Alaska lawmakers hear that workers' compensation administrative fund is nearly exhausted, delaying hearings and services

Anchorage — The Alaska House Finance subcommittee on Labor and Workforce Development was told Feb. 6 that the state account that pays for the administration of workers' compensation is effectively exhausted, leaving hearings delayed, front-line staff short and injured workers waiting for benefits and medical care.

Charles Collins, director of workers' compensation for the Department of Labor and Workforce Development, told the subcommittee that the Worker Safety and Compensation Administration account — WSCA — funds day-to-day administration, not employer-paid claim benefits. "Claims are paid by the employers," Collins said. "The state of Alaska pays workers' compensation claims does not go through workers' compensation. That's Department of Admin risk management."

Collins summarized the funding picture and historic policy changes: three distinct funds touch workers' compensation administration and benefits — WSCA for administration, the Benefit Guarantee Fund as a backstop for uninsured employers, and the Second Injury Fund, which was closed to new claims by HB 79 in 2018 but still carries 51 long-term claims. He said the division has reduced costs for employers over the past decade: "We've saved employers $1,200,000,000 in costs, over the past 10 years." That decline in premiums, Collins said, has contributed to WSCA revenue erosion.

The director said a combination of falling premiums, a 2018 statutory shift tied to HB 79, and prior legislative "sweeps" that removed roughly $2,700,000 from the account contributed to a large deficit in FY25. Collins said he predicted the fund would run out in FY25 and that his forecast proved accurate. Under current practice the division receives 2.5 percentage points of a statutory 2.7% fee collected on workers' compensation premiums; 0.2% is routed to the general fund.

Subcommittee members pressed Collins on rising expenditures despite lower revenues. He cited several drivers: an unfunded stay-at-work/return-to-work program established by Senate Bill 147, a classification study that raised pay bands for hearing officers and other reclassifications, and general personal-services increases (including GGU raises). Collins said WSCA covers administrative staff, hearing officers and support for the appeals commission and that most of the division's expenses are personal services.

The staffing shortfall is substantial, the director said. The division has 50 PCNs and a roughly 26% vacancy rate; Collins enumerated roughly 13 open positions across the state, including three vacant adjudication support roles in Fairbanks, three open PCNs in Juneau and multiple vacancies in Anchorage, including two hearing officer positions. "You cannot walk into the workers compensation in Fairbanks," Collins said. "Requires a call, an email or whatever. That means longer response times to injured employees." He warned that hearing schedules have expanded from 30 days historically to 60–90 days or more and that some injured employees are waiting 48–72 hours for responses to initial inquiries.

Representative Bynum questioned why vacancies were being held when positions appear funded in the budget. Collins explained that while positions may be budgeted, WSCA lacks the revenue stream to pay the salary increments and related costs tied to those positions; as a management tool the division has limited vacancies to restrain spending when the fund's revenue is insufficient.

Collins told the subcommittee that statutory change to capture the full 2.7% fee rather than the current 2.5% share would raise only about $300,000 a year — not enough to close the current gap. He said the administration's finance proposal includes a one-time $1,400,000 request to bridge next year's costs.

Dan DeBartolo, administrative services director in the Department of Revenue, explained the accounting interplay among components that draw on WSCA. DeBartolo said workers' compensation, the appeals commission, occupational safety and health and labor market information are allocated WSCA money, and that past decisions not to reverse budget sweeps and to replace some component funding with unrestricted general fund increments (UGF) left workers' compensation without comparable replacement income while other components received UGF boosts.

Committee members expressed concern about service disruptions in Fairbanks and across the state and said they wanted to explore policy and budget options. The subcommittee adjourned at 4:17 p.m. with no formal action taken.

The Department of Labor and Workforce Development provided the presentation and data; the Department of Revenue offered the accounting explanation. The subcommittee did not vote on any bills during the session.