House Labor & Commerce, 4/27/26, 3:15pm

This meeting of the House Labor and Commerce Committee will come to order. The time is 3:30 PM on Monday, April 27th. Members present are Representative Carrick, Representative Freer, and myself, Co-Chair Hall. Please silence your cell phones. We are asking that staff and members of the audience not approach the table.

If you need to pass a note to committee members, please get the attention of my committee aide, Joan Wilkerson, and she will take care of it. I'd like to thank Andrew Magnuson, the Labor and Commerce Committee Secretary, and Renzo Moises from the Juneau LAO for their tech and teleconferencing support. We have 3 items on the agenda today. First is a presentation entitled State Strategies for Addressing the Affordability Crisis in the Commercial Market by Michael Baylet from Baylet Health Health. Mr. Baylet will be joining us on Teams and has a slide bank previously provided to the committee.

After that, we will hear two bills, both on their first hearing in this committee, one being HB 338, Retirement Savings Program, by Representative Costello, and SB 252, UCC, Secure Transaction and Electronic Records, by Senator Clayman. With that, I'd like to turn to Ms. Lori Wingheyer, who is the legislature's insurance consultant. She's going to give us a brief introduction for the presentation. Thank you so much for being here, Ms. Winghyre. We appreciate your time and your willingness to be in front of the committee again.

Thank you, Madam Chair and members of the committee. My name is Lori Winghyre, and I'm the healthcare liaison for the legislature. A few months ago, I was contacted by Heather Carpenter, who's the director of the Division of Insurance, and she had attended an NAIC meeting, being the National Association of Insurance Commissioners, and Mr. Bayhlet had done this presentation for the NAIC members. And because this committee has been very strong and put a lot of attention this session into the cost of healthcare, accessibility, and affordability, I brought it forward to the chairs to see if they would be interested in Mr. Bayhlet doing the same presentation here. And that's how it came about.

So he is presenting today in House Labor and Commerce and tomorrow in Senate HESS for the same reasons, to address accessibility, and particularly affordability of healthcare. As you know, healthcare in Alaska is supposedly amongst the highest in the world, and we get a lot of calls, all of us, about the cost of our healthcare and what can be done about it. And I'm hoping that our discussions with Mr. Bayhlet will show us some ideas that perhaps we haven't considered before as we go forward. And with that, Madam Chair, I would ask that you turn it over to Mr. Bayhlet. Thank you very much, Miss Winghier.

Let the record reflect, please, that Representative Colon joined us at 3:32 PM, and we have a quorum. Mr. Baylet, are you online? Can you hear us? If so, you please put us on the rec— uh, would you please put your name on the record and begin your presentation? I'm here.

My name is Michael Baylet, and I'm pleased to have the opportunity to speak with you this afternoon. Thank you. So I am going to provide you with an overview of how states across the country are addressing the problem of high and rising costs, specifically in the commercial health insurance market. And I'm going to do so at a fairly high level because there's a lot of content to cover, but I will give you a sense of the range of strategies that states are pursuing and some of the most innovative activity across the country. If at any point in time while I am presenting you have a question, I invite you to ask me to pause so that you can ask your question.

Thank you, Mr. Baylet. This is, this is Coach Erhall. I'm gonna— we have approximately 45 minutes or so for your presentation, so happy to take committee member questions along the way so long as we don't get too derailed given the time constraints of the Committee. Please go ahead, Mr. Beloot. Okay, thank you.

So I can't see the screen too well, but I'll indicate which slide I'm on. So I want to start with slide 3, which is just a few indications of the impact that high healthcare costs are having on Americans today. First, over a third, and in some states over half, of state residents say they have skipped or postponed needed healthcare solely due to cost in the last year. And about 1 in 5 have not filled a prescription. In addition, about 4 in 10 adults report having debt due to medical or dental bills.

About half of American adults say they could not pay an unexpected bill of $500 without incurring debt. Medical bills are the leading cause of personal bankruptcy in the United States, accounting for two-thirds of the filings. On the next slide, I just have a couple of clips from headlines on slide 4.

These are just a couple of headlines. One on the left from the Washington Post: Americans skip meals to afford healthcare. This is from a a national survey. And then on the right, a story from Wisconsin where a couple sued Walgreens and OptumRx saying that their son died after a spike in his asthma medications made the medication unaffordable and he died from an asthma attack. So I think this speaks to the consequences on consumers of the high costs of healthcare really across the country.

So what about Alaska? The next slide demonstrates what you heard moments ago. Alaska has the fourth highest premiums in the country for the second lowest cost silver benchmark plan. Only Wyoming, West Virginia, Vermont, and Connecticut are similar to Alaska. So you knew this, but, but healthcare costs are extremely high in Alaska.

So, why is this? So, let's go on to the next slide, and I want to talk about what are some of the healthcare cost drivers, just briefly, before turning to strategies states are pursuing. So, on this slide, you can see that about half of commercial healthcare spending is for hospital services. And if we included spending for professional services, for physician and other practices that are owned by hospitals and health systems, the percentage of spending associated with hospitals and health systems would be even higher. And so, for that reason, hospital costs have gotten a lot of attention for state policymakers, because that's the biggest allocation of dollars.

On the next slide, you can see a graph with spending growth and hospital spending between 2015 and 2023. Was at a higher rate than for pharmacy spending or professional spending, although I will note that pharmacy spending is close behind hospital spending. And, and really, hospital and pharmacy spending are the twin drivers of spending growth. That's not to say that our spending on professional services isn't also high, but it's not been growing at the same rate that hospital and pharmacy spending have. Okay, so what have states been doing about this?

States have been pursuing a lot of strategies. I have a list on the next slide. These are not all the strategies, and they're also not mutually exclusive. Most states that have made commercial market affordability a priority have been pursuing multiple strategies simultaneously, but you can see here there's a range. Beginning with simply measuring and making transparent healthcare spending and how it varies and how it grows within the state, to policies that are aimed specifically at, at curtailing high spending growth.

And I'm going to talk about some of these strategies, especially the ones focused on hospital and drug prices, because that's where states have been most active. But states have also done things to try to restrict market consolidation and anti-competitive behavior. They have also looked at reinsurance programs in some states, and they've also invested in services that are shown to, over the long term, reduce spending and spending growth. And by that, I mean specifically primary care services and non-medical drivers of health. So, a key question when considering how to proceed is, can we have a functioning market for healthcare?

And you have a quote here from Representative Julie McGuire, who's co-sponsor of some legislation that passed in Indiana a couple of years ago. And this is from a presentation she made to a group of states about 6 months ago. She said, "This is not a free market. There is no competition. There is no transparency." And that was the rationale for why she co-sponsored a piece of legislation that I'll talk about later on, focused on hospital prices.

So, if there's no competition, why might that be? Well, one might be that there's been lots of provider market consolidation. There are also, despite many, many years of efforts, there really is not transparent information on the cost of care and the quality of care. And then finally and importantly, patients don't act like rational consumers. We don't buy healthcare the way that we buy a car or a dishwasher.

And by that I mean a lot of our spending is incurred when it's not discretionary. So it's an emergency hospitalization or we're rushed to an emergency department. And even when there is some time for choice, consumers tend not to treat medical decision-making the same way that they treat decision-making when buying other services. Mr. Balick, can I—. Yes.

Can you pause just for a moment? Two things I want to I just want the record to reflect that we were joined by Representative Fields at 3:35 PM, and Representative Julie Colombe has a question for you. Thank you, Chair. So through the Chair, these reasons of why this is not— this hasn't happened, the competition, don't you think the government's role in healthcare has killed competition as well? Some unintended consequences?

