MINUTES OF MEETING
ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT
Sixty-seventh Session
April 8, 1993
The Assembly Committee on Labor and Management was called to order by Chairman Chris Giunchigliani at 3:35 p.m., April 8, 1993, in Room 119 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 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. Frank Krajewski, Senior Research Analyst, LCB
Mr. Donald O. Williams, Principal Research Analyst, LCB
OTHERS PRESENT:
Rabbi Mel Hecht, Chairman of the Board, State Industrial
Insurance System
Mr. Scott Young, General Counsel, State Industrial
Insurance System
Mr. Blackie Evans, Member of the Board, State Industrial
Insurance System
Mr. Scott Craigie, Chief of Staff, Governor's Office
Ms. Judy Matteucci, State Budget Director
Mr. Neil Davis, Davis Concrete Construction
Mr. Phil Dahn, an injured employee's advocate
Ms. Susan Harrelson, James Trust Company
Ms. Teresa Rankin, Insurance Commissioner
Mr. Jack Jeffrey, Southern Nevada Building and Construction Trades Council
Mr. Sam McMullen, Self Insurers Association
Ms. Lynn Grandlund, representing small businesses
Mr. John Madole, Nevada Chapter Associated Business
Contractors
Mr. Danny Thompson, AFL-CIO
Mr. Larry Harvey, John Ascuaga's Nugget and Nevada Workers'
Compensation Coalition
Mr. Erik Beyer, Nevada Unified Business Coalition
Ms. Hunt, Perry Inc.
Chairman Giunchigliani announced her intent to hold today's meeting in two sessions, 3:30 - 5:30 p.m. with a break for dinner, and 7:00 - 8:30 p.m. She reported sections not completed would be rescheduled at a later date.
With regard to hearings on SB 316, Ms. Giunchigliani requested testimony be contained to the subjects/sections posted for each particular meeting. She asked written amendments be presented at the appropriate meeting dealing specifically with the sections in question. Her intent was to deal with all amendments at one time at a future date.
Mrs. Kenny asked the following be entered into the record:
"...I am the wife of a health care practitioner and will not benefit any more than any other spouse, and I will be voting on all parts of SB 316."
Rabbi Mel Hecht, Chairman of the Board, State Industrial Insurance System (SIIS), testified on the proposed Governor's control of SIIS offering prepared statements from testimony previously given to the Senate (Exhibits C & D). He explained he first developed a prospectus, providing the history of workers' compensation in Nevada along with problems confronting workers' compensation in other states. He emphasized SIIS underwent a profound change upon his appointment to the Board in January 1991. At such time the Governor sensed serious problems within SIIS and proclaimed with the changes to the board and the replacement of the general manager, SIIS would be given the opportunity for a new beginning.
Great pride was expressed by Rabbi Hecht with the business plan and other recommendations by staff and management which were now part of SB 316. Additionally, he surmised the solution began by determining how serious the SIIS problem, which had developed over many years, was.
Rabbi Hecht, referring to his handout, outlined some of the many frustrations faced by the board along the way.
The Rabbi agreed with the need for centralization, but expressed concern with further dispersement of the system recommended in the Governor's proposal. He explained the current decentralization of workers' compensation hindered rather than helped the healing process. Therefore, the board offered several recommendations which it believed would help correct the system's current weaknesses (Exhibit D).
With respect to the disbandment of the board of directors proposed by the Governor, Rabbi Hecht concluded none of the current members had a vested interest in remaining on the board. However, it was believed the board's insight, as people who had been involved with workers' compensation on a regular basis, could be beneficial.
Rabbi Hecht opined the placing of the State Industrial Insurance System under the executive branch might lead to contamination of the system. He believed to put the independently funded state system under the direct control of the executive branch, leaned to the question of whether funds paid for the ultimate purpose of workers' compensation by business would find their way into the general fund.
Rabbi Hecht lectured on his concerns with the posturing and politicking associated with the passage of a single bill meant to correct the inequities of the workers' compensation system, observing politics not policy prevailed.
On behalf of Blackie Evans, AFL-CIO, Rabbi Hecht explained it was he who convinced Blackie of the necessity of "tachlis" or the concept of "I giving a little here, you give a little there." The result was intended to benefit both parties for the sake of the larger whole. With the best of intentions, Rabbi Hecht noted Mr. Evans entered negotiations where he believed his final stand ought to be, rather than presenting outlandish legislation and ultimately settling at mid ground. Both he and Mr. Evans learned that although planned with the best of intentions, greed and self-servingness ultimately prevailed.
In concluding his presentation, Rabbit Hecht suggested those involved in the process proceed with the business of returning workers' compensation both to business and labor where it belonged.
