Legislature(2017 - 2018)

2017-01-25 Senate Journal

Full Journal pdf

2017-01-25                     Senate Journal                      Page 0089
SB 40                                                                                                                         
SENATE BILL NO. 40 BY THE SENATE RULES COMMITTEE                                                                                
BY REQUEST OF THE GOVERNOR, entitled:                                                                                           
          "An Act relating to workers' compensation; repealing                                                                  
          the second injury fund upon satisfaction of claims;                                                                   
          relating to service fees and civil penalties for the                                                                  
          workers' safety programs and the workers'                                                                             
          compensation program; relating to the liability of                                                                    
          specified officers and members of specified business                                                                  
          entities for payment of workers' compensation                                                                         

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          benefits and civil penalties; relating to civil penalties                                                             
          for underinsuring or failing to insure or provide                                                                     
          security for workers' compensation liability; relating                                                                
          to preauthorization and timely payment for medical                                                                    
          treatment and services provided to injured                                                                            
          employees; relating to incorporation of reference                                                                     
          materials in workers' compensation regulations;                                                                       
          relating to proceedings before the Workers'                                                                           
          Compensation Board; providing for methods of                                                                          
          payment for workers' compensation benefits; relating                                                                  
          to the workers' compensation benefits guaranty fund                                                                   
          authority to claim a lien; excluding independent                                                                      
          contractors from workers' compensation coverage;                                                                      
          establishing the circumstances under which certain                                                                    
          nonemployee executive corporate officers and                                                                          
          members of limited liability companies may obtain                                                                     
          workers' compensation coverage; relating to the                                                                       
          duties of injured employees to report income or                                                                       
          work; relating to misclassification of employees and                                                                  
          deceptive leasing; defining 'employee'; relating to the                                                               
          Workers' Compensation Board's approval of attorney                                                                    
          fees in a settlement agreement; and providing for an                                                                  
          effective date."                                                                                                      
was read the first time and referred to the Labor and Commerce and                                                              
Finance Committees.                                                                                                             
The following fiscal information was published today:                                                                           
Fiscal Note No. 1, Department of Administration                                                                                 
Fiscal Note No. 2, Department of Labor and Workforce Development                                                                
Fiscal Note No. 3, Department of Labor and Workforce Development                                                                
Governor's transmittal letter dated January 24:                                                                                 
Dear President Kelly:                                                                                                           
Under the authority of Article III, Section 18, of the Alaska                                                                   
Constitution, I am transmitting a bill relating to the workers'                                                                 
compensation system. The bill proposes improvements to increase the                                                             
efficiency and flexibility of the current system for the benefit of                                                             

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injured workers and employers, including improving the delivery of                                                              
benefits to injured employees, deterring workers' compensation fraud,                                                           
ensuring compliance with the requirement that employers insure for                                                              
workers' compensation liability, and providing adequate funding for                                                             
the administration of the system.                                                                                               
The Legislature has  consistently endeavored to create a workers'                                                               
compensation system that delivers benefits quickly, efficiently, fairly,                                                        
and predictably to injured workers at a reasonable cost to employers.                                                           
Yet the system has not been significantly reformed in more than 10                                                              
years. The improvements in this bill address rising costs, recent legal                                                         
developments, and new approaches to improve the system's efficiency                                                             
and fairness.                                                                                                                   
First, the bill would speed up dispute resolution before the Workers'                                                           
Compensation Board (Board), providing closure for both injured                                                                  
workers and their employers. The bill simplifies the process by                                                                 
requiring a hearing shortly after a claim is filed, rather than waiting for                                                     
an employee to request a hearing, and by ending the practice of                                                                 
permitting non-attorneys to represent parties before the Board. The bill                                                        
also simplifies settlement agreements by eliminating a requirement                                                              
that the Board approve attorney fees as part of a settlement when fees                                                          
are the sole issue in the settlement that requires Board approval.                                                              
Finally, the process of imposing civil penalties against uninsured                                                              
employers is streamlined. The bill permits the Division of Workers'                                                             
Compensation to assess the civil penalty directly, rather than                                                                  
petitioning the Board to set the penalty. An employer who disputes the                                                          
assessed penalty may challenge the assessment before the Board.                                                                 
Second, to speed up the delivery of medical care to injured workers                                                             
and reduce confusion for employers as a result of the Supreme Court's                                                           
decision in M-K Rivers v. Harris, 325 P.3d 510 (2014), the bill adds                                                            
provisions requiring employers to authorize or deny medical treatment                                                           
upon a medical provider's written request, and provides a reasonable                                                            
timeframe for an employer to respond without incurring a penalty. The                                                           
Alaska Supreme Court held in M-K Rivers that an employer could be                                                               
subject to a penalty for unfairly controverting a prescribed medical                                                            
treatment, even though no bill for the treatment had been presented to                                                          
the employer for payment. This has resulted in questions over when                                                              
medical treatment must be preauthorized.                                                                                        

