MINUTES OF THE

      ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT

 

      Sixty-seventh Session

      May 14, 1993

 

 

 

The Assembly Committee on Labor and Management was called to order by Chairman Christina R. Giunchigliani, at 12:58 p.m., on Friday, May 14, 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. Christina R. Giunchigliani, Chairman

      Mr. Bernie Anderson, Vice Chairman

      Mr. Douglas A. Bache

      Mr. John C. Bonaventura      Absent/Unexcused

      Mr. John C. Carpenter  

      Mr. Tom Collins, Jr.

      Mr. Peter G. Ernaut

      Mr. Lynn Hettrick

      Ms. Erin Kenny                      Late/Excused

      Mr. John B. Regan

      Mr. Michael A. Schneider

 

 

STAFF MEMBERS PRESENT:

 

      Don Williams, Legislative Counsel Bureau Research

      Frank Krajewski, Senior Research Analyst

      Kim Morgan, Assembly Bill Drafting Adviser

      Leigh O'Neill, Deputy Legislative Counsel

 

 

OTHERS PRESENT:

 

      Scott Young, Counsel, State Industrial Insurance System

      Danny Thompson, AFL/CIO

      Ray Badger, Nevada Trial Lawyers' Association

      Ray Bacon, Nevada Manufacturers' Association

      Jim Jeppson, Department of Industrial Relations

      Terry Rankin, Nevada State Insurance Commissioner

     

 

Following roll call, Chairman Giunchigliani opened the work session on Senate Bill 316.

 

SENATE BILL 316 -Makes various changes to provisions governing industrial insurance.

 

The Chairman announced the committee would first take all the technical amendments, then deal with the consensus legislation and corrections and then consider the concept of the legislative commission.

 

The first subject would deal with "average monthly wage," as shown in Sections 292 (pages 140-141 - proposed freeze for two years); Section 87 (pages 33-34 - excluding amount employer paid for health care); and Section 200 (page 92 - average monthly wage used to calculate benefits).  (See Exhibit C.)

 

Calling on Scott Young, Counsel for the State Industrial Insurance System, Chairman Giunchigliani asked if Mr. Young obtained his information regarding Average Monthly Wage (AMW) from the Employment Security Division (ESD).  (See Exhibit D.)  Mr. Scott replied in affirmative, and went on to explain the process.  In response to the Chairman's question, Mr. Young said the proposal set forth in Section 292 was not a SIIS proposal.

 

Chairman Giunchigliani asked someone to explain the rationale regarding language dealing with Temporary Total Disability (TTD).  Ray Bacon, representing the Nevada Manufacturers' Association, said from his recollection this was because increases in SIIS had been 4 percent per year, and this was substantially higher than wage increases in the private or public sector for the last two years.  Consequently, this was an effort to bring it into parity with what was going on in the typical wage environment.

 

Ray Badger, Nevada Trial Lawyers' Association, stated an average monthly wage affected every benefit -- not just TTD.  This was because every benefit received started with the average monthly wage. 

 

Danny Thompson, Nevada State AFL/CIO, agreed the freeze would be discriminatory and would definitely hurt those workers at the top end of the wage scale. 

 

The Chairman said it was her understanding wages were based on all wages earned in the state -- private and public sector -- and then each year a new average wage was computed.  Additionally, this was not just for workers' compensation, but for other programs in effect.  She said she did not necessarily agree with this way to determine AMW.

 

Countering Mr. Badger's earlier remarks, Mr. Hettrick asked for clarification regarding the phrase "for the purpose of calculating benefits for a temporary total disability. . ." as seen on page 140, line 46.  In answer, Mr. Badger agreed he may have been mistaken in his earlier remarks, but he maintained if the purpose was to freeze only TTDs, the language should be made clearer.

 

Mr. Hettrick wondered if the issue could be clarified by working backward from the estimate of the $6.279 million in the first year.  Mr. Young replied they had considered this portion of Section 292 to apply to TTD, TPD (temporary partial disability), rehab maintenance and PPD (permanent partial disability).  Estimated savings of $6.3 million would be realized if provisions under NRS 616.027 were frozen entirely for two years, not just frozen as to temporary total disability.  Mr. Hettrick asked Mr. Young to let him know for certain whether the $6.3 million was calculated on only TTD.

 

Clarifying the statutes, Mr. Young said NRS 616.027 defined "average monthly wage" while Section 87 served to freeze that wage for two years.

 

Mr. Carpenter indicated he would like SIIS to provide the figures on the savings on each of the items.  Once this was known, he thought adjustments could then be made. 

