Legislature(2017 - 2018)HOUSE FINANCE 519

02/05/2018 01:30 PM FINANCE

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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
Heard & Held
-- Public Testimony --
Moved CSHB 91(FIN) Out of Committee
+ Bills Previously Heard/Scheduled TELECONFERENCED
HOUSE BILL NO. 79                                                                                                             
     "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  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                                                                    
2:31:40 PM                                                                                                                    
Co-Chair Foster invited testifiers to the table.                                                                                
GREG CASHEN,  DEPUTY COMMISSIONER,  DEPARTMENT OF  LABOR AND                                                                    
WORKFORCE    DEVELOPMENT,    introduced    the    PowerPoint                                                                    
presentation, "Workers' Compensation:  HB 79" dated February                                                                    
5, 2018 (copy on file). He spoke to Slide 3:                                                                                    
     HB 79: Workers' Compensation Efficiencies Bill                                                                           
     ? Speed up dispute resolution                                                                                              
     ? Improve the delivery of medical care to injured                                                                          
     ?   Strengthen    provisions   to    prevent   workers'                                                                    
     compensation fraud by employers and employees                                                                              
     ? Reduce administrative costs                                                                                              
     ? Ensure adequate funding for the administration of                                                                        
     the workers' compensation and workers' safety programs                                                                     
Mr.  Cashen shared  that  the  legislature had  consistently                                                                    
endeavored  to create  a workers'  compensation system  that                                                                    
delivered   benefits  quickly,   efficiently,  fairly,   and                                                                    
predictably  to  injured workers  at  a  reasonable cost  to                                                                    
employers, as mandated  by statute. He said  that the system                                                                    
had not  been significantly reformed  in over 10  years; the                                                                    
improvements  in the  bill  addressed  rising costs,  recent                                                                    
legal  development,  and  new   approached  to  improve  the                                                                    
systems  efficiency  and fairness.  He  said  that the  bill                                                                    
focused  mainly on  efficiencies  and  modernization of  the                                                                    
currently  system,  while  recognizing that  benefit  issues                                                                    
like  reemployment also  needed attention.  He related  that                                                                    
reemployment  benefits  were  being  addressed  in  separate                                                                    
legislation. He  described the  various ways  the department                                                                    
had worked with stakeholders to craft a comprehensive bill.                                                                     
2:34:28 PM                                                                                                                    
MARIE MARX,  DIRECTOR, WORKERS' COMPENSATION,  DEPARTMENT OF                                                                    
LABOR  AND WORKFORCE  DEVELOPMENT,  turned to  Slide 2.  She                                                                    
highlighted the pillars of  the Alaska Workers' Compensation                                                                    
System as listed on the slide:                                                                                                  
     • Quick                                                                                                                    
     • Efficient                                                                                                                
     • Fair                                                                                                                     
     • Predictable                                                                                                              
     • Reasonable Cost                                                                                                          
Ms. Marx  asserted that balancing  these pillars  guided the                                                                    
divisions  administration.  She   explained  that  that  the                                                                    
division   ensured  compliance   with  the   state  workers'                                                                    
compensation act, conducted  workers' compensation hearings,                                                                    
operated  an  appeals  program, processed  Fishermen's  Fund                                                                    
claims, and administered  vocational rehabilitation benefits                                                                    
and training program for injured workers.                                                                                       
2:35:37 PM                                                                                                                    
Ms. Marx  explained that HB  79 addressed all  the statutory                                                                    
pillars,  focusing especially  on  fairness, quickness,  and                                                                    
efficiency in the workers' compensation process.                                                                                
2:36:24 PM                                                                                                                    
Ms.  Marx addressed  Slide 4  [Secretary Note:  The numbered                                                                    
items under "Current Law" correlate  with the numbered items                                                                    
under "HB 79" for the duration of this transcription]:                                                                          
     Speeds Up Dispute Resolution:                                                                                            
          Secs. 8-10, 19-21, 39                                                                                               
     Current law                                                                                                            
        1. A party requests hearing on claim                                                                                    
        2. Non-attorneys may represent parties                                                                                  
        3. Board must approve attorney fees in settlement                                                                       
        4. Division petitions Board to assess a civil                                                                           
          penalty against uninsured employer                                                                                    
     HB 79                                                                                                                  
        1. Board will schedule a hearing shortly after claim                                                                    
