Legislature(2003 - 2004)

2004-06-22 Senate Journal

Full Journal pdf

2004-06-22                     Senate Journal                      Page 3841
SB 1002                                                                                           
SENATE BILL NO. 1002 BY THE SENATE RULES COMMITTEE                                                  
BY REQUEST OF THE GOVERNOR, entitled:                                                               
 "An Act providing for a special deposit for workers' compensation                                  
insurers; relating to assigned risk pools and workers' compensation                                 
insurers; relating to the board of governors of the Alaska Insurance                                
Guaranty Association; stating the intent of the legislature, and setting                            
out limitations, concerning the interpretation, construction, and                                   
implementation of workers' compensation laws; relating to                                           
restructuring the Alaska workers' compensation system; eliminating the                              
Alaska Workers' Compensation Board; establishing a division of                                      
workers' compensation within the Department of Labor and Workforce                                  
Development and assigning certain Alaska Workers' Compensation                                      
Board functions to the division and the Department of Labor and                                     
Workforce Development; establishing a Workers' Compensation                                         
Appeals Commission; assigning certain functions of the Alaska                                       
Workers' Compensation Board to the Workers' Compensation Appeals                                    
Commission and the office of administrative hearings; relating to                                   
agreements that discharge workers' compensation liability; providing                                
for administrative law judges in workers' compensation proceedings;                                 
relating to workers' compensation awards; relating to an employer's                                 
failure to insure and keep insured or provide security; providing for                               
appeals from compensation orders; relating to workers' compensation                                 
proceedings; providing for supreme court jurisdiction of appeals from                               
the Workers' Compensation Appeals Commission; providing for a                                       
maximum amount for the cost-of-living adjustment for workers'                                       
compensation benefits; providing for administrative penalties for                                   
employers uninsured or without adequate security for workers'                                       
compensation; relating to fraudulent acts or false or misleading                                    
statements in worker's compensation; and providing for an effective                                 

2004-06-22                     Senate Journal                      Page 3842
was read the first time and referred to the Judiciary Committee.                                    
The following fiscal information was published today:                                               
 Fiscal Note No. 1, Alaska Court System                                                             
 Fiscal Note No. 2, Department of Administration                                                    
 Fiscal Note No. 3, Department of Labor and Workforce                                               
 Fiscal Note No. 4, indeterminate, Department of Administration                                     
Governor's transmittal letter dated June 21:                                                        
Dear President Therriault:                                                                          
Under the authority of article III, section 18, of the Alaska                                       
Constitution, I am transmitting a bill relating to the workers'                                     
compensation system. This bill is based on the many discussions and                                 
hearings conducted during the Second Session of the Twenty-Third                                    
Alaska State Legislature on Senate Bill 311. The bill preserves lay                                 
participation in the workers' compensation system, while increasing                                 
consistency in decision making and strengthening enforcement. It                                    
seeks to improve the market for existing workers' compensation                                      
insurers and attract new insurers, without immediate reductions in                                  
benefits to injured Alaskan workers.                                                                
Despite the Legislature's best efforts over the years, our current                                  
workers' compensation system has not proven responsive to the                                       
pressures caused by a growing, changing workforce and increasing                                    
costs. In order to respond to complaints about the delay in hearings,                               
the Legislature has steadily increased the number of members of the                                 
current Alaska Workers' Compensation Board (board) to make up                                       
more hearing panels, and removed the requirement that a fully                                       
balanced panel be available for hearings. What was originally a three-                              
member board has grown to include 14 volunteer members residing                                     
around the state. The original three-member board heard all claims;                                 
now panels, whose composition can vary in as many as 300                                            
combinations, hear claims. As a result, the consistency of a single                                 
three-member board has been lost. The increased size of the board                                   
makes it difficult to assemble as a body for holding meetings and                                   
adopting regulations. While I appreciate the dedication, public service,                            
and hard work that the board members and division of workers'                                       
compensation (division) staff provide, many members of the board                                    

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lack legal training or background, and division hearing officers are not                            
required to be lawyers. The division is also hampered by the design of                              
the "unified board" system. The division has no authority to respond                                
aggressively and quickly to non-compliance and fraud -- and the board                               
itself is now too unwieldy to take such action in any but singular cases.                           
This bill would replace the current system with one more like the most                              
common form of workers' compensation system in the rest of the                                      
United States. Three new components of the system will bring more                                   
consistency and predictability in decisions, and more agility and power                             
of enforcement: (1) a Workers' Compensation Appeals Commission                                      
(commission); (2) qualified and experienced administrative law                                      
judges; and (3) an accountable division director with additional                                    
administrative authority and duties. The only change to benefits                                    
remains the cap on the cost-of-living adjustment paid to out-of-state                               
claimants. While claimants who reside in areas with a lower cost of                                 
living than Alaska's would continue to receive an adjustment, those                                 
residing in a higher cost-of-living area would be capped at the amount                              
paid to in-state claimants. Otherwise, the bill does not alter benefits                             
available to injured workers or the method of delivering them.                                      
Under the bill, an administrative law judge in the office of                                        
administrative hearings in the Department of Administration would                                   
conduct initial hearings on disputes. Last session the Legislature                                  
overwhelmingly approved of the use of independent administrative                                    
law judges centrally located in an office of administrative hearings and                            
supervised by a chief administrative law judge to hear and adjudicate                               
administrative hearings. Among other qualifications, all administrative                             
law judges must be admitted to practice law in Alaska, and have been                                
admitted in Alaska for at least two years. They are subject to a code of                            
hearing officer conduct. The bill requires that the administrative law                              
judges who are appointed to conduct workers' compensation hearings                                  
have specific expertise in the area of workers' compensation.                                       
The commission would replace the Superior Court at the appeals level.                               
The commission is composed of five members: one attorney                                            
experienced in the practice of workers' compensation law (who will be                               
an employee of the Department of Labor and Workforce                                                
Development) and four lay, volunteer members. The lay, volunteer                                    
members would be appointed from both labor and industry and for any                                 
given matter, one from each side would sit on the appeal together with                              