In reference to the subject of possible contamination of funds, Mr. Anderson pointed out his feeling was business, as a whole, supported the Governor's position.
Rabbi Hecht reported it was a case of "killing the messenger who brought the bad news." He believed, SIIS had been identified as the culprit in many instances where it was not. It had been mandated to perform certain functions without being given the tools to carry them out. In summary, he stated the business community and the Governor correctly identified the problem, however, he questioned who was better qualified to carry out the plan. Given the tools to accomplish the task without the infringement of other entities, he felt confident any board would be more effective than the Governor and the executive branch, which had numerous other concerns it must face.
Mr. Carpenter inquired if the Rabbi had any ideas as to the makeup of the board.
Only general recommendations were made because of the interplay of interested groups. He explained the business community believed the board should be made up of policyholders; whereas labor felt representation should be balanced. Additionally, Rabbi Hecht saw merit in including self-insureds too.
Mr. Carpenter asked Rabbi Hecht's opinion of a board chaired by the Governor, providing veto power over the board in decision- making matters.
The Rabbi expressed a desire not to over politicize either the board or the general manager's position, his basic concern was a system of check and balance. However, he believed Mr. Carpenter's suggestion might be a fair compromise. He felt placing the Governor at the head of the board would resolve the earlier mentioned communication problem.
Reference was made by both Mr. Carpenter and Rabbi Hecht to language of AB 437 which touched on greater centralization of the system along the lines of the Nevada Insurance Commission (NIC).
Ms. Kenny asked if the current board of directors had any fiduciary responsibility.
In response, Mr. Scott Young, General Manager, State Industrial Insurance System (SIIS), recognized it did. The fund was determined by statute as a trust fund and a fiduciary responsibility accompanied any trust.
Expressing some confusion, Ms. Kenny related she meant the board members specifically.
Mr. Young stated the board was specifically exempt from any damage action. Yet board members had a fiduciary responsibility to do their best, but could not be bound by legal liability.
Ms. Kenny questioned if the concept of a fiduciary responsibility might be entertained with the creation of the proposed board.
Rabbi Hecht established what was being described was similar to the University System, and the characteristics of the SIIS board ought to be structured in much the same manner.
To clarify a point raised by Mr. Bonaventura, Rabbi Hecht related the board he was referring to was not the Governor's advisory board, but one which would have far more power.
In reply to Mr. Bonaventura, Rabbi Hecht felt an incorporation similar to the commission of NIC into the current system including three labor, three business and one public representative would provide a good system and balance to all interested parties.
It was Mr. Bonaventura's belief the board would revert back to the present board structure upon relinquishing of the Governor's control in July 1997.
Mr. Blackie Evans provided background information on the old NIC three-person commission. He provided the NIC board was made up of equal numbers of management and labor. The various board positions Mr. Evans held over the last 23 years were detailed. He explained he had no desire to continue serving on the board, but believed the system described by the Rabbi was a good system which would equally represent all parties concerned. Subsequent to the current board structure, Mr. Evans indicated the Governor of the state did sit on the board for a number of years. However, because of the political nature of the board at that time, the composition of the board was changed to include management, labor and the general public. He reflected one of
the biggest mistakes made was the separation of NIC into all the different agencies involved today in the process of workers' compensation.
Commenting on the concept of workers' compensation as questioned by Mr. Regan, Rabbi Hecht explained it was to be a no-fault system benefitting both labor and management. He viewed the further division within the system proposed by the Governor would move away from centralizing or the team concept developed by the Cooper's-Lybrand Study.
Mr. Regan interrogated both Rabbi Hecht and Mr. Evans, as board members, regarding the current situation at SIIS.
As a new member to the board, Rabbi Hecht contended by all appearances SIIS had been doing well. Neither the Insurance Commission nor the Governor ever challenged SIIS' financial status until the problem became obvious. He resolved the rapid growth of the state, along with the years of dividends and no rate increases all combined to produce the current SIIS problem.
In reference to the five years with no rate increases, although against the decision, Mr. Evans attested the board had been provided information in which the decision seemed logical at the time.
Mr. Regan stated it appeared the board had been provided inaccurate information over the past several years.
In response, Rabbi Hecht explained the current board and management were actually responsible for recognizing how deep seeded the workers' compensation problem had become. Additionally, he felt the board was part of the solution.
Referencing back to an earlier statement by Rabbi Hecht, Ms. Giunchigliani asked who was the "messenger" and "who was it delivered to."
Rabbi Hecht related certain contracts came up for consideration including who the actuary might be. It was at this time hints were dropped of deeper problems within the system. Upon replacement of the general manager, the board, in its wisdom, changed its management structure as well. With the new actuaries in place it became apparent early on there was at least a $200 million deficit. Rabbi Hecht maintained the information of the shortfall was taken to, and rejected by the Governor at that time.
