman took exception to Dr. Hipsher's definition of any willing provider. Commenting he had introduced a bill on any willing provider legislation in the past, Chairman Rokeberg understood that any willing provider legislation allows that a patient may choose anyone they wish and the insurer must pay the same reimbursable rate no matter the provider. He asked if Dr. Hipsher agreed with that statement. DR. HIPSHER agreed with Chairman Rokeberg's statement in part. REPRESENTATIVE HALCRO asked Dr. Hipsher if he believed that HB 121 would increase the cost of providing coverage by small employers. DR. HIPSHER answered in the negative. Number 1639 CHAIRMAN ROKEBERG referred to Dr. Hipsher's March 24 letter, which refers to fee differentials in paragraph 5 as follows: "Federal law says that dentists cannot charge uninsured patients at a different rate than insured patients." Chairman Rokeberg questioned what federal law that referred to. DR. HIPSHER said that he did not have the specific federal law. He explained that dentists cannot, for the purpose of charging patients, make up a difference because an insurance plan may pay at a lower rate. Dentists balance bill their normal patients for the difference. Dr. Hipsher indicated, therefore, that charging uninsured patients at a different rate than insured patients is neither ethical or legal. In further response to Chairman Rokeberg's question that Dr. Hipsher could not charge someone with less money a lower amount for a procedure, Dr. Hipsher explained that if he were to enter into an agreement with a PPO and he were to charge 70 percent of his normal fee, he would not be able to charge his normal patients the difference. He said that he could not increase the fees to his normal patients to make up the difference. CHAIRMAN ROKEBERG asked, "You can't have a two-tiered fee schedule because of federal law?" Chairman Rokeberg did not believe that was correct and asked Dr. Hipsher if he was sure. DR. HIPSHER indicated he was unsure of the federal law, but dentists cannot do that from an ethical standpoint. CHAIRMAN ROKEBERG asked if a dentist joined a PPO and agreed to charge 75 percent of the customary fee schedule; could a non-PPO patient be charged 100 percent. DR. HIPSHER replied he does charge the patient 100 percent, adding, "As a matter of fact, I should probably charge the PPO 100 percent and then I have to indicate that as a discount ... on my accounting, as a 30 percent discount or a 25 percent discount to the PPO person - and that may or may not have tax implications ... to that patient because that is actually a forgiveness of debt." Number 1764 CHAIRMAN ROKEBERG referred to the fee differential portion of Dr. Hipsher's March 24 letter which reads: "HB 121 is asking that the same rules of fairness apply to the insurance companies regarding reimbursement. This means that the patient should be entitled to the same reimbursement level for a given procedure regardless of the provider that renders that treatment. Differential reimbursement to a patient based on their choice of provider is a monetary penalty imposed on the patient for exercising their choice of provider." Chairman Rokeberg surmised that was the rationale for subsection (c)(1) of HB 121, which reads: "(c) A health care insurer may not (1) directly or indirectly reimburse a covered person at a different rate because of the person's choice of dentist;" DR. HIPSHER said that if a person elects (indisc.--scratching sound), they are monetarily penalized because normally the PPO would pay nothing for that procedure or would pay a substantially reduced rate. CHAIRMAN ROKEBERG clarified that would be a PPO or point-of-service option [POS]. DR. HIPSHER agreed. CHAIRMAN ROKEBERG pointed out that the committee packet includes a legal opinion from Mr. Ford, Legislative Counsel [Legislative Legal and Research Services, Legislative Affairs Agency]. Mr. Ford indicates that HB 121 does not preclude an insurer from offering a point-of-service option or using a preferred provider type of coverage, but it destroys any financial incentive to do so. Chairman Rokeberg noted the effect, then, is that it would prohibit the establishment of new PPOs or point-of-service option type plans. Chairman Rokeberg surmised that HB 121 mandates a constructive fee for service only type menu to small businesses and individuals in the state of Alaska. He asked if Dr. Hipsher would disagree. DR. HIPSHER disagreed with Chairman Rokeberg's statement. He questioned why a PPO couldn't still exist and why couldn't doctors still negotiate with insurers. CHAIRMAN ROKEBERG understood that under a PPO, the dentist would agree to be reimbursed at a lower rate. Number 1896 REPRESENTATIVE CON BUNDE, Alaska State Legislature, came forward as the bill sponsor. He noted he understood that the reduced rate is for volume of service. In other words, a doctor would join a PPO and offer a lower rate because that rate could be made up in the volume of patients. If a patient wants to go to a dentist outside the PPO, that patient would co-pay the 30 percent beyond the 70 percent benefit to the dentist who is not in the PPO. CHAIRMAN ROKEBERG noted the alternative in which there is actually a penalty on the copayment if the patient seeks care outside the plan. Chairman Rokeberg pointed out that a patient seeking care outside a PPO plan typically receives a 50 or 60 percent reimbursement level. REPRESENTATIVE BUNDE identified that as the financial disincentive for the patient to have choice. CHAIRMAN ROKEBERG asked Dr. Hipsher if that would be a correct description of a PPO doctor. DR. HIPSHER answered in the affirmative. CHAIRMAN ROKEBERG inquired as to the percentage differential between what a patient would pay inside a panel versus the penalty for seeking services outside the panel. Number 1973 DR. HIPSHER informed the committee of one of his patients who is a foster parent with children covered under an Aetna HMO. He noted he had hoped this patient would testify. When this patient received services for her children from Dr. Hipsher, Aetna paid nothing on the claim. Since the children are foster children, the children are also covered under state Medicaid. Medicaid also denied the claim because the foster parent failed to take advantage of all the insurance benefits available. This patient is left holding the entire bill because she was mandated to take those children to see a doctor and dentist within 30 days of her taking over the foster care. Dr. Hipsher said that case was extreme, but noted that the average is 15 to 20 percent lower than the normal PPO fees. CHAIRMAN ROKEBERG said that when using the 70 percent reimbursement of a procedure, when a patient receives service outside of the plan there would be a further discount of 20 percent against the 70 percent. DR. HIPSHER agreed with Chairman Rokeberg's assessment, but noted that it would vary. CHAIRMAN ROKEBERG informed Dr. Hipsher that the committee attempted to contact the patient who was to testify, but that patient did not get back in touch with the committee. DR. HIPSHER noted that this patient had indicated that she would provide written testimony to the committee. Number 2063 CHAIRMAN ROKEBERG expressed concern with the provisions in HB 121 that prohibit rate differential for reimbursement. According to Mr. Ford's memorandum, there is no incentive to establish PPOs or point-of-service type programs in Alaska if HB 121 became law. Chairman Rokeberg agreed with Mr. Ford. Chairman Rokeberg indicated he had asked Dr. Logan [President, Alaska Dental Society] at the March 19 hearing if the Alaska Dental Society would agree to modify HB 121 to provide for the point-of-service option. If that modification