MINUTES OF MEETING
ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT
Sixty-seventh Session
February 25, 1993
The Assembly Committee on Labor and Management was called to order by Chairman Chris Giunchigliani at 3:30 p.m., Tuesday, February 25, 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
Mr. John C. Carpenter
Mr. Tom Collins, Jr.
Mr. Peter G. Ernaut
Mr. Lynn Hettrick
Mrs. Erin Kenny
Mr. John B. Regan
Mr. Michael A. Schneider
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Mr. Don Williams, Principal Research Analyst, LCB
OTHERS PRESENT:
Mr. Don Jayne, General Manager, State Industrial Insurance
System
Mr. James Spinello, Assistant General Manager, State
Industrial Insurance System
Ms. Theresa Rankin, Insurance Commissioner, Insurance
Division
Upon opening the meeting, Chairman Giunchigliani indicated the record of Tuesday's meeting should reflect Mr. Tom Collins excused as he was in another meeting.
As the first order of business the Chairman requested minutes of the committee be approved for January 21, 26, 28, February 2, 23 and 24.
ASSEMBLYMAN REGAN MOVED FOR APPROVAL OF MINUTES FOR JANUARY 21, 26, 28, FEBRUARY 2, 23 and 24.
ASSEMBLYMAN ANDERSON SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
***
Ms. Giunchigliani inquired if anyone present wanted to deal with the discussion of self-insureds leaving the State Industrial Insurance System. She stated the actual bill pertaining to this subject was now available and posted for Tuesday, March 2, 1993. There being no one objecting, she dismissed the subject until next Tuesday's meeting.
Mr. Don Jayne, General Manager, State Industrial Insurance System (SIIS), presented the committee with a background history of SIIS. He explained prior to 1982 the workers' compensation programs of Nevada were handled by the Nevada Industrial Commission (NIC), which controlled all workers' compensation programs except self-insureds. In 1982 the State Industrial Insurance System was created as a separate entity. The primary driver behind the split was the passage of a three-way bill. The Department of Industrial Relations was formed to regulate all the various insurance companies which would have handled workers' compensation in the state of Nevada. The Hearings and Appeals Division was placed under the Department of Administration. Mr. Jayne pointed out, contrary to popular belief, SIIS was not the only player in the equation of workers' compensation in Nevada. He explained the multitude of entities involved in workers' compensation were:
- Department of Insurance - Determined suitability of large employers to go self-insured, held rate hearings to determine whether rate requests made by SIIS were adequate and equitable, and ensured the solvency of SIIS.
- Nevada Attorney for the Injured Workers - Represented injured workers in the appeals process, providing legal assistance free of charge.
- Department of Industrial Relations - Regulated workers' compensation insurance entities within Nevada.
- Department of Administration - Handled the hearing and appeals process.
- Court Systems - Interpreted laws as cases entered the hearings and appeals process and moved into the court systems for resolution.
- State Legislature - Established laws/regulations pertaining to workers' compensation.
Mr. Jayne maintained SIIS presently covered approximately 41,000 employers, or about 80 percent of the state's employers and 65 percent of the state's employees. Latest estimates approximated 60 percent of available premium was collected against the 41,000 employers insured by SIIS, with self-insured employers collecting the other 35-40 percent.
In an attempt to define the State Industrial Insurance System, Mr. Jayne indicated SIIS was a type of insurance company, or a quasi-governmental agency, which operated with a mission to provide the injured workers of Nevada quality medical care, returning them to the workplace as rapidly as possible at the most economic cost to the employer.
Mr. Jayne pointed out some of the changes which have occurred in the System since his appointment in June 1991:
- Evaluated internal problems, set about resolving issues.
- Developed financial forecasts
- Created a Business Plan in June '92
- Moved forward with advancing desires and opinions for legislative reform.
- Continued to modify and review positions since the Business Plan was presented in June '92.
- Worked to submit regulations for the reform of rehabilitation which should save SIIS $10-$12 million dollars a year.
- Worked with various employer/constituency groups to obtain input of the types of reform deemed necessary.
- Accomplished a reorganization of the agency.
- Mandated an early intervention program.
