ALASKA STATE LEGISLATURE SENATE LABOR & COMMERCE COMMITTEE  February 22, 2001 1:30 p.m. MEMBERS PRESENT Senator Randy Phillips, Chair Senator Alan Austerman Senator Loren Leman MEMBERS ABSENT  Senator John Torgerson Senator Bettye Davis COMMITTEE CALENDAR    Department of Labor and Work Force Development, Division of Workers Compensation Audit by Division of Legislative Audit WITNESS REGISTER  Ms. Pat Davidson, Auditor Division of Legislative Audit P.O. Box 113300 Juneau AK 99811 Mr. Paul Grossi, Director Division of Workers' Compensation Department of Labor & Workforce Development PO Box 21149 Juneau, AK 99802-1149 Mr. Bob Lohr, Director Division of Insurance Department of Commerce and Community Development 3601 C Street Anchorage AK 99503 Ms. Barbara Williams, Executive Director Alaska Injured Workers alliance P.O. Box 101093 Anchorage AK 99510 Mr. Kevin Dougherty Alaska Laborers 2501 Commercial Dr. Anchorage AK 99504 MS. LAURA WALDON Alaska Injured Workers Alliance 4120 Resurrection Dr. Anchorage AK 99504 ACTION NARRATIVE TAPE 01-7, SIDE A  Number 001 CHAIRMAN RANDY PHILLIPS called the Senate Labor and Commerce Committee meeting to order at 1:30 p.m. MS. PAT DAVIDSON, Legislative Auditor, said they completed the review of the Division of Workers' Compensation in October 99. In September 2000, they conducted a survey of agencies to determine the status of prior recommendations. Page 47 contains the response to the audit and she read: The objective of the original report was to evaluate the Workers Compensation Program and to assess the agency's administration, enforcement and functional application of the Alaska Worker Compensation Act. The scope of the audit encompassed all major areas of the Workers' Compensation Program including administration, reemployment benefits, adjudicatory section, as well as the regulation of insurance companies by the Division of Insurance. We found there was a major rewrite of the Workers' Compensation Law in 1988. One of the policy goals was to reduce the Workers' compensation costs. This goal has been met. Since FY 89, rates have been reduced by over 40 percent. Injured workers were also to be protected by strict enforcement of the provision of the Workers' Compensation Act. However, as a result of our audit, we found the circumstances have developed that limited the protection provided to the injured workers. These circumstances included: · Policing of uninsured employers was largely ineffective due to shortcomings in the Division's operation and the prosecutorial philosophy of the Department of Law. · That sanctions against frivolous controversions had been rendered ineffective by the policies and practices of the Division of Insurance. · In addition to these administrative and interagency coordination problems, in places where the statute lacked clarity, they had been interpreted and applied to the benefit of the insurance companies, specifically, when calculating penalties and penalty forgiveness sections of the statute. Workers' Comp did it in a manner that benefited insurance companies the most. Meanwhile, provisions put into the 1988 statute as part of the legislative desire to control, if not lower Workers' compensation rates, have over time become increasingly contrary to the interests of injured workers. Specifically, the caps on jury awards and barrel costs set out in statutes in 1988 have eroded over time. The complexity of the disputed claims process has generally worked to the disadvantage of injured workers who often cannot obtain appropriate representation. Constraints on the eligibility requirement for injured workers to qualify for retraining and reemployment benefits have proven to be overly restrictive. The report contains 12 individual recommendations. The underlying themes to these recommendations are: · Rebalance the interests of injured workers and the employers; and · Increase the operational efficiencies and effectiveness in the Division of Workers' Compensation. SENATOR LEMAN said he didn't see an issue mentioned that has come to his attention in the 12 recommendations. Some employers had told him that the Workers' Compensation Board has recently almost consistently sided with claims made by workers and in some cases they were claiming injuries from previous employment which, on the surface, seemed inappropriate. He asked her if this was something they should be concerned about. MS. DAVIDSON replied that evaluations of individual decisions by the Workers' Compensation Board wasn't included in this audit. They were looking more at processes than individual determinations. SENATOR LEMAN said if there was a pattern, he thought it might be good to look at it. MR. PAUL GROSSI, Director, Division of Workers' Compensation, said essentially he agreed with most of the findings and recommendations in the audit and introduced HB 419 increasing benefits and HB 378 dealing with funding and administrative shortcomings. HB 