Well, yeah, there is a— There are some people who think that some government policy has accelerated market consolidation, which has reduced competition. Yeah. Yeah, and follow-up? Mm-hmm. On the prior slide, maybe you'll address this, but when you do drug price caps and hospital caps, I'm just wondering what the effect of that is.

It's not that I disagree with that, but when you put a price cap on something, it usually has effects in the market. Sometimes good, sometimes not. Sure, yeah, yeah, and let's talk about that when we get to those slides. I'll note that, you know, I'm not advocating for any of the policies here. I'm just describing for you what states are doing, and I'll note that a number of the policies that I'm describing are relatively new, and so we don't have years or decades of experience to know how they play out.

Okay, thank you. Okay, yeah, I want to be transparent about that. So, last question on— maybe I'm on the last slide— is can healthcare work as a market? Well, some people think yes, if we do more to increase information and maybe introduce new competitors to the market. And other people think that the proverbial train has left the station or the horse has left the barn and And that, no, our markets have failed and we're not going to have competition.

So I'm going to leave that aside to all of you to ponder. But it's a, it's a central strategic question when, when considering what to do to address high and growing spending in healthcare. So I now want to review some strategies with you. As I indicated earlier, I'm going to focus on hospital and price and pharmacy prices because Those have been the cost drivers, and though that's where most states have been focusing their attention.

I'm going to start, though, with an example on slide 13 of— and 14— of measurement, transparency, and collaboration, because a lot of states will start with efforts to measure healthcare spending in their state. And to measure annual growth in spending across markets. And by that I mean commercial, Medicare, and Medicaid. And trying to identify what the cost drivers are. So, which service categories are they?

And is it prices that are growing, or utilization that's growing, or both? And then working collaboratively with stakeholders to try to improve affordability. So, I've got 3 examples here. Of states that have begun programs to do this at different points in time. Rhode Island in 2018 brought the largest insurers and providers together in the state to sign a compact to commit to a voluntary spending growth target and to work together in collaboration to slow spending growth.

And the state has on its insurance department website dashboards that use their all-payer claims database and allow anyone to look at what spending and spending growth look like in the state over the past 5 years. Minnesota more recently created, within their Health Department, a Center for Health Care Affordability and 2 task forces to advise the state and to work on collaborative strategies. And then in Utah, the Governor's Office initiated the creation of a public-private initiative that— so it's housed in a nonprofit, actually, not in state government, to address healthcare quality and affordability. Like Rhode Island, they measure spending growth and publicly report on it. And that's a new initiative that just began last year.

Okay, so let's talk about price caps, and we can talk about their impact, intended and unintended. I'm going to start with hospital price caps, because this has been a hot policy area for states recently. So a price cap, it's sometimes called a payment limit or a payment cap, or reference-based pricing is commonly used. But the idea is it limits how high hospital prices, or frankly any other services, can, can rise. And typically, the limits are set reference to an external benchmark.

States most often have been using a percentage of Medicare. So, for example, 200% of Medicare as a cap on how high commercial prices can be. States to date have applied them to both inpatient and outpatient services, but they could be applied more broadly.

In Slide 17, I identify 3 options for implementing this price cap. One, to do so using the state's is purchasing authority. So the state or public employee health plan caps prices for its purchase services. And there are 3 states that are doing this right now. Insurance regulation is another way.

So the insurance department regulates maximum prices that can be paid for fully insured private plans. And then the most expansive approach is provider price regulation, where the state doesn't regulate insurers, but actually regulates the prices that providers can charge and be paid. So, many of you— examples. So, first from Indiana and New Mexico. Indiana did something novel in 2025.

They used nonprofit status as a lever to push down prices in the state's 5 largest hospital systems that account for the majority of their spending. So hospitals have to reduce— at these systems have to reduce their prices to the state average by the middle of 2029, or they will lose their nonprofit status for at least 1 year. They're focused only on their largest systems. So immediately they're excluding their small community hospitals, um, their critical access hospitals. I don't know if they have any rural frontier hospitals, but they would all be excluded, um, unless they are part of one of these 5 very large systems with $2 billion in net revenue or more.

And this— they are the first state to use nonprofit status as a lever. New Mexico also capped hospital prices. They did it through their state employee health plan. They're one of 3 states that has done that now. Theirs became effective just last July.

So prices are capped in their public employee health plan at 200% of Medicare. For out-of-network hospitals are capped at 175% of Medicare. They limited their cap only to urban hospitals. So, I think that's 3 or 4 metropolitan areas within New Mexico. The rest of the state is not subject to the cap.

So, you can see these are new initiatives, and we don't know a lot about their effectiveness. On slide 19, we have one that's a little bit older. Oregon implemented a price cap for their state and school-based employee health plan in 2019. So this has been around a little bit. It was mandated through legislation.

They also have a 200% of Medicare cap. They also exempted small rural critical access and sole community hospitals. So as a result, the cap applies to 24 of their 62 hospitals, but those 24 represent the majority of healthcare spending in the state. On slide 20, the cap applies to contracts with public employee health plan carriers. Mr. Baylet?

Yes? Mr. Baylet, I'm sorry to interrupt. We have a question for you from Representative Carrig. Thank you. I'm sorry my voice is very soft, so I hope you can hear me.

Thank you for presenting, Mr. Baylet. Through the chair, I Oregon has some similar demographics to Alaska, and so when it says that we— they exempted small rural critical access and sole community hospitals in order to implement a price cap, I'm wondering what, what cities that actually leaves in Oregon as not in that category. And Alaska faces a lot of the same sole source clinical provider challenges and hospital providers, so how much of Oregon's healthcare landscape was actually impacted by that price cap? Yeah, so I don't know the answer for certain. I would guess that Portland, Salem, and Eugene would be affected, maybe Bend, and probably not the rest of the state.

So geographically speaking, most of the state is exempt, but from a spending perspective, because the population is so concentrated especially around metropolitan Portland, you're capturing the majority of the spending in their public employee health plan. So just a quick follow-up. Follow-up, Representative Garrick. Thank you, through the chair. So I really appreciate hearing that, Mr. Baylet.

So just correct me if this statement is wrong, but just to summarize, even if it's in a small scale that we're able to implement geographically, the price cap was still beneficial for cost control in Oregon for consumers? Oh, yeah, yeah. So, yeah, and I actually have some results from Oregon because their program has been around long enough so that we— it's been evaluated, and it definitely has had a positive financial impact. Great. Thank you, Mr. Beale.

Please proceed. Okay, so they, they have a lower cap for out-of-network services, so that's to discourage providers from leaving their plan. In Oregon, so it's 185% out-of-network. And they have not had hospitals leave their network since they implemented this in 2019. So, on slide 21, we have savings from the first 2+ years.

They reduced spending by $107, $108 million, which is about 4% of plan spending. There was a subsequent evaluation that was performed and published in 2024 that found no evidence of hospitals leaving state employee health plan networks or increasing prices to other commercial health plans, which of course is a concern that the hospitals will look to make up their lost revenue elsewhere. I'll say that's a real concern. And it's possible they chose to try to make it up even in other markets, such as Medicare Advantage, and this study did not look at Medicare Advantage. I'll also say that while the state employee health plan is large, it still is a relatively small percentage of the commercial market.

And so the impact on hospitals is much less if this is done for a public employee health plan and only in— with certain hospitals. Than if it were done for the entire commercial market or even for the fully insured market.