 

There was some disagreement expressed by Ms. Kenny and Chairman Giunchigliani with the concept of freezing wages.  The Chairman said she had no intention of considering SB 316 based on certain unsubstantiated dollar figure savings.  What was to be achieved was reformation of the system with the savings coming from that reformation.

 

Although Mr. Ernaut said he agreed somewhat with the Chairman, he believed at some point the committee would have to get down to dollar figures.  Chairman Giunchigliani admitted this was true, but reminded the committee what caused the Senate to come to a standstill in its deliberations on SIIS, was when it changed from a debate on whether there was agreement on TTDs and PPDs to a debate on nebulous and changeable figures.  She stated the Assembly as a general rule, did not do business based on arbitrary approaches, but rather first observed the philosophy, analyzed what the effect should be and what the cost drivers were and then made a decision based on those things.  The Chairman expressed frustration in being asked to consider what she perceived as a series of conflicting figures.

 

Returning to the subject, Chairman Giunchigliani asked what the rationale was for freezing wages.  If it was only to save some magic dollar figure, was this a legitimate reason to freeze wages?

 

Mr. Hettrick believed the committee needed to be able to see the whole picture before they either discarded or accepted the proposition to freeze average monthly wages.

 

Philosophically speaking, Mr. Collins said the Legislature's main purpose was to repair injured workers and this included safety programs, etc.  It was not the Legislature's place to be budget managers.

 

Mr. Bacon maintained one of the issues the committee needed to consider when looking at TTD was internal equity and external equity; external equity being how a balance was maintained compared to other wages in the area; and internal equity meaning the balance of pay internally in the company.  He brought attention to a booklet published by the U. S. Chamber of Commerce and figures comparing Nevada's compensation package with that of other states around Nevada.  These figures showed Nevada's compensation package was substantially higher. 

 

Following a discussion regarding the application of the figures stated in the booklet, Mr. Bacon remarked at least on paper, Nevada was noted as the state in the largest financial trouble, primarily because of the unfunded liability.  Discussion followed regarding what other states used for the basis of disability compensation.  Some states used an impairment schedule entirely, Mr. Bacon said.  Nevada, however, used a disability schedule.

 

Referring again to the booklet put out by the U.S. Chamber of Commerce, Mr. Bacon listed other states using an impairment schedule.  These were:  Alaska, Florida (impairment and loss of earning), Maine (benefits according to degree of impairment), Minnesota (impairment and loss of earnings) and Montana (impairment, age, education, wage loss and physical loss).

 

Again stating her distrust of figures, Ms. Kenny cited Nevada's order of rank was attributable in great measure to the fact it was one of the fastest growing states and had an enormous influx of new employees.  Mr. Bacon did not believe the U.S. Chamber of Commerce was biased.  Ms. Kenny was not convinced.

 

Mr. Collins voiced disagreement with the method Employment Security Department used to determine average monthly wages, and he did not agree with the proposal to freeze wages.

 

Coming forward to address the subject of average weekly wage submitted by the Employment Security Department, Jim Jeppson, Acting Administrator, Division of Industrial Insurance Regulation, told the committee information he had received from ESD concerning the average weekly wage for the previous calendar year had formed the basis to determine maximum compensation for the fiscal year beginning July 1.  Based on this information, the new maximum compensation rate would be $1,997.39/month, which was an increase of $117.26 from the current level of maximum TTD, or a 6.2 percent increase.

 

Mr. Jeppson continued with a description of how the raise in TTD each year was calculated.  It was finally agreed the figure of $1,997.39 would be the figure wages were frozen at.

 

Moving on to a discussion of Section 87, Mr. Regan pointed out previous discussions suggested the figures shown on page 34, lines 31-38 should be updated through the current year.  The Chairman said she was not sure why that section referred to the years 1973 through 1980.  Responding to this, Kim Morgan said she thought this was because, since that time, the formula had been significantly altered.  Mr. Young said he understood Nevada did not presently pay in accordance with the schedule shown on page 34, but, in fact, paid at a higher rate than what was shown.  Thus, by changing numbers in the schedule, no one's benefit would be retroactively affected because he would have already been receiving the correct level.  This page in the statute would just be corrected.

