MINUTES OF MEETING
ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT
Sixty-seventh Session
May 13, 1993
The Assembly Committee on Labor and Management was called to order by Chairman Chris Giunchigliani at 3:45 p.m., Thursday, May 13, 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 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:
Donald Williams, Principal Research Analyst (LCB)
Frank Krajewski, Senior Research Analyst (LCB)
OTHERS PRESENT:
Ms. Lynn Grandlund, GWC, NAIB, ASA and EON; Mr. Danny Thompson, AFL-CIO; Ms. Carol Jackson, Department of
Industrial Relations; Mr. Bob Ostrovsky, Advisory Council
of Industrial Relations, Mr. Don Jayne, State Industrial
Insurance System; Mr. Blackie Evans, AFL-CIO; Ms. Terry
Rankin, State Insurance Commissioner.
SENATE BILL NO. 210 - Clarifies which entity certain contractors are to furnish proof of
industrial insurance.
Ms. Giunchigliani opened the committee hearing by reading the floor statement for Senate Bill 210.
ASSEMBLYMAN ANDERSON MOVED TO DO PASS SB 210.
ASSEMBLYMAN BONAVENTURA SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
ASSEMBLY BILL NO. 437 - Abolishes state industrial insurance
system and recreates Nevada industrial commission.
Ms. Giunchigliani requested Mr. Carpenter, District 33, open the hearing on AB 437 with his presentation. He read from prepared testimony amendments to AB 437, which was entered into the record as EXHIBIT C.
Mr. Carpenter summed up his testimony stating bringing the various aspects of workers' compensation under the more direct control of this board would provide for a more efficient and cost saving method than in existence now. It was difficult for the SIIS board to function with other entities doing their own thing without control of the board and very little cooperation.
Mr. Anderson reviewed the concept of AB 437 interspersed with amendments from Mr. Carpenter. He pointed out the much larger panel from three to seven members. Mr. Carpenter responded any time matters could be consolidated, there would be costs savings and efficiency. He noted his personal preference for the old system, Nevada Industrial Commission (NIC), which had more control and a more "hands-on" feeling. Mr. Carpenter further stated labor and management sitting down and working claims out was the best way to handle the system.
Mr. Collins wondered if there would be a cost savings with these changes and would board member changes fall under the state reorganization plan. Mr. Carpenter responded affirmatively.
Ms. Kenny asked Mr. Carpenter if the board would meet once a month and Mr. Carpenter replied once a month meetings were the proposal. He noted the governor or his representative needed to be involved with the board on a daily basis in the primary stages of development. Mr. Carpenter reiterated once a month meetings would be the minimum. He expressed hope the governor would use this team to help reform SIIS.
Mr. Danny Thompson, Nevada AFL-CIO, applauded Mr. Carpenter for his courage in this proposal. He noted the bill offered the committee another vehicle to solve the serious SIIS problem.
Ms. Lynn Grandlund, NAIB, EON, ASA, GWC, entered prepared written testimony as EXHIBIT D. Ms. Grandlund stated her written testimony was prepared prior to any knowledge of the amendments put forth by Mr. Carpenter but the amendments did not change her support of the bill. She further noted control of workers' compensation by the people who used the program and the people who paid for the program made sense.
Ms. Carol Jackson, Director, Department of Industrial Relations (DIR), pointed out she had worked for NIC for twenty years and felt more experienced than most. She stated to recreate NIC at this juncture and pull back in the regulatory agency, insurance commissioner and various entities, would be a gross mistake. Ms. Jackson stated SIIS needed to be regulated. She further noted recreating a self-regulating situation could cause many problems.
Mr. Collins asked Ms. Jackson whom she reported to; she responded her position was appointed by the governor. She explained the proposed change would eliminate the director's office and the administrator of DIR would report to the board of directors of SIIS. Mr. Collins then asked Ms. Jackson if it would be more consistent for the administrator to report to a board than to the governor. Ms. Jackson replied there currently was an advisory board of directors, with Mr. Robert Ostrovsky as chairman. Mr. Danny Thompson, AFL-CIO, was also a member of the board. Ms. Giunchigliani questioned the reasoning behind the advisory council. Ms. Jackson responded DIR discussed with the advisory board various aspects of their agency and took the board's input under advisement. Ms. Giunchigliani wondered if there had ever been any discussion regarding changing the advisory board into a regulatory board or a board with some power. Ms. Jackson replied there had not been any discussion but she would like to see that.