          is filed (Secs. 19, 21)                                                                                               
        2. Any person authorized by regulation of the Board                                                                     
          (Sec. 20)                                                                                                             
        3. Board does not need to approve if fees are sole                                                                      
         issue that needs Board approval (Sec. 39)                                                                              
        4. Division assesses civil penalty against uninsured                                                                    
          or underinsured employer; party may appeal                                                                            
          assessment to Board (Secs. 8-10)                                                                                      
Ms.  Marx explained  that the  board  conducted hearings  as                                                                    
part of a panel but separately had regulatory authority.                                                                        
2:37:45 PM                                                                                                                    
Ms. Marx spoke to Slide 5:                                                                                                      
     Improve the Delivery of Medical Care:                                                                                    
          Secs. 14, 23, 25-26                                                                                                 
     Current law                                                                                                            
        1. No language addressing if and when a provider's                                                                      
          written request for medical care must be                                                                              
        2. No penalty for untimely preauthorization or                                                                          
        3. Medical bills paid within 30 days                                                                                    
     HB 79                                                                                                                  
        1. Requires an employer to preauthorize or deny                                                                         
          medical treatment within 60 days of a medical                                                                         
          provider's written request (Sec. 14)                                                                                  
        2. Penalty for untimely preauthorization or denial                                                                      
          (Secs. 23, 25-26)                                                                                                     
        3. NO CHANGE                                                                                                            
2:38:24 PM                                                                                                                    
Ms. Marx moved to Slide 6;                                                                                                      
     Why the Division is Tackling Misclassification                                                                           
     ? Worker safety                                                                                                            
     ? Risk of uninsured losses                                                                                                 
     ? Law-abiding employers bear greater financial burden                                                                      
Ms. Marx  stated that  a great disservice  was done  to both                                                                    
workers  and  law-abiding  businesses  when  the  issue  was                                                                    
ignored.  She said  that  when  workers were  misclassified,                                                                    
workers died or were  severely injured, and uninsured losses                                                                    
could put  companies out of  business. She relayed  that the                                                                    
bill defined "independent contractor'  and did not keep true                                                                    
independent contractors  from existing and  flourishing. The                                                                    
bill did  not change the  definition but clarified  what was                                                                    
already  in   place,  which   would  help   workers  clearly                                                                    
understand what it meant to be an independent contractor.                                                                       
2:39:31 PM                                                                                                                    
Ms. Marx advanced to Slide 7:                                                                                                   
     Strengthen Fraud Provisions:                                                                                             
          Secs. 7, 9, 11, 25-26, 29, 32-35, 37                                                                                
   Current Law                                                                                                              
     1. No definition of misclassification                                                                                      
     2. No affirmative  duty  to  report  work  or wage-loss                                                                    
     3. No owner  liability for  benefits for  some business                                                                    
        entities and no civil penalty liability                                                                                 
     4. No  definition   of   independent   contractor   and                                                                    
      multi-factor balancing test for employee status                                                                           
     5. Injured  worker  may  file  lien  for  benefits  but                                                                    
        Benefits Guaranty Fund may not                                                                                          
   HB 79                                                                                                                    
    1. Defines misclassification and when it amounts to                                                                         
     2. fraud (Sec. 33)                                                                                                         
     3. Affirmative duty to report (Secs. 33)                                                                                   
     4. More business  entity owner  liability for  benefits                                                                    
        and civil penalties (Secs. 7, 34-35)                                                                                    
     5. Defines   independent   contractor   and   clarifies                                                                    
      statutory definition of employee (Sec. 29, 37)                                                                            
     6. Benefits   Guaranty   Fund   may   file   lien   for                                                                    
      compensation and civil penalties (Secs. 25-26)                                                                            
Representative Wilson asked whether  the same definition for                                                                    
"independent contractor" was used as found in statute.                                                                          
Ms. Marx  answered that there  was currently  no definition,                                                                    