 

Section 200, page 92, addressing the Supreme Court decision in Harrison was then discussed.  Mr. Young said sometimes under Harrison, instead of using the wage rate on the date of the actual injury, as required by NRS 616.625, a new wage based on the date of the supposed second injury was created.  The amendment being proposed by Mr. Young would do away with the Harrison rule and declare that the wage rate in effect when the first injury occurred would be the wage rate used for purposes of the second injury, no matter how many years previously the first injury had occurred.  In some cases the differences in the wage rate had resulted in over $100,000 in payments.  In one case the wage rate on the date of the injury was $6.57.  Applying Harrison it went to a $26.80 benefit.  Mr. Young said it was also questioned whether the proposed amendment would affect the Anderson case.  He said on further study it did not appear it would affect anything in Anderson, and if anything, it might embody the Anderson decision.  In some instances this would mean a benefit to the injured worker and in some instances it would be a detriment to the worker. 

 

The Chairman recalled Mr. Young had been asked to provide numbers, names and methods of calculations for the estimated $24 million savings which could result from certain court cases being reversed.  (See minutes of meeting held May 5, 1993.)  Mr. Young said they had been trying to gather this information but unless they went through each individual file, there was no way to track it by the similarity to the Harrison case.  Both Mr. Young and Chairman Giunchigliani agreed this would probably not provide a very accurate figure.

 

How were dollar savings derived for each of the sections of the bill if they really did not know the specific cases? Chairman Giunchigliani asked.  On the Harrison issue, Mr. Young stated, they had gone back to specific cases they remembered and then tried to estimate from that point.  While the Chairman was willing to agree the figures being projected were "estimates," she said the Legislature was unable to truly make any concrete determinations without accurate figures.  Mr. Young said he understood, so in trying to arrive at numbers they had finally resorted to working with the negative cash flow represented by the dollars paid out. 

 

When they came to dealing with the negative cash flow, Chairman Giunchigliani asked whether the picture of the cash flow was skewed by the fact SIIS was so far behind on its billing payments.  If, in reality, SIIS became current and stayed current, this should bring the cash flow down.  Mr. Young agreed to provide the Chairman with this information.

 

Approximating the number of claims received annually at 11,000, Mr. Regan asked Mr. Young how many of those would be typical of the Harrison case.  Mr. Young reiterated they were trying to determine this, but if he had to make a guess, it would probably be between 20 and 40 in any given year.  However, Mr. Young stressed the Harrison case related to incidents happening over a number of years.  With an apparent increase in numbers, he said SIIS predicted the trend would become more and more significant.

 

Mr. Bache voiced disagreement with the wording of paragraph 2 in Section 200, page 92, ". . .disability that arises from or is any manner related to a previous accident . . .".  In other sections, the previous accident was referred to as being the "primary cause," he pointed out.  He saw this as a distinct difference; and proposed the language should read, ". . . previous accident was the primary cause of the subsequent injury. . ." as opposed to "related in any manner."  Mr. Young agreed it might be appropriate to reword it to make certain if the word "primary" was included, at least there would be a standard to decide whether it should be under the first injury or the second injury.  He saw no problem with inserting the proposed language.

 

Mr. Young suggested the language should read, "2. If the employee incurs a subsequent injury or disability that primarily arises from or is any manner related to a previous accident or injury, the date of the previous accident or injury must be used to determine the amount of compensation and benefits to which the claimant is entitled."

 

The Chairman then turned the discussion to Loss Control, Section 146.  She asked for someone to define "excessive loss."  Roger Mowbray, Loss Control Supervisor for SIIS, explained "excessive loss" was derived from "any amount that exceeded the premiums that were paid in at least two of the four previous fiscal years."  When they performed the test, an arbitrary figure of approximately 90 percent of the premium was considered as being excessive.  This figure was used for convenience since there were existing reports which used that figure and they were able to use those reports for their test purposes.  He said they were by no means set on the 90 percent figure.  A 100 percent figure would probably be better because it would indicate they paid out in losses what they collected in premium. 

 

Chairman Giunchigliani questioned whether AB 375 would allow companies relocating in Nevada to bring their rate with them.  Mr. Mowbray said he thought AB 375 was written to allow the company choose between bringing their rate with them or accepting Nevada's rate.  He thought the company would, of course, choose to take whichever rate was most favorable.  Chairman Giunchigliani and Mr. Mowbray discussed experience modification versus loss ratios.  Loss ratios were used to define excessive losses while experience rating was developed over time.  It took anywhere from two to five years to develop experience modification factors, Mr.  Mowbray explained, but the loss ratios could be calculated each year by comparing the amount of money paid on claims for a specific account to the premium collected on the account.  They had used manual loss ratios to develop the "Misfortune 500" list.  This was further discussed.

 

Chairman Giunchigliani asked what method should be used to determine which companies were having problems and which companies needed incentives created.  Mr. Mowbray suggested the manual loss ratio performed over a period of at least two years would probably be more appropriate.  The experience modification method had many nuances which could be affected by various things such as how the rest of the industry was performing and commonality of ownership. 

