Legislature(2017 - 2018)BELTZ 105 (TSBldg)
04/02/2018 09:00 AM LABOR & COMMERCE
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HB 79-OMNIBUS WORKERS' COMPENSATION 10:07:22 AM CHAIR COSTELLO reconvened the meeting and announced the consideration of HB 79. [CSHB 79(FIN) was before the committee and this is the first hearing.] 10:10:40 AM HEIDI DRYGAS, Commissioner, Department of Labor and Workforce Development (DOLWD), Juneau, Alaska, said HB 79 improves the department's ability to administer the Workers' Compensation Division. Last year they presented companion bill SB 40 to the committee. Since then HB 79 made its way through the House and has seen changes and improvements. It is an efficiencies bill. It modernizes the system, which has not been significantly reformed in more than 10 years. It speeds up the resolution of disputes, improves the delivery of benefits to injured employees, deters workers' compensation fraud, reduces administrative costs, and provides adequate funding for the administration of the workers' compensation system. HB 79 was well vetted and passed in the House with support from the minority and majority. 10:11:55 AM MARIE MARX, Director, Division of Workers' Compensation, Department of Labor and Workforce Development (DOLWD), Juneau, Alaska, said she always starts with the department's mission when she presents on workers' compensation. It is to ensure the quick, efficient, fair, and predictable delivery of benefits to injured workers at a reasonable cost to employers. She directed attention to the slide showing the other pillars that guide the division's administration of Alaska's Workers' Compensation Act. The governor's bill focuses on the fairness, quickness, and efficiency of the workers' compensation process. MS. MARX said she would present the bill by topic instead of numerical order. Each section is listed by topic and she would refer to page numbers as they work through HB 79, version N. MS. MARX first addressed the topic of speeding up dispute resolution. She said HB 79 simplifies and quickens the hearing process by letting the board schedule a hearing shortly after a claim is filed instead of waiting until one of the parties requests a hearing, which can be many years down the road. MS. MARX said it changes who may represent a claimant in a workers' compensation hearing. Now a non-attorney may represent parties. The bill proposes that anyone authorized by regulation of the board may represent parties. They have had instances where non-attorneys who were not bound by ethical and professional rules represented someone, such as a brother or spouse, before the board. Often, that person's assistance is not helpful but delays outcomes for injured workers. At first the bill said non-attorneys may not represent parties, but through the hearing process, this was changed. She said HB 79 streamlines settlement agreements by eliminating a requirement that the board approve attorney fees if fees are the only issue that requires board approval. It also streamlines the process of imposing civil penalties against an uninsured employer by allowing the division to assess the penalty directly rather than petitioning the board to set the penalty. An employer may appeal the penalty before the board. MS. MARX addressed the second topic of improving the delivery of medical care. She said currently no language addresses if and when a provider's written request for medical care, usually for surgery, must be preauthorized. The bill requires an insurance company or self-insured employer to preauthorize or deny medical treatment within 60 days of a medical provider's written request. This gap has led to a lot of litigation and delayed the delivery of care to injured workers. The bill does not change the requirement that medical bills must still be paid within 30 days. 10:16:21 AM SENATOR GARDNER said 60 days seems like a long time to wait for surgery. She asked why 60 days was selected. MS. MARX said the only duty the employer has now is to pay a medical bill within 30 days of receiving it. By the time the medical bill is received by the self-insured employer or insurance company, the care has already happened. They have already had the opportunity for one of their doctors to evaluate the injured worker. It is different for preauthorization of surgery, which is generally very expensive surgery. Sixty days would give time the employer or insurance company time to refer to the worker to a physician of their choice and get the medical records from the doctors. At times it's difficult to get medical records within 45 days. Now the injured worker needs surgery and the doctor won't move forward without the certainty of being paid. The worker doesn't want to be on the hook either. Sixty days was a compromise to balance the injured worker's need for care and efficiency and reasonable cost for the employer. 10:18:24 AM MS. MARX addressed the issue of misclassification before moving on. She said not tackling misclassification is a great disservice to workers and law-abiding businesses. When workers are fraudulently misclassified, workers die or are severely injured and huge uninsured losses can put a company out of business. They must keep workers safe and law-abiding employers should not have to pay the price for misclassification. She then took up the third topic, strengthen fraud provisions. She said HB 79 strengthens fraud provisions by defining misclassification and when it amounts to fraud. She said there is no affirmative duty to report work or wage- loss benefits. If asked, workers cannot misrepresent that, but there is not an affirmative duty to tell an insurance company or self-insured company that they are receiving benefits. HB 79 does impose an affirmative duty on the injured worker to report their injury. MS. MARX said currently a loophole exists where LLCs [limited liability companies] escape liabilities for benefits and civil penalties because the act was created when corporations were in existence. The bill will make LLCs that operate without insurance just as liable as corporate officers for uninsured injuries and penalties. She said the bill defines independent contractor, which