which had been  a problem. The bill would  add a definition,                                                                    
which  had  been  reached through  a  collaborative  process                                                                    
involving many stakeholders.                                                                                                    
Representative   Wilson  asked   for  verification   that  a                                                                    
definition for "independent  contractor" was located nowhere                                                                    
in statute.                                                                                                                     
Ms.  Marx   could  not  speak  to   other  departments.  She                                                                    
clarified that under the  Alaska Workers' Compensation there                                                                    
was  no definition  of  "independent  contractor." She  said                                                                    
that   the  goal   of   defining   something  for   workers'                                                                    
compensation was  different than defining something  for the                                                                    
Internal Revenue Service (IRS).                                                                                                 
Representative  Wilson   thought  there  had   been  several                                                                    
definitions  of  "independent  contractor" in  statute.  She                                                                    
wanted to be as consistent as possible between departments.                                                                     
2:42:46 PM                                                                                                                    
Ms.  Marx  answered  that  the   bill  was  clear  that  the                                                                    
definition only applied to  the Alaska Workers' Compensation                                                                    
Representative  Pruitt wanted  to  know  why the  definition                                                                    
differed between the IRS and the Worker's Compensation Act.                                                                     
Ms. Marx  answered that the goal  of the act was  to protect                                                                    
injured workers  and employers  from huge  uninsured losses,                                                                    
which differed greatly  from the goals of the  IRS. She said                                                                    
that every state  in the nation worked this  way. She stated                                                                    
that there was simply not  a "one size fits all" definitions                                                                    
because of the narrow application of the term.                                                                                  
Representative  Pruitt   understood  that  there   could  be                                                                    
varying  definitions of  "independent  contractor" based  on                                                                    
who needed to pay taxes in  a certain way, and still another                                                                    
definition based  on how  they should  be covered  under the                                                                    
Workers' Compensation  Act. He  felt that  there could  be a                                                                    
uniform definition across state systems.                                                                                        
Ms. Marx  used the definition  of "resident" as  a parallel.                                                                    
There  were many  different definitions  of "resident"  that                                                                    
were used under different  circumstances. She submitted that                                                                    
the  definition  of  "independent contractor"  for  workers'                                                                    
compensation  purposes should  be  very narrow,  considering                                                                    
that the issue was  protecting injured workers and employers                                                                    
from  huge  uninsured losses  that  would  put them  out  of                                                                    
2:47:22 PM                                                                                                                    
Ms. Marx addressed Slide 8:                                                                                                     
     Strengthen Fraud Provisions CONT.:                                                                                       
          Secs. 7, 9, 11, 25-26, 28, 31-35, 37                                                                                
     Current Law                                                                                                            
        1. No penalty assessed for an employer who has                                                                          
          engaged in fraudulent misclassification                                                                               
        2. Maximum penalty of $1,000 for each uninsured                                                                         
          employee workday                                                                                                      
        3. Board suspends penalties in full or in part and                                                                      
          no guidelines for suspension                                                                                          
        4. No interest paid on payment plans                                                                                    
     HB 79                                                                                                                  
      1. Division may assess a penalty (Secs. 9, 32)                                                                            
        2. Maximum civil penalty of three times the premium                                                                     
          an employer should have paid (Sec. 9)                                                                                 
        3. Penalties may not be suspended in full or in part                                                                    
          (Sec. 11)                                                                                                             
        4. Interest on payment plans (Sec. 11)                                                                                  
2:50:11 PM                                                                                                                    
Co-Chair  Seaton asked  whether  the penalties  on Slide  8,                                                                    
pertained solely to civil penalties.                                                                                            
Ms. Marx  answered in the  affirmative. She  elaborated that                                                                    
she  was talking  about an  employee's  failure to  maintain                                                                    
workers'  compensation insurance  as  required  by law.  She                                                                    
furthered that those penalties went  into the injured worker                                                                    
fund.  The fund  needed the  ability to  file liens  because                                                                    
often by  the time  it came to  collect penalties  that were                                                                    
due the assets were depleted.                                                                                                   
Co-Chair Seaton understood that if  an employee did not have                                                                    