Another example of a price cap is from Colorado, and this is a pharmacy price cap, not a hospital one. Colorado was the first state to set what they call an upper payment limit, but essentially it's a price cap on a high-cost drug. They did so using a prescription drug affordability board that their legislature created in 2021. They capped the price of Enbrel at $31,000 a year. It's a high-cost, high-spend drug, and that cap becomes effective next year.

I will note that Colorado was challenged in court and thus far has been successful. But, but states that act on drug prices are often challenged in court.

The next strategy I want to touch upon is site-neutral payments and facility fee bans. These are related concepts. So let me explain on the next slide. A site-neutral payment policy says that services that can be provided safely in a non-hospital setting should be paid at the same price in a hospital-owned or affiliated setting as in a community setting. And the— there's actually a model law for states to do this, developed by the National Academy for State Health Policy.

The state of New York has proposed prohibiting payers from charging more than the lesser of 150% of the Medicare non-hospital rate or the existing commercial contracted rate for certain outpatient hospital services. And this is an act currently under review by the New York legislature. A related concept to site-neutral payment bans, which, by the way, you might be aware of, is also being discussed by Congress for the Medicare program, is facility fee bans. So these are bans on hospitals charging fees when they acquire physician or other professional services and add a facility fee for a service that's billed in an office-based setting that's not actually in the hospital. And Indiana, from that, that same legislative session, passed another piece of legislation prohibiting facility fees for care provided in an off-campus setting owned in whole or in part by a nonprofit hospital system with revenue over $2 billion.

Indiana actually passed, I think, 4 or 5 different pieces of legislation in 2025, all focused on affordability. And Mr. Bayhlet, we have a question for you from Representative Colombe. Thank you, Chair. So who is paying the facility fee? Who's charging the facility fee and who was paying Who pays the fees, the providers or the patients or?

The hospital charges the facility fee. They put it on top of the professional charge and they charge the commercial insurer or the self-insured employer who pays it. Oh, okay. Thank you. Okay.

Thank you, Mr. Baylet. I mean, I can tell you from my personal experience, primary care physician. Her practice is owned by a hospital, and when I walk into her waiting room, there's a sign on the wall that says, "This is a hospital outpatient department," even though it's a professional office building. And it says, "This is a hospital outpatient department. You may be charged a fee for, for care in a hospital." So that's, that's what facility fees are.

Okay, next strategy on the next slide: price growth caps. So this is not a cap on prices, but it's a cap on how quickly they can grow. So on the next slide, these price growth caps are typically linked to an economic indicator like CPI or the state's economic growth or maybe household income growth. They Can be applied to some hospitals, as we saw with the price cap policy, or to all hospitals. They can be defined— applied differentially, so the hospitals with the highest prices have a lower growth cap than the hospitals with the lowest prices.

So lots of flexibility in terms of how they are applied. They can be applied through contracting or through insurance regulation. The example I'm going to give to you for insurance regulation is on the next slide. It's from Rhode Island. So Rhode Island's had a price growth cap in place since 2010.

It's a very longstanding policy. It's part of a comprehensive set of insurance regulations that are called affordability standards in Rhode Island, and they limit hospital price growth to the Consumer Price Index plus 1%. So this is a regulation on insurers. It essentially is saying, "Insurers, you cannot increase your prices that you're paying to hospitals by more than CPI plus 1% annually." Now, because this program has been around for a while, it's been evaluated extensively. So if you go to Slide 29, we have results from a 2025 study that found an average of $88 million a year in savings, $64 million going to employers, $24 million going to plan members in the form of reduced premiums and out-of-pocket costs.

Um, the study found that hospital prices decreased by 9% on average versus comparison states. And Rhode Island went from having hospital prices that were above the national average, 106% of the national average, to below the national average, 84%.

So, the policy has been very effective in terms of its impact on hospital prices for insured Rhode Islanders. The next slide is a graph, and I love this graph because it compares two neighboring states, Massachusetts and Rhode Island. And if you look at 2011, you can see that their hospital prices were about the same. And after that, the lines completely separate, with Rhode Island's prices growing at a much slower rate than in Massachusetts, where there was no hospital price growth cap. And interestingly, not only did the prices grow at a lower rate, but so did the hospital costs.

So the hospitals in Rhode Island were able to manage the growth of their prices due to the limitation on their revenue, whereas in Massachusetts, where there was no limitation on their revenue, their costs grew at a rate that mirrored what was happening with the revenue.

Okay, and the next slide, price growth cap but applied to pharmacy. In last year's legislative session, Connecticut passed a bill prohibiting generic prescription drugs growing at a rate above the wholesale acquisition cost after adjusting for CPI. I have a question about that. Mr. Bayhlet, we have a question for you from Representative Colom. Yeah, so on that, the Connecticut slide, so they, so they have to sell the drug at the wholesale price, they don't have any profit margin at all?

With the ability for it to grow at nothing more than CPI. But wouldn't wholesale grow with CPI too?

It might or might not. Okay, thank you. Yeah. Okay, so I want to pivot to the last category, which is strategies to increase competition and address market changes. So market changes have come rapidly across the country.

There's been a tremendous amount of market consolidation, not just in hospitals. I mean, really in all, all parts of the delivery system— physician practices, nursing homes, home care, every place. But the hospital consolidations have reduced competition on cost and quality. There's also been a big infusion of private equity to drive spending and profit, and there's been a growth in vertical integration. Between especially payers and providers that seems to disincentivize cost containment.

And, and I believe there's a lot of hidden profit-taking that takes place when there's vertical integration in ways that we can't see. So states have done a number of things to try to address these market changes. Mr. Bailey, this table here Excuse me, Mr. Bailey, we have a question for you from Co-Chair Fields. Sorry, could you just go back one slide through the chair?

Oh, there you go. Um, private equity. So I, I think one of the concerns of private equity is they're basically, through the chair, trying to take the most profitable functions within healthcare, which previously might have been done in a hospital, and maybe do that outpatient, take away part of what makes the math work overall at a hospital. That puts even more pressure on a hospital as it tries to squeeze more money out of patients. Is that the dynamic that you see going on in other states, basically fragmenting what was previously done at one facility, and you could say high-grading the most profitable procedures, which puts additional pressure on emergency procedures and so on?

Yeah, yeah, that definitely happens. But I'll also say private equity is also in hospitals. Okay. So it's not just in community providers. Private equity is every place in healthcare right now.

Okay. Thank you. Thank you, Coach Fields. Mr. Bailey, we have another question from Representative Kolumb. Yeah, so I don't know, I see this map and we are one of the pink states.

So do you know much about Alaska? Is our— are we pink because of monopoly or highly concentrated market? Do you know? What— why we are in the pink zone? Highly concentrated market.

Okay. Yeah, that doesn't necessarily mean that there's been— that you've got monopolies or that you've had a lot of consolidation. It just means that it's a concentrated market without a lot of competition. Okay. Thank you, Mr. Bayhlet.

Sure.

And, you know, as you can see here, there are other rural states that are consolidated as well. And sometimes that's simply because, you know, there just are not as many providers within the state, and those that are within the state are affiliated with one or two systems.

Okay. So, the table of options. So, what are states doing? Some have broadened their reviews of transactions. Oregon has what's probably the most robust market oversight program.