is the biggest change since the committee heard SB 40. This definition is the result of working with many stakeholder groups who initially vehemently opposed the original definition. This definition is a result of collaboration between stakeholders and the department. The definition will accomplish the mission of preventing fraud and misclassification while also ensuring that bona fide independent contractors continue to operate and flourish. She said HB 79 allows the Benefits Guaranty Fund, which is the injured workers fund, to file a lien for compensation and civil penalties. The Benefits Guaranty Fund pays a claim when an employer does not carry insurance. Then the fund has to be reimbursed by the uninsured employer. By the time that happens, the assets are gone. An injured worker already has the right to file a lien. 10:22:07 AM MS. MARX said HB 79 expands the division's ability to asses a civil penalty to include employers who are underinsured because they have misclassified workers in a variety of ways. Now the division only has the ability to assess a penalty for failing to carry any insurance. The bill changes the calculation and the maximum civil penalty. The maximum penalty now is $1,000 for each uninsured employee workday, which has resulted in astronomically high penalties that employers cannot pay. The calculation of these penalties doesn't survive appeal and has led to a lot of litigation. The employers who do not keep records on the number of employers they have are rewarded. She said the maximum penalty in HB 79 is three times the premium an employer should have paid. HB 79 a simpler calculation because it only requires the employer's overall payroll data. The new penalty will result in a reasonable deterrent that takes into account the employer's size, the nature of the business, and the financial gain the employer realized by not paying the full workers' compensation insurance. She provided an example. Their hope is that if penalties are more in line with reality, the division will be able to collect more. These penalty amounts go to the injured worker fund. With HB 79, penalties may not be suspended in full or in part. Right now, the board has suspended penalties, which is arbitrary. The board can always reduce or reverse a penalty. HB 79 allows employers to establish a payment plan, so they won't go out of business. 10:25:27 AM MS. MARX addressed the fourth topic, reducing administrative costs. She said current law says the employer must pay by check. Times have changed, so the bill does not prescribe a specific method of payment. Currently, the division may not require electronic filing. The bill says the division may prescribe the filing format. The division has moved almost completely to electronic filing except for a few things that must be done by paper. The bill will modernize that. She said there is a corporate executive officer workers' compensation coverage opt out, which involves a lot of paperwork that must be submitted. The bill streamlines that. If someone has at least 10 percent ownership, that is enough to say that person is not an employee and does not need workers' compensation insurance. The division has a great database that makes verifying that easy. 10:26:58 AM SENATOR MICCICHE asked if simplifying the corporate opt out would result in a significant change in the numbers opting out or would it be close to what it is now. MS. MARX said its difficult to tell how many officers would then be considered non-employees. Now there are many corporate officers who have no ownership in the business and are added. Corporations change that makeup of their officers every few months. She guessed the bill would make sure that those who legitimately have an interest in the company would be exempted. SENATOR MICCICHE said it's more black and white criteria. He asked if there was another reason a corporate executive could opt out. MS. MARX agreed that it is very black and white, which was the intent. She answered no to the second question. She added that HB 79 is not a bill that deals with substantive benefits. It is an efficiencies bill that seeks to make things clearer for the public. 10:29:02 AM MS. MARX continued to review administrative efficiencies. She said the Medical Services Review Committee looks at different publications to come up with a medical fee schedule. More publications are added to that list. MS. MARX said there is currently no consequence if insurers do not meet the deadline to tell them when an employer has coverage or not. By granting a 30-day deadline (instead of ten) with a penalty, they hope that will reduce wasted effort for investigating failure-to-insure cases. The bill also phases out the Second Injury Fund, which reduces costs for the department and employers. The fund's purpose is to encourage employers to hire or retain disabled individuals, but the purpose is moot with the Americans with Disabilities Act and other laws that bar employment discrimination. As claims are paid out, the employers' contribution will drop to zero. These claims are for permanent disability. The fiscal note estimates the average age of claimants will be 80 and two to three will be phased out each year. 10:32:10 AM MS. MARX addressed the final topic, ensure adequate funding for the Workers' Safety and Compensation Administration Account (WSCAA) in Section 1. She said the WSCAA balance is rapidly declining. In 2005, the Alaska Legislature added programs funded by WSCAA, but no increase in the WSCAA service fee rate was made for the increased costs to operate these programs. The bill does not increase the service fees companies pay, but more of the fee will be allocated to the department. That is a difference of $1.8 million. If the change is not implemented, WSCAA will have a shortfall in 2020. 10:33:49 AM CHAIR COSTELLO opened public testimony on HB 79. 