419 dealt with recommendations 2, 4 and 5. Number two dealt with inadequacies of the benefits - permanent and partial impairment ($135,000 since 1988) - not keeping up with inflation. That was also true of the retraining benefits. HB 419 increased benefits to $177,000 although the audit suggested $189,000. But they used the Anchorage CPI to address the shortcoming; the audit used the national CPI. The funeral benefit had been $2,500 and the legislature changed that to $5,000 for a funeral and an additional $5,000 to the survivor, in addition to the weekly benefits a survivor would get. The audit also suggested that the benefits be tied to indexing under the CPI, which wasn't accomplished in the bill, although the maximum compensation, minimum compensation, and the weekly retrianing compensation was indexed to the Alaska average weekly wage. This resulted in a $700 maximum compensation to a $762 maximum in July 2000. It went up in January of 2001 to $768. There were some increases in reemployment benefits from 60 percent of the spendable weekly wage to 70 percent and the maximum was increased and tied to an indexing factor under the Alaska average weekly wage. The widow, widower and orphan benefits were increased from 80 percent of the spendable and that's what it still is for a single widow, but for a widow and a child, it's 90 percent of the spendable (net income) - with two children, it's 100 percent of the spendable weekly wage. That's also true of an orphan. Number 900 MR. GROSSI said one of the issues that weren't addressed in the audit was the interim compensation being allowed when a case is contested. This is a very complicated issue and solves the problem of an employee who is involved in litigation, but if the employee was entitled to the benefits, that would be fine. However, if the employee is not entitled to the benefits, the problem is how to make the employer whole. The legislature could do it, but it's a matter of social policy, which would solve some problems, but create others. It would probably increase the cost to employers and there would be increases for administration of that item and hearings. Recommendation number 4 provides a penalty for untimely notice of coverage. Part of the reason for this suggestion was to make sure the coverage was there and knowing who was and who wasn't covered for investigation of uninsured employers. These problems have come a long way in being rectified with the new computer system and the new system for investigation. In FY 98, there were 107 uninsured employer injured workers and in FY 00 there were 39 with the new system. MR. GROSSI said the other suggestion that wasn't addressed in any way was empowering the Board to sanction uninsured employers with some sort of penalty. The suggestion was to amend AS 23.30.075 and also talked about a 50 percent penalty to the uninsured injured worker. Mr. Grossi thought that was a better alternative, because the penalty would go to the injured worker who is the person who is most harmed. MR. GROSSI said that the rest of the recommendations were administrative and many of them have been addressed, but it would help to not have any further budget cuts and to actually get some increments in the future. One of the auditor's suggestions was on electronic data interchange (EDI), which is turning out to be one of the best suggestions for his Division. He said he was talking with his counterpart in Utah who has a system for electronic data interchange that automatically puts information into their system. They would give it to Alaska, if it would work up here. Number 1200 SENATOR LEMAN asked if he had seen any evidence of a pattern of these types of decisions. He wants injured workers to get compensation for their injuries, but he didn't want them to get compensation for things that shouldn't count. MR. GROSSI answered that this issue comes up periodically, so he had staff review decision orders two different times. It has come up real close to 50/50 on the decisions. SENATOR LEMAN thought maybe every once in a while they just "blow it" because the evidence isn't very strong. He also noted last year the legislature put an almost immediate effective date on it and told the Department to make regulations. In November they were finished and there was a retroactive application. Many employers, then, had to pick up the costs in the cases where they could have recovered them from their clients. It could have been handled a lot better than it was. MR. GROSSI said HB 419 was the bill in question and it went into effect July 1. He agreed with Senator Leman that it was an unintended consequence. An Ad Hoc committee wanted an immediate effective date. There were contractors who had contracts and planned on the premium being at a certain rate, but it got changed. For the future he thought it wise to always make the effective date January 1. SENATOR LEMAN agreed with him. MR. BOB LOHR, Director, Division