Mr. Robert Ostrovsky, chairman of the advisory council to DIR, spoke of his concerns with AB 437, specifically concerning audits. He stated audits of the self-insured and audits of the system (SIIS) were presented to this committee with the introduction of SB 316. Mr. Ostrovsky pointed out SIIS had been less than candid and less than cooperative in providing information to the Department of Industrial Insurance Regulations (DIIR). His concern was if the regulatory system fell under the same management group, there would be no answers to potential questions. Mr. Ostrovsky expressed his concern with the independent audit function the DIR currently performed on behalf of the state. Another concern of Mr. Ostrovsky's was the question of administration. He noted under the old NIC system there was not an independent judge over a claim. Mr. Ostrovsky enumerated the values of an independent judge who was not beholden to SIIS, the DIR nor the employers, yet who could make a fair decision on a claim.
Ms. Giunchigliani queried Mr. Ostrovsky in regard to the number of members on the advisory board. Mr. Ostrovsky replied there were seven members as follows: three labor, three management and one public representative. A list of members was entered into the record as EXHIBIT E. Members were appointed for two year terms.
Mr. Collins requested an explanation of why the board was in such a mess if Mr. Ostrovsky and other board members were auditing or policing SIIS for the last ten years. Mr. Ostrovsky responded the DIR did not audit the premiums for SIIS. He further noted since Ms. Jackson had become director, the department became more active in its audit function. Mr. Collins repeated although the council was organized ten years ago or more, it had not worked until recently. Mr. Ostrovsky responded in the last two years there had been an enormous improvement in the DIR and the way it operated.
Ms. Giunchigliani agreed with Mr. Ostrovsky in the past the board might have felt they did not have enforcement authority. She noted a regulatory agency had to be aggressive, assertive and pro-active. Ms. Giunchigliani remarked on the DIR's recent attempt to become more of a regulatory agency. She then listed some of the Department of Industrial Relations functions and programs. Ms. Giunchigliani further noted two years ago audits were not done and fines were not collected. She stated there was now an established audit cycle and fines had been collected in the approximate amount of $200,000, thereby proving a more pro-active structure. Ms. Giunchigliani would like to see more power given to the board and more managerial responsibility given to the director. In addition, Ms. Giunchigliani would like to see a member of the self-insured group as opposed to a member of the public sit on the board.
Ms. Ostrovsky commented under the governor's reorganization plan this advisory board would disappear. He stated the board currently reviewed several reports and other material, asked questions, wrote off bad debts and reviewed oral and written complaints. Mr. Ostrovsky stressed the importance of safety issues and the amount of time DIR spent on safety in the workplace. He returned to the fact the board had limited authority and had met sporadically since its inception, with increased meetings in the last two years.
Ms. Giunchigliani pointed out Washington state had combined industrial regulation with the labor commission. She wondered if anyone had explored the possibility of this type of merge in Nevada. Ms. Jackson answered in the negative.
Mr. Ostrovsky stressed the need for cooperation between labor and management to address the needs of the injured worker.
Ms. Giunchigliani pointed out to the committee and attendees AB 437 was a genesis to at least get the committee to focus on a more proper way to resolve one of the SIIS problems. She further praised Mr. Carpenter for the initiative in having this bill introduced.
Mr. Carpenter mentioned the governor's thrust in getting the control back under one authority.
Mr. Bache asked Mr. Ostrovsky if the hearing and appeals division should be pulled from the department of administration, placed somewhere else, or made a special purpose agency. Mr. Ostrovsky replied the division would have to be looked at internally to either revamp or move it. He suggested an independent judge or arbitrator could make the decision. Mr. Ostrovsky expressed his problem with the timeliness in getting a hearing officer and a decision. He stated more funding, better rules or better discovery could speed up the hearing process. Mr. Bache then asked Ms. Jackson to respond to the same question and she agreed with Mr. Ostrovsky and the need for an increase of speed in the process. Ms. Jackson brought up the point of Division of Preventive Safety (DPS) and loss control. She stated at the current time loss control only served the policyholders of SIIS, approximately 400,000 employees. The remaining 200,000 employees were basically employees and employers of self-insureds and served by DPS. DPS also covered any employer in the state and was not limited by the policy holders of SIIS.