 

After some discussion, Chairman Giunchigliani asked Mr. Mowbray if he could devise standards to apply in determining who should go into a risk pool based on loss/control safety problems.  This was needed to provide as level a playing field as possible to those companies having higher incidences of safety problems.  Mr. Mowbray agreed they could set a standard for the smaller employers which would perhaps require three bad years of experience to qualify.  The Chairman asked Mr. Mowbray to be prepared to present some formula and some idea of language to apply in determining risk pool.

 

Representing the Governor's Office, Scott Craigie said he thought it would be a mistake to try to define a too constrictive set of standards in the statute for this particular regulation.  He suggested a statutory scheme to spell out some issues which truly needed to be considered.  He said he believed every agency in state government looked carefully at the type of issues being discussed by the Legislature; and perhaps they needed to indicate there needed to be a "pattern" of injury and not just a single incident which created the rating.  Also, he did not think it should discriminate against any type or sector of business.  Just a few such standards would give a clear instruction.  Mr. Craigie said they considered this one of the most important driving forces toward encouraging safety in the work place. 

 

Chairman Giunchigliani suggested they should also indicate by statute how a company placed in the high risk pool eventually could release themselves from that position.  Mr. Craigie agreed if there was a clearly stated standard by which a company could be released from the risk pool, this would be a fair instruction in and of itself. 

 

Mr. Anderson said he had received suggestions indicating there was no statistical difference between the self-insured and  SIIS, in terms of managing their programs more safely.  Thus, this was a key for both the self-insured and the SIIS members.

 

Again testifying, Mr. Young asserted if they went through with the changes in Section 146 of SB 316, then subsections 3 and 4 in NRS 616.1722 were somewhat redundant.  He said SIIS had suggested elimination of these subsections. 

 

Don Williams, Legislative Research Analyst, said he believed the proposal was misstated on page 2 of Exhibit C.  Although subsections 3 and 4 would be deleted, they would actually then just enact the language in SB 316, Section 146, subsection 6, page 58, lines 34-45.

 

Discussing Group Self-Insurance, (Exhibit C) Chairman Giunchigliani indicated since the provisions in Sections 25-51 did not go into effect for two years, they would place these sections in another bill for later action.

 

Discussing Sections 245-246, SIIS Operations, as seen in Exhibit C, merely exempted SIIS from the State Budget Act, the Chairman pointed out.  Mr. Young said it was his understanding this was accomplished by including SIIS in NRS 353.246, which was the statute the Public Employees Retirement System (PERS) and the Legislative Counsel Bureau operated under. 

 

The Chairman noted a proposed amendment to Sections 245-246 which had been suggested by Scott Craigie and would exempt SIIS from the provisions governing the State Personnel System.  The committee had no comments to offer, and the discussion was moved to Section 23.

 

Chairman Giunchigliani continued with a discussion of Sections 23, 72, 105, 148, 83 and 291.  If AB 375 was enacted, Mr. Young indicated, the committee should delete Section 23 from SB 316 in order to avoid conflict.  Mr. Young submitted Exhibit E, which explained SIIS's proposed amendment.

 

Referring to Section 72, Mr. Carpenter asked for an explanation of how deep the Insurance Commissioner intended to get into governing investments and operations of SIIS as seen on page 27, lines 28-30.  The Chairman said she understood by putting the system under Title 57, if people did not like what the Legislature did, they could declare insolvency the day the Legislature adjourned and the Insurance Commissioner could take it over.

 

Mr. Regan also questioned the language on page 27, line 27.  He believed this was excessive power to be granted to the Insurance Commissioner.

 

Terry Rankin, Insurance Commissioner, drew attention to paragraph 2, lines 28-30 which provided a safeguard against the Insurance Commissioner arbitrarily shutting down SIIS.  Answering the Chairman's remark regarding the declaration of insolvency, Ms. Rankin said SIIS was a constitutionally established trust fund.  While there was one liquidation provision in NRS 616, it appeared this might have been a war provision enacted during World War II. 

 

Beyond the issue of the solvency of the account, Mr. Regan opined if this section was enacted, the Insurance Commissioner would not need an excuse such as "solvency." 

 

Ms. Rankin insisted she read paragraph 2 (lines 28-30) as restricted to orders dealing with NRS 616.617 and the regulations adopted in lines 25 and 26.  Those regulations under NRS 233(b) were also subject to review through the Legislative Commission for "beyond authority."  Thus, there were some principal limitations written into the bill.  She said she was comfortable with the language.