of Insurance, said that finding number six identified that in the past the Division has not strictly enforced the provisions of AS 23.30.155 (o), the payment system for claims. It says, "The Board shall promptly notify the Division of Insurance, if the Board determines that the employers insurer has frivolously or unfairly controverted compensation due under this chapter. After receiving notice from the Board, the Division of Insurance shall determine if the insurer has committed an unfair claim settlement practice under AS 21.36.125." He explained, if the Workers' Compensation Board has found there has been unfair or frivolous controversions in a case pending in front of it, they refer the matter to the Division and they follow up under their statute to determine whether there has been an unfair claims settlement practice or not. They agree that enforcement needs to be "beefed up" and they have developed a timetable and schedule for handling cases. MR. LOHR said they disagreed with the statutory interpretation of their unfair claims practice. The audit suggested that the Division has ample enforcement authority under the statute to go ahead and issue a fine at that point. Based on regulations that the Division had adopted many years ago, the pattern or practice is what was required in order to be able to take enforcement action. That is where things stood until January 1 of this year. At that point, Senator Donley's SB 177 was adopted and that bill made a single act, as opposed to a general business practice, in violation of AS 21.36.125. That act passed the legislature and took affect on January 1, 2001. As a result of that, any decision of the Workers' Compensation Board identifying unfair controversions, where the facts of the controversion by the employer or the insurer occurred after January 1 this year. The Insurance Division's enforcement of referrals under Workers' Compensation statute 155.0 will be much more straightforward. The Division intends to review each case referred from the Workers' Comp Board based on the finding of frivolous controversion to determine whether the facts of the case establish a violation of our 125. If they do, we will be sending a letter to the insurance company or the adjuster identifying this and inviting their reply. The goal here would be to put a plan in place to eliminate future controversions by that company. If there were a recurrence by the same company, then administrative action by the Division would be appropriate. MS. BARBARA WILLIAMS, Executive Director, Alaska Injured Workers Alliance, said they have 500 members and have processed thousands of requests for information yearly. She was personally active in requesting this audit and worked hard to help the Legislative Audit Division to understand some of the complex issues. She said: We have known from the beginning that workers have had a hard time obtaining their benefits as well as understanding the complex legal process. Many workers are affected by this system statewide and we are grateful that the audit was done. Regarding the audit's suggestions, she commented: · 1. The alternate resolution dispute would greatly assist workers who lose benefits. It could potentially be used to decide the need for medical treatment and other payment issues for workers. · 2. The latest law change will benefit insurers and again reduce benefits to workers. Workers are still earning below poverty wages. The average worker on the low end will only receive approximately $20 and on the high end about $70. This still does not equal anything close to inflation or meaningful economic relief for workers. Workers waited 12 years for any sort of adjustment. Other legislative changes made it much easier for the employers doctors to interfere or dictate the care workers will receive while injured. She said that rehabilitation waivers are another issue. How are workers to evaluate without clear information what the benefits can entail. They may be unable to realize the benefits they may be waiving. · 3. They are still without basic education for workers and health care providers. All the parties are required to provide tasks, but there's no clear idea available to educate the parties as to their responsibilities. Complex legal issues for the regular workers are hard enough, but combine that with brain injuries and mental health issues, and the task becomes impossible for many. Education is the key and the Alliance is the only organization providing education to workers and health care providers. They make Title 23 available for as many people as possible in written form and have the rules and information needed to process claims. Many providers don't have a clear idea of their legal requirements and how to pursue them. None of the new legislation begins to attempt to address this issue. · 4. She said the AWCB should be using more proactive measures to see that the uninsured employer pays