Ms. Giunchigliani asked Ms. Jackson if DPS handled OSHA requirements. Ms. Jackson responded a portion of the OSHA grant the DIR received (which was almost $1 million a year) was allocated to DPS which prior to 1991 was the training and consultation portion of OSHA. DPS was part of the state plan approved by the federal government. Ms. Jackson explained if the DIR did not have a state plan, federal OSHA would come in. Ms. Jackson entered the names of the Advisory Council as EXHIBIT F for the record.
Ms. Giunchigliani referred to Governor Miller's Reorganization Plan proposal and expressed concern with the transfer of SIIS auditors to Taxation, transfer of ESD auditors and the merger of insurance and DIR. She further noted those auditors affected were revenue generators and could create a direct cash flow problem for the system. Ms. Giunchigliani mentioned the committee would have to review this area more thoroughly.
Mr. Don Jayne, General Manager of SIIS, referred to a letter sent out March 17 which outlined the board's composition. At that time, there was a 7-0 board vote to support a concept to change the board of directors to approximate the old NIC. Mr. Jayne stated the hearings and appeals process would be very separate entities within the confines of the bill as amended. Hearings and appeals would be separate entities below a board; there would not be a SIIS board of directors. It would be a workers' compensation board concerned with workers' compensation within the state of Nevada. The three entities below it would be the regulator, an insurance company (SIIS), and the hearings and appeals division which would begin to bring under one umbrella centralized control and functionality. Mr. Jayne rebutted Mr. Ostrovsky's statement regarding SIIS's less than cooperative response in regard to audits and information. He requested specifics to Mr. Ostrovsky's statement. Mr. Jayne suggested a central board of directors for workers' compensation in Nevada would take care of alleged problems and improve the relationship by directing the insurance company to respond to the audit or remove the general manager. Mr. Jayne stated the current board of directors of the SIIS agency supported by a 7-0 motion a similar proposition to AB 437 and wrote letters of support in March 1993. He further noted his agency supported Mr. Carpenter's amendments.
Mr. Collins asked Mr. Jayne who appointed the SIIS board. Mr. Jayne answered the governor appointed the board members for the current SIIS board to four year staggered terms. Mr. Collins asked for further explanation of the proposed concept. Mr. Jayne acknowledged the hearings office would be one division, SIIS would be the second division, and the DIR regulators would be the third division. He further noted the heads of those entities would serve at the pleasure of the workers' compensation board of directors. Mr. Collins stated Mr. Jayne would be the head of SIIS, Ms. Jackson would be the head of DIR and wondered who would be the head of Taxation. Mr. Jayne responded Mr. Brian Nix would be the head of hearings and appeals. Mr. Collins asked if the SIIS auditors did a good job of auditing, why was the system broke. Mr. Jayne answered the primary charge of the auditor was not solely revenue producing. He noted there were many occasions a return premium was due. The premium auditors for an insurance company went out, not just to collect additional premium, but to verify exposure of the insureds operation was covered, verified risk classification, and compared claims. Mr. Jayne countered the misconception of premium auditors was to only bring in additional revenue. He noted additional revenue was a by-product of the essential function. Mr. Jayne explained Nevada was its own rate making bureau; many states currently belonged to the National Council of Compensation Insurance (NCCI) which set rates. Mr. Collins wondered if SIIS auditors determined what rates should be. Mr. Jayne answered the information gleaned from the audit, as well as a multitude of other information, went into rate-making. Rates were devised by the actuarial department. Mr. Collins asked how the rates were decided from the auditor on up through the system. Mr. Jayne replied the premium auditor verified the classifications, verified the exposure, compared the payroll, made sure the claims reported stated the correct classifications, and made recommendations to change employees classifications if appropriate. At the end of the rate making year, all the claims information was compared and a target premium was decided. Mr. Jayne further noted this work was done by both an in-house and an outside consulting actuary. Once the actuarial work was done, it was brought before the general manager of SIIS where discussion would be held on the rate filing. There followed, between 60 and 90 days, a hearing before the insurance commissioner. Mr. Collins questioned whether the Taxation Department could take over some of this work for SIIS. Mr. Jayne said under the reorganization plan, there would not be ample coverage especially relating to the number of audits performed if Taxation became involved. Mr. Jayne stated SIIS provided approximately 20,000 audits of various natures during the course of a given year. He further noted about half of those audits were physical audits--actual location visits. He conceded not every audit needed to be face-to-face; many were handled via telephone. Further discussion between Mr. Collins and Mr. Jayne continued on the status of the current board of directors. Ms. Giunchigliani described the DIR board for Mr. Collins.