Oregon Health Authority reviews transactions, and the, the executive branch agency itself can decide whether to approve or deny a transaction, as opposed to referring it to the Attorney General's office for consideration, which is common in many other states. There are some states that have focused on increasing transparency about who owns what, uh, and you could see Indiana, Washington have done that, required expanded financial disclosures. Um, Massachusetts had a private equity-owned system that went bankrupt, and the system refused to provide financial disclosures for years until It's bankruptcy, basically, until too late. There are some states that are focused on preserving professional autonomy by strengthening corporate practices of medicine protections to keep hospital ownership away from physician practices. And there are a number of states that have addressed anti-competitive contracting by prohibiting certain terms in insurer contracts, such as all-or-nothing or anti-steering provisions.

So these are all strategies to address market competition and try to promote it. You'll note that some of the states you see here, you also saw on some of the more regulatory policy states, which speaks to the point I made earlier that a lot of states that are focused on affordability are trying multiple approaches simultaneously. I have one example of increasing health plan competition from Nevada, slide 35. They launched a public option on their health insurance exchange just this year. Premium growth is limited to the Medicare Economic Index, so that's a different economic index to try to tether spending growth, and they're, they're hoping that this is going to provide a an option for affordable commercial coverage within the state.

So, um, those are not all of the state activities, but I think that gives you a sense of the range of different things that states are providing. I've provided you on slide 36, uh, some resources, uh, that you can look at for additional information. The State Hub for Hospital Pricing Strategies goes into greater detail on some of the hospital pricing strategies I've described today. Including more detail in the individual states. The Peterson Milbank Program for Sustainable Health Care Costs has a wide range of resources on state affordability policy.

And the Health Care Affordability Lab at Yale has got a new website that looks at market consolidation and concentration. Great. Thank you, Mr. Bayhlet. Are there further questions from the Committee for Mr. Bayhlet?

I am not seeing any. Mr. Baylet, you've given us a lot to consider and a lot of great information, and I think this is going to lead to some exploration during the interim to see about potential future legislation. With that, Mr. Baylet, I do appreciate your time and your willingness to come before the committee today. We hopefully will be in touch with you in the future. If you have any closing comments, Mr. Baylet, please feel free to share.

No, just thank you for the opportunity to speak with you, and if you've got follow-up questions, don't hesitate to email me. I will be happy to be of help. Excellent. Thank you very much, Mr. Baylet. Thank you all.

Thank you, and thank you to Ms. Winghyre too for bringing Mr. Baylet. Can I have a question with Ms. Winghyre? Sure, of course. Ms. Winghyre, if you don't mind.

Thank you, Ms. Wingeyer. So for the record, I'm Lori Wingeyer. I'm the healthcare liaison for the legislature. Through the chair to Representative Klobuchar. Yes, hi, through the chair, Ms. Wingeyer.

Thank you for being here. So some of these, I'm kind of fixated on that map. I want to know why. And I mean, the answer was we're—. We have—.

Just don't have that many providers, but What I've gathered in the past is that when we try to do caps, we try to do these things, or let's say the Division of Insurance has a rate increase, there's always a concern that if we do too much, they'll just leave the market. And so do you think there's a balance? Is there something we can do? I mean, a lot of these things I'd love to do, but are you afraid that, that the insurance agencies will just leave? Through the chair, back to Representative Kahlom.

Honestly, no. I mean, I think the insurance companies or the physicians— we've heard that a lot on both sides, and I think both sides recognize that with recent changes that have been made in Washington or at the state, everybody is willing to come to the table and look for something where we can get fees that are paid to providers. They need to be paid fairly, but our your consumers or your constituents need to be able to afford insurance. And I think we're seeing the disconnect, and that almost everybody is willing to come to the table and find out how do we make the healthcare system work in Alaska and quit playing whack-a-mole. Okay, uh, follow-up, follow-up.

So on the other graph, the biggest increase was pharmacy and hospital fees. Do you think that that's accurate for Alaska too? Are those the two biggest cost drivers right now? Through the chair, back to Representative Kolumb. I do.

Okay. And follow-up, follow-up. Do you think the hospital fee— so one of the slides, they were capping the insurance company, but I think some were trying to cap hospital fees too. I mean, I've heard a lot about the hospital fees, a lot, even more than provider fees. And so one of them was just, they pick and choose which hospitals to have a cap.

I don't think we have enough hospitals to do that, but Do you think that's feasible, that we could actually try to cap prices for hospitals, whether they're profit or nonprofit? Through the chair to Representative Kellum, I think in some ways we're already doing that, and I'll explain a minor one. When we repealed the 80th percentile and we saw a lot of providers go in-network, but those that were out-of-network, we capped at 185%. And it really wasn't a state cap as much as we told the insurers they had to tell us what they were going to pay out-of-network providers so that we knew they were still, again, being compensated fairly, but that it wasn't so egregious that we knew it was going to drive the insurance prices even higher. Okay.

So I know in some— I know AlaskaCare does pretty much the same thing, our state health plan. So there it is being done, but not as widespread as other states are doing. And one more follow-up. And so do you think when we cap the the state program and what they've done there. It sounds like in whatever state it was that it didn't fall on the commercial market.

I mean, there's— if you take a section of people and cap prices, usually everything goes up around it. Do you think that that would happen here? Through the chair to Representative Colon, it— cost shifting is a huge issue in Alaska, and we see it not so much between the state plan and the insured market, but from Medicaid and Medicare to the the other markets. And we're very cognizant of it. I think that is part of the problem, that Medicare pays very low.

And so they're looking for, like, the self-insureds, AlaskaCare, or the insured market to pay a lot. Right. Okay. All right. Awesome.

Thank you so much. Thank you, Representative Colom. Thank you, Ms. Winghyre. I believe we have a comment or perhaps a question from my co-chair. Co-chair Fields.

Yeah, I was going to share through the chair to share with committee members. Providence— Providence's profit within Alaska relative to its other regions, and they've continued to be extremely profitable, essentially subsidizing lower 48 operations. I think the last year data was available, Providence earned 3 times as much money as they earned in the state of Montana at an unbelievable profit margin for a nonprofit. Of course, unlike regional, they're not paying local property taxes. So I think some of the findings in in that report were very interesting.

Okay, thank you. Thank you, Ms. Swinhire. Okay, we are going to take a brief at ease while we transition to the next item on the agenda. At ease.

Okay, we are back on record, and the next item before the committee is HB 338, Retirement Savings Program by Representative Costello. Representative Costello and staff Zach Young, thank you very much for being here. Please put yourself on the record and begin your presentation. Thank you, Madam Chair. I'm Representative Mia Costello and I represent District 15.

Hi, I'm Zach Young, staff to Representative Mia Costello. Okay, just real quick before we get started, I want the record to reflect that we were joined by Representative Sadler at 4:15 PM. Please proceed. Thank you. So what is Work and Save?

Work and Save is an auto individual account program for savings account for an IRA. This bill would allow a PFD option where checks could go automatically towards your retirement. It would be established and executed and created by by the Department of Revenue Commissioner or designee, and it allows for partnering with other states, and we will hear later that others— there are several states that have partnered with each other to provide a Work and Save program. Upon hiring, an employee can opt out or adjust the rate for their contributions, and all or a portion of your permanent fund dividend could actually go towards this individual retirement account. So why is Work and Save so important to Alaska?

So Work and Save is really important for Alaska because it allows small businesses to offer their employees a retirement account. We know that Alaska has an aging population, the fastest-growing aging population in the country. A Work and Save program will allow small businesses to attract job applicants, and right now about in the country half of the households have no retirement. Um, individuals aged 65 to 74 on average have saved about $200,000, whereas those over 75 years old have saved on average $130,000 for retirement. The Alaska Association of Retired Persons completed a survey, and they showed that 99% of small businesses support having this type of retirement for their employees.