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Third, the bill strengthens provisions to prevent workers'                                                                      
compensation fraud by employers and employees. The bill defines                                                                 
when an employer's misclassification of employees or deceptive                                                                  
leasing practices amounts to fraud under the Alaska Workers'                                                                    
Compensation Act. In response to the Supreme Court's decision in                                                                
Shehata v. Salvation Army, 225 P.3d 1106 (Alaska 2010), the bill also                                                           
imposes an affirmative duty on employees receiving workers'                                                                     
compensation benefits to report work and receipt of other types of                                                              
wage-loss replacement benefits. These provisions will deter fraudulent                                                          
conduct by employees that results in the unlawful receipt of workers'                                                           
compensation benefits, or conduct by employers that results in                                                                  
artificially low workers' compensation premiums.                                                                                
Fourth, the bill makes a number of substantive changes to the                                                                   
assessment of civil penalties against employers who fail to insure for                                                          
workers' compensation. Among other changes, the Division of                                                                     
Workers' Compensation's ability to assess a civil penalty is expanded                                                           
to include employers who are underinsured because they have                                                                     
misclassified workers in a variety of ways as not subject to workers'                                                           
compensation coverage, misrepresented the nature of their business, or                                                          
engaged in deceptive leasing practices. Provisions in the bill would                                                            
expand personal liability for workers' compensation benefits and civil                                                          
penalties for failure to insure to owners of more types of employing                                                            
business entities. Most significantly, the bill changes the calculation                                                         
and maximum civil penalty for a failure to insure for workers'                                                                  
compensation liability. The current maximum penalty of $1,000 for                                                               
each uninsured employee workday has led to two unintended                                                                       
consequences. The calculation results in astronomically high penalties                                                          
that do not withstand review on appeal and that increase litigation                                                             
costs and employer defaults. In addition, uninsured employers that                                                              
have not maintained required records frequently are penalized less                                                              
severely than similar employers that have kept records because of the                                                           
difficulty of establishing the number of uninsured employee workdays                                                            
without records. To correct these issues, the bill sets a maximum                                                               
penalty of three times the workers' compensation insurance premium                                                              
that the employer would have paid if the employer had properly                                                                  
insured its employees. This calculation is easier because it requires                                                           
only the employer's overall payroll data and the Division of                                                                    
Insurance's assigned risk rates for the nature of the employer's                                                                
business. The new penalty will result in a reasonable deterrent that                                                            

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takes into account the employer's size, the nature of the employer's                                                            
business, and the financial gain the employer realized by operating                                                             
without paying, in full or in part, for workers' compensation                                                                   
Fifth, the bill reduces administrative costs. The bill allows employers                                                         
to pay benefits electronically, both delivering benefits to workers                                                             
faster and saving costs. The bill also allows the Division of Workers'                                                          
Compensation to mandate electronic filing of certain reports from                                                               
employers and insurers, and eliminates a requirement that corporate                                                             
executive officers seek the division's approval before opting out of                                                            
workers' compensation coverage for themselves. The bill adds                                                                    
medical publications to a list the Department of Labor and Workforce                                                            
Development may incorporate, including future amended versions,                                                                 
into regulation.  In addition, the bill provides a penalty for insurers and                                                     
employers that fail to timely submit proof of coverage in order to                                                              
reduce the Division's wasted efforts investigating insured employers                                                            
that neglected to report insurance coverage. The bill also phases out                                                           
the second injury fund, saving administrative costs for the Department                                                          
and reducing costs for employers, which are required to contribute to                                                           
the fund. The fund's purpose is to encourage employers to hire or                                                               
retain disabled individuals, but the fund is no longer necessary with                                                           
the passage of laws barring employment discrimination on the basis of                                                           
disability. Under the bill, the fund would not accept new claims and                                                            
would be phased out as current claims are paid. Employers' required                                                             
contributions to the fund would gradually drop to zero as the claims                                                            
are paid.                                                                                                                       
Finally, the bill would ensure adequate funding for the administration                                                          
of the workers' compensation and workers' safety programs by                                                                    
allowing the Department of Labor and Workforce Development to                                                                   
receive a greater percentage of the annual service fees that insurers pay                                                       
to the Division of Insurance. The bill does not increase the service fee                                                        
for workers' compensation insurers or employers, but allocates more                                                             
of the insurers' annual service fee to the Department.                                                                          

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In the spirit of streamlining government processes and protecting                                                               
citizen rights, the bill would speed up resolution of disputes, improve                                                         
delivery of benefits to injured employees, strengthen fraud prosecution                                                         
and employers' compliance with the requirement to insure employees                                                              
for workers' compensation liability, and reduce administrative costs.                                                           
I urge your prompt and favorable action on this measure.                                                                        
Bill Walker