The general consensus of the board, in response to a question by Mr. Collins, was the old system under NIC was preferable to the current system of workers' compensation. However, the Rabbi indicated, "We should use what was, as a foundation stone to build on what will be."
Mr. Anderson expressed concern with providing the board the opportunity to correct past inequities, when it had not proven itself with the direction it had been given during the last legislative session.
The Rabbi perceived each administration inherited successes as well as failures of prior administrations. Each new administration offered the chance for a new beginning. With the recommended legislative changes all aspects of the system would be affected.
Mr. Anderson questioned if Rabbi Hecht would be satisfied if the board, as presently constituted, was substituted for the Governor with regard to the proposed reorganization.
Rabbi Hecht stated he was confident the existing board could carry out such a mandate as it would finally have the tools necessary to do the job. He indicated there were concerns which the board wanted to address with regard to other individual aspects of SB 316, but believed the problems with SIIS would be resolved better with the board in control rather than the Governor.
Mr. Carpenter inquired what tools, other than those listed in SB 316, were needed to fix the system.
It was stressed by Rabbi Hecht the damage to the system occurred over a long period of time and could be expected to take an extended period to correct. The legislation proposed by SB 316 would not, he viewed, resolve the overall problem, but would merely start the healing process.
For clarification, Ms. Giunchigliani noted there seemed to be a split among the business community with the plan proposed by the Governor. She explained while letters had been received expressing support of the Governor's plan, others had expressed opposition to the Governor's control.
Rabbi Hecht acknowledged SIIS first became aware of the $200 million deficit upon completion of the audit by the new actuary. He proclaimed, upon further questioning by Ms. Giunchigliani, the initial response was rejection by the Governor.
Chairman Giunchigliani opened testimony on SB 316, on the sections pertaining to SIIS Operations. The sections involved were 246, 23, 72, 105 and 148.
Senate Bill 316 -Makes various changes to provisions governing industrial insurance.
Mr. Scott Craigie, Governor's Office, asked for the opportunity to respond to statements made by Rabbi Hecht. For the record, he believed the differences of opinion between the Governor and members of the SIIS board of directors were policy differences. He spoke for both himself and Governor Miller when he stated, "Those people that are on the board, and those people that are managing the system are good folks, they work in the public interest...the fact that this board and management team have put what was difficult, and in some cases embarrassing data, on the table for public view indicates good faith on their part." Adding to statements made by the Rabbi, Mr. Craigie expounded the Governor's Office saw the current $2.2 billion unfunded liability as an all out emergency in the state of Nevada. He interpreted the bailout of the Oregon workers' compensation system could not be compared to Nevada's as Oregon's deficit was $50 million verses Nevada's $2.2 billion.
The opinion of the Governor's office, as interpreted by Mr. Craigie, was SIIS' management structure, through the board's system, was a failure. The part-time board met only occasionally, was extremely polarized and comprised of the worst politicking structure possible. As an example, Mr. Craigie illustrated the board, when asked to approve a 22 percent rate increase, took months before arriving at a compromised figure. He viewed the process needed to be centralized for accountability purposes. In addition, the emergency situation required immediate response. Mr. Craigie determined the board was nominated by, and dependent upon, staff for its information and, therefore, became somewhat remote from the operation of the system. He reported the Governor's office tried for over two years to convince the board of directors to replace the manager, who the Governor felt no longer served the system.
Mr. Craigie took offense to the Rabbi's statements in reference to "whose head was in the sand" and that the Governor supposedly took the $200 million deficit lightly. He called attention to a press release (Exhibit E) which indicated how serious the problem was. He stressed the announcement had been made of the $2.2 billion deficit weeks before the press release was printed in which SIIS maintained the figure was only $1.1 billion. Further, he noted a statement to the effect SIIS had taken control of the issuing of contracts because "of the recognized savings...available that they hadn't gone after in the past because they...didn't realize...they needed them." Mr. Craigie determined the Governor had great frustration and difficulty getting the board to make some of the changes he felt needed to be made. Again, not because of any wrongdoing or inappropriate actions on the part of board members, but because of its part-time nature, its distance from the system, its dependence on staff, its remoteness from public and its very, very polarized make up had not been able to act quickly enough in light of the current emergency.
In response to a prior question by Mr. Anderson, Mr. Craigie contended the board stated what had held it back was the lack of tools. However, he resolved the Governor recommended there be freedom from the constraints of the Budget and Personnel Acts. The portion Mr. Craigie referred to in the Personnel Act was not included in SB 316, but he believed it should be restored.