Ms. Lynn Grandlund followed up on the SIIS auditors. She noted the concern small contractors had was because they were required to have final certificates before payment. The small contractors were concerned they would not be able to get certificates as quickly. Many small contractors lived from project to project to meet their payroll, buy materials, to bid jobs and so on. Ms. Grandlund mentioned she had found injured workers working, drawing compensation, and oftentimes being paid under the table. At this point in time, employers were able to get an activity check on the injured worker and were able to get an immediate payroll audit on their employer. Ms. Grandlund stated losing these checks were of great concern to employers. She noted Taxation auditors would not have the manpower to cover all the audits needed since 37 positions were scheduled to be eliminated from SIIS with only 12 positions added to Taxation. Ms. Giunchigliani referred to testimony from Mr. J. Perry Comeaux, Department of Taxation, wherein he stated it would take four to six months to train Taxation auditors to do the different type of audit for SIIS. She noted the insurance card for an employee, which was pending legislation, could assist in audits. Ms. Giunchigliani asked Ms. Jackson if DIR had the audit ability to get activity checks. Ms. Jackson replied in the negative. She stated DIR looked at the claims practices in reference to statutes and regulations. Ms. Jackson noted if DIR found something strange in the file, they would refer it to the insurer, regardless of whether it was self-insured or SIIS.
Ms. Terry Rankin, Insurance Commissioner, asked to correct the record in reference to Mr. Ostrovsky's statement the Insurance Commission was responsible for the financial status of SIIS. Ms. Rankin noted that was not correct. She noted SIIS was audited by the Insurance Commission on the direction of the governor and SIIS had been very cooperative. Ms. Rankin stated the only statutory authority provided in the rate filing was as a "stop" if the rates were excessive. The commissioner could deny a rate if excessive but could not tell SIIS to charge more if the rate was underpriced.
Ms. Rankin also answered Ms. Giunchigliani's earlier question if the state had looked at any other organization as a model for the entities of workers' compensation. The governor's proposal for reorganization was very similar to the Oregon workers' compensation regulation and insurance regulation, Ms. Rankin pointed out. She noted Governor Miller had proposed a merger similar to what Oregon did in 1987. Ms. Rankin stated the merger had been extraordinarily successful in allowing the insurance commissioner to control the rates through both the loss control mechanism (DIIR) and the insurance mechanism and normal financial review. Oregon had a three-way system, while Nevada did not have private carriers. She noted DIR and insurance were combined in the budget documents before the committee.
Ms. Giunchigliani referred to testimony given in an interim study committee wherein there were no rate increases for four years and dividends were given to businesses in 1981. She noted that, in and of itself, added to the issue. During the 80's when medical care was doubling it was irresponsible not to have a proper rate increase and now Nevada was seeing the drain on that pocket, Ms. Giunchigliani continued. During that same time, there were no benefit increases for injured workers. Ms. Giunchigliani further noted the state drained down much of its resources with the false pretense of playing politics.
Mr. Blackie Evans, Nevada AFL-CIO, remarked in 1981 the Resort Hotel Association sued SIIS for the rebate of premiums after they became self-insured and were successful in collecting over $15 million, including interest. Mr. Collins asked Mr. Evans if he could foresee any problems with the board running all three departments if each had a different manager. Mr. Evans replied he was partial to NIC and felt SIIS and DIR might each be blaming the other for existing problems. He supported Mr. Carpenter's amendments and stated it was sensible to have someone to answer to. Mr. Evans further noted less than one percent of all hearings went to district court under NIC. He stated having a board with authority would be good legislation.
The hearing was closed with no action taken on AB 437.
Ms. Giunchigliani re-opened the committee hearing on Mr. Carpenter's request to amend and rerefer.
MR. ANDERSON MOVED TO AMEND AND REREFER AB 437 TO COMMITTEE.
MS. KENNY SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
There being no further business to come before committee, the meeting was adjourned at 4:45 p.m.
RESPECTFULLY SUBMITTED:
JUDY HANNA
Committee Secretary
Ms. Giunchigliani requested the following exhibit be entered into the minutes for this meeting:
EXHIBIT G - Memo from Mr. Bob Ostrovsky clarifing testimony given on May 13, 1993.
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Assembly Committee on Labor and Management
May 13, 1993
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