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AK Labor Commissioner Foresees Workers' Comp Crisis
Workers, Employers Threatened by Annual Double-Digit Rate Increases


March 09, 2005

Legislators must pass workers' compensation reform this session or face the prospect of ever-rising rates driving Alaska's small businesses to cut jobs or close their doors, Alaska Department of Labor and Workforce Development Commissioner Greg O'Claray told a state Senate committee Tuesday.

"Statutory rates for workers' compensation have gone into orbit in recent years," with an overall average 21 percent rise in 2004 and a 12 percent average rise predicted this year, O'Claray told the Senate Labor & Commerce Committee.  "My problem is that we are now seeing the effects of high premiums that are putting people on unemployment.  That, we cannot stand for."

Governor Frank H. Murkowski's reform legislation, SB 130, seeks to stabilize rates by focusing on ways to halt the dramatic increase in medical costs over the past five years, said Linda Hall, director of the Division of Insurance in the Alaska Department of Commerce and Economic Development.

Hall uses national and state medical costs and other data to set Alaska's workers' compensation rates for various job classifications.  She said there were at least 50 percent rate increases in 17 job classifications in 2004, and that her division was expecting increases of at least 30 percent in 49 job classifications this year.

"I'm getting a huge number of phone calls from employers who are threatening to close their doors," Hall told the committee.  "Something has to happen, and I would urge you to look to this bill for solutions."

O'Claray noted that an ad hoc committee of labor and management had as early as 1995 acknowledged the need to address rising workers' compensation medical costs, but had offered no solutions.  The governor saw the lack of leadership on the issue, listened to pleas from constituents faced with layoffs and business closures, and decided to step in to introduce his own bill to avert a crisis, the commissioner said.

"Here's a prime example of what we're talking about, the Central Peninsula General Hospital," O'Claray said.  "In 2001 their premium was under $400,000, but in 2005 it's nearly $1 million.  Do you know who pays that bill?  Anyone who goes to hospitals seeking care; they pay it."

In addition to addressing medical costs, the governor's bill proposes other changes to keep the workers' compensation system effective for workers and affordable for employees.  These include using preferred providers and generic drugs, adhering to nationally recognized standards of care, creating a new commission to resolve appeals faster, letting workers choose cash instead of retraining benefits, and protecting workers against lack of coverage by unscrupulous employers.

Attorneys with insurance firms operating in Alaska, businessmen, and others with experience in Alaska's workers' compensation system applauded the governor's efforts to offer solutions to these problems.

"We believe medical costs are the single biggest part of the workers' compensation process that needs reform, and it is admittedly going to involve some very difficult tradeoffs," said Constance Livsey, an attorney with Liberty Northwest Insurance Corporation.  "In general, Senate Bill 130 may not be perfect, but it offers some much-needed reforms, and we urge its passage."

In his testimony, Kenai automobile dealer Bob Favretto described five Peninsula businesses that had experienced dramatic increases in their rates, even though none had experienced worker injuries requiring costly claims.

"As a businessman, I personally applaud the governor and the administration for getting at this issue today and not waiting until tomorrow," Favretto said.

The committee will continue its work on SB 130 Thursday.  House Bill 180, a companion version, will be considered Wednesday by the House Labor & Commerce committee.


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Office of the Governor
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