MINUTES OF THE

      ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT

 

      Sixty-seventh Session

      May 19, 1993

 

 

 

The