MINUTES OF MEETING

      ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT

 

      Sixty-seventh Session

      January 26, 1993

 

 

 

The Assembly Committee on Labor and Management was called to order by Chairman Chris Giunchigliani at 3:00 p.m., Tuesday, January 26, 1993, in Room 321 of the Legislative Building, Carson City, Nevada.  Exhibit A is the Meeting Agenda, Exhibit B is the Attendance Roster.

 

 

COMMITTEE MEMBERS PRESENT:

 

      Ms. Chris Giunchigliani, Chairman

      Mr. Bernie Anderson, Vice Chairman

      Mr. Douglas A. Bache

      Mr  John C. Bonaventura

      Mrs. Erin Kenny

      Mr. John B. Regan

      Mr. Michael A. Schneider

      Mr. John C. Carpenter

      Mr. Peter G. Ernaut

      Mr. Lynn Hettrick

 

 

COMMITTEE MEMBERS ABSENT:

 

      Mr. Tom Collins, Jr., excused

 

GUEST LEGISLATORS PRESENT:

 

      None

 

STAFF MEMBERS PRESENT:

 

      Mr. Don Williams, LCB Principal Research Analyst

      Mr. Frank Krajewski, LCB Senior Research Analyst

     

OTHERS PRESENT:

 

      Mr. Don Jayne, General Manager, State Industrial Insurance          System     

      Mr. Marc Hechter, Assistant General Manager, State       Industrial Insurance System

 

 

 

 

 

 

 

 

Chairman Giunchigliani expressed appreciation for cooperation with the schedule change, she further noted Assemblymen Schneider and Ernaut were in Taxation and would be late.  After calling roll, the chairman indicated Mr. Collins was to be marked "excused."

 

Ms. Giunchigliani asked the committee to review the proposed standing rules, explaining she would ask for a motion for adoption toward the end of the meeting. 

 

Following brief committee introductions, Mr. Don Williams, Principal Research Analyst, LCB, indicated he would be the primary staff person for the committee, while Mr. Frank Krajewski, Senior Research Analyst, LCB, would serve as the workers' compensation specialist for the legislature as a whole.

Mr. Williams proceeded with a review of his "Issue Brief" (Exhibit C).  Among subjects discussed were topics relating to labor, industrial relations and workers' compensation.   Mr. Williams explained in detail each of the following five sections:

 

      -     Overview of industrial insurance

      -     Nevada's 1991 legislative session

      -     1993 legislative proposals

      -     Labor issues in other jurisdictions

      -     Selected agencies and organizations

 

Reference was made by Mr. Williams to the Glossary of Selected Nevada Workers' Compensation Terms (Exhibit D).  He indicated this was a reference tool containing common acronyms, state agencies, forms and terminology.

 

While discussing the current financial crisis of the State Industrial Insurance System (SIIS), Mr. Williams pointed out total SIIS expenses topped $434 million in 1992, an increase of 400 percent over the last 10 years.  However, medical costs incurred the largest increase (over 450 percent).  He further maintained the average number of medical treatments per claim up 50 percent since 1983.  Other factors to consider were compensation expenses and total number of claims which increased 300 and 62 percent, respectively.

 

In Table I, titled SIIS Physical Therapy and Rehabilitation Expenses (Exhibit E), Mr. Williams noted vast cost increases since 1988.  Current expenses in these areas were expected to reach $95 million for rehab and $20 million for physical therapy.

 

Table 2 reflected the average length of disability from 1981 to 1991 (Exhibit F).  According to SIIS this increase was caused by several factors:

 

      -     SIIS caseloads

      -     court decisions to reopen claims

      -     claimants retaining attorneys thus appealing decisions

      -     physicians keeping claimants on benefits longer by           performing more complex treatments/evaluations

      -     increased benefit levels

 

Summarizing, Mr. Williams indicated increased medical costs, rehab/compensation payments, and inadequate premium rate levels have resulted in the current financial situation faced today by SIIS.

 

Mr. Williams' handout entitled "Legislative Developments in Workers' Compensation" (Exhibit G) lists other state's legislative developments as of Fall '92.