occurred, Chairman Rokeberg further indicated the need to establish a floor on the rate differential allowed on reimbursement. In other words, a patient would be allowed to step out of a panel under a PPO and that patient would be reimbursed at perhaps 10 to 15 percent less as a maximum differential. Therefore, the patient would have the choice, and reimbursement would be minimized to dentists outside the PPO. Chairman Rokeberg noted Dr. Logan had not seemed very excited about that option. DR. HIPSHER said that he would not be particularly excited about that option either. He did not believe droves of patients would be leaving HMOs and PPOs because of that situation. CHAIRMAN ROKEBERG clarified that Alaska does not have any HMOs. DR. HIPSHER indicated that there could be HMOs in Alaska at some point. CHAIRMAN ROKEBERG stated, "Not with the legislation passed in this legislature." Number 2161 REPRESENTATIVE BUNDE respectfully disagreed with Mr. Ford's belief that there is no financial incentive for the PPO. Representative Bunde pointed to the financial incentive of volume which many say will allow dentists to operate at a lower cost. If people are willing to pay a penalty to seek care outside the program, Representative Bunde interpreted that to be a financial incentive for people to stay within the program. CHAIRMAN ROKEBERG pointed out that if there was a point-of-service option, the patient would be able to make the choice with the understanding that the patient would have to pay a higher premium or a higher copayment. REPRESENTATIVE BUNDE stated that what Chairman Rokeberg described would exist under HB 121. CHAIRMAN ROKEBERG suggested that due to the equality of reimbursement there would not be the formation of any PPO or point-of-service type programs to lower overall health care costs. Chairman Rokeberg predicted that the small employers would be affected by this and ultimately opt out of any dental coverage. REPRESENTATIVE BUNDE noted that was a point of disagreement. REPRESENTATIVE MURKOWSKI asked for clarification regarding the definition of point-of-service options and further asked if they exist here. CHAIRMAN ROKEBERG referred the question to Ms. Burke, Director, Division of Insurance, Department of Commerce and Economic Development, stating, "Mrs. Burke." Number 2270 MARCI BURTON, Regional Director for Managed Care and Physician Integration, Providence Health System, responded via teleconference from Anchorage. Ms. Burton offered to help answer Representative Murkowski's question. Ms. Burton stated that Alaska does have point-of-service options. A point-of-service option is similar to a PPO. It allows a patient to go outside of a negotiated network to a provider of the patient's choice. There is a differential in the coverage that the plan or employer provides. Ms. Burton said, in her experience, those differentials typically range from 10 to 20 percent, and there can often be an additional copayment. Ms. Burton informed the committee that Providence Health System offers its employees a coordinated care plan which would be an example of a point-of-service plan. She explained that Providence Health System has a negotiated network of primary care providers which are typically general medical physicians. As long as the patient sees or receives referrals from one of those physicians, the patient has benefit coverage of 80 percent. If the patient chooses to see another provider without a referral, the patient may do so with coverage at 60 percent. She pointed out that in the Providence Health System there are only primary care physicians. Since a discount rate could not be negotiated with specialty physicians, an adequately-sized network could not be created, and the plan was opened up to all the providers. Therefore, it is necessary to have a network large enough to serve a group in order to be effective. Number 2355 REPRESENTATIVE MURKOWSKI indicated Ms. Burton's explanation of the point-of-service option was helpful, but she understands that with a PPO the patient can also opt to seek services outside the list of preferred providers, if the patient is willing to make up the difference. MS. BURTON agreed, but noted that coverage can vary quite a bit from plan to plan. CHAIRMAN ROKEBERG clarified that it depends upon how the plan is structured. Often, one can be prohibited from seeking service outside of the PPO, whereas if the point-of-service option is specifically provided in the plan, that choice is available from the beginning. REPRESENTATIVE MURKOWSKI asked if the plan specifies that one cannot go outside the panel of the PPO, the person obtaining service outside the plan would pay at 100 percent. CHAIRMAN ROKEBERG said he believes that is correct, referring the question to Ms. Burke of the Division of Insurance. He asked if that distinction between the PPO and the POS is valid. Number 2398 MARIANNE BURKE, Director, Division of Insurance, Department of Commerce and Economic Development, came forward. She requested that Representative Murkowski's question be restated. CHAIRMAN ROKEBERG clarified Representative Murkowski had asked about the distinction between a PPO and a POS. If an individual utilized service outside of a PPO, that individual would receive zero reimbursement. The chairman asked if that was correct. MS. BURKE replied she is unaware of any zero reimbursement arrangements, but is aware of significantly less reimbursement. She concurred with Ms. Burton's description of the point-of-service option. Under the traditional system, the indemnity system, for a $100 dental procedure the plan pays for 80 percent and the patient pays for 20 percent. The dentist receives $100. Under a preferred provider arrangement, the patient has the option of using a preferred provider or using a dentist outside the network. The preferred provider has agreed to accept less than $100 for the same procedure in exchange for being on this preferred provider list. If a patient sees a preferred provider for a $100 procedure, the dentist will receive $70 from the insurance company and the patient will pay $20. The dentist receives $90 rather than $100. If the patient in the preferred provider arrangement goes out of network, the dentist will receive $100 but the insurance company will only pay 50 or 60 percent. The patient pays the remainder. Thus, there is a disincentive to the patient to go out of network. From the dentists' viewpoint, they receive $100 if they are out-of-network, but they receive less if they are preferred providers in exchange for the referrals. REPRESENTATIVE BUNDE questioned, "(Indisc.) a point-of-service then. I think you've clarified PPO, but now..