Legislature(2003 - 2004)

04/22/2004 09:03 AM FIN

Audio Topic
* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
     CS FOR SENATE BILL NO. 311(JUD)                                                                                            
     "An Act providing for a special deposit for 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  Workers'                                                            
     Compensation   Hearings  Board;  relating  to  agreements  that                                                            
     discharge   workers'  compensation  liability;   providing  for                                                            
     hearing examiners  and hearing panels 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 assigned  risk pools  and                                                            
     insurers; and providing for an effective date."                                                                            
This  was the first  hearing  for this  bill in  the Senate  Finance                                                            
Co-Chair  Wilken stated  this bill,  sponsored by  the Senate  Rules                                                            
Committee  at  the  request  of  the  Governor,   "changes  the  way                                                            
workmans' compensation  disputes and appeals are resolved.  Under SB                                                            
311,  appeals   are  reviewed   by  the   newly  created   Workmans'                                                            
Compensation   Commission,  which  is  composed  of   three  persons                                                            
experienced  in  practicing  Workmans' compensation   law in  Alaska                                                            
instead of the Alaska Superior Court."                                                                                          
LINDA  HALL,   Director,  Division   of  Insurance,  Department   of                                                            
Community  and Economic  Development,  noted the  complexity of  the                                                            
legislation and testified as follows.                                                                                           
     With this Committee  previously, I have discussed the financial                                                            
     crisis  in  the Alaska  Insurance  Guarantee  Association.  The                                                            
     other area  of tremendous concern to me today  is the lack of a                                                            
     healthy workers'  compensation insurance environment.  I'd like                                                            
     to  give  a  little  background  on  the  problems  that  we're                                                            
     encountering.  We have had for  the past five years,  a lack of                                                            
     profitability  in out market,  which is making it unattractive                                                             
     to insurers.  Losses have ranged from a low of  99.9 percent to                                                            
     a high  of 154 percent. At that  high, insurance companies  are                                                            
     spending  $1.54  for  every  dollar  of workers'  compensation                                                             
     premium they collect.  Alaska carriers are loosing five percent                                                            
     more money in Alaska than the national average.                                                                            
     The second  area that has created  a problem has been  the cost                                                            
     of workers' compensation  claims. As everyone is aware, cost of                                                            
     medical  benefits  has increased  substantially  over the  past                                                            
     several years. We  have seen double-digit increases in the cost                                                            
     of  medical care.  This  is accepted  and at  least  understood                                                            
     usually in  the health insurance arena, but sometimes  we don't                                                            
     make that  connection with the  cost of workers' compensation.                                                             
     It does have a dramatic impact on the cost of claims.                                                                      
     Major  cost  drivers  in  the  state  of  Alaska  for  workers'                                                            
     compensation insurance  are physician's fees, [which] are among                                                            
     the highest  in the country.  We have a permanent partial  cost                                                            
     per  case  that  is 40  percent  higher  than  the countrywide                                                             
     average. We have lengthening  duration of claims, as we have an                                                            
     aging workforce. I  think maybe we heal less quickly. We have a                                                            
     claim  frequency  in  our temporary  total  that  is total  the                                                            
     countrywide  average.  These cost  drivers affect  the cost  of                                                            
     claims, which  in turn certainly impact the cost  of insurance.                                                            
     As I think  everyone is aware,  I've talked about it  with this                                                            
     group  before,  we  have  had substantial   premium  increases.                                                            
     Effective  January 1  of this year,  the average rate  increase                                                            
     was  21.2 percent.  As the  cost of  claims  is increased,  the                                                            
     actuarial  analysis of historical  claims cost and projections                                                             
     into the  future indicated the  need for that substantial  rate                                                            
     increase.  The change  was an  average. We  actually have  seen                                                            
     ranges  from a 15 percent  reduction in  costs to a high  of 57                                                            
     percent increase  in people's workers' compensation.  We had 17                                                            
     classifications that had increases in excess of 50 percent.                                                                
     Combining  that increase in premium  with the assessments  that                                                            