workers'  compensation insurance  then administrative  costs                                                                    
would need to be recovered.                                                                                                     
Ms. Marx answered in the  affirmative. Whenever there was an                                                                    
uninsured  injury  the  employer  was required  to  pay  the                                                                    
benefits whether  there was insurance  or not.  If employers                                                                    
did not pay,  those amounts were paid by  the injured worker                                                                    
fund, which in  turn sought reimbursement of  the costs from                                                                    
the employer.                                                                                                                   
Ms. Marx turned to Slide 9:                                                                                                     
     Reduce Administrative Costs:                                                                                             
          Secs. 2-6, 13, 15, 19, 21, 24, 27, 30-31, 38, 40                                                                    
     Current Law                                                                                                            
        1. An employer pays benefits by check                                                                                   
        2. Division may not require electronic filing                                                                           
        3. Division approval needed for corporate executive                                                                     
          officer workers' compensation coverage opt out                                                                        
     HB 79                                                                                                                  
        1. Does not prescribe a  specific method  of payment                                                                    
          (Sec. 38)                                                                                                             
        2. Division may prescribe filing  format (Secs. 3-6,                                                                    
          19, 21, 24)                                                                                                           
        3. Division approval not  required; not  an employee                                                                    
          if at least 10% ownership interest (Sec. 30)                                                                          
2:54:57 PM                                                                                                                    
Ms. Marx moved to Slide 10:                                                                                                     
     Reduce Administrative Costs CONT.:                                                                                       
          Secs. 2-6, 13, 15, 19, 21, 24, 27, 30-31, 38, 40                                                                    
     Current Law                                                                                                            
        1. Some medical publications not listed                                                                                 
        2. No deadline for  reporting  initial coverage;  10                                                                    
          day deadline for termination of coverage and no                                                                       
          penalty if late                                                                                                       
        3. Division   administers   contribution    to   and                                                                    
          reimbursement from Second Injury Fund                                                                                 
     HB 79                                                                                                                  
        1. Adds publications to list (Sec. 15)                                                                                  
        2. 30 day deadline  to report  initial coverage  and                                                                    
          termination of coverage, and penalty if late                                                                          
          (Sec. 13)                                                                                                             
        3. Phases out Second Injury Fund  (Secs. 2,  27, 31,                                                                    
          38, 40)                                                                                                               
Ms. Marx turned to Slide 11:                                                                                                    
     Ensure Adequate Funding:                                                                                                 
          Sec. 1                                                                                                              
     Current Law                                                                                                            
        1. Workers' compensation insurers pay a fee  of 2.7%                                                                    
          of net workers' compensation premium written                                                                          
        2. 1.82% to WSCAA and  .88% to  Alaska Comprehensive                                                                    
          Health Insurance Fund (ACHI)                                                                                          
     HB 79                                                                                                                  
        1. NO CHANGE                                                                                                            
        2. 2.5% to WSCAA and .2% to ACHI                                                                                        
2:57:12 PM                                                                                                                    
Co-Chair Foster hoped that  electronic filing issues related                                                                    
to limited internet in rural Alaska had been considered.                                                                        
Ms.  Marx answered  that  reports of  injury  were filed  by                                                                    
either  insurance companies,  r third  party administrators,                                                                    
or self-insured  employers. She shared that  injured workers                                                                    
never filed  directly with the division.  She furthered that                                                                    
if  an injured  worker was  not  given a  response form  the                                                                    
employer, a  paper form was  available from the  division in                                                                    
order  to file  directly. She  related that  the bill  would                                                                    
allow the  division to clarify  for insurance  companies and                                                                    
self-employed insurers to standardize the business process.                                                                     
Representative Wilson  pointed to Section  1, page 9  of the                                                                    
bill.  She  asked  whether there  were  instances  there  an                                                                    
attorney for an employee could be paid for by the state.                                                                        
Ms. Marx  answered that there  was a statutory  provision in                                                                    