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] TAPE 99-29, SIDE B Number 0001 MS. BURKE answered, "...that a PPO, a point-of-service option is usually associated with an HMO. And, again, since we have no HMOs in this state. ... Basically you select the provider, the practitioner that you want, and that person becomes your, if you will, preferred provider." CHAIRMAN ROKEBERG feels they should examine a point-of-service option within any type of PPO plan or any insured plan written in Alaska that would provide that choice with some statutorily stipulated differential. The disincentive to the patient would still exist but the impact to the dentists would be minimized. MS. BURKE agreed with Mr. Ford's legal advice. There will be no formation of PPOs without the incentive to the creator of a preferred provider arrangement - insurer, employer, whomever - of overall lower cost allowing lower premiums that make the product more attractive to purchasers. CHAIRMAN ROKEBERG asked Dr. Hipsher if it is his testimony that he would not be happy with some type of point-of-service provision in statute that would have to be mandated for a PPO in Alaska. Number 0105 DR. HIPSHER strongly disagreed with the assumption being made that all employers have to purchase dental insurance. There are other options available to employers. It is necessary to disassociate dentistry from medicine because they are "two totally different animals." They are boiling HB 121 down to a matter of cost; if it's a matter of cost, employers need to examine other avenues to save money and still provide their employees ["patients"] with dental care. What is being spoken of definitely applies in medicine, but does not necessarily apply in dentistry. There are other alternatives because dentistry does not meet the need of an insured situation. CHAIRMAN ROKEBERG questioned what those alternatives would be. DR. HIPSHER replied one alternative would be going into an ERISA [Employee Retirement and Income Security Act] plan where the employers can manage a direct reimbursement plan. He noted they have a great deal of data to show that employers can save a lot of money. Some employers in the East are saving as much as 50 percent over their insured dental plans by going to direct reimbursement plans. CHAIRMAN ROKEBERG asked how they saved the money. Number 0154 DR. HIPSHER said the employers are only paying for the care that is actually rendered. Currently, probably only one out of every two people go to a dentist. Out of those people who do go to the dentist, many are only getting exams and cleanings once a year; their utilization rate is very low. CHAIRMAN ROKEBERG confirmed Dr. Hipsher was basically speaking of a fee-for-service self-insured ERISA-type arrangement, rather than a premium. DR. HIPSHER agreed, emphasizing that dentistry does not meet the need for an insured risk. He indicated yearly dental costs for employers can be estimated because a number of people are in routine care situations. CHAIRMAN ROKEBERG commented the majority of the people in the state who are non-ERISA do not have that choice, and those are the only people this legislation affects. He asked if Dr. Hipsher understood this. DR. HIPSHER answered in the affirmative. CHAIRMAN ROKEBERG continued that a very limited amount of individuals and small employer groups would affected by this legislation. Number 0206 DR. HIPSHER said the employers have not opened their eyes because the insurance people are not telling them the full story. There is a nationwide movement in dentistry toward direct reimbursement plans because employers are discovering they can save a lot of money and still offer their employees ["patients"] excellent care. CHAIRMAN ROKEBERG commented, then, the local pizza parlor owner should make a deal with Dr. Hipsher and send all the pizza parlor employees to him. DR. HIPSHER disagreed; that is not the situation. The employees could still go to any dentist they choose, but the pizza parlor only pays for the treatment rendered, and may only pay a percentage of that treatment. A multitude of plans can be designed. All he is saying is that employers need to look at the alternatives. CHAIRMAN ROKEBERG noted, then, Dr. Hipsher is saying that who needs an insurer - a middleman - and accompanying premium, when one could go to direct reimbursement. DR. HIPSHER stated that is exactly true for dentistry and vision. CHAIRMAN ROKEBERG commented it might be the way to go, with the premium schedules he's seen with caps of $1,500. DR. HIPSHER said it is. He advises a lot of people that they would save a lot of money if they simply pay their dentistry as they go, rather than participating in their insurance plan. Number 0267 CHAIRMAN ROKEBERG closed the public hearing on HB 121, after confirming no one else wished to testify. He noted some amendments had been distributed to the committee and designated Representative Halcro's proposed amendment to page 2, line 14, as amendment 1. Proposed amendment 1 read: Page 2, following line 14: Insert a new subsection to read: "(e) This section does not apply to a health care insurer if, as a result of the application of this section, premiums paid by the insured would increase by two percent or more above what would be paid by the insured without including the provisions of this section in the health care insurance plan or contract." Reletter the following subsection accordingly CHAIRMAN ROKEBERG mentioned Representative Halcro's separate sunset amendment. REPRESENTATIVE HALCRO confirmed he was withdrawing that amendment. [Representative Halcro's withdrawn sunset amendment, labeled 1-LS0454\G.1, Ford, 3/23/99, read: Page 2, following line 16: Insert a new bill section to read: "* Sec. 3. AS 21.42.390 is repealed July 1, 2004."] CHAIRMAN ROKEBERG stated he was withdrawing his proposed amendment, indicating it would have deleted subsection (c)(1). [Chairman Rokeberg's withdrawn amendment read: Page 2, line 8 Delete lines 8-9 Renumber remaining sections accordingly] CHAIRMAN ROKEBERG's preference is to see a point-of-service option with a fee minimum: for example, no less than 10 or 20 percent differential. This would still provide incentive for the creation of PPOs, but ensure that dental professionals are at least partially reimbursed for their procedures and minimize the effect on their patients. The chairman noted another approach is to keep in mind the committee's goal is to make dental insurance plans available to non-ERISA small businesses and individuals. He indicated proposed amendment 1, from Representative Halcro, was the other way to do it. Number 0368 REPRESENTATIVE HALCRO moved amendment 1. REPRESENTATIVE MURKOWSKI objected for purposes of discussion. REPRESENTATIVE HALCRO stated the bill is supposed to be cost-neutral; it is not supposed to cost employers any additional money. Both the sponsor and Dr. Hipsher have said this is true. Representative Halcro noted that is the concern. According to the Department of Labor, 86 percent of the businesses in Alaska employ fewer than 20 people. Representative Halcro indicated he believes these employers' ability to afford quality health care needs to be protected. He completely supports the intent and concept of HB 121; he has spoken at length with four or five dentists in his district about this legislation. Representative Halcro noted he becomes very nervous when government "starts dabbling" in health care. Since the legislation is not supposed to increase costs to employers, he suggested this be included in the statute, mentioning there are current provisions in state and federal statute regarding mental health coverage allowing employers to opt out if the employers can prove a 1 percent increase in the total cost of providing the service. Representative Halcro's amendment gives 2 percent. He stated, "I think that's fair - I think the intent, obviously, is to make sure that health care is available to all workers in the state of Alaska but it's something the employer has to afford and I don't think that government should be dictating the terms and conditions without giving some kind of provision to protect small business." With that, Representative Halcro moved amendment 1. CHAIRMAN ROKEBERG confirmed Ms. Burke had seen amendment 1. He asked how this would work as a practical matter in relation to the Division of Insurance. Number 0489 MS. BURKE replied the individual employer would have to provide documentation of increasing costs; this would be through the employer's premiums. On the insurer's side, the insurer would have to provide documentation that the costs are increasing for the individual plan offered in the state. Ms. Burke explained the problem with the documentation is that it is not possible to isolate the number