 

While reviewing the possible policy options pointed out in his issue brief, Mr. Williams explained the Legislative Committee on Industrial Insurance, created by SB 7 of the 1991 session, reviewed and evaluated Nevada's laws relating to workers' compensation.  The committee's recommendations have been submitted to the Governor and the 1993 legislature.  The final report would be distributed to all members of the labor and management committee within the next several days.

 

Mr. Williams indicated the recommendation by this committee which would receive the most attention was the "managed health care program."  Under this program insurers or employers would have the ability to negotiate discounted rates with certain health providers.  The injured worker would be encouraged or required to use those providers.  (Exhibit H) discusses a possible model for managed care in Nevada.  Mr. Williams explained, according to one estimate by SIIS, approximately $33 million could be saved in FY '94 with managed health care.

 

The last handout provided by Mr. Williams was a list of references/reports which were prepared on the topic of workers' compensation by various state agencies or related groups (Exhibit I).  One publication recommended by Mr. Williams for review was the State Industrial Insurance System Business Plan.  He emphasized this plan played a large role in the many recommendations made by the SB 7 committee.  He noted, however, there was more current financial information available.

 

Concluding his presentation, Mr. Williams explained state agencies responsible for workers' compensation would brief the committee this Thursday, January 28th, of their responsibilities under current law.  He further indicated the agencies would update the committee on their implementation of 1991 legislation.

 

Mr. Don Jayne, General Manager, State Industrial Insurance System (SIIS), in response to a question by the Chair said his agency would provide the committee copies of its annual report reviewing rehabilitation costs.

 

In reply to a committee question, Mr. Jayne explained as a result of 1991 legislation SIIS did verified new business licensees would comply with current workers' compensation law.  Ms. Giunchigliani requested future discussion of this matter as she had calls from constituents who noted they personally knew small of businesses who had never been contacted regarding workers' compensation.

 

In a discussion with Mr. Anderson concerning businesses going self insured, Mr. Jayne explained the liability of existing claims usually remained with SIIS.  He further asserted there were two different types of policies written, the guaranteed cost policy which purchased pure insurance coverage, and a retrospective rating plan which would leave as much as a four year tail.

 

Responding to Mr. Anderson's request for figures indicating SIIS' liability on these types of claims, Mr. Jayne indicated a summarization would be provided.

 

Ms. Giunchigliani inquired how SIIS compared with private insurance companies.  In his explanation Mr. Jayne perceived SIIS as a form of mutual insurance company which took premiums to cover losses, maintained a contingency fund with profits, and returned excess profits by issuing dividends.  SIIS, however, he emphasized was not profit driven.  Mr. Jayne further related SIIS was a monoline insurance, whereas most companies had multiple lines, thus balancing their losses.  He expressed a goal of SIIS would be to operate as an insurance company, not in the pure sense, however, because of interaction between laws, injured workers and employers.   

 

Mr. Jayne believed it would be ideal to create and maintain a contingency fund.  He stated throughout the 1980's while rate levels were suppressed, SIIS paid dividends of over $51 million.  Trends then began to explode but were not effectively recognized.  He maintained both recent audits reflect back to the mid 1980's where present unfunded liabilities were tracked back to claims incurred in those years.

 

Ms. Giunchigliani asked if benefit increases were issued during the 1980's.  In response, Mr. Jayne contended the problem was not merely benefit driven.  He indicated as the average wage increased, so did compensation.  However, he emphasized the major problem in expenditures and escalating costs was lack of claim control.  Mr. Jayne related the System found it difficult working toward the common goal of returning the injured party back to work in a timely manner with the primary physician in control.  Another issue was the system had become liberalized to the point it was easy "to get on and stay on" compensation. 

 

When asked to elaborate further, Mr. Jayne opined the primary care physician carried more weight at the hearing and appeals level than SIIS or even a second medical opinion.