10:34:13 AM BRONSON FRYE, Painters Union Local 1959, Anchorage, Alaska, testified in support of HB 79. He said he was just appointed to the Workers' Compensation Board. Unscrupulous contractors are requiring as a condition of employment that their workers get business licenses and work as independent subcontractors. These are not legitimate independent subcontractors. An entire crew of workers working on a singular job on a singular project are all classified as independent subcontractors. He gave the example of the drywall workers for the Dena'ina Center. Because workers' compensation premiums are so high in the inherently dangerous construction industry, they can account for up to 30 percent of labor cost. If an employer misclassifies workers, he can lower labor costs and have a competitive advantage in the bidding process against honest, law-abiding employers. This is a fairness-in-contracting issue. Also, liability for injury at work is shifted to the worker with independent contractor misuse. Workers' compensation exists for a reason. HB 79 has a multifactor test to determine a true independent contractor. It will reduce workers' compensation fraud, create fairness in contracting in the construction industry, and protect workers. 10:37:58 AM LAURA BONNER, representing self, Anchorage, Alaska, testified in support of HB 79. She said her husband suffered a debilitating injury years ago. HB 79 allows better and quicker access to medical care and quicker resolution of disputes. This is important to the injured worker and their families who are dealing with the stress of the injury. She expressed pleasure with the language defining an independent contractor and strengthening the fraud provisions. She has served on the Workers' Safety Advisory Council because safety and injured workers have been a concern of hers. She urged the committee to pass HB 79 from committee. It is better than the bill passed earlier today. 10:40:25 AM DON ETHERIDGE, Lobbyist, Alaska AFL-CIO, Juneau, Alaska, testified in support of HB 79. He said any efficiencies should be made. Alaska AFL-CIO was involved in the working group to define independent contractors and is happy with the result. He related how difficult it can be for injured workers to receive their compensation checks by mail. The bill makes improvements. 10:42:33 AM CHRIS DIMOND, Organizer, Pacific Northwest Regional Council of Carpenters, Juneau, Alaska, testified in support HB 79. He said making government more efficient is always a move in the right direction. The definition of independent contractor is a long overdue reform. He related cases in Juneau of fraud. HB 79 protects workers' rights and safety. It will keep contractors working more fairly. 10:44:39 AM CHAIR COSTELLO closed public testimony on HB 79. SENATOR MEYER asked about the change on slide 4 of the presentation that states HB 79 will allow persons authorized by regulation of the board to represent parties. He asked if the bill would prevent an injured person using his cousin to represent him. MS. MARX said the bill would allow the board to develop, through the regulatory process, a list of the parties who can represent parties before the board. The board serves two functions, to make regulation and to hear claims. The hearing panel is in the best position to know the type of individual who is able to represent injured workers. Through the public process, there will be a list created. She noted that she served as a hearing officer for six years. She gave anecdotal experience to illustrate problems that can arise. SENATOR MEYER asked if the names on the list would be primarily attorneys. MS. MARX said the 18-member Workers' Compensation Board would come up with the list. She envisions that besides Alaska attorneys, the list could contain perhaps outside counsel, retired attorneys, paralegals, medical billing specialists, and others. The list would be appropriate to create through regulation rather than statute. SENATOR MEYER asked if she anticipated a long list. MS. MARX said yes and very specific and detailed to provide clarity. CHAIR COSTELLO said that Senator Meyer made a good point. They are hoping for common sense and flexibility with this list. COMMISSIONER DRYGAS said the initial draft said no non-attorneys for a lot of reasons. This is a compromise where it would make sense for non-attorneys to represent. SENATOR MEYER said he wanted to ensure that the injured worker has choices. 10:51:47 AM SENATOR GARDNER asked if the department has the resources to look into possible cases of fraud when they hear stories like the ones Mr. Dimond referenced. COMMISSIONER DRYGAS said yes and no. The fraud unit will investigate if they hear something. Right now, the test of being an independent contractor versus an employee is cumbersome, which is why they are changing it in law. The department is cash-strapped currently. Next year, FY2020, WISCA funding will be depleted. 10:53:26 AM SENATOR MICCICHE said he had the same concern as Senator Meyer. Another concern is with Section 7 that redefines LLC. He questioned whether a Workers' Compensation bill was the right place to do that. MS. MARX clarified it does not redefine an LLC. Right now, there is a loophole. Under the current Workers' Compensation Act, employers must have workers' compensation for employees. If they don't, the employer and those in charge of the business are responsible for uninsured claims. LLCs do not have the same liability. Those LLC members who run the corporation, even if it is one member, completely escape the liability that corporations have for uninsured injuries. This levels the playing field for all members. There is a need to close the loophole of companies to escape liability. SENATOR MICCICHE said he understands the intent but would rather it be dealt with in a section of law that defines what an LLC can do with that limit of liability rather than eliminating the loophole in this bill. He said it needs to be dealt with more comprehensively. COMMISSIONER DRYGAS said it's there to maintain consistency in the statute. The corporate section is already in the statute, which is why they addressed the LLC there. She acknowledged that one could argue both sides. 10:58:23 AM SENATOR MEYER moved to report HB 79, version N, from committee with individual recommendations and attached fiscal note(s). 10:58:45 AM CHAIR COSTELLO announced that without objection, CSHB 79(FIN) moved from the Senate Labor and Commerce Standing Committee.