of factors which could cause costs to increase - to show costs increased just as a function of not being able to have a preferred provider. She mentioned increased utilization or a spike in unusual care as other possible cost increase factors. Ms. Burke said, "Whenever we try to quantify that, we can't isolate a single occurrence and say, 'X number of dollars is a result of this.'" CHAIRMAN ROKEBERG questioned, then, if this was doable and if the department would incur costs. MS. BURKE answered that the Division of Insurance would incur additional effort and cost to oversee this because it would require the division to invest additional staff time to verify the data submitted. Number 0569 REPRESENTATIVE BUNDE admitted his view of insurance companies is perhaps highly skewed by authors like Mr. Grisham [John Grisham]. He expressed the belief that it would not be difficult to show a 2 percent increase. REPRESENTATIVE HALCRO referred to discussion at the March 19 hearing that the legislation was preventative in nature, and there was no current problem. He questioned Ms. Burke regarding the fiscal note, noting that if there currently isn't a problem, how would the Division of Insurance know what the fiscal would be and how much work it would entail? MS. BURKE responded she could not quantify for it at this time, but amendment 1 would mandate that additional data be checked and verified to see if there had been an increase as a result of the legislation. As statutes currently exist, the division verifies data sent in to support an increase in premium in the aggregate. At this time, insurance companies do not separate that increase into the various components such as increased utilization, change in statutes, change in mandates, et cetera. Ms. Burke commented she would share Representative Bunde's skepticism about the industry she regulates, noting they are creative. The companies would not hesitate to come in with a 2 percent increase that they would have to verify to the division. If the companies said the increase was a result of this legislation, they would have to prove that to the division. There is where the additional work on the division's part would enter. Number 0739 CHAIRMAN ROKEBERG commented on the absence of Gordon Evans, lobbyist for Health Insurance Association of America (HIAA). He asked Ms. Burke, "But perhaps you would know [what] the annual adjustments in health insurance premiums are on an annualized basis, (indisc.) increases?" MS. BURKE replied there is a 16 percent increase in utilization between 1997 and 1998 for individual policies in the state of Alaska. She noted that is actual utilization: going to physicians and incurring fees. For small groups, 2 to 50 as defined in Alaska Statute, there was an approximately 22 percent utilization increase. This translates into a 17 percent increase in individual rates; the 1 percent is tied to the premium tax as well as the increased overhead with more clients. A portion of that 1 percent covers the increase in claims. Ms. Burke commented the large groups are individually negotiated with employers and can vary dramatically depending on the plan's coverage. CHAIRMAN ROKEBERG asked about the trend in annual premium increases over the last 5 or 10 years or so. Number 0835 MS. BURKE said the trend has been up, stating, "And if you trended it, using an actuarial term, over time, we have about a 15 to 20 percent increase ... per annum." CHAIRMAN ROKEBERG noted, then, this would generate some type of fiscal note. He questioned if it would be an indeterminate fiscal note. MS. BURKE replied the division could come up with an estimate but she could not give a number now. CHAIRMAN ROKEBERG indicated the 2 percent cost increase figure in amendment 1 did not seem a valid figure to use given the circumstances of a 15 percent annual increase in premium. REPRESENTATIVE HALCRO noted the common thread of the testimony is that dentistry is not over-utilized, that people only go to the dentist when they absolutely have to. He asked Ms. Burke if it is correct, however, that adjustments in the premiums are not broken down into dental health, it is simply total costs. Number 0912 MS. BURKE answered that the policy is priced as a total. There are breakdowns by policies that do not include dental options. Ms. Burke agreed the observation that dentistry is not over-utilized is valid, based on the division's experience. Preventative dentistry is "pretty flat-lined." However, even in dentistry there are unanticipated and extraordinary costs like periodontal diseases or crowns. These costs can cause quite an increase in the cost of dentistry for a particular employer. CHAIRMAN ROKEBERG expressed his concern about the percentage, asking Representative Halcro if he wished to speak to his amendment. REPRESENTATIVE HALCRO indicated the intent is to protect small businesses who provide health care for their employees, with the assertion in the statute that this legislation would not raise the cost of coverage for employers. He agreed a fiscal note would be difficult to determine. Representative Halcro expressed his concern that the situation which would be remedied by the amendment could occur. Number 1020 MS. BURKE explained one way this could be quantified. A PPO arrangement provides the service for 10 percent or 20 percent less than the market value. If an employer was unable to have this type of arrangement and the state went to a pure indemnity system, that would increase the cost in this range. CHAIRMAN ROKEBERG commented, "Or if the panel -- if the fee differential reimbursement was not -- was leveled by this bill, then they may (indisc.) premium, and that's where the percentage would come about, right?" MS. BURKE answered that is correct. CHAIRMAN ROKEBERG continued, "And then you could make a calculation, or you would discount any overall inflation before you had the differential." REPRESENTATIVE BUNDE questioned whether the substitution of Representative Halcro's withdrawn amendment [sunset clause] would alleviate his concerns about unintended consequences. Number 1102 REPRESENTATIVE HALCRO pointed out that the 2 percent increase only applies to the effect of this legislation, not to overall premiums. He asked Ms. Burke to confirm again that there is, however, no way to discern this. MS. BURKE replied that because there are a number of variables acting at the same time, they could make educated guesses, but she would not be able to definitely say it was an increase of X number of dollars, or percentage, as a result of this. REPRESENTATIVE HALCRO withdrew amendment 1, noting he did not want to incur a fiscal note. He did think it was very important to bring up the concern that whenever government becomes involved in mandating health care rules or coverages, the cost is usually borne by the employer. Representative Halcro indicated the legislature should protect the interests of small employers since they are such a significant percentage of Alaskan businesses. He mentioned his previous discussion with Representative Bunde about the sunset clause; Representative Halcro asked the chairman for permission to reintroduce that withdrawn amendment as a last line of defense. Number 1207 CHAIRMAN ROKEBERG ruled Representative Halcro out of order. The chairman moved a conceptual amendment on page 2, line 9, after "dentists". The conceptual amendment would read something to the effect: "except for point-of-service options which may reimburse dentists at a discount not to exceed 10 percent". Chairman Rokeberg commented, "I don't think the words are artful but I think they have the elements with which the drafter can work, which would allow a point-of-service option within a PPO with any type of an insured plan offered, and the intention of the reimbursement is (indisc.) 