     are  occurring for the  deficit in  the Guarantee Association,                                                             
     has  combined  to  make  dramatic  increases  in  the  cost  of                                                            
     workers' compensation.                                                                                                     
     The fourth  factor that is impacting our workers'  compensation                                                            
     market is the assigned  risk pool. It's another factor that has                                                            
     made the  Alaska marketplace increasingly unattractive.  Due to                                                            
     the  mandatory  nature  of workers'  compensation,   we have  a                                                            
     mechanism  called  the  "assigned  risk  pool",  where,  if  an                                                            
     employer  is  unable to  obtain  insurance in  the traditional                                                             
     market,  they can obtain insurance  in the assigned  risk pool.                                                            
     Currently,  17 percent  of the market  is in the assigned  risk                                                            
     pool.  When  the cost  of  claims  in the  assigned  risk  pool                                                            
     exceeds the  cost of the premiums collected,  the difference is                                                            
     charged back to insurance  companies. Over the past five years,                                                            
     Alaska has  had the highest charge of any state  for the losses                                                            
     in  the  assigned  risk  pool. This  charges  range  from  four                                                            
     percent  to six percent. It's  an additional cost to  insurance                                                            
     companies,  comes  directly out  of their  operating costs  and                                                            
     makes doing business in Alaska very expensive.                                                                             
     Overall,  we have a workers'  compensation environment  that is                                                            
     becoming very expensive  for employers and very unattractive to                                                            
     As these  issues became  apparent, staff  from the Division  of                                                            
     Insurance,  the Department of  Labor and Workforce Development                                                             
     and the Department  of Law have met to attempt  to find ways to                                                            
     overcome  these  challenges.   We  cannot  continue  to  merely                                                            
     increase workers'  compensation premiums for employers. We must                                                            
     look  to find ways to  stem the increasing  costs of  providing                                                            
     benefits to workers.                                                                                                       
     We've looked  at a number of options, ranging  from the cost of                                                            
     medical  benefits,   provider  fee  payments,  definitions   of                                                            
     compensability,  and  a variety  of technical  terms that  deal                                                            
     with the benefit system.                                                                                                   
     SB 311 makes some  insurance changes to enhance our marketplace                                                            
     and  it  proposes   a  change  in  the  workers'  compensation                                                             
     adjudicatory  process   that we  feel  will  bring  about  more                                                            
     efficiencies,   more  predictability.  We  desperately  need  a                                                            
     healthy workers' compensation  marketplace in Alaska. We need a                                                            
     market  that's sustainable,  that will  encourage companies  to                                                            
     continue  to  do business,  to  attract  new markets.  We  need                                                            
     compensation  insurance  that is available  and affordable  for                                                            
     employers  to  continue to  develop  jobs to  sustain  economic                                                            
     This bill  is fairly unique in  that it's a cross departmental                                                             
     effort  to find  solutions to  the issues.  I will address  the                                                            
     insurance  pieces  of  the bill,  Director  Paul  Lisankie  and                                                            
     Deputy  Attorney  General  Scott  Nordstrad  will  address  the                                                            
     Department of Labor,  workers' compensation pieces of the bill.                                                            
     Realizing  that the bill  is fairly long,  there are only  four                                                            
     sections that I would  like to address for insurance. Section 3                                                            
     is a  requirement for  an increase in  the deposit required  of                                                            
     insurance   companies  writing   workers'  compensation.   This                                                            
     deposit  will be for the protection  of Alaskans covered  under                                                            
     the  workers' compensation  system.  As you've  seen, and  this                                                            
     body has passed a  bill funding the current deficit in the AIGA                                                            
     [Alaska   Insurance   Guarantee  Association]   these   special                                                            
     deposits  would go to  the Guarantee  Association, which  would                                                            
     diminish the need  for assessments that we're currently facing.                                                            
     Section   4  really  makes  that  an  order  of   priority  and                                                            
     Section 5 changes  the composition of the Board of Governors of                                                            
     the  Guarantee Association.  Currently,  insurance - there  are                                                            