It applies to small business, which is defined as less than 500 employees— excuse me, 99% of our businesses are small businesses. That's, that's what I meant to say earlier. So with that, I want to turn it over to to my aide, Zach Young, who can walk us through the PowerPoint, PowerPoint, if that's your preference. Representative Costello, so I just want to make sure I understood, 99% of Alaska businesses are small businesses? Yes.

Okay, great. Thank you very much. Mr. Young, if you'd like to proceed. Thank you, Co-chair Hall. This is again Zach Young, staff to Representative Costello.

So to get started again, HB 338 will create a system like other states providing a small business mechanism for employees to save for their retirement. It would be done via an automatic deduction in bimonthly or weekly or monthly payroll deductions that small businesses can sign up through the Department of Revenue to have that automated for their employees at no cost to them other than just the standard wages that have been agreed upon between the employer and the employee. This is important because it gives a system that's no cost to the employer, and it will allow them to compete with other kinds of businesses that might be more established and are able to pay for either retirement plans or other kinds of benefit plans that can be difficult for small businesses when they're first starting. Allowing for people to have this automated system that essentially set it and forget it will improve people's quality of lives— people's quality of life, especially when around half of people have either no retirement or would rely strictly on Social Security in their retirement, which, as many of us know, is very difficult to make a living on. On with fixed income Social Security payment.

So as we discussed, it establishes an automatic individual retirement arrangement program, also known as an IRA, for all Alaskan employees who qualify. It would not happen for individuals who currently work for an employer that have a retirement plan already set out, and so this would just cover every individual that makes a normal wage but doesn't have any other kind of retirement benefits at their company. It's requested and supported by AARP as a priority nationwide.

So why does Alaska need an auto individual retirement arrangement program? Like we discussed, 54% of households have no retirement savings. The numbers are quite concerning. 65 To 74, the average savings is around $200,000. So HB 338 would support small business by allowing them to more easily compete with businesses that have established retirement programs.

If a business wanted to go and provide a retirement program for their employees. It can be quite costly and time-intensive, and this would create a seamless system that they can register with through the Department of Revenue and not have to go through choosing a provider, agreeing on terms, deciding whether or not they could or would match funds. And this will allow them to better recruit and retain employees and permits to stay competitive with larger businesses. So this is not anywhere close to the first time legislation like this has been introduced. Um, sever— 17 other states have enacted other IRA programs that would be automatically deducted from payroll.

Um, of those 17 states, there are 7 that are in partnership agreements, the largest one being the Colorado Partnership or for dignified retirement, just PDR. It includes Colorado, Maine, Delaware, Vermont, and Nevada. And then MyCT Savings Program, which is just Connecticut and Rhode Island. These interstate partnerships are easier for the state to maintain, and they can reduce fees and costs that benefit both the state and individuals that are saving for retirement. I will add that the— there's no requirement for matching funds in this.

Employers could choose to do that if they would like to, but it's not going to be required. There is a civil enforcement system that is currently in this bill underneath the Department of Labor. The Senate companion version that will be heard on Wednesday in this committee had those sections removed because of some concerns, as this bill is really geared at providing an automated system for all workers rather than penalizing small businesses that are trying to get included. It would only be required for small businesses have 5 or more employees and would be— have been in business for at least 3 years. So hopefully that answers most of the questions, and I'd be happy to answer anything else that comes up.

Thank you, Mr. Young, and thank you, Representative Costello. I see 3 people on the line for invited testimony, so I think maybe we'll transition to that, and then after we hear from those testifiers, we'll turn to committee questions. We have approximately probably 20-ish more minutes to go on this bill. So it looks like we will go to Marge Stoneking, who's the Associate State Director of Advocacy for AARP Alaska. Ms. Stoneking, welcome back to the committee.

Would you please put yourself on the record and begin your testimony? Thank you, Chair Hall, members of the committee. I appreciate the opportunity to testify for House Bill 338, Alaska Work and Save Lives. Legislation for which I'm very excited and enthusiastic to be at this point, um, this year. My name is Marge Stoneking and I serve as advocacy director for AARP Alaska.

And AARP is a nonprofit, nonpartisan organization dedicated to empowering Americans 50 and over to choose how they live as they age. And so in doing so, we support policies that enable Americans nearing or currently in retirement, and in this case throughout the workforce, working ages, as well as those who will retire in the future to become financially secure. Because saving for retirement is one of the most important things you can do for your future. But as you heard from Rep. Costello, we have a retirement crisis here in Alaska and across the country. My own generation, Generation X, Gen X will be the next generation to retire, and according to the National Institute on Retirement, the typical Gen X household has only about $40,000 saved, which, when combined with Social Security, could get you through about 1 year of retirement.

Many Gen X households, especially women and people of color, fall even farther below retirement targets due to unequal access to retirement plans, career earnings and caregiving-related career disruptions.

Workers have unequal access to retirement plans in, in Generation X and the subsequent generations. Workers at large employers are far more likely to be covered while small businesses, part-time, and gig workers face limited access. To workplace retirement plans. And all Alaska workers deserve a chance at a secure retirement. But right now, as you heard, nearly half of Alaska's private sector workers, most of them at small businesses, don't have access to a retirement savings plan on the job.

And though many small business owners want to provide their employees with the retirement plan, complex administration and high costs of company plans put that out of reach. Without access to retirement savings at work, nearly all workers fail to save, putting them at risk of poverty and reliance on public assistance as they age. And that costs the state. Research consistently shows that access matters. Fewer than 5% of Americans without a workplace retirement plan go out and start one on their own.

But workers are 15 times more likely to save when they can do so through payroll deduction and 20 times more likely when they are automatically enrolled. When workers can't save, the consequences do not stop with that individual or family. Insufficient retirement savings lead to greater reliance on state-funded public assistance programs later in life. Increasing long-term costs for the state. If this access gap is not addressed, it's estimated that Alaska will face $708 million in increased reliance on state-funded public assistance programs like SNAP and Medicaid through 2040.

Older Alaskan households without adequate retirement savings will face an average annual income shortfall each of $3,840. But if those same households saved an average additional $920 per year, or $75 per month, they could erase the projected public assistance burden and improve their own retirement security. And the tools are in reach. This approach is not controversial among Alaska small businesses. In AARP's survey of small of small business owners, 70%, support a privately managed, ready-to-go retirement savings program that helps small businesses offer employees a way to save for retirement, like that proposed in HB 338.

And support is high across the political spectrum, highest with independents at 76%, 71% for Republicans, and 70% for Democrats.

In the, in the small business owner survey that AARP did. And there are more than 50 letters of support from small businesses in your communities. An analysis of early adopter states of this type of policy found that the introduction of state-facilitated, privately managed programs coincided also with increases in new private plan formation. Suggesting that Work and Save programs can actually strengthen the overall retirement savings marketplace rather than replace it. So if a business already offers a plan, they are not subject to, as Mr. Young stated, not subject to this legislation.

Or if they want to offer a match, then they can go out and get their own plan, and that's what's happening in these other other states. Alaska Work and Save clearly fills a gap, helping workers save, supporting small businesses, and protecting the state from higher costs down the road. So I enthusiastically thank Rep. Costello for her leadership in carrying this bill and the committee for hearing it, and I respectfully urge your support of Alaska Work and Save so that Alaskan workers can have a chance at a secure retirement. Thank you. Thank you, Miss Stoneking.