10 percent is the differential that can be discounted if you go outside the panel." He questioned if the committee understood the amendment. REPRESENTATIVE BRICE and REPRESENTATIVE MURKOWSKI both answered in the negative. MS. BURKE questioned, "Would that 10 percent apply to the co-pay, to the amount the dentist (indisc.)..." CHAIRMAN ROKEBERG interjected, "Yes, the co-pay, or the direct or indirect reimbursement, it's probably what it should -- because the term 'direct or indirect reimbursement' I take to mean either direct reimbursement or a copayment. So that's a good point, ... it'd be the direct or indirect reimburse to the covered person. That's what it should read then, 'to the covered person,' it'd be discounted -- what I'm trying to do is get a differential not to exceed 10 percent. It's a very small differential but it's enough to maybe save some of those organizations and keep them going." REPRESENTATIVE MURKOWSKI requested the chairman read the conceptual amendment again. Number 1317 CHAIRMAN ROKEBERG said, "It's 'except for point-of-service options which may directly or indirectly reimburse the covered person at a rate differential of not to exceed 10 percent'. It's conceptual in nature and we'll leave it to the drafter to get that. In other words, you could -- Representative Bunde." REPRESENTATIVE BUNDE said, "If I might use my [previous] analogy, just to make sure that ... I understand where you're going, someone within the program has a procedure that costs $100, they get reimbursed at $80. They choose to go outside the program, the dentist gets reimbursed at $70 ... in round numbers..." CHAIRMAN ROKEBERG interjected, "(Indisc.) $72." REPRESENTATIVE BUNDE continued, "Plus the patient would still be responsible for the additional copayment to..." CHAIRMAN ROKEBERG agreed. REPRESENTATIVE BUNDE said, "Make that the outside dentist (indisc.--talked over) $100 (indisc.) procedure." CHAIRMAN ROKEBERG spoke over, "There'd be a slight -- ... the penalty would be less when you stepped outside the network (indisc.)..." REPRESENTATIVE BRICE added, "Up to 10 percent." CHAIRMAN ROKEBERG replied, "Right, outside -- or, you know, you could make it 15 or 20, but now it seems typically it's about 20. If it's 80, they step out 60, that'd be a 20 percent (indisc.) actually 25 percent (indisc.). REPRESENTATIVE BRICE asked if the chairman wished to limit it to 10 percent. CHAIRMAN ROKEBERG answered, "It might make the sponsor happier, but, I mean that's kind of an arguable thing - what's the magic number? I'd like it a little higher." Number 1397 REPRESENTATIVE BUNDE commented, "Insurance companies would say zero (indisc.) they would say there would be zero reimbursement, and dentists should say there'd be a 100 percent, ... I guess 90 percent's a compromise." CHAIRMAN ROKEBERG added, "And it's against whatever they're paying, if they're paying 80 percent, then it's, right, 10 percent less than what the 80 percent is." He questioned if the committee understood the intent of the conceptual amendment. REPRESENTATIVE BUNDE stated it is something he can live with. CHAIRMAN ROKEBERG said, "I appreciate that because I think it's important to avoid the appearance even that we're going (indisc.) creating legislation that creates a disincentive that ultimately may cost people coverage, and we don't want do that, and may be we'll toy with the percentage later on down the stream here as the bill moves its way through the process. But I think it is a compromise that, hopefully, will not be too objectionable to people with the bill." The chairman asked if there were any objections to the conceptual amendment. There being none, the conceptual amendment was adopted. The chairman indicated that concluded the discussion on HB 121. Number 1497 REPRESENTATIVE HALCRO made a motion to move HB 121 out of committee, as amended, with the attached zero fiscal note and individual recommendations. CHAIRMAN ROKEBERG asked if there were any objections. He indicated there were two fiscal notes, one from the Division of Insurance and one from the Department of Administration. There were two objections from the committee. One was from Representative Brice and the other was not discernable. A roll call vote was taken. Representatives Rokeberg and Murkowski voted in favor of moving the bill. Representatives Halcro, Sanders, Harris, Brice and Cissna voted against it. Therefore, CSHB 121(L&C) failed to move from the House Labor and Commerce Standing Committee by a vote of 2-5. Number 1642 CHAIRMAN ROKEBERG called a brief at-ease at 4:56 p.m. The committee came back to order at 4:57 p.m. HB 143 - REAL ESTATE:SURETY FUND & DISCLOSURES Number 1650 CHAIRMAN ROKEBERG announced the committee's next order of business is HB 143, "An Act relating to the executive officer employed for the Real Estate Commission, to educational materials published by the Real Estate Commission, to the Real Estate Surety Fund, to contracts by the Real Estate Commission, and to disclosures in real property transactions." The chairman commented the committee would take the public testimony, noting two witnesses in Kenai had been unable to continue waiting: Ron Johnson and Dave Feeken. As the bill sponsor, Chairman Rokeberg presented HB 143 to the committee. The legislation is in two sections. 1) It affects the real estate surety fund of the Alaska Real Estate Commission. 2) It has provisions for nondisclosure of psychological (indisc.) to property. The first part of the bill changes the use of the surety fund. The chairman indicated the surety fund, by statute, cannot exceed $500,000 in contributions from part of the real estate licensees' fees, not to exceed $125 per biennial. After procedural hearings and claims are made, up to $10,000 per incident can be awarded out of the fund. The chairman indicated the surety fund is a form of consumer protection in lieu of bond, established a number of years ago. The current real estate statute allows portions of the surety fund above $250,000 to be used for educational purposes. The commission has funded portions of personal services from the surety fund. A portion of the executive secretary's salary comes from the fund; Chairman Rokeberg noted he thinks another full-time position is almost or completely paid out of the fund. He indicated additional items paid for out of the fund are the sponsoring of certain classes, seminars, et cetera, approved by the commission. Number 1815 CHAIRMAN ROKEBERG further indicated Alaska Statute requires that each occupational license program be self-supporting. However, the real estate licensees are somewhat unusual because of the surety fund fee in addition to the biennial license fee. The chairman expressed his view that the use of the surety fund co-mingled what should be entirely the license fee in with the surety fund fee. Money is being removed from the surety fund for what the chairman considers operational expenses. The intent of the first part of HB 143 is to make the biennial licensing fee cover all the commission's expenses, as is the practice with every other license. The only money removed from the surety fund would be what is needed for the administration and servicing of the fund: hearing officers, attorneys, and all the other expenses and claims that come out of the surety fund. The chairman stated, "Therefore, when the biennial cycle comes around, if there is very little use of the surety fund, which in the last couple years there actually has been very little use, and now the law allows for lapsing into the GF, the general fund, when you get over a half million dollars in the (indisc.), but we