the Workers'  Compensation Act that  allowed for  a guardian                                                                    
to be  appointed for the  purpose of resolving  the workers'                                                                    
compensation claim.                                                                                                             
Representative Wilson thought that  it could be important to                                                                    
allow for non-attorneys to represent  an injured worker. She                                                                    
thought that people  who could not afford  an attorney could                                                                    
be at a disadvantage.                                                                                                           
3:00:24 PM                                                                                                                    
Ms.  Marx  replied that  the  balance  was between  allowing                                                                    
those who  had filed  claims to work  their way  through the                                                                    
system and working to keep  system operations efficient. She                                                                    
added that most tribunals  had process guidelines related to                                                                    
who  could efficiently  represent parties  before them.  She                                                                    
suggested  that there  could be  an amendment  to provide  a                                                                    
list  of  allowable representation  included  non-attorneys.                                                                    
She  said  that in  her  experience  non-attorneys made  the                                                                    
process less efficient.                                                                                                         
Representative  Wilson  thought   that  the  injured  worker                                                                    
should be prioritized over efficiency.                                                                                          
Ms.  Marx responded  that  there were  systems  in place  to                                                                    
assist  injured  workers. She  said  that  the division  had                                                                    
staff whose  job was to provide  assistance to unrepresented                                                                    
parties. She related that the  division had a duty under the                                                                    
law  to   inform  injured  workers  about   their  right  to                                                                    
benefits,  and how  to pursue  their  right to  compensation                                                                    
under the law.  She reiterated her suggesting  of crafting a                                                                    
list of allowable representatives.                                                                                              
3:04:16 PM                                                                                                                    
Co-Chair Foster noted Paloma  Harbour, Director, Division of                                                                    
Administrative Services,  Department of Labor  and Workforce                                                                    
Development was available for questions as well.                                                                                
Representative Kawasaki  referenced Slide 11. He  noted that                                                                    
the handouts were different than  the presentation. Ms. Marx                                                                    
agreed and noted she had made a correction on the record.                                                                       
Representative   Guttenberg  asked   whether  it   had  been                                                                    
disruptive  for  claimants  to  be  represented  by  a  non-                                                                    
Ms. Marx asked for clarification.                                                                                               
Representative  Guttenberg   wondered  whether  non-attorney                                                                    
representation had been productive for claimants.                                                                               
3:06:55 PM                                                                                                                    
Ms.  Marx  replied  that, in  her  experience,  non-attorney                                                                    
representatives did not  understand procedures and available                                                                    
benefits,  which  made  it  difficult   to  bring  cases  to                                                                    
resolution  in a  timely fashion,  if at  all. She  asserted                                                                    
that the bill would provide for a more efficient process.                                                                       
3:08:37 PM                                                                                                                    
Representative  Pruitt   referenced  letters   from  several                                                                    
parties who  initially had concern but  were now supportive.                                                                    
He wondered if the letters were still valid.                                                                                    
Ms. Marx  understood that the stakeholder  groups that wrote                                                                    
the letters maintained their support of the legislation.                                                                        
3:10:00 PM                                                                                                                    
Co-Chair Foster OPENED public testimony.                                                                                        
CHARLES MCKEE, SELF,  ANCHORAGE (via teleconference), shared                                                                    
that he was currently navigating  the system. He relayed his                                                                    
case number. He offered a series of personal comments on                                                                        
the issue of workers' compensation.                                                                                             
Co-Chair Foster CLOSED public testimony. He asked members                                                                       
to submit any amendments to his office by Monday, January                                                                       
12, 2018.                                                                                                                       
HB 79 was HEARD and HELD in committee for further                                                                               
3:16:15 PM                                                                                                                    
AT EASE                                                                                                                         
3:17:05 PM                                                                                                                    
Co-Chair Foster relayed that amendments on HB 79 were due                                                                       
on Tuesday, February 6 at 5pm and the bill would be heard                                                                       
again on Thursday.                                                                                                              

Document Name Date/Time Subjects
HB 91 Amendment #1.pdf HFIN 2/5/2018 1:30:00 PM
HB 91
HB 79 DOL 02.05.18.pdf HFIN 2/5/2018 1:30:00 PM
HB 79
HB 79 Legal Opinion.pdf HFIN 2/5/2018 1:30:00 PM
HB 79