Before we turn to the next invited testifier, I want the record to reflect that we, we were joined by Representative D. Nelson at 4:17 PM. Next, we will turn to Jessica Ekman, who works on government affairs for AARP. Miss Ekman, will you please put yourself on the record and begin your invited testimony? Thank you, co-chairs and members of Good afternoon, Committee. Thanks for the opportunity so much to speak with you today.

My name is Jessica Ekman. I am a Government Affairs Director with AARP's National Office. As my colleague mentioned, our mission is to help people choose how they live as they age, and having adequate retirement savings is central to that independence. I appreciate the chance to discuss the bill before the Committee today, House Bill 338. So in the interest of time, I will skip through some of this because it is redundant.

But I will make sure that my complete testimony is provided. I will say that retirement insecurity is a real threat in this country. A great deal of that is due to lack of access. This access gap has been addressed in a number of states. To date, 17 states have enacted state-facilitated auto IRA retirement savings programs like that proposed today, and the results are extremely compelling.

Workers have saved nearly $3 billion, demonstrating that when people are given a simple, accessible way to save through their paycheck, they do. Preliminary analysis from a forthcoming report done by the Georgetown Center for Retirement Initiatives highlights another critical best practice for program participation and growth, and that is compliance requirements. They looked at how long it took different state programs to hit certain metrics, one of those being numbers of funded accounts. Colorado's program took 5 months to hit 10,000 funded accounts. Maryland's, in contrast, took 27 months to hit that same number.

One of the key differences between these two state programs is that Colorado does have compliance included in their statute while Maryland does not. States don't always choose to enforce, but the ability to do so is hugely important to ensuring access to retirement savings for all eligible workers. One other important piece to note about compliance is that the two partnerships do exist. They've been mentioned before. It's Colorado's and Connecticut's as well.

Partnerships greatly reduce overall cost, time to launch, and administrative burdens on new state programs. Both of these partner states do include provisions for enforcement and compliance. A state that does not choose to include this piece may well find themselves not eligible to join these partnerships. While House Bill 338 includes the compliance tools, Senate Bill 21 that you'll hear later this week has had that removed. So for the reasons stated, we do urge you to maintain or restore the compliance language for employers so that every eligible Alaskan worker has a chance at a secure retirement.

Thank you again. Again for the opportunity to testify. The retirement savings crisis is very real, but it is also very solvable. I again appreciate your time and welcome any questions from the committee. Thank you, Ms. Ekman.

Oh, Representative Kholm, do you mind if we wait until the last testifier? Okay, thank you. Um, Ms. Ekman, it sounds like there will be a question for you, but we're going to first turn to the next and last invited testifier, and that person is Hunter Raley, the Executive Director of the Colorado Department of Treasury. Would you please put yourself on the record and begin your testimony? Thank you, Madam Chair.

My name is Hunter Raley. I'm—. Thank you, members of the committee. I'm testifying on behalf of Colorado and in lieu of Treasurer Dave Young, who is currently finishing out our legislative session here in Colorado. I'm here to testify in support of HB 338, Alaska Work and Save, and speak to some of the benefits this can offer as they've appeared in Colorado.

In the interest of time, I'll just say ditto to and reiterate a lot of the points that our friends at AARP have already made about the benefits of these programs, and I'll add just a touch of our own personal experience here in Colorado. So in Colorado, research indicated that we had well over 1 million workers lacking access to to a workplace retirement plan.

The primary cause of that deficiency was, among many things, the total cost of administering those plans, so administrative complexity, financial constraints, and questions about worker interest in potentially participating. So that is, if I, as a small business, I've paid money to facilitate a plan and nobody participates, then essentially that's a loss for me as the business owner. Um, prior to passing the Secure Savings Program, our office did an extensive study on what the impacts of a potential auto IRA program would do, but as well as what the cost of doing nothing could do to the state of Colorado. The cost of doing nothing was estimated would be $18 billion in redirected taxpayer funds over a 15-year period. That number is from late 2019.

That is almost certainly higher as of right now.

In addition to that, as has been mentioned, Colorado, like many other states, about 1 in every 2 working-age individuals lacks access to a workplace retirement plan. Social Security alone isn't— and this point is worth repeating— Social Security alone is not going to be an adequate retirement option for most Americans. So we passed this legislation. The program was designed to meet the needs of small business owners as we understood them. So our onboarding process only takes about 15 minutes, and that's for the employer to register, to upload the employee roster and basically connect their payroll accounts and get through all of that administrative work.

Ongoing administration only takes about 5 minutes every month, if that. In many cases, our employers have what's called a 360 payroll integration, and they never need to touch their payroll system again once they've added the new employee. This is really crucial because many business owners have employers, as has already been noted, are very busy, and the program can be an asset to them in their recruitment and retention efforts and supporting their employees. The proof is in the result. As has been noted, nearly $3 billion in assets has been saved across all the reporting states.

In Colorado alone, we have over nearly 18,000 registered employers participating in the program. Nearly 110,000 funded accounts, and we are well over $200 million in assets in just a little over 3 years of operation. More importantly, uh, and two data points about the private market, uh, that have already been alluded to. The payroll provider Gusto estimated that Colorado saw a 45% increase in private plan adoption correlated to the implementation of the Secure Savings Program. Uh, recent research from PEW research shows that Colorado, among other auto IRA states, had a substantial and in the case of Colorado, the highest private plan adoption rate of any other state in the country in the year, in 2022 onward.

Keeping that in mind, we understood these programs are pretty capital intensive to start up. It is a public-private partnership and those private partners need to see some return. So understanding that states with smaller populations might not be able to stand these programs up in a cost-effective way, we offered access to a multi-state partnership that we oversee and that we co-govern with our partner states. We are currently one of two states facilitating a partnership, and as has been mentioned, our part— we are partnering with Maine, Delaware, Vermont, Nevada, and Minnesota. Minnesota is the other state that has recently launched.

And our model prioritizes collaboration and autonomy of partner states. Worth noting that across all of our partnership states combined with Colorado, there are nearly 170,000 savers currently with funded accounts, and we are coming up on $300 million in assets across all our partner states. And that's with Minnesota just recently launching in January and Nevada Nevada, uh, almost coming up on one full year of operation. So with that, thank you for your time and consideration. I look forward to any questions the committee might have.

Thank you very much, Mr. Reilly. Um, we— I believe we're going to start with questions from Representative Kellum. Thank you, Chair. This is for Ms. Ekman. Yeah, Ms. Ekman, so you were talking about compliance enforcement, so So what you're really advocating is that small businesses, all small businesses except for the limits explained, should be mandated to offer the program because you need a number of accounts to make it work?

Is that how I heard you?

You're on mute. I apologize for that, and thank you for the question. Generally speaking, these programs do require that businesses that are eligible—so they don't have the carve-out, they are 5 or more, 6 or more employees, and also they don't already offer a private sector plan—they're required to offer access to the program just by facilitating that payroll deduction. Most small businesses are already facilitating payroll deductions of some sort for any number of different things. So, this is just another box to check.

If they do not do that, it is very helpful to have compliance language available for the program to utilize if necessary. I would defer to Hunter, uh, who is living this sort of day-to-day, um, as the executive director of the Colorado program in how this plays out on the ground. But I do know in conversations across across the country that enforcement is not something that is really a desired outcome. These programs are designed to help small business owners, certainly not harm small business owners, and there are a number of attempts that are made to rectify the situation before there's any compliance that comes into play. Follow-up, follow-up.