2004-06-22                     Senate Journal                      Page 3844
the attorney member of the commission. The commission's decisions                                   
would be binding legal precedent unless and until overturned on                                     
appeal to the Alaska Supreme Court.                                                                 
This bill also adds new duties and accountability to the administration                             
of the system. Currently, the director has little authority to act because                          
all power rests in the board. This bill would establish a division of                               
workers' compensation in the department. The director, appointed by                                 
the commissioner, would be personally accountable for the                                           
performance of the division. The director would have expanded                                       
authority to administer the second injury fund (AS 23.30.040), obtain                               
stop work orders, investigate uninsured employers, seek civil penalties                             
for an employer's failure to insure workers, investigate complaints of                              
fraud in workers' compensation, propose regulations to the                                          
commissioner, intervene in cases and file appeals, supervise                                        
rehabilitation of injured workers, and administer the Alaska Workers'                               
Compensation Act. The director's formal decisions may be appealed to                                
the commission.                                                                                     
The bill also provides a powerful tool to further the department's                                  
current approach of "zero tolerance" for employers that fail to carry                               
legally required workers' compensation liability insurance. Under this                              
bill, the department gains authority to levy civil penalties against                                
employers whose choice to operate without the required insurance                                    
coverage places their employee's financial and physical well being at                               
risk. Such employers also gain an unfair competitive advantage over                                 
employers who act responsibly by complying with the law and                                         
purchasing insurance.                                                                               
The bill also authorizes, for the first time, the director to investigate                           
fraud in workers' compensation. Until now, Alaska has relied on                                     
insurers to investigate fraud in workers' compensation claims, with the                             
result that investigations are not necessarily consistent with the                                  
public's interest is preventing workers' compensation fraud, as                                     
opposed to an insurer's monetary interest in a particular case. The cost                            
of fraud is borne by the public in the increased cost of the system--it                             
has an interest in preventing a range of fraudulent acts, such as                                   
obtaining payments beyond the benefit amount allowed, kickbacks,                                    
and threatening witnesses, that is not limited to obtaining                                         
reimbursement of benefits from a single dishonest claimant.                                         

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The bill would also revise AS 21, the insurance code, regarding how                                 
the state regulates the workers' compensation insurance industry.                                   
Under the bill, insurers that transact workers' compensation insurance                              
would be required to maintain in this state special deposits of cash or                             
securities for the protection of persons covered by workers'                                        
compensation insurance. In addition, insurers must provide collateral                               
in this state for their assumed share of the assigned risk pool. This                               
revision provides additional protection in the event of insurer                                     
The Alaska Insurance Guaranty Association's Board of Governors                                      
would be modified to include representatives from employers, labor,                                 
and insurance licensees. This change will expand the expertise of the                               
Board of Governors to better address workers' compensation market                                   
Finally, the assigned risk pool is altered to ensure that it is self-                               
funding, instead of relying on periodic assessments against insurers                                
and consumers. The current pool is unable to generate sufficient                                    
premium to pay the claims made against it. The additional burden on                                 
insurance companies is a factor making the Alaska workers'                                          
compensation insurance market unattractive to insurers. Eliminating                                 
the cap on the assigned risk pool surcharge, and mandating a self-                                  
funding pool, should increase deposits available to protect insureds,                               
improve the market for Alaska insurance companies, and ensure that                                  
employers have access to workers' compensation insurance.                                           
This bill represents a major step forward in modernization of the                                   
Alaska workers' compensation system and addressing the significant                                  
workers' compensation crisis in Alaska. This bill would                                             
professionalize the hearing process through the use of administrative                               
law judges located in the office of administrative hearings. This will                              
improve the process of making workers' compensation decisions,                                      
increase predictability in the hearings, and strengthen enforcement                                 
powers of the division. These features should make Alaska more                                      
attractive for businesses to remain here or to relocate their operations                            
to this state.                                                                                      

2004-06-22                     Senate Journal                      Page 3846
I urge your prompt and favorable action on this measure.                                            
Sincerely yours,                                                                                    
Frank H. Murkowski