 

The Chairman asked Ms. Rankin where the proposed language had come from.  In answer, Ms. Rankin said most of the language was the result of suggestions made by the Insurance Department.  Directing attention to paragraph 4, lines 34-37, Ms. Rankin said when the examination was conducted they had problems going through the money committees to indicate how the examination would be paid for even though they normally billed the insurance company being examined for the costs.  The Chairman pointed out if the Governor ordered an examination of SIIS, this should be paid by the Department of Administration or the Insurance Department.  Ms. Rankin said paragraph 4 would clarify the authority of the Commissioner to conduct examinations if necessary and therefore bill SIIS.

 

Referring to the language on page 27, line 27, Ms. Rankin related a past experience with SIIS in which she had to issue an order to show cause when SIIS had ignored an order issued the prior year on rate filing.  The Insurance Department had subsequently said it would not process the rate filing unless SIIS complied.  Although SIIS complied within two weeks, the incident could have ended in litigation because there was no clear language to address the issue. 

 

Mr. Anderson questioned whether the Insurance Commissioner was being given inordinate power by the language on page 27, line 27, as well as the words, "but not limited to" as seen on line 29.  In response, Ms. Rankin said in Section 246 SIIS was, in essence, privatized.  It was taken out of the classification system and treated not quite like a private insurance company because of the constitutional trust fund, but Section 72 had served to indicate an insurance company would be regulated.  In Nevada SIIS was subject to two regulators, market conduct under DIR and financial conduct under the Insurance Commissioner.  Therefore, she believed the Commissioner should have the authority to issue corrective orders.

 

Speaking of rate filings, Chairman Giunchigliani recalled there had been one rate filing which the Insurance Commissioner lowered.  There had also been a rate filing with a rateable payroll dispute last August 1992.  The Chairman asked how this had affected the cash flow situation for SIIS.  Ms. Rankin said for the portion she had denied, her actuary had originally computed it, and she said she would have these figures updated and submitted to the Chairman.

 

Mr. Hettrick questioned the manner in which examinations were requested.  He was concerned if more than one entity requested an examination of SIIS and SIIS had to pay the costs of such examinations, they would be unfairly subjected to such costs.  Ms. Rankin replied normally her office would be the entity requesting the examination.  Mr. Hettrick thought the language should perhaps specify the system had to pay the costs of any examination "requested by the Insurance Commissioner" to make certain a frivolous request by another entity was not made.

 

There were no questions or comments made regarding Section 105.

 

The language in Section 148, Mr. Young said, was language requested by SIIS.  The proposed language was partially consensus language and part was from an SIIS recommendation having to do with the subject matter the general manager or his designee could hear.  Mr. Young submitted Exhibit F which showed language dealing with Section 148 on page 3 of the Exhibit, and explained the rationale for the language.

 

Chairman Giunchigliani explained Section 83 dealt with the subsequent injury fund.  The focus of the proposal was to transfer back to SIIS the maintenance of its subsequent injury fund and leave DIR with the self-insured subsequent injury fund.  She noted in Exhibit C, page 4, there was a change from "procedures" to "regulations."  Mr. Young explained since the type of procedures spoken to in the language affected the employers monetarily, the language needed to clearly indicate regulations would require a public hearing so the employers could add input.

 

Responding to an earlier concern from Mr. Carpenter, Mr. Young said the language on page 33, line 9, really had to do with a credit instead of a charge.  He submitted Exhibit G which made this provision clearer. 

 

Section 291, Chairman Giunchigliani said, allowed for the transition of the funds involved in splitting SIIS off from the subsequent injury fund.  The rates would not change.

 

Discussing how the subsequent injury funds would be handled between DIR and SIIS, Mr. Young said if the language remained as it was, SIIS would no longer contribute to the subsequent injury fund.  They would simply issue a credit to the SIIS employers, but DIR would assess the self-insureds and maintain a smaller fund for the self-insured employers.  Chairman Giunchigliani noted this would help the rate filings for the employers within SIIS.  Mr. Young agreed.  The Chairman asked what would happen with the funds currently in the DIR.  That was what Section 291 would address, Mr. Young said. 

 

There being no further business, the meeting was adjourned at 3:04 p.m.

 

 

                                          RESPECTFULLY SUBMITTED:

 

 

 

                                                                 

                                          Iris Bellinger

                                          Committee Secretary

 

??

 

 

 

 

 

 

 

Assembly Committee on Labor and Management

Date:  May 14, 1993

Page:  1