Can you give me a sense of what compliance and enforcement look like? Are we talking about fines or pulling their business license, or like how harsh are the enforcement practices? Yes, so as written in House Bill 338, I believe that it is civil penalties of $100 for each employee, eligible employee, of an employer, up to $5,000 a year. That's generally speaking in line with other states. Okay, thank you.

Thank you, Ms. Heckman. We have a question from Representative Sadler. Thank you, Madam Chair. This is not for Ms. Heckman but for the sponsor.

I'm not sure if they want to hold questions until then or—. No, this is the time for committee discussion and questions. Oh, great. Well, thank you. Representative Costello, I like the idea of this bill.

I've had a couple bills over my career to try and encourage investment. I've been up to the edge of mandating it, but I think it's difficult to make people invest money today for the long-term future. So a couple questions.

This program envisions the Commerce Commissioner establishing investment options. Right, and maintaining— kind of functioning as a Schwab or Fidelity or American Capital kind of operation. Is that a fair assessment, or is this envisioned the state just contracting with another organization or service to do that? Thank you for the question, Representative Sadler. Through the chair, it's my understanding that the Department of Revenue Commissioner or their designee can establish it and execute it.

And I do believe, and Mr. Hunter might be able to respond to this, that however, if you join with another state and you have a partnership, I think those are already established.

Mr. Rayleigh, do you have additional information to help answer Representative Sadler's question?

Absolutely. Thank you, Madam Chair. So the programs are structured as a public-private partnership, and Yes, sir, you are correct. It is— we are less of a Charles Schwab and more of a broker. So I think the most helpful way to think about this is the state sort of serves as the sponsor and then we contract out with private vendors.

So the chief among them would be a record keeper, which basically maintains custody of the accounts, make sure that they're all in compliance. That there's no tax violations. And then with the investment managers. So for instance, in Colorado, we are investment managers are BlackRock Investments and State Street Investment Management for what would otherwise be a very straightforward defined contribution lineup. So, you know, capital preservation, target date funds, international equity, U.S. equity, that type of thing.

Yeah. Follow-up, Representative. I've lost my place in the, in the bill, but it seemed like there was some indication that the state would be— oh, I'm sorry, the administrator program on page 6, line 6. It says the administrator may employ outside investment advisors to review investment policies. I guess that's what's meant by going with contracting with some other public-private partnership.

What I'm trying to get at is I want to make sure the state is not in the business of making recommendations to people as to how to invest the money, but simply facilitating the diversion of a portion of salary into some kind of investment. I just want to clarify that the state's not giving investment advice. I guess I'd be the sponsor. Representative Costello. Thank you, Representative Sadler.

Through the chair, I'm not sure the answer to that question. Okay. Do you think there's somebody online who might be able to help answer, or I can answer that as well. Okay, I see, I see videos popping up. Yes, so to answer that question directly, the State of Colorado is not a registered financial advisor.

We do not provide financial advice. We merely help select the investment options in the investment menu, and then we facilitate the enrollment, but we provide a menu of options options, and we provide disclosures, but we don't, we don't tell individuals how they should be investing their money, if that's what you're getting at. It is. Thank you, sir. Appreciate it.

And Ms. Ekman, your video popped up very briefly. Did you have comments to add? Yes, thank you. And I will just add to Hunter's comment that the state, the board tends to serve as a fiduciary. So So when they are talking about investment selection and oversight, it is just as a fiduciary where you are obligated to act in the best interest of your client, which are the state and the savers.

Thank you, Ms. Ekman. With that, we are about at time. Representative Costello, do you have any closing thoughts or comments you would like to share with the committee? Thank you, Madam Chair. No, I just appreciate the time.

And I actually have to say, the more I learn about this program, I think the more a fan of it I become, even as the sponsor of the legislation. But again, I appreciate the time from the committee. Okay, thank you very much, Representative Costello, and thank you, Mr. Young, for being here. And thank you to our 3 invited testifiers too. We are going to set this bill aside and we're going to take a brief at ease to transition to our next agenda item.

Okay, we are back on record for the last item on today's agenda, which is SB 252. Thank you, Senator Matt Clayman, and Staff Carly Dennis for being here today. Please put yourself on the record and begin your presentation. Thank you, Madam Chair and Mr. Kocher. For the record, I'm Matt Clayman, Senator for Senate District H in West Anchorage.

Thank you for hearing Senate Bill 252. The Uniform Commercial Code, or the UCC, is a set of rules governing commercial transactions that has been adopted in nearly identical form in all 50 states. This is a copy of one of the books that has the Uniform Commercial Code in it. For people my age, went to law school in the 1980s, this is where we used to study the Uniform Commercial Code in contracts. Uniformity of law is essential for the interstate transaction of business.

Because the UCC has been adopted universally, businesses can enter into contracts with confidence that the terms will be enforced in the same way by the courts of every American jurisdiction. Uniform Commercial Code was drafted in 1951. Pennsylvania was the first state to adopt the Uniform Commercial Code in 1953, and every other state adopted it within the next 20 years. Alaska adopted the Uniform Commercial Code in 1967. As commerce evolves, the Uniform Commercial Code and the American Law Institute periodically recommend amendments to the Uniform Commercial Code.

Senate Bill 252 incorporates amendments that the Uniform Law Institute and the Uniform Law Commission and the Uniform Law Institute recommended in 2018 and 2022. The 2022 amendments create a new chapter governing controllable electronic record, or CERs. Examples of CERs are virtual currencies, non-fungible tokens, and electronic promises to pay. The amendments provide rules to determine the rights of a person who receives a CER for the perfection and priority of a security interest in a CER. The updated law will give— will help stimulate economic activity by providing legal certainty to these increasingly common transactions.

The 2022 amendments facilitate transactions using distributed ledger technology but are drafted using technologically neutral language. This means the amendments will accommodate technologies known today and will remain relevant for future technological innovation. Innovations and developments. Importantly, these amendments are not regulatory in nature. The bill provides a framework for private parties wishing to do business using new technologies, but they do not dictate the rules of commerce.

The 2018 amendments seek to resolve a potential conflict governing secured transactions in which a partnership or LLC is pledged as collateral. If interest in a business is used to secure a loan and defaults occurs, business partners could be forced into business with a stranger. The 2018 amendments resolve this by separating an economic interest and a governance interest and ensuring that only the economic interest is transferable, not the governance interest. These UCC amendments reflect the efforts of the American Law Institute and the Uniform Law Commission in conjunction with approximately 350 knowledgeable advisors and stakeholder observers who met dozens of times over a 3-year period to reach consensus on updates to this crucial area of state law. 16 Other states have adopted the 2018 amendments and 32 other states have adopted the 2022 amendments.

It is critical that Alaska adopt these updates to the Uniform Commercial Code to keep our statutes aligned with the best practices used in the rest of the country. Adopting these amendments will promote commercial activity for emerging technologies and will provide a clear framework for our business community. It will help ensure that Alaska is open and ready for business. Thank you, Madam Chair. Thank you, Senator Clayman.

With that, we'll transition to invited testimony. So for the committee's awareness, we have Mr. Benjamin Orzeski on the line for invited testimony. He is the Chief Counsel to the Uniform Law Commission. Mr. Orzeski, would you, would you please identify yourself for the record and begin your testimony. Yes, thank you, Chair Hall, Chair Fields, and members of the committee.