     seven  insurance company  members and  two public members.  The                                                            
     proposal   is  to   change  that   composition   so  that   all                                                            
     stakeholders  have  a seat  at  the table.  We've  seen what  a                                                            
     dramatic impact in  solvencies can have on both injured workers                                                            
     and on employers and  I'd like to see more people at the table.                                                            
     Section  105  is  the  other  insurance  section  I'd  like  to                                                            
     discuss.  Section 105 repeals  the 25 percent statutory  cap on                                                            
     surcharges  on the assigned risk  pool. The assigned  risk pool                                                            
     currently  has a statutory cap  of 25 percent. I feel  strongly                                                            
     the  pool  must be  self-funding.  Premiums  have  lagged  well                                                            
     behind  the cost  of claims in  the pool.  Nearly 6,000  of the                                                            
     8,800  policies in the  pool will have  premiums under  $3,000.                                                            
     The  average cost of  claim in Alaska  today is $19,363.  So we                                                            
     have an $800  premium and a $19,000 claim. That  is an average.                                                            
     The  pool has lost money  at an even  more rapid rate  than the                                                            
     traditional  insurance market. Small employers  are the bulk of                                                            
     these  6,000 policies. They are  just as likely to have  claims                                                            
     even  though probably  not as  many as larger  employers.  As I                                                            
     described   in  the  introduction,  the  financial   burden  on                                                            
     insurance  companies from  the Alaska  assigned risk pool,  has                                                            
     contributed  dramatically  to  the  overall  attractiveness  of                                                            
     Alaska  to insurers.  We have a fragile  insurance marketplace                                                             
     and we're  looking for solutions to bring about  change to that                                                            
     marketplace  so  that we  can have  an  impact on  the cost  of                                                            
     workers' compensation.                                                                                                     
Co-Chair Green interrupted to question the section of the bill the                                                              
witness was explaining.                                                                                                         
Ms. Hall corrected that Section 106 pertains to the assigned risk                                                               
pool, as she was discussion.                                                                                                    
Co-Chair  Wilken  announced  as  much time  as  necessary  would  be                                                            
allotted for  consideration of this  bill due to the importance  and                                                            
complexity of the matter.                                                                                                       
PAUL  LISANKIE,   Director,  Division   of  Workers'  Compensation,                                                             
Department  of  Labor  and  Workforce  Development   testified  that                                                            
several  features  in  bill  would  affect  the  administration   of                                                            
workers'  compensation insurance  in Alaska.  He stressed that  this                                                            
bill proposes  no changes to workers' compensation  benefits payable                                                            
to  residents  of Alaska,  although  the  calculation  of rates  for                                                            
nonresidents  would  be changed.  He explained  this  is to  prevent                                                            
injured nonresidents  from receiving  higher benefit payments  while                                                            
residing outside the State.                                                                                                     
Mr.  Lisankie  furthered   this  bill  would  formally   divide  the                                                            
functions of the  Workers' Compensation Board into  adjudication and                                                            
administration. He informed  that the Division currently assists the                                                            
Board  in all  Board functions,  although  this is  not required  by                                                            
statute.  He stressed the  need to "informally"  insure that  claims                                                            
are not  decided as  a result of  the current  practice whereby  the                                                            
Division and  the Board both investigate  claims, accuse  parties of                                                            
wrongdoing and issue joint  determinations. Due process constraints,                                                            
he  specified,  provide  that the  party  charging  and prosecuting                                                             
matters could not be the  same party that judges upon those matters.                                                            
He noted  this  bill would  make a  formal distinction  between  the                                                            
Division, which  would undertake administrative,  investigative  and                                                            
prosecutorial  activities, and  the Board,  which would resolve  any                                                            
disputes between the Division and the party.                                                                                    
Mr.  Lisankie  told of  the  proposed establishment  of  a  Workers'                                                            
Compensation Appeals Commission  in this legislation. He stated this                                                            
Commission would  hire and retain hearing examiners,  who along with                                                            
the current  panel members would undertake  the initial hearings  in                                                            