On the issue of the hiring freeze imposed by the Governor, Mr. Craigie asked the committee deal, once and for all, with whether it actually restricted SIIS from hiring the necessary staff as reported by Rabbi Hecht. He established SIIS was one of only a handful of agencies which was totally exempt from the hiring freeze. To explain in detail the effect of the hiring freeze on SIIS, he turned the meeting over to Ms. Matteucci, State Budget Director.
Ms. Judy Matteucci, State Budget Director, detailed the Governor's hiring freeze implemented in May of 1991. She explained the Governor's feeling was without knowing where state revenues were headed, all agencies were to be subjected to the freeze, thereby preserving positions for employees to transfer into if layoffs became necessary.
Ms. Matteucci referenced a letter from Mr. Don Jayne, General Manager of SIIS, as well as her response indicating her sensitivity to issues faced by the system relative to the hiring freeze (Exhibits F & G). As a result of the two letters, Ms. Matteucci maintained a meeting between the Governor, herself and Rabbi Hecht was held. Additionally, to accommodate the SIIS board of directors, she traveled to the board meeting in Las Vegas on September 10, 1991. Many issues were discussed relative to why the hiring freeze was necessary (Exhibit H). She implied the members of the board departed the meeting on good terms, with the understanding of the need for SIIS to also be included in the freeze. Additionally, Ms. Matteucci conveyed to the board her intent to expedite processing of the necessary positions. As an example of how quickly those positions were processed Exhibit I was introduced. Finally, in her letter dated June 22, 1992, Ms. Matteucci indicated the State Industrial Insurance System was exempted from the hiring freeze altogether (Exhibit J). SIIS, she asserted, was the only state agency, regardless of its funding source, to be exempted from the hiring freeze.
Ms. Matteucci pointed out the SIIS vacancy rate, according to the Department of Personnel, was 9.8 percent between the period of May - August 1991. It increased to 13.9 percent through February 1992, though not necessarily related to the hiring freeze. She emphasized the 120 positions added by the budget during that time frame might have contributed to the jump. In the next period through June 26th, while still under the constraints of the hiring freeze, the rate dropped to 8 percent. However, demonstrating the hiring freeze had little or no effect on the system's ability to fill positions, the vacancy rate increased to 11.1 percent in the six months following the removal of the moratorium on hiring. In conclusion, Ms. Matteucci opined the hiring freeze was not the issue. She believed SIIS faced other problems in filling the required positions.
In retort to questioning by Ms. Giunchigliani, Ms. Matteucci inferred for the last six months of the hiring freeze, it took her office approximately 20 days for position approval, whereas SIIS took an additional 57 days to hire for the positions. After exempted from the freeze, it took SIIS an average of 106 days to fill its positions.
Ms. Giunchigliani believed the problem was inherent to agencies statewide, not solely to the State Industrial Insurance System. She indicated legislation had been broached last legislative session requiring special licensure/certification for some positions enabling recruitment within the private sector. Her intent was to possibly pursue the issue again this session.
Mr. Collins asked Mr. Craigie what solutions had been suggested to the board by the Governor's office in their joint meeting.
At that point in time, Mr. Craigie noted the Governor's office did not have faith in the figures provided. He claimed Nevada was often quoted as "one of the states with the highest benefits...and some of the lowest premiums." Therein, he contended, was the problem. During this same period a national association waved the danger signal on Nevada's workers' compensation system. Mr. Craigie related all outside signals pointed to trouble, which was the reason the Governor ordered his own audit. The first step was to obtain integrity in the facts and figures.
The problem, as quoted by Ms. Giunchigliani, was "whose numbers do we believe." She asked why the board members, if appointed by the Governor, were not removed at the same time the General Manager, Laury Lewis, was removed.
Mr. Craigie determined board members were term employees and to prove cause for removal was very difficult. In hindsight, he acknowledged there might have been cause for removal. However, at the time Mr. Craigie believed the board did what it believed to be correct. The fact was the Governor realized the numbers were askew and was not satisfied with the board's response.
Mr. Craigie asserted for the legislative process to return to the board's polarized, ineffective system and in addition expand on its authority, would be a grave mistake.
Given the other pressing duties of the Governor, Mr. Carpenter questioned how the appropriate consideration could be given the SIIS issue.
Mr. Craigie related the Governor, in his State-of-the-State address, pointed out the current debt of the State Industrial Insurance System was greater than the entire biennium state budget. He also made it clear SIIS would be his number one priority throughout the term of the emergency.
A question was raised by Mr. Regan in which he inquired if the Governor was qualified to run a top-notch insurance company.
Mr. Craigie replied the Governor was qualified as SIIS was an insurance company operating in the public sector with public trust and money as a governmental entity. Further, he opined there was no person more expert to turn the state agency around and make it accountable, responsible and responsive.