put sweep language in the budget so it doesn't happen, so it's kind of a ruse, that's what I'm trying to do, is straighten this thing out so what we're doing is only having the fees paid ... into the fund for the fund, and run the fund operations out of the fund, and have all the other licensing costs in their fee. That's the intention." Number 1946 REPRESENTATIVE BRICE questioned if the sweeping of all the various funds wasn't a constitutional requirement. CHAIRMAN ROKEBERG answered no, it is actually in the statute. The chairman indicated the bill contains a section providing for an ongoing report regarding the surety fund balance to avoid exceeding that cap. He commented there have been some accusations Ms. Reardon is also aware of that the Real Estate Commission has been using the security fund as a "slush fund" for trips to Hawaii, et cetera. The chairman noted commission executive staff members had attended "NARELO (ph), National Real Estate Officers Convention," held in Hawaii a few years previously. Although that expense was completely legitimate in the chairman's opinion, "it has the specter." The chairman continued, "Plus we always have to be aware, particularly of the Administration's and the Department of Commerce and Economic Development Occ-Licensing -- well, it's actually the commissioner's office that's (indisc.) tapping into the licensing fees but Miss Reardon has to defend the (indisc.), she's the great defender of (indisc.), but there's always that problem too." Chairman Rokeberg noted, as well, the commission has been publishing the landlord-tenant law book for several years, to his confusion. He noted this is like a phantom tax on real estate licensees, although he thinks the state has a clear responsiblity to publish a landlord-tenant book. In response to Representative Murkowski's question about the publishing costs, the chairman answered about $6,000 every other year. Number 2105 CHAIRMAN ROKEBERG continued that the second part of the bill concerns psychological impairment, and many states have these provisions in statute. This takes away any obligation on part of a real estate licensee to disclose certain background information about a property including a natural death, suicide, murder or other crime classified as a felony under state or federal law on the property. He stated, "In other words, if you have a house listing ... you should not have to disclose ... you should all know we have a disclosure form. Any time a residential property is sold, there is a mandate in the statute that requires that the disclosure form be filled out and there are certain requirements for the disclosure. What's happened is there's national case law about the expectations of what should or should not be disclosed. There's even a case in Massachusetts where the failure to disclose ... the existence of a ghost in a residential home was grounds for recision of a contract." There was some discussion among the committee regard this issue and ghosts in sold property. Number 2279 CHAIRMAN ROKEBERG continued, "The real property -- there's certain background information which shouldn't be disclosed, (indisc.) for example, the AIDS or HIV-positive disease because it's unlikely to be transmitted. This particular provision in the law reflects the federal law which is on the books now. As just a further reminder, remembering the licensees have to learn their law to remind them that's part of the federal law and ... they shouldn't do that. And the other thing is subsection (D) [(C)] on page 3, an amendment I rather intemperately, without committee hearings, put in a real estate bill last year that relieves the obligation of a real estate licensee to disclose a registered sex offender (indisc.) property. ... [We] have some veterans here ... who recall that situation ... this is a famous provision. And what I want to do is flip the feedback on the real estate industry and see how they want to proceed on these particular issues. The first section I think is an important thing that should be taken care of, the second one's ... something I want to try to get cleaned up." Number 2388 REPRESENTATIVE BRICE said he felt it is appropriate to put the landlord-tenant printing someplace besides the Real Estate Commission. He does think there is going to be an issue with removing the notification requirements on sex offenders. CHAIRMAN ROKEBERG asked why Representative Brice would say that. He indicated the chairman needs to educate the committee. REPRESENTATIVE BRICE noted he was present and when the law to register sex offenders was passed and supported it. CHAIRMAN ROKEBERG stated this has nothing to do with the sex offender registry. REPRESENTATIVE BRICE replied yes, it does. CHAIRMAN ROKEBERG commented, "Well, we have taken care of in a good part the disclosure, but we haven't take care of the potential liability on a licensee." REPRESENTATIVE BRICE said he purchased a home in December. He was given a piece of paper notifying him the search would not be done, but providing the appropriate Internet address if he wished to do it himself. Representative Brice commented he appreciated that very much. CHAIRMAN ROKEBERG noted the previous year's legislation had done that. He commented, "This is the closure, this is the last step in that." Number 2510 REPRESENTATIVE HALCRO questioned, "Let me ask you about..." [TESTIMONY INTERRUPTED BY TAPE CHANGE] [From tape log notes: 'Landlord-tenant (indisc.) original (indisc.) having fund pay for that initially'] TAPE 99-30, SIDE A Number 0001 REPRESENTATIVE HALCRO finished, "...just did." CHAIRMAN ROKEBERG responded, "I think that probably when the de-funding of consumer protection (indisc.) about, they transferred it over there, as I recall. I don't know, may be it'll come out in testimony." REPRESENTATIVE HALCRO asked in follow-up, "What about the fact that real estate agents sell multi-family dwellings thereby they're selling to somebody who's going to become a landlord." He questioned whether that didn't fall under the purview. Number 0046 REPRESENTATIVE MURKOWSKI clarified that the landlord-tenant handbook is mainly a handbook to aid tenants, primarily, with their rights regarding any potential evictions. CHAIRMAN ROKEBERG said there is no question it is a very valid publication. He agreed with Representative Murkowski's suggestion the court system should publish it, indicating he doesn't think the real estate licensees should be required to pay for this. The chairman further indicated the committee would take the public testimony. Number 0139 ERIC DYRUD, Co-Chair, Legislative Committee, Anchorage Board of REALTORS, testified via teleconference from Anchorage. Mr. Dyrud referred to AS 08.88.450 which is amended on page 2, Sections 3 and 4 of HB 143, regarding the surety fund. This portion [current statute] directs that the surety fund be established in the general fund. The licensees, or at least the Anchorage Board of REALTORS legislative committee, would like to see the surety fund in an interest-bearing fund where the interest accrues to the benefit of the licensees who pay into it. CHAIRMAN ROKEBERG noted the committee would examine that but he thinks there will be restrictions based on the appearance of a dedicated fund situation. The committee can look into whether it might be possible to have a separate fund that is not in the general fund. MR. DYRUD indicated probably about $15,000 to $20,000 in interest per year could be gained that could be used to reduce the licensees' fees. Referring to the landlord-tenant publication, Mr. Dyrud said he is not sure it should be paid out of the surety fund, but it certainly is a useful book, and is used in the industry as well as with tenants. He