disputed  claims  for benefits  and  accusations  against  employers                                                            
failing to provide insurance.                                                                                                   
Mr. Lisankie then  shared that currently, if the Division  discovers                                                            
an employer  failing to  provide insurance,  the only sanction  that                                                            
could be  imposed is closure  of the business  if such insurance  is                                                            
not  purchased;   however,  he  remarked  that  once   insurance  is                                                            
purchased, no  other consequences could be imposed  on the employer.                                                            
He stated  that this  legislation  would impose  penalties of  up to                                                            
$100  per  day,  per employee  that  the  employer  fails  to  carry                                                            
insurance.  He  expressed  the intent  is  to strengthen  cease  and                                                            
desist  orders,  and  to  show  to  employers  that  this  issue  is                                                            
critical.  He asserted  that employers  failing  to carry  insurance                                                            
place the physical  health of employees  at risk, and also  provides                                                            
an unfair  fiscal  advantage against  other employers  who  lawfully                                                            
purchase this insurance.                                                                                                        
Mr. Lisankie  listed the motivation  behind the proposed  changes is                                                            
greater consistency  of decisions  and predictability of  decisions.                                                            
He remarked  that injured workers  would have more certainty  of the                                                            
benefits  they would receive.  He gave the  history of the  Workers'                                                            
Compensation  Board  established  at statehood  in  1959 with  three                                                            
members, with  no question as to who  resolved the issues.  However,                                                            
he noted  that with  increased population  in the  State, the  Board                                                            
membership expanded  to the current seven panels,  with the 14 total                                                            
members  appointed by  the Governor  to seats  designated for  labor                                                            
interests and industry  interests, and confirmed by the Legislature.                                                            
Each panel, he informed,  independently decides how to interpret and                                                            
implement the workers'  compensation laws and are not required to be                                                            
consistent with the other panels.                                                                                               
Mr. Lisankie noted  that if a party is dissatisfied  with the ruling                                                            
of  a panel,  they are  entitled  to an  appeal through  the  Alaska                                                            
superior  court, which  serves as  the appellate  body. He  remarked                                                            
that most superior  court judges do  not have expertise in  workers'                                                            
compensation  law. He furthered that  the decisions of the  superior                                                            
court are  binding but that  panels are not  required to follow  the                                                            
rulings in future cases.                                                                                                        
Mr. Lisankie explained  that this bill would eliminate  the superior                                                            
court from the workers'  compensation appeal process and establish a                                                            
commission to address appeals.  This commission of three members, he                                                            
said, would  issue binding decisions  that would set precedence  for                                                            
future cases.  He qualified  that the Alaska  Supreme Court  remains                                                            
the sole  arbiter  of law  in the State  and that  final  commission                                                            
decisions could be appealed  to the Supreme Court. He indicated that                                                            
precedence  set by the commission  would continue to apply  to other                                                            
ongoing cases until overturned by the Supreme Court.                                                                            
Mr. Lisankie  predicted that the consistency  and predictability  of                                                            
decisions  would result in  less litigation  and be less costly.  He                                                            
informed that  the proposed changes in this legislation  are similar                                                            
to the  laws of  some other states.  He anticipated  that  insurance                                                            
providers  currently  not  issuing   policies  in  Alaska  would  be                                                            
encouraged  to participate  in the Alaska  marketplace knowing  that                                                            
their experiences  here would be similar  to those in other  states.                                                            
LORI  WING,  President,  Alaska  Independent  Insurance  Agents  and                                                            
Brokers,  testified  via  teleconference  from  Anchorage  and  read                                                            
testimony into the record as follows.                                                                                           
     Our association, the AIIAB represents in the insurance                                                                     
     marketplace  employers from Ketchikan to Barrow,  from Kaktovik                                                            
     to  Adak.  Our clients  are  governmental  entities,  privately                                                            
     held,  and  publicly  traded  corporations,  limited  liability                                                            
     companies,  and joint  ventures. They  are for-profit  and not-                                                            