Ms. Kenny asked Mr. Craigie how many other state's workers' compensation systems were insolvent.
Of the nation's other 19 state systems similar to SIIS, Mr. Craigie rendered 9 of those were also considered insolvent. However, none of those 9 were in the dire financial straights faced by Nevada's system.
Additionally, Ms. Giunchigliani reported she had recently received information indicating an additional six state workers' compensation systems were, at this point in time, on hold.
Via teleconference equipment from Las Vegas, Mr. Neil Davis, Davis Concrete Construction, testified from a prepared statement (Exhibit K).
With regard to Mr. Davis' testimony, Ms. Giunchigliani revealed 1991 legislation provided self-insureds, as well as the system, the ability to cross match for unemployment benefits with the Employment Security Department (ESD) and thus prevent "double dipping." However, the issue of verifying whether injured workers were not employed by another employer while at the same time collecting workers' compensation benefits was something which needed further review.
The Chairman announced individuals wishing to testify before the committee on specific issues would be facilitated on the dates those subjects were posted. She pointed out the committee would be in Las Vegas on April 17 and would hear, among other issues, employer deductibles.
Mr. Phil Dahn, an injured employee's advocate, explained he was currently being rehabilitated as a paralegal. He expressed frustration at the Hearing Division process being made non-binding mediation. The time allotments, he asserted, for the various steps involved added up to a minimum of four months before a binding decision could be obtained.
Again, the Chairman referenced the various scheduled meetings to accommodate the many sections pertaining to SB 316. She asked Mr. Dahn to oblige the committee by presenting his testimony at the scheduled time, April 20th, at 3:30 p.m.
Mr. Dahn apologized to the committee asking schedules of meetings be made available to Cashman Field indicating sections of SB 316 to be heard for future reference.
The Chairman pointed out meetings for the committee were posted according to regulation, a minimum of five days in advance. She also resolved the Las Vegas newspapers were aware of the meeting schedules as well.
Ms. Susan Harrelson representing James Trust Company, expressed her support of the Governor's program. Her sole concern with SB 316, was certain provisions might not be enough to "do the entire job." She asked the committee take into account the compromise already taken by the Senate.
There being no further testimony on the section pertaining to "Governor's Control," Ms. Giunchigliani announced a tentative monthly calendar would be posted, but suggested actual agendas be verified for any changes.
She explained her intent was to break until 7:00 p.m., then reconvene with testimony geared to support, opposition or changes regarding SIIS operations and the Governor's control.
The meeting reconvened at 7:00 p.m.. Chairman Giunchigliani noted Mr. Schneider was excused from the evening portion of the meeting.
Chairman Giunchigliani opened the hearing on SB-316, section 246.
Mr. Scott Young, General Counsel, State Industrial Insurance System, testified. Mr. Young stated section 246 exempted the State Industrial Insurance System (SIIS) from the budget act, and this was essential for the system to be able to respond more quickly to some of the situations it faced. Mr. Young noted the State Industrial Insurance System (SIIS) supported Section 246. Mr. Young stated Section 23 of SB-316 allowed new businesses relocating to Nevada to maintain their experience rating from their home state under certain conditions. Chairman Giunchigliani stated AB-375 was passed unanimously by the Assembly and was similar to the language in SB-316, but went further in depth and had been brought forth by the Commission on Economic Development. If AB-375 was passed by the Senate, Section 23 was not needed. Mr. Young said the State Industrial Insurance System (SIIS) preferred the language in Section 23 over the language in AB-375 because Section 23 had more flexibility. He explained Section 23 outlined if the method of rating in the original state was not directly comparable with Nevada's, then the manager had the option of letting the business come in at the standard rate in Nevada which in some situations was more appropriate then the language in AB-375.
Chairman Giunchigliani asked if anyone was present to testify on Section 72. Mr. Young stated Section 72 would allow the Commissioner of Insurance to adopt regulations that would make provisions of Title 57 of NRS applicable to the State Industrial Insurance System (SIIS). There were two areas the State Industrial Insurance System (SIIS) was concerned with. First, under Title 57 the insolvency provisions of the insurance act would be made applicable to the state system. He explained the board had taken a position as a state agency, and it would not be appropriate to place one state agency at the jeopardy of being declared insolvent, and then be taken over by another state agency. Second was the possibility of bringing the system under the provisions of NRS 686A.310 which was the unfair practices in settling claims, and SIIS was concerned its potential liability would increase. He noted the Supreme Court had indicated there were times when SIIS as well as self-insureds could be sued for bad faith administration claims.
