House aims to revamp high-cost workers’ comp system


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Workers’ compensation rates in Alaska have continued to climb in recent years despite a declining number of claims.

The House Labor and Commerce Committee took up legislation March 7 aimed at reforming the system and reigning in costs.

House Bill 316, introduced by committee chair Kurt Olson, R-Kenai, would eliminate the current usual, customary and reasonable, or UCR, fee schedule and replace it with a schedule set by the state Workers’ Compensation Board. The board would base its fee schedule on Medicaid and Medicare rates and further adjust costs to reflect the market with a conversion factor it would set.

The UCR fee schedule is based on what physicians charge in a geographical area, not what it costs to perform medical procedures, according to Olson’s sponsor statement.

A biannual study done by the State of Oregon found that Alaska carries the highest workers’ compensation insurance premium rates in the country, despite a 3 percent drop in premiums in 2012. In 2000, Alaska ranked 28th in workers’ compensation premium rates, but by 2006 it was the most expensive state in the country. Since then, Alaska has been first or second.

While workers’ compensation claims declined 14 percent in the past year, medical costs increased 25 percent in the same period, said Olson staffer Anna Latham, who presented HB 316 to the committee.

Alaska workers’ compensation premiums are 160 percent greater than the national median, Latham said, and medical costs make up 76 percent of overall premium rates.

Alaska Department of Labor and Workforce Development Workers’ Compensation Director Mike Monagle has said medical costs nationwide account for about 60 percent of premium rates.

According to a brief provided by Olson’s office, primary medical care in Alaska is paid at 185 percent above Medicare rates; surgeries are paid at 482 percent above Medicare; and radiology procedures are paid at 312 percent above Medicare.

Latham said the Workers’ Compensation Board, Gov. Sean Parnell and leglislators all agree that the rate system needs serious revision.

Alaska State Chamber President and CEO Rachael Petro said during public testimony that the state’s high workers’ compensation costs have become a competitive issue for Alaska businesses.

Reforming workers’ compensation rates “is a top priority for the Alaska Chamber and for our members,” Petro said.

Approved in 2004, the UCR system has been extended numerous times since it was first supposed to sunset in 2007 by lawmakers unable to reach an agreement on workers’ compensation reform.

Another change HB 316 would make is it would add a fee schedule for emergency transportation services, something the current system does not do. Schedules would also be set for in-patient hospital fees, physician visits and out-patient care, Latham said.

The fee-setting methodology employed by HB 316 is used in 32 states, she said.

The Workers’ Compensation Board would also set reimbursement limits for durable medical equipment and prescription drugs. These rates and the conversion factors would be set annually, Latham said.

Additionally, HB 316 requires prescriptions include a code from the Food and Drug Administration’s National Drug Code directory, aimed at better tracking prescription drugs and curbing drug abuse.

Monagle, with state workers’ compensation, estimates prescription drug costs account for 20 percent of all compensation claims.

Those who testified that the workers’ compensation system in the state needs to change largely supported Olson’s bill. Concerns were raised about the ability of the board to properly set the conversion factors and a clause in the bill calling for the system to sunset in 2019 and revert back to the current system.

The Workers’ Compensation Board is made up of nine state labor representative and nine management representatives appointed by the governor.

The worry behind the sunset clause is that it would prevent long-term certainty in the industry. When the committee reconvened March 10, Olson said the sunset provision had been removed in a committee substitute for HB 316.

“I would say that’s the only thing so far that’s brought all the stakeholders together; nobody liked the sunset clause,” Olson said.

As to the board setting the conversion factors, the committee substitute language also called for fellow Labor Department group, the Medical Services Review Committee, to advise the Workers’ Compensation Board on the annual issue.

If passed, the board would begin setting fee schedules July 1 at the start of the state fiscal year, and the changes would go into effect Jan. 1, 2015, Latham said.

No action was taken on the bill March 10 because Labor and Commerce Committee members did not have the requisite time to review the committee substitute, Olson said. The committee was set to take up HB 316 again March 14.

Elwood Brehmer can be reached at elwood.brehmer@alaskajournal.com.

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