My name is Ben Orzeski. I'm Chief Counsel at the Uniform Law Commission, one of the two sponsoring organizations along with the American Law Institute that drafted and maintains the Uniform Commercial Code. As Senator Clayman said, Senate Bill 252 enacts the latest amendments to the Uniform Commercial Code. Most of it is from a round of amendments approved in 2022 that deal with various emerging technologies, but they also include a small set of amendments from 2018 that Alaska has not yet adopted that resolve a potential conflict with the state's LLC law. These amendments were drafted— the 2022 amendments were drafted in a series of public drafting committee meetings over a 3-year period.

They've so far been adopted in 34 states plus the District of Columbia. There are several other states besides Alaska considering bills to enact these amendments currently, and I expect we'll be back to uniform adoption across the United States within the next year or two as the remaining states finish up with their enactment effort. I want to stress that the UCC is not regulatory law. It imposes no regulations or taxes on businesses. Instead, it consists mainly of default rules that the parties to a transaction are free to alter by a contract, but if they don't have their own contract, then the UCC rules apply.

The UCC codifies established business practices into a law that everyone can rely on for commercial transactions. It provides the legal infrastructure to make transactions enforceable under the law. So when you order something off of Amazon or eBay, you don't have to worry about what state the seller is in. The, the law governing that contract of of sale is the same, and it's the same rule for businesses. Alaskan businesses can do business with confidence with suppliers in any state.

The bill includes minor amendments to nearly every article of the UCC, but the major addition is the new Article 12 on controllable electronic records. This became necessary because of this new type of property didn't exist 20 years ago, and the commercial law rules didn't work very well for it, and so there has been a lot of litigation as contracts go wrong and people are trying to figure out what their rights are in transactions involving controllable electronic records. As Senator Clayman said, that includes virtual and cryptocurrencies, but also other things like electronic contracts, electronic payments, and even rights to access certain artwork that's embedded into a something called a non-fungible token, or NFT. In the coming years, CERs are expected to have many important uses in the financial and securities markets, and it's important to update the law so that these transactions can go through smoothly. A CER is a particular type of electronic asset.

It's an electronic record of data that can be subjected to control. You can think of control in this context as the equivalent of possession of a tangible asset. So if you have control of a CER, you can use it for your own purposes and you can prevent others from using it. You can transfer it to another person as payment for something. Um, Article 12 does two important things to facilitate the use of these assets in commerce.

First, it establishes clear rules for determining who actually has control of this intangible thing that, uh, lives on a blockchain, on a, on a, um, network of computers. Um, it's as critical because individuals and businesses are already entering into transactions involving these assets without a reliable legal regime for control. This causes some unnecessary litigation when there's a dispute. It also— the second important innovation of Article 12 is that it makes CERs negotiable. This means that a person who takes payment of a CER in good faith and in exchange for value without knowledge of a competing property claim, they could rely on the finality of the transaction.

Uh, it's best illustrated with an example. Uh, if you, uh, have a grocery store and a customer comes in and pays for a cart of groceries with cash or a check, uh, and it later turns out that the funds the customer used were stolen, um, absent some sort of collusion, the grocer is not on the hook. The thief is on the hook for those stolen funds. Uh, but the rule is different if the grocer had accepted payment in a diamond ring. If it later turns out that the diamond ring is stolen, the grocer has to give it back and bear that loss.

Until Article 12, cryptocurrency and virtual currencies, CERs in general, were more like diamond rings, even though the people transacting business with them thought that they were more like cash. So you have the risk, if you accept payment in it, that later turns out somebody determines that it was stolen, that you might bear the loss for that. So that's why a lot of businesses are reluctant, of course, to do business and to accept payment of that sort. In addition to new Article 12, the UCC amendments include modernizing changes to other articles, includes updates to definitions to incorporate electronic signatures, electronic notarization. Revisions to Article 9 will accommodate the use of CERs as collateral for loans, so banks and other lenders in Alaska Banks in Nebraska will be able to lend against digital assets with confidence that they're protected by having legally enforceable control over the collateral in case of a default.

It revises the rules for channel paper, which is a dual-purpose document serving as both a contract for payment and a security agreement in specific collateral. A car loan is a common example. This bill will facilitate the use of electronic channel paper as an alternative to traditional paper documents. Amendments to Articles Articles 3 and 4 of the UCC, which govern negotiable instruments and, and transfers, electronic payments. They update the rights and protections granted under state law for consistency with federal regulations that allow you now to deposit a check by sending a photograph of it to your bank.

Article 2 of the UCC traditionally governs sales of goods but not contracts for services, but there's a lot of modern transactions that involve a combination of goods and goods and services, such as contracts for access to software or programming. And new amendments to Article 2 will codify when the UCC rules apply and when they do not. Finally, there's many provisions of the UCC that are amended to modernize the language regarding electronic documents and signatures. So you'll see things like the words document being replaced with the word record, which includes electronic documents. I hope this brief introduction to the UCC amendments has been helpful to explain why every state should adopt them and is in the process of adopting them to ensure the continued integration of state laws to facilitate interstate commerce.

I ask for your support to advance this bill, and I welcome any questions from the committee. Thank you. Thank you, Mr. Orzeski. Do we have questions from the committee? Representative Carrick.

Thank you. Through the chair, I apologize, my voice is a little crinkly, so if you need me to repeat, just let me know. But Can you please go through again, Mr. Oresky, the provisions related to cryptocurrency? And in as layman's terms as possible, can you tell us what's being changed or updated and how will it impact business transactions? Thank you.

Yes. Through the Chair, to Representative Carrick. Thank you for the question. The current rules for the UCC did not mention cryptocurrency at all. It simply didn't exist when, when they were written last.

And so what we've tried to do is update them in a way that hopefully is going to be evergreen, and we don't have to come back to you in a couple of years when the new technology advances. That's why we use—. We coined new terms like controllable electronic record instead of just saying virtual currency. It, right now, most of these things use a technology, a distributed ledger technology where they're on a blockchain, but that might not be the dominant technology 5 years from now or 10 years from now. So the rules were written in generic language that we hope will be evergreen even when the technology changes.

The UCC does not regulate the use of cryptocurrency. It doesn't force anybody to all it does is it facilitates voluntary transactions if people choose to use it by better defining the rights and the responsibilities of the people who transact business using that form of payment. So if you do, the UCC now provides clear rules. If you are a business and you want to start accepting payment in cryptocurrency, You know then when the transaction is finalized, when once you have accepted payment and transferred value for whatever goods you're selling, that you have a right to then control of the cryptocurrency that you've accepted. So essentially, it clarifies those rules to facilitate voluntary transactions should anybody want to use cryptocurrency.

Okay, thank you. Thank you, Mr. Orzeski. Additional questions from the committee?

I am not seeing any, which from my perspective is a shocker. Um, Mr. Orzeski, thank you very much for your time and attention here today. Senator Clayman, do you have any, uh, additional remarks you'd like the committee to be be aware of? No, happy to answer questions, but appreciate your hearing the bill. It's a key part of our national business structure and is important to update.

I appreciate you hearing the bill today. Yeah, who knew? Yeah, thank you very much. Okay, hearing and seeing no further questions from the committee, thank you very much, Senator Clayman and Ms. Dennis, for being here today. And Mr. Orzeski, thank you for your time again.

We are going to set this bill aside for now. And with that, that is the last item on today's agenda. We have two amendment deadlines that we are extending, and those are the amendment deadlines for HB 350 and SB 164. Those bill— those amendment deadlines are being extended to Tuesday, April 28th at 5:00 PM. PM.

Seeing no further business before the committee, that concludes our business for, for today. The House Labor and Commerce Committee will meet next on Wednesday, April 29th. This meeting is adjourned at 5:02 PM.