Ms. Teresa Rankin, Insurance Commissioner noted she offered to do a special presentation on the solvency of the State Industrial Insurance System (SIIS) and an audit examination. She explained Section 72 related to rate filings. Ms. Rankin stated she provided the State Industrial Insurance System (SIIS) with a list from the Sections of Title 57 she felt would be applicable to SIIS should these regulations be adopted. It was not her intent to liquidate SIIS under the insolvency provisions in NRS 616 or to put them under the Unfair Trades Practices Act. She noted there were unfair trade practice provisions in Chapter 616 or 617. She further noted the Insurance Commission was looking at details more applicable to the State Industrial Insurance System (SIIS) such as distinguishing assets, deposits and the reserve standards in the statutes.
Mr. Anderson questioned if there was danger to the state in moving this system under Title 57. Ms. Rankin stated Title 57 said two things; first, to assure the solvency of insurance companies; and second, to protect the consumer. Chairman Giunchigliani stated it had to be agreed upon at some point, whether or not SIIS truly was an insurance company. However, it was her position that they should not go under Title 57.
Mr. Carpenter questioned Section 246.5, subSection 2, "rent required of a physician or entity which employs physicians by a hospital or related entity must not be less than 75 percent . . . ." Ms. Rankin stated NRS 439B.420 was originally a provision in AB-289 of the health care cost containment bill from 1987. The only change was in subsection 9 which referred to NRS 616.690. The other language was all administered by the Department of Human Resources and dealt with physicians renting facilities. Chairman Giunchigliani stated this was a good point and this section of SB-316 was scheduled for hearing at the April 27th committee meeting.
Mr. Scott Craigie, Chief of Staff, Governor's Office stated Section 246 exempted the State Industrial Insurance System (SIIS) from the budget act and the Governor viewed this as a two-prong attack dealing with the budget act and the personnel act. He stated Governor Miller felt the personnel act should be included and it was not in this version of the bill.
Mr. Jack Jeffrey, Southern Nevada Building and Construction Trades Council, testified. He explained their concern with Section 72 was to do with the solvency of the system. He stated the State Industrial Insurance System (SIIS) was different than the standard insurance company. Mr. Jeffrey noted in order for an insurance company to maintain solvency it should be able to pay their bills before leaving the state. He stated Section 72 needed more discussion at a later date.
Mr. Sam McMullen, representing the Self-Insurers Association, testified. Mr. McMullen explained the operative provisions of Section 72 already existed for self-insurers. It was in effect for self-insurers through NRS 616.291-2945 with respect to the equivalent of Chapter 686A, the Fair Claims Act and Chapter 647, which related to claims administration and solvency. Chairman Giunchigliani asked if he would object to this being clarified in SB-316, Section 72. Mr. McMullen stated self-insureds were already subject to these policies and it was unnecessary for it to be in SB-316.
Chairman Giunchigliani opened discussion on Section 105 of SB-316. Mr. Young stated Section 105 was a request of the State Industrial Insurance System (SIIS). There was a provision stating, when an office was opened it must be a full service office. At present the State Industrial Insurance System (SIIS) had offices in Elko and Reno that did not handle claims. SIIS would like the statute amended to provide language to be able to maintain those branch offices.
Chairman Giunchigliani opened discussion on Section 148 of SB-316. Mr. Young noted Section 148 was requested by the State Industrial Insurance System (SIIS). He explained Section 148 included certain issues whereby employers could appeal to the general manager and request a hearing. For a number of years the general manager had delegated the responsibility to one of the assistant general managers or another individual in the system. SIIS suggested conforming the statute to the actual practice and make it clear the responsibility could be delegated. Chairman Giunchigliani questioned the reference made to Section 22 on page 59, line 11 of SB-316. Mr. Young responded Section 22 excluded certain rehabilitation benefits unless the insurer felt they were necessary. If the insurer felt these benefits were appropriate they could be awarded. He further explained an employer had the opportunity to have a forum in front of the general manager to express any disagreement, and if the general manager agreed the charges were inappropriately provided, the general manager could remove the charges from the employers account. Chairman Giunchigliani asked how long the process was to get a decision. Mr. Young explained if SIIS assessed a charge on an audit and the employer felt the audit was incorrect, first the employer would go through an informal process to work it out with the audit supervisor. If the matter could not be resolved at that level the employer could formally appeal to the general manager who was required to schedule a hearing, take evidence and render a decision. If the employer was still dissatisfied he could appeal to the district court. The supreme court recently ruled issues of this type should go through the Department of Administration and only audits and matters directly related to the employer's experience with the insurance side, as opposed to the claims side, would go to the general manager. Chairman Giunchigliani asked if additional language was needed in SB-316 to eliminate problems of this type occurring in the future. Mr. Young responded in view of the supreme court decision it was probably not necessary, but from a lawyers standpoint it would be best if proper language was stated in the statute. Chairman Giunchigliani requested Mr. Young to prepare an amendment for the committee's review. Mr. Anderson asked the name of the supreme court decision. Mr. Young responded United Exposition.