benefits to those who are entitled to them. Mr. Jerry Flock had an employer who not only denied his benefits, but took out a contract on his life in order not to pay benefits owed. To this day, Mr. Flock has not received benefits and wishes the state pursued the claim against the employer for his misconducts. The state could make sure in this instance the employer could post bonds to cover certain costs for employees. More should be done to see that employers are and stay insured. In the above referenced incident, the employer was allowed to uninsured 16 consecutive times. This is in no way acceptable. · 5. Without sanctioning employers for failure to insure, the state is allowing them to not follow the law and there are no consequences in place to punish them. · 6. The Division of Insurance should be held accountable for assisting in prosecution of uninsured employers. They should be looking out for the consumers and the public at large. · 7. There is still a great need for information on the annual report and the information needs to be verified in some fashion. · 8 - 12. Effective penalties need to be addressed by the Division of Workers' Compensation. Many insurers and employers laugh at them because of the inadequate and ineffective measures for measuring penalties. Overwhelmingly, the audit concluded that the Division of Workers' Compensation works with insurers, employers and risk management, but the most critical portion of the equation that's missing is the worker and how it affects them. MS. WILLIAMS said the workers have to survive on these benefits. Many insurance adjusters are playing Russian roulette with these peoples' livelihood. Page 19 of the audit says the legislature achieved its policy objective of lowering Workers' compensation costs. However, in achieving this goal, situations have developed through a variety of circumstances that have left the injured worker disadvantaged by the statute. This is an unintended consequence of the 1988 legislation, but nevertheless more consideration is provided to employers and insurance companies than to workers. MS. WILLIAMS said finally, that many people have testified to the committee, but last year legislative changes were made by the Ad Hoc committee and not one injured worker sits on that committee. The Alliance was consulted on the sly and they didn't like that. They want to be part of the bargaining table when the laws are made. HB 419 greatly reduces worker benefits this year, although some financial issues were addressed. CHAIRMAN PHILLIPS thanked her for her concise testimony. MR. KEVIN DOUGHERTY, Alaska Laborers and Ad Hoc member, said he was available to answer questions. MS. LAURA WALDEN, Alaska Injured Workers Alliance, said her concern is that injured workers are being left out of the loop when policy decisions are being made. She was also concerned that an insurance adjuster works for the insurance company and is employed by the state at the same time and that didn't seem right if they are supposed to be unbiased. MS. WALDEN informed them that some injured workers, like herself, are still waiting to get medical care and are being denied by the hospitals and clinics, because they don't have insurance or incomes to pay for it. A lot of people are on suicide lists. She asked the committee to help find a remedy for the uninsured who were injured on the job and the employer refuses to pay for it. She said the health providers, "can go in, strip those peoples' bank accounts, take their permanent fund for something that the insurance companies and Workers' Compensation should be taking care of…. When you strip them of everything, then you make them homeless." CHAIRMAN PHILLIPS asked her to fax her testimony to him and asked if anyone else wanted to speak. He asked Mr. Dougherty which other groups were on the Ad Hoc Committee. MR. DOUGHERTY replied that the Ad Hoc Committee had disbanded since they only meet when there are issues. Last session, at the last one, they had labor management representation. He served as co- chair, Jim Robertson, David Ford from the Iron Workers, John Chuki and from the Electrical Workers in Fairbanks were on the committee. From the employer side, they had Judy Peterson, Mary Shields, Willie VanHemert, Sally Ann Karey, and John Garrett from Alyeska. CHAIRMAN PHILLIPS asked who was representing the injured workers on the committee. MR. DOUGHERTY said in his job he represents injured workers all day long and of the four labor people on the committee, the other three had been hurt on the job and he has had a death in the family from a work place related situation. They are familiar with the law and with the benefits it sometimes provides. CHAIRMAN PHILLIPS asked about unorganized labor. MR. DOUGHERTY replied that they take input from anyone. CHAIRMAN PHILLIPS said he would hold the bill for further work.   TAPE 01-7, SIDE B    CHAIRMAN PHILLIPS adjourned the meeting at 2:20 p.m.