 

In response to Mr. Carpenter, Mr. Jayne explained there was a correlation between SIIS' financial problems and companies leaving the system to go self-insured.  Because of SIIS' staffing level, there was a perception self-insureds could handle claims more efficiently, thus cutting costs by returning claimants to work quicker.  He stressed the large self-insureds pulling out took premium dollars with them, but they also took future losses as well.  The basic premise as explained was current rates based on today's trends were inadequate.  Therefore, even with those company's claims the premiums paid would not have sufficiently covered claims costs.  A report estimating the available dollars if all potential employers did pull out of the system would be provided to the committee.

 

Mr. Carpenter asked statistics be provided comparing current claims to those of the 1980's.  Mr. Jayne explained SIIS' Business Plan compared current claims to those of approximately 1982-83 when the Nevada Insurance Commission (NIC) was reorganized.  A 64 percent increase of claims has been documented since that time.  However, the number of treatments were disproportionate and varied per category, i.e., physical therapy increased from roughly 8,000 to 190,000 in 1992. Presently 13 treatments per claim was the average for SIIS' 63,000 active claims.  Mr. Jayne stressed SIIS caseloads were woefully high compared to the private sector resulting in claims being processed rather than managed.  He further contended the Business Plan could be broken out to produce statistics on any type of injury.

 

Mr. Carpenter questioned why workers' compensation medical costs were one and a half times higher than medical costs as a whole. Mr. Jayne noted as the industrial injury became more subjective  there were more and various types of treatment going on.  Thus SIIS encouraged a "managed care" approach which would overlay the same standards and protocol existing in the health insurance arena.

 

Mr. Ernaut inquired how SIIS' $200 million deficit of 1991 came about so quickly when statistics showed a $37 million reserve at the former department head's departure.

 

As explained by Mr. Jayne the financial records for 1991 ended in June, but were not made available until October/November.  He too believed SIIS had a $37 million contingency fund when he became General Manager in June.  However, when the former actuarial firm released the 1991 statistics it expressed concern with trends thought to be aberrations in the past. 

 

Mr. Jayne was not of the opinion the investment portfolio contributed significantly to the current problem, however stated the committee would be provided the investment history of the agency.

 

A discussion ensued regarding investment guidelines placed on SIIS and selection of money managers.

 

Another factor brought before the committee was the lack of health care by the general public.  Ms. Giunchigliani stated she believed an automatic reduction of abuse would be seen if the general health care issue was resolved.

 

Mr. Marc Hechter, Assistant General Manager, SIIS, further explained the deficit could be tracked back to the mid 1980's.  He reiterated the rate deficiencies led to the present problem, but noted to compensate with a single rate increase would lead to economic disaster.  Therefore, a rate increase schedule over several years would have to be maintained to put the system back into a healthy footing.

 

Responding to a question of how Nevada's rates compared nationally, Mr. Hechter maintained all states had their own rate classification system, therefore, it was difficult to make an accurate comparison.   Insofar as increases went, however, Nevada fell in the mid range with the surrounding western states. 

 

On the subject of rate comparisons, Mr. Jayne emphasized the level of benefit also drove rates.  As an example, if Nevada paid a weekly benefit of $440, whereas Utah paid only $230, its rate would appear to be lower because the benefits paid were lower as well.  Mr. Jayne acknowledged a dollar for dollar comparison was available and would be presented to the committee at a later date.  However, he cautioned consideration needed to be paid to Nevada's structure which differs from all other western states.

 

Before closing the meeting Chairman Giunchigliani informed the committee a research bank was being created on the subject of workers' compensation by LCB.  Any pertinent information should be brought to either her or Frank Krajewski's attention.

 

Chairman Giunchigliani asked for a motion to adopt the committee's standing rules (Exhibit J).

 

      ASSEMBLYMAN BACHE MOVED TO ADOPT THE RULES AS PRESENTED.

 

      ASSEMBLYMAN ERNAUT SECONDED THE MOTION.

 

      THE MOTION CARRIED UNANIMOUSLY.

 

 

There being no further business to come before committee, the meeting was adjourned at 4:30

 

      RESPECTFULLY SUBMITTED:

 

 

                             

      BARBARA DOKE

      Committee Secretary

??

 

 

 

 

 

 

 

Assembly Committee on Labor and Management

January 26, 1993

Page: 1