Chairman Giunchigliani closed discussion on Section 148 and opened the hearing on Governors Control, Sections, 95-104, 106, 81-82, 88, 286 and 293.
Since no one was present to testify on Sections 95-104, Chairman Giunchigliani made a brief statement and explained these Sections.
Ms. Lynn Grandlund, representing small businesses, testified. Ms. Grandlund stated the basic concept and intent of SB-316 certainly had merit. She noted small businesses had little input on SB-316 and they were concerned about the benefits for injured workers which were removed from the bill. She stated as a policyholder the State Industrial Insurance System (SIIS) was her insurance company. It was the insurance company of every employer in the State of Nevada who paid premiums. There were only two issues involved in this entire situation: First, the policyholder that paid for the insurance to make sure his insured workers were covered; and second, the injured worker who was entitled to the benefits. Ms. Grandlund stated small businesses should have a policy-setting board. She further stated if the policy board was removed and the Governor was put in charge, the small businesses would have no input. No small business counsel was requested during any of the consensus legislation, certainly not from the Governors office. She stated back in 1990 she attempted to contact the Governor's office for a period of several weeks and was not successful. Ms. Grandlund stated if the Governor was allowed to take over there was a provision where the Governor or his designee would report to the board. She noted the Governor had stated emphatically he wanted total and complete control. She remarked then the Governor should not appoint a designee. She further stated if the negative cash flow could be stopped, then build the system back to solvency without putting the burden on the injured worker or small business. She noted the small businesses provided the majority of jobs in the state.
Mr. Carpenter asked what her recommendation to the committee was. Ms. Grandlund responded the board of directors should be primarily made up of policyholders. The two areas of concern were the person who paid for the policy and the injured worker who received the entitlement. She proposed a board consisting of five management members and two injured workers. Ms. Grandlund suggested the requirement for the injured workers would be they must have been through the system, their claims must have been closed for one year and they were now actively employed. The nominations for the management positions for the board of directors should come from the employer associations within the state so they were not arbitrarily made. Ms. Kenny questioned the five management members and two injured workers on the board and why was there such an imbalance. Ms. Grandlund stated small business paid the bills, therefore they should have the most control.
Mr. Ernaut questioned her support in exempting the system from the budget and personnel acts. Ms. Grandlund responded affirmatively. Mr. Ernaut further questioned the composition of the board and asked her opinion of having someone sit on the board who was not a policyholder. Mr. Grandlund replied as long as the person was well qualified. Mr. Collins also questioned the makeup of the board and felt with a five to two ratio on the board, the injured worker would feel intimidated. Ms. Grandlund stated in her last seven years of experience she had not seen many intimidated injured workers when it came to worker's compensation.
Chairman Giunchigliani inquired if the makeup of the board of directors would resemble the old NIC Board of Directors. Ms. Grandlund responded the old NIC concept should be looked at. She emphasized the small businesses should not lose control of their insurance company. They must be allowed to have very strong representation of their insurance company.
Mr. Anderson questioned how she felt about the rate increase as a course to balance the budget. Ms. Grandlund agreed the rates had to be increased but stated it should not be done all at once. She referred to the increase in the deductible to $400.
Mr. John Madole representing the Nevada Chapter of Associated General Contractors, testified. He noted most of the people they represented had high premiums and were mostly insured by the State Industrial Insurance System (SIIS). He was concerned with eliminating the independent board of directors. Mr. Ernaut questioned if he was happy with the current board. Mr. Madole replied if there were sensible people who would listen to both sides of an issue regardless of their background they would generally perform well. He also noted he was not suggesting the current board was performing poorly and stated he preferred to continue with the existing makeup of the present board than have no board at all.
Mr. Carpenter queried what was his feeling of the Governor taking over the system. Mr. Madole responded an independent board of directors should be maintained. He was opposed to relinquishing the control the present board had.
Mr. Jack Jeffrey agreed the current makeup of the board should be maintained. He noted the State Industrial Insurance System did not exist to benefit businesses, but was to benefit the injured worker in business.
Mr. Danny Thompson, Political Action Director, AFL-CIO, testified. Mr. Thompson stated the AFL-CIO supported the current makeup of the board. An injured worker's remedy was to the system and there was no other remedy whatsoever and this made it a no-fault system. Mr. Thompson noted the AFL-CIO represented 92,000 workers in the state, and as the largest employee group should qualify to help make the selection of the board.