     for-profit;  they are large and  small. All together  they make                                                            
     up  the business  community, the  economic base  of the  State.                                                            
     Each  of  these  entities   is  required  to  comply  with  the                                                            
     respective  statutes that  are often referred  to as the  "Work                                                            
     Comp  Act". Each  of these  entities contribute  a significant                                                             
     portion of their revenues  to a work-comp program regardless of                                                            
     whether they are insurers  to a commercial insurance product or                                                            
     self insured  through an alternative risk financing  technique.                                                            
     The  past  few  years,  these  employers,  regardless  of  what                                                            
     mechanism  they  have  chosen  to  comply with  the  Act,  have                                                            
     experienced   significant   increased   costs.   The  cost   of                                                            
     insurance,  reinsurance,  claims and  the associated  expenses;                                                            
     the  costs have  increased.  For those  that  have purchased  a                                                            
     commercial  insurance  product, the  cost is  reflected in  the                                                            
     insurance  premium.   For  those  self-insuring,  the  cost  is                                                            
     reflected  in the  direct payment  of claims.  Regardless,  the                                                            
     employer is paying the cost, the increased cost.                                                                           
     We,  the AIIAB,  as an association,  agree  that some of  these                                                            
     costs  are difficult to control.  Workers' compensation  claims                                                            
     are every bit as much  subject to the increased cost of medical                                                            
     care as  a health or medical  insurance program. But  there are                                                            
     some  costs  we think  can be  controlled.  Costs  that can  be                                                            
     quantified,  defined, not subjected  to the opinion  to what is                                                            
     commonly  referred to  as [indiscernible].  Those costs  can be                                                            
     controlled.  Our hope is that Senate Bill 311  will allow those                                                            
     costs  to be  quantified, defined  once and  for all,  allowing                                                            
     rate-making organizations  and insurers to adequately trend and                                                            
     price  the cost  of workers'  compensation,  making the  recent                                                            
     rate  premium or  claim  cost, the  increases or  a portion  of                                                            
     those costs, unnecessary.                                                                                                  
     I  can  tell you  that  I  personally  deal  with a  client,  a                                                            
     regional  hospital  out in  Dillingham.  Their  work comp  this                                                            
     year,  based on the rate increases  as of January 21st  will go                                                            
     from  $391,000  to  $524,000  without changing  the  payroll  a                                                            
     Senate  Bill 311 does not limit  or eliminate any benefits  due                                                            
     an  injured worker  or an  injured  employee, but  it may  help                                                            
     reduce the cost of  complying with the Act to employers. It may                                                            
     help,  and  we  believe  it  will,  make  those  corporations,                                                             
     governmental  entities, and other organizations  from Ketchikan                                                            
     to Barrow,  from Kaktovik to  Adak, remain viable, profitable,                                                             
     Alaskan employers.                                                                                                         
     We the AIIAB  respectfully request that you the  members of the                                                            
     Senate  Finance Committee,  refer the bill  on and we  ask that                                                            
     your colleagues, regardless  of they're Republican or Democrat,                                                            
     do  the same.  We,  those that  deal  with the  employers,  the                                                            
     insurers,  the few that  we have in  this State, the  adjusters                                                            
     and attorneys,  the employees and the claimants,  are confident                                                            
     that  this bill will  help stabilize  and hopefully reduce  the                                                            
     costs associated  with compliance with the mandates  defined in                                                            
     this  Act. We are  confident  Senate Bill 311  will help  those                                                            
     employers that are the economic base of this State.                                                                        
Senator Hoffman remarked  upon the significant cost increase for the                                                            
Bristol Bay Health Corporation  and asked how this bill would reduce                                                            
those costs.                                                                                                                    
Ms. Wing  was  unsure this  legislation  would affect  rates in  the                                                            
current year,  but predicted  that cost reductions  would begin  the                                                            
following year and continue for several years.                                                                                  
Senator  Hoffman  asked what  emphasis  should  the State  place  on                                                            
reducing claims through promotion of workplace safety.                                                                          