wouldn't necessarily call it pro-tenant. It is used in the courses taught and in dealing with rental property management. Mr. Dyrud indicated he used to use the booklet at least once a month and now uses it perhaps once a quarter. A lot of the tenants request it, and he provides them copies. Number 0321 CHAIRMAN ROKEBERG asked if Mr. Dyrud thought the real estate licensees should pay for the landlord-tenant booklet. MR. DYRUD answered that if they had their choice, no. CHAIRMAN ROKEBERG indicated this was a brief hearing on HB 143; he wanted to introduce the legislation and circulate it in the industry. The committee would await further input. He confirmed there was no one else in Anchorage who wished to testify on the bill. Number 0380 SUZANNE MANNIKKO, We [?] Against Sexual Predators (WASP), testified next via teleconference from the Matanuska-Susitna Borough Legislative Information Office (Mat-Su LIO). Ms. Mannikko stated she is opposed to this bill because it removes the responsibility of Realtors to notify potential buyers/sellers of a sex offender in the area. Ms. Mannikko described that she recently put her home on the market and she has no problem with the disclosure of this. She continued, "Part of protecting our children is being aware of our environment and our surroundings, and I feel like our state does so little to protect our children from these sex offenders and repeat sex offenders. By removing this ... from the bill, here we are again taking away from our children and I just think it's the wrong thing to do. And if you're concerned about the sex offender registration not being accurate, then you need to find some more financing to put more people out there to make these sex offenders comply with the laws that we do have. I think this is a poor thing to do to our children." Number 0490 CHAIRMAN ROKEBERG informed Ms. Mannikko it is not the duty of a real estate agent to disclose a sex offender and that is the nature of this bill. MS. MANNIKKO agreed, but noted on the form she received from her Realtor it provided a website address for people, and she would hate to see even that disappear. CHAIRMAN ROKEBERG noted that was just enacted the previous year. MS. MANNIKKO questioned if the bill wasn't to remove the responsibility of the Realtor in giving notice of sex offenders. CHAIRMAN ROKEBERG said the real estate agent does not have a responsibility or duty to notify now; this is just to clarify that. The chairman commented that is the point. MS. MANNIKKO replied, "Oh, but that is the point. ... I guess I did misunderstand this, correct?" Number 0569 CHAIRMAN ROKEBERG agreed, stating he just wanted to clarify it with her. The issue is should or should not the real estate agent have the responsibility. MS. MANNIKKO interjected she believes they definitely should. CHAIRMAN ROKEBERG said the agents can't because they sometimes get into what is called dual agency. The chairman continued, "Where you have a duty to two people, one the buyer and one the seller, potentially, after it's fully disclosed, and therefore you're in an impossible situation." He noted that is why it is a matter of technicality within the law. A Realtor can disclose that information if he desires but he shouldn't have a duty to do so, particularly if he finds himself in a position where whatever he would do would be basically illegal. Chairman Rokeberg noted that is the dilemma they are in. Number 0606 MS. MANNIKKO noted her understanding is that the Realtor has the duty to disclose potential health hazards and she questioned that this was not considered a health hazard to children. CHAIRMAN ROKEBERG replied there is a duty to disclose if the real estate agent is aware of a defect in a home. There is also a further duty to be aware of certain things, if the agent has a level of professional expertise. However, in the chairman's opinion, to impose a further duty to identify sex offenders goes beyond the responsibility. He noted, "We have a technical problem in the law because of the duties of a[n] agent to (indisc.) various people in the transaction that he finds himself into a -- actually in a legal box that he can't get out of without some legislative relief. This in no way is intended to diminish the importance of the sexual register ... it is also intended to tell the public that the real estate agents are not the sex offender police either. That's the duty of law enforcement and of government, and everybody involved with knowledge of the sexual register. So, to suggest that the real estate agent has a special duty is not -- I don't think is fair, and that's really the point of the bill. I authored the provision on the disclosure last year to help the public, make sure they knew that the registry existed and ... become knowledgeable about that. It's kind of hard to explain the technical details [of] why we need this kind of legislation, but I think it's -- a good case can be made and it certainly isn't meant to diminish the amount of notice and awareness of a potential sex offender to the children of our state, that's certainly not the intention." Number 0750 MS. MANNIKKO said, "What you're saying is it's just not the way to do it." CHAIRMAN ROKEBERG responded, "No, it's really a legal technical problem we find ourselves in to try to impose a duty and that's the reason for the bill. It's not that a[n] agent can't disclose it, he can if he so desires but once he does that then he's got a duty and responsibility to one of the individuals as part of the transaction -- it gets kind of technical to explain but -- and sometimes that relationship changes so he find himself in a dilemma where you have a duty to two masters and that's what the problem (indisc.)." Number 0793 REPRESENTATIVE BRICE thanked Ms. Mannikko for her testimony. He explained the real estate agents don't disclose, but they do ask the person buying the property to sign a piece of paper signifying that this information has been presented, that the purchasers have been made aware. The purchasers currently sign the paper saying that the real estate agent has disclaimed any knowledge of any sexual offenders in the area, and the paper shows, if the purchasers are interested, where to find out if there are any registered sex offenders in the community. Representative Brice indicated the real estate agents don't necessarily have to disclose the information, and he thinks that is appropriate. However, he thinks the provision in the legislation would remove the real estate agents' requirement to make that information available to the purchaser; Representative Brice thinks Ms. Mannikko has a valid point. He thinks that is an important service provided to the consumer by the Realtor. CHAIRMAN ROKEBERG thanked Ms. Mannikko for her testimony. He questioned whether anyone else wished to testify on HB 143. Number 0921 CATHERINE REARDON, Director, Division of Occupational Licensing, Department of Commerce and Economic Development, came forward. Ms. Reardon offered to hold her testimony until a later time if the chairman desired. CHAIRMAN ROKEBERG offered a couple of questions, agreeing the hour was getting late. He asked about the interest-bearing fund concept. MS. REARDON replied she would examine it again to give the committee a definitive answer. She has asked this question before herself. She believes the surety fund can be in the general fund and still be an interest-bearing account if the statute specifies it will earn interest. There may be some other types of funds she could obtain statutory language from. Ms. Reardon indicated removing the surety fund from the general fund might create some problems. Noting it is possible the surety fund could be interest-bearing, she commented she did not know if there would be extra work for the treasury or the fund managers but the question could certainly be posed. CHAIRMAN ROKEBERG asked Ms. Reardon to discover when and why the Real Estate Commission received responsibility for the landlord-tenant booklet. Number 1014 MS. REARDON assented, noting it is something they have chosen to do; it is not assigned by regulation or statute. It is a very popular government publication, many requests are received. Many agencies request the booklets so they can further distribute them. Ms. Reardon noted the bill, as she understands it, would not prevent or stop the commission or division from publishing the document. She indicated the legislation simply mandates a publication that is primarily tenant and not equally landlord-oriented can't be published from the surety fund. Ms. Reardon maintains they currently try to publish a very impartial, unbiased item which might very well satisfy the legislation. Noting she does not want to fight the committee on the issue, it appears to her publishing the booklet out of the general fund real estate funding source would still be an option. She stated, "So if you really don't want that published, we probably need to be real clear about that or else you might just get frustrated to find we're still doing it." CHAIRMAN ROKEBERG noted it is not a large amount but it is kind of a personal thing: Should the real estate licensees be paying for it? He thinks it came from the disbanded consumer protection division (indisc.) Department of Law, and so they tried to find a place to put it. The chairman questioned again why the real estate licensees are paying for it. Number 1121 MS. REARDON suspects there a couple of reasons. The real estate office receives a lot of telephone calls about landlord-tenant issues, which is not within the office's area of responsibility. However, rather than just turning away these members of the public, it is helpful to offer to send the booklet so people can inform themselves. Additionally, as Ms. Reardon understands it, there are licensees involved in dealing with tenants and "we" want them to know how to deal with tenants legally. She mentioned that property managers are in the business of collecting rent, keeping it in escrow accounts, deposits, et cetera. Ms. Reardon informed the committee the Real Estate Commission is meeting tomorrow and the next day; she or Grayce [Ms. Oakley, Executive Secretary, Real Estate Commission] will bring these questions and concerns to the commission. CHAIRMAN ROKEBERG mentioned that another thing is the out-sourcing of the surety fund hearings and counsel. He noted it is not entirely clear but it is his intention to hire other counsel besides the Department of Law for the surety fund hearings. Number 1203 MS. REARDON explained that regarding surety fund hearings, the commission is simply the judge. In disciplinary actions against real estate licensees, the division prepares the case acting as the prosecution. Therefore the division is hiring the prosecution lawyer - basically the Department of Law. That is not the case with the surety fund. The division pays for the hearing officer, not a lawyer, not the Department of Law. In surety fund proceedings, the member of the public who feels that he/she was injured presents his/her own case. The division does not investigate for or argue the person's case. The accused person also argues his/her own case. The state role is, through the hearing officer, to make a proposed decision which the commission then accepts or does not accept. The division is not paying the Department of Law in this particular setting. Ms. Reardon indicated the Department of Law might become involved if, for example, the commission was sued as a result of a surety fund hearing. Because the division does not investigate in these situations, the division does not really have any costs in that area. Ms. Reardon appreciated the removal of the threat that when the surety fund balance exceeds $500,000, the licensees who paid it would lose it. She indicated there shouldn't be this inherent pressure to spend to make sure the $500,000 limit is not exceeded. That is somewhat this year's situation because it has been a very low expenditure year. She would ask, from a technical point of view, that since the law states they cannot go over $500,000, what happens if they do? Number 1319 REPRESENTATIVE HALCRO commented that wasn't it the desire in the bill to create an average over two years, since the fees are higher one year and shrink the next year while in some cases the educational and other expenses stay consistent. He indicated the provision allowing the average daily balance of the fund to be based on a two-year period would be useful for these yearly variations. MS. REARDON responded it would be wonderful if the fund could not exceed $500,000 at the end of the two-year license period. Ms. Reardon referred to page 2, line 12, of the legislation, indicating she had not actually seen the two-year period. Something like that would be very helpful because that is exactly the problem: the fund is filled up in one year and it is difficult not to exceed the cap four months later, but it has to be high enough to make it through the entire second year. Ms. Reardon feels the chairman has been very supportive and constructive in working with the division and the Real Estate Commission. She informed the committee the use of the surety fund for educational purposes and a staff position is specifically authorized in the budget each year. It is appropriated; they are not using it as a "slush fund." The division is following its budgetary guidelines. Number 1425 CHAIRMAN ROKEBERG expressed his confusion regarding the fiscal note, commenting this should have a zero fiscal impact. MS. REARDON stated her intention was to show that $104,000 less would be spent out of the surety fund and $104,000 more out of general fund program receipts, for a net wash. Noting that the second paragraph of the analysis on the fiscal note says it is a funding source change, Ms. Reardon indicated there may be an error in the note and she will review it. No additional monies are being requested. CHAIRMAN ROKEBERG mentioned it should be pretty seamless, but has to be done; he questioned that the next cycle begins in January 2000. MS. REARDON agreed it does. CHAIRMAN ROKEBERG indicated this the reason they need to accommodate this and why the bill needs to pass this session if it is going to pass. The chairman mentioned the possible removal of items to ensure the legislation's passage. CHAIRMAN ROKEBERG asked Ms. Reardon how the hiring was going, questioning if a freeze was still in effect. MS. REARDON replied the commissioner's office had signed the request to hire memorandums that day, and they could speak of that if the chairman wished. Ms. Reardon commented the other item for future discussion regards the title change of the executive secretary on page 1 of the legislation. Her understanding is that this title change is not intended to trigger a change in pay or duties. Ms. Reardon said she may be suggesting at the next hearing that the title be left as "executive secretary", with an additional sentence, "who will use the working title 'executive director'". She indicated the current title change as written in the legislation might unintentionally trigger job classification and pay range changes. CHAIRMAN ROKEBERG requested Ms. Reardon pass the legislation on to the Real Estate Commission, noting he would appreciate the commission's input. [HB 143 WAS HELD OVER] ADJOURNMENT Number 1583 CHAIRMAN ROKEBERG adjourned the House Labor and Commerce Standing Committee meeting at 5:35 p.m.