Mr. Hettrick questioned if he agreed the system was limited to exclusive remedy. Mr. Thompson stated this was currently the law in Nevada. Mr. Hettrick asked, "If we left the board of the same makeup, how do we get some action." Danny Thompson noted by putting the Governor in control, the board will become politicized, and bureaucracy in government was far worse under those conditions.
Mr. Jeffrey responded the Governor always had the option of replacing a board member. Mr. Hettrick questioned whether or not the Governor had more time than a part-time, volunteer board member who met once a month. Mr. Jeffrey responded the board members from labor could meet with a day or two notice on any kind of crisis problem. Mr. Jeffrey suggested a three person full-time board. Mr. Collins stated he had been several board meetings since legislature had been in session and they met more often than every 30 days. Mr. Bonaventura inquired if the AFL-CIO would be willing to compromise and go back to the Governor's original plan, where after four years the board would revert back to the current structure. Mr. Thompson responded the AFL-CIO did not support the Governor running the program and supported the original board. Mr. Jeffrey expressed he also supported the existing bill.
Ms. Grandlund responded to Mr. Hettrick's question regarding a part-time board. She stated a part-time board would be effective. She pointed out when the cap was raised from the original $24,000 to 36,000, it put a tremendous burden on employers but they had the ability to have direct input to the board of directors. There was an emergency board meeting called on Christmas Eve of 1992 and an emergency resolution was proposed and signed on December 27. She stated from a policyholders standpoint the board had responded to their concerns.
Chairman Giunchigliani noted the NIC bill would be posted on April 19th so it would be available to consider.
Mr. Larry Harvey, Director of Personnel and Insurance Administration, John Ascuaga's Nugget, and President of Nevada's Worker's Compensation Coalition, stated he agreed with the Governor's proposals, supported SB-316 as it came out of the Senate, and supported the Governor taking over in place of the board for the next four years. He emphasized the majority of the employers in the state fully supported the Governor taking control.
Mr. Erik Beyer, representing Nevada Unified Business Coalition, noted his organization had met with the Governor on several occasions and discussed his proposal of running the system for the next four years. They were in support of the Governor's proposal. Mr. Beyer went on to explain the Governor was concerned about the State Industrial Insurance System (SIIS). He explained Governor Miller was putting his political career on the line. If he did not straighten out this situation within the next two years, he would be facing reelection at that time and stood the chance of losing the election and ending his political career. Mr. Beyer noted Governor Miller was aware of this situation and was prepared to lay his career on the line for this one issue. The coalition believed a full-time person was needed to handle this situation, not a board of directors who met once or twice a month.
Mr. Regan questioned Section 98, "the Governor shall: appoint the manager, approve annual and biennial budgets . . . approve . . ." Mr. Regan noted the Governor would have control, but somebody else would be running the operation. The Governor would appoint him and the Governor would watch him, but who was this person going to be. Mr. Beyer responded he did not know who the Governor planned to appoint to this position, but felt the Governor would make the right choice. After discussion between Mr. Collins and Mr. Beyer regarding the board, it was decided Mr. Beyer agreed a full-time commission or board such as the Public Service Commission had would be more effective. Ms. Kenny questioned how the Governor was going to run SIIS fulltime and also take care of all his other concerns. Mr. Beyer responded the Governor would be appointing a manager and the manager would report back to him on a daily basis if needed.
Chairman Giunchigliani thanked Mr. Beyer for his comments. She stated that while she applauded the Governor for taking the risk, especially when running for office in the next two years, there was a perception that must be protected.
Ms. Hunt, President of Perry, Inc., testified via teleconference from Las Vegas. Ms. Hunt noted she was also Chairman of the Nevada Restaurant Association's Governmental Affairs Committee. The labor intensive restaurant industry and the small business owners she represented had been struggling to survive in these tough economic times. She noted government should run more like a business with botto-line accountability. The major waste and abuses in the SIIS system had to be eliminated. It was not fair to the employers, their employees and the taxpayers of Nevada who paid the bills. This was an emergency situation. She noted the Senate Commerce and Labor Committee had spent weeks to develop a viable SIIS reform bill. It would provide the necessary $300 million or more savings required to ensure solvency. The Senate passed SB-316 without a negative vote. Ms. Hunt noted her organization supported SB-316.
Chairman Giunchigliani thanked Ms. Hunt for her testimony. She explained the Assembly's responsibility was to look at both sides.
There being no further business to come before committee, the meeting was adjourned at 9:00 p.m.
RESPECTFULLY SUBMITTED:
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Barbara Doke
Committee Secretary
and
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Jeanne Peyton
Committee Secretary
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Assembly Committee on Labor and Management
April 8, 1993
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