Ms. Wing  admitted this  is a  viable component,  but stressed  that                                                            
regardless  of how safe a  workplace is,  injuries occur. She  noted                                                            
that all employers she works with emphasize safety.                                                                             
Senator  Olson  asked whether  the  witness  supports  the  proposed                                                            
appeals commission  of three attorneys,  or predicts the  commission                                                            
would complicate future matters.                                                                                                
Ms. Wing  expressed  the association  supports the  bill as  written                                                            
with the three attorney positions.                                                                                              
KEVIN  DAUGHERTY,  Alaska Labor  and  Management Ad  Hoc  Committee,                                                            
testified via teleconference  from Anchorage that this bill does not                                                            
reflect  the process  of the  Ad Hoc  Committee, which  has been  in                                                            
place  since  1981.  He reminded   that during  the  1990s,  Ad  Hoc                                                            
Committee  efforts  reduced premiums  for  employers a  total of  49                                                            
percent. He  cited this as an example  of the ability of  the Ad Hoc                                                            
Committee to protect benefits  and provide for a more cost effective                                                            
system. He  charged that this bill  departs from the actions  of the                                                            
Committee  and instead proposes  to replace  a "common-sense  layman                                                            
board" with three "so-called expert" attorneys.                                                                                 
Mr.  Daugherty remarked  this  would  not provide  better  "decision                                                            
making", stressing  this is not only his opinion,  but also reflects                                                            
the assessment  of the National Commission of Compensation  Insurers                                                            
(NCCI). He  relayed the process in  which a Pacific Northwest  panel                                                            
within the Commission  reviews all proposed legislation  relating to                                                            
insurance  matters  in  the  region.  He  pointed  to  the  lack  of                                                            
documentation in this legislation  of any actual economic savings to                                                            
employers.  He provided the  phone number  of the Commission,  (503)                                                            
624-5890  to  allow  Members  to  obtain  more  information  and  he                                                            
qualified that the Commission  has not taken an official position on                                                            
this bill.                                                                                                                      
Mr. Daugherty  cited  the 2002  Workers' Compensation  Board  Annual                                                            
Report, the most recent  available, noting that total death benefits                                                            
paid to all survivors in  Alaska was $3.2 million, compared to $7.06                                                            
million  paid  to attorneys  representing  insurance  companies.  He                                                            
surmised  that if  currently,  over  double the  amount  is paid  to                                                            
attorneys than  survivors, the system should be made  more efficient                                                            
rather than adding  more attorneys and appeals. He  pointed out that                                                            
this legislation does not  provide that additional benefits would be                                                            
provided for injured workers or survivors.                                                                                      
Mr. Daugherty  next referenced a fiscal  note from the Alaska  Court                                                            
System projecting an implementation  cost of approximately $500,000.                                                            
He  also  predicted  the  cost  of a  new  office  for  the  appeals                                                            
commission   would  be  approximately   $500,000,  plus   additional                                                            
expenses  for  support  staff.  He  reiterated   that  no  increased                                                            
benefits  would be  provided for  injured workers  or survivors  and                                                            
that cost savings would not be realized for employers.                                                                          
CHUCK  LUNDEEN,  General   Counsel,  Liberty  Northwest   Insurance,                                                            
testified  via teleconference   from an  offnet location,  that  the                                                            
Oregon-based  company  has staff  located  in Anchorage  and  writes                                                            
workers'  compensation  insurance policies.  He  furthered that  the                                                            
company insures  20 percent of Alaska's assigned risk  pool and over                                                            
125  Alaskan  employers  on  a  voluntary  underwriting   basis.  He                                                            
supports  bill because  it provides  a "clear  statement of  purpose                                                            
that  all parties  will  receive  impartial  fair treatment  in  the                                                            
dispute resolution  process". He opined  this is good for  employers                                                            
and workers.                                                                                                                    
Mr. Lundeen  further supported the  bill because it streamlines  the                                                            
litigation  process and would  produce faster  results, which  would                                                            
also  benefit injured  workers  and employers  and  reduce costs  as                                                            
well.  He explained  that  the  elimination  of involvement  of  the                                                            
superior court would save  money. He then spoke to the "precedential                                                            
value" of the  decisions of the proposed appeals commission  in that                                                            
they would provide to all parties understanding of Alaska law.                                                                  
Mr.  Lundeen  was  uncertain  whether the  NCCI  had  reviewed  this                                                            
legislation,  but he  expressed intent  to bring  the matter  to the                                                            
organization's  attention. He told of his 20 years  in the insurance                                                            
industry  and  assessed  this legislation  would  reduce  costs.  He                                                            
compared it to  similar legislation adopted in the  state of Oregon,                                                            
which has resulted in reduced costs.                                                                                            
Senator Hoffman  surmised  the intent to  streamline the process  to                                                            
save premium  costs, although the  addition of the commission  would                                                            
increase expenditures.  He therefore concluded that any cost savings                                                            
must be garnered  from reduced benefits.  He understood that  judges                                                            
must be impartial  in interpreting the law and asked  how the number                                                            
of claims awarded  or the amount of  benefits paid would  be reduced                                                            
to meet the goals.                                                                                                              
Mr. Lundeen  responded  that the "body  of law"  if adopted  in this                                                            
legislation  would,  over  time,  result  in  claims  adjustors  and                                                            
attorneys representing  injured workers would make  better decisions                                                            
whether to  litigate or settle claims.  He doubted this legislation                                                             
would affect benefits or  compensability standards or make it easier                                                            
to deny a claim. He predicted  the cost savings would be realized as                                                            
a result of a streamlined process.                                                                                              
Senator   Hoffman  referenced   Ms.  Hall's   presentation   listing                                                            
statistics  proposing that this legislation  would better  align the                                                            
State  with the national  averages  and potentially  result in  cost                                                            
savings. He asked Mr. Lundeen's comment on this information.                                                                    
Mr. Lundeen  replied that this bill  is a portion of the  process of                                                            
reviewing and  revising the workers'  compensation system  in Alaska                                                            
to  address  cost   drivers.  He  reiterated  his  prediction   this                                                            
legislation  would  reduce litigation,  which  is more  costly.   He                                                            
qualified  this bill is not  a "cure all"  but is a "positive  first                                                            
Senator Hoffman  again asked how this legislation  would "reduce the                                                            
Mr. Lundeen  responded  it would not,  but rather  would reduce  the                                                            
number of litigated  claims due to consistent interpretation  of the                                                            
SFC 04 # 91, Side A 10:38 AM                                                                                                    
Mr. Lundeen continued  that in situations of uncertainty,  attorneys                                                            
advise litigation.  He remarked that current interpretations  of the                                                            
workers' compensation laws are inconsistent.                                                                                    
DENNIS  MURRAY,  Administrator,  Heritage  Place Nursing  Home,  and                                                            
former   president,   Alaska  State   Hospital   and  Nursing   Home                                                            
Association, testified  via teleconference from Kenai, in support of                                                            
the bill, as proposed  and recommended against adoption  of proposed                                                            
amendments.  He  opined  that  the  proposed  amendments  would  not                                                            
improve the system,  noting the premium increase of  160 percent for                                                            
the company.  He told  of a study  conducted by  the Association  of                                                            
nursing  homes  in Alaska  that  found  that  workers' compensation                                                             
premiums  had increased 100  percent. He  relayed the Department  of                                                            
Law determined  this legislation is more consistent  with operations                                                            
in other states.                                                                                                                
PAUL BRENNER, Vice President,  Quality Management, Central Peninsula                                                            
General Hospital, testified  via teleconference from Kenai, that the                                                            
proposed amendments  seem to remove the strengths  of the bill would                                                            
make it ineffective.  He supported  the creation of the Commission,                                                             
predicting  it  would  bring  continuity  to  workers  compensation                                                             
system.   He  told   of  the   significant  increase   in   workers'                                                            
compensation claims  and the desire for resolution  of the situation                                                            
and predictability of the process.                                                                                              
Co-Chair Wilken ordered the bill HELD in Committee.                                                                             

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