One thing Mr. Jayne quickly discovered was 87 percent of the costs incurred were claims-related expenses. Of that number 63 percent were tied up in disability payments. In fiscal year '92, SIIS expended $75 million on rehabilitation benefits, of which over $60 million was rehab maintenance, or disability checks. While the vast majority of dollars spent were in disability payments, Mr. Jayne believed a tremendous savings would be realized with managed health care. He explained while working with a more limited group of providers, employing standards of care, protocols and utilization review, the agency would be better able to work toward the common goal of returning the injured worker to the workplace more quickly, and at the same time provide quality medical care. He noted the average loss-time claim was now approximately 23 weeks compared to 9 weeks 2 1/2 years ago.
It was recognized by the 1991 legislative session that the caseloads handled by the claims teams far exceeded the teams' ability to properly manage them. Mr. Jayne noted SB 7, of the 1991 legislative session, mandated caseloads of no more than 200 loss-time claims per claims team, with a cap of 35 cases per rehab counsellor. When SIIS determined it was unable to secure the additional staff necessary to focus on claims management, Mr. Jayne explained the reorganization of November '92 shifted positions from the policyholder service area into the claims arena.
To bring the committee back to focus on the entire picture of the State Industrial Insurance System, Mr. Jayne noted the various other departments within the agency. The intent was to point out the fact the agency did more than just handle claims, he explained SIIS covered the total spectrum of a full-run insurance company. Mr. Jayne noted, however, the claims operation attracted the most attention as it was the area where the most severe service problems occurred in the last two to four years.
Speaking of current problems faced by the State Industrial Insurance System, Mr. Jayne noted there was no single issue which would fix workers' compensation in Nevada. He explained the different elements contributing to SIIS' current financial crisis. First and foremost was the continued invasion of the surplus cash reserves. The invasion of principal as the system lost money on negative cash flow has existed for the past two fiscal years. In 1992 the monies withdrawn from the cash reserves approximated $97 million. Mr. Jayne stressed regardless of the exact amount of unfunded liabilities, whether $1.4 billion or $2.2 billion, the figure was severe. He noted the focus should be on SIIS' total liability. The total liability as disclosed on SIIS' financial reports was $2.27 billion, compared to the Insurance Commissioner's reported figure of $2.5 billion. The variation was simply the difference between two different actuaries studying the same set of data. Both methods used by the Commissioner of Insurance, as well as by SIIS, were acceptable depending on ground rules used. Mr. Jayne emphasized rather then debate the differences of the two figures, he wanted to focus on the very large problem of total liability. He observed in order to change the liability, SIIS needed to change its trend lines which were used by actuaries to forecast future data. The forecast of $2.5 or $2.27 billion was dependent upon trends of the past five years projected into the future. Mr. Jayne stressed it was SIIS' job to work within the legislative process to change future trend lines, so those projected liabilities did not become reality, therefore, stopping the negative cash flow and allowing the agency to recover over time.
Chairman Giunchigliani advised those present that Gary Crews, Legislative Counsel Bureau Auditor, reviewed both audits against the agency, and although there were differences between the two systems, both accounting practices were proper. She advised the report would be made available to the committee and Don Jayne.
A discussion between Mr. Anderson and Mr. Jayne ensued on the number of employers/employees with SIIS, versus those which were self insured. Mr. Jayne stated the exact statistics were available and would be copied for the committee. Ms. Giunchigliani noted those facts would assist driving the issue of AB 287 which referenced the cost impact to SIIS of those leaving the system to become self insured. She pointed out AB 287 would be heard before the committee Tuesday, March 2nd.
Mr. James Spinello, Assistant General Manager, State Industrial Insurance System, briefly explained the early intervention program noting copies would be provided at a later date for committee review. The focus of the program was to affect a work release to a light duty job, thus eliminating Temporary Total Disability (TTD) and/or compensation benefits at an earlier date. The program consisted of a series of questionnaires to be completed by the claimant, doctor and employer. Mr. Spinello, explained with the reduced claims loads this program was working well.
Mr. Spinello maintained SIIS had realized a dramatic effect as a result of the mandated Coopers & Lybrand Study (EXHIBIT C), coupled with the mandates of SB 7, from the 1991 legislative session. He explained the reorganization of the claim's teams, tied together with the reduction of claim loads, resulted in an increased team responsibility. As an example, he noted the team would accept the claim, make a determination of valid coverage, establish the wage for compensation, reserve the claim, make medical bill payments and follow through the management of each claim to closure. Many of these functions had previously been handled through other departments. He explained each claim team consisted of six members, a claims examiner, nurse, rehabilitation counsellor, assistant examiner, secretary and a file clerk. The Coopers & Lybrand recommendation was to create prototype teams to test this concept. Mr. Spinello stated the results were dramatic. The teams were able to handle the full spectrum of responsibilities and did them well. With the reduced claims load the nurse and rehab counsellor visited the employer, doctor and claimant to affect a work release and light duty job. If vocational rehabilitation was required, the team would refer it sooner. The billing process was monitored more closely, thus questionable statements were caught and challenged. Mr. Spinello concluded the system offered good, coordinated case management. He believed the members of the team had more job satisfaction, having the complete case in front of them to follow through, rather than just a small portion of responsibility.
Coincidental to the prototype being tested, Mr. Spinello noted SIIS was hiring and training others for additional teams and remodelling facilities for ease of team access. Of the 29 southern region teams, about 13 were paying their own medical bills, with the other teams being trained to take over the process very shortly. Mr. Spinello concluded the other departments which had been involved in the various processes taken over by the team members would ultimately be disbanded and
moved into additional claims teams. It was anticipated full implementation of the Coopers & Lybrand study would be by May of this year.
Ms. Giunchigliani raised a question of claims team authority. The team leader, as explained by Mr. Spinello, would have the final authority which would eventually extend even into the appeals process. The team leader was actually the acting supervisor who would be held accountable for the actions/decisions of two claims teams. Mr. Jayne indicated the team leaders were very experienced senior-type persons who had been in the claims arena as either a claims examiner, rehab counsellor or nurse for some time. He indicated job descriptions of the team leader as well as the claim's examiner would be provided for review.
In response to the question of team authority, Mr. Jayne stressed one of the premises behind the Cooper and Lybrand recommendation was the empowerment of the claim's team, driving down to its very base level the decision making authority and bringing back together the various functions which over the years had been bifurcated out.
One point Mr. Jayne indicated needed clarification was the claims teams would be assigned by employer. The reasoning was to pull the employers into the claims process, actively involving them with the management of their claims.
A discussion between committee members ensued on the timeliness of claims acceptance. Mr. Spinello maintained validity of claims averaged only days.
Mr. Anderson inquired if medical protocols had been adopted by the claims teams. In response, Mr. Spinello affirmed the team nurses had been provided medical protocol information to monitor against. However, the medical protocols adopted by the Department of Industrial Relations were very new and somewhat limited.
Mr. Collins remarked perhaps the committee could tour the Las Vegas SIIS facility during the upcoming adjournment, March 11 & 12. Chairman Giunchigliani noted the committee needed to accommodate those wishing to testify before the committee at the same time and perhaps a Saturday visit would be more appropriate. Mr. Jayne indicated those wishing to visit the facility over the adjournment would be welcomed with some prior notice. The Chair clarified, however, the visit would not be a scheduled committee meeting.
Ms. Kenny inquired if doctors treating injured workers contacted employers to verify injuries were job related. Mr. Spinello did not know the number of doctors who verified this information, however, theorized cautionary inquiries to guarantee coverage made sense.
Ms. Kenny remarked her husband was in the medical field and the new claims team approach has had a significant impact from the clinician's perspective. She offered the turnaround time had been improved as well as communication between doctors and the teams. In summary, she believed the new approach seemed to be working well.
A question was asked by Ms. Giunchigliani pertaining to the acceptance of phone calls by the claims teams. Mr. Spinello explained some of the more experienced teams had done away with the policy of blocking phone calls before 11:00 a.m. His concern at present was the various training the claims team members were currently involved in. Mr. Spinello observed the policy affected providers, employers and claimants and his hope was it would be abolished by July of this year.
In response to questioning by Ms. Giunchigliani, Mr. Spinello observed splitting vocational rehabilitation away from SIIS would defuse responsibility and authority, making it more difficult to administer benefits. He believed it would be a dire mistake and affect SIIS' ability to engage in the early return to work program. He further opined splitting rehab from SIIS would increase rather than reduce overall costs.
Relating to a question by Chairman Giunchigliani, Mr. Spinello explained the Loss Control area targeted employers by frequency and severity of claims, providing individual employer training. The training group within the Loss Control area put together safety seminars, body mechanics training, and set up safety programs providing films, literature, etc. The Chair queried how SIIS coordinated with the Division of Preventative Safety. Mr. Spinello related it was totally separate as SIIS was not a regulatory agency, but rather worked together with its policyholders in a preventative manner.
Ms. Giunchigliani asked if SIIS had job analysts. Mr. Spinello indicated SIIS, as well as Jean Hanna Clark, had persons with those credentials.
On the subject of moving the audit area of SIIS to the Department of Taxation which resulted from the reorganization, Mr. Jayne indicated there were 39 individuals identified to be removed from SIIS' budget. His understanding was 6 of those persons were to be incorporated into the Department of Taxation, as well as another 7 or 8 from the Employment Security Department. He noted SIIS currently performed approximately 11,800 audits per fiscal year. There had been discussion many of these audits did not generate the large revenue dollars the taxation department wished to see. Mr. Jayne pointed out many audits were performed for other reasons than generating large amounts of revenue. He noted they validated that claims had been charged to proper risk classifications, evaluated payroll exposure and basically policed accounts. Mr. Comeaux indicated in discussions with SIIS, the taxation department could handle approximately 4,500 audits in the course of a year. Mr. Jayne opined the reorganization should result in at least the same level of service, not less. Another concern expressed by Mr. Jayne was with "demand" audits where, because of policy cancellation, there was a need for contractor certificates. He also maintained SIIS would be assessed back one third of the cost incurred by the taxation department which was approximately $1.5 million, yet the level of service was diminished. Further, Mr. Jayne explained because of the prior agency reorganization there were no longer account managers whose job was primarily to be in the field working with employers. He noted the auditors had more or less taken over that capacity. Thus, additional background or knowledge was necessary such as risk classification, rate structure, etc., as the people performing audits now handled much more than just audit type issues.
Ms. Giunchigliani asked if SIIS had privatized its Policyholder Service Department. Mr. Jayne maintained the department had not been privatized, but in fact had reduced the level of service provided to employers as the people were shifted over to the claims area.
A discussion between Mr. Hettrick and Mr. Jayne developed on the actual numbers of various types of audits. Mr. Jayne was asked to provide the committee with actual facts and figures, breaking down by classification the different types of audits, showing the monies each type collected.
Mr. Hettrick related a story of two companies who had been prosecuted for lack of payment of premium totaling approximately $430,000. He noted one company left the state while the other filed bankruptcy and apparently reopened as a new business the following day leaving SIIS with a $430,000 loss. His suggestion was to initially bond new companies in lieu of the present minimal deposit requirement.
To summarize, Mr. Spinello stated "those who are going to cheat you, are going to cheat you." He explained under current law SIIS was not able to prosecute, hence, a change in statute was necessary enabling SIIS to go after the principals. Mr. Spinello contended SIIS' Business Plan made some recommendations in this area.
The Chairman stressed bonding was a valid issue. Mr. Spinello related bonds were presently an accepted means of deposit. However, he theorized the idea would be to require bonding, enlisting the bonding company for collection of unpaid premiums.
Mr. Anderson expressed particular interest in SIIS' Loss Control Division as it related to OSHA. He requested the committee be provided additional current information pertaining to the subject.
Mr. Jayne announced a prepared summarization of the overall impact of the Governor's proposed reorganization would be provided to the committee.
Ms. Theresa Rankin, Insurance Commissioner, Insurance Department, in preparation of testimony next week on AB 287 provided the committee with copies of the Insurance Department's Annual Newsletter (EXHIBIT D).
There being no further business to come before committee, the meeting was adjourned at 5:10 p.m.
RESPECTFULLY SUBMITTED:
BARBARA DOKE
Committee Secretary
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Assembly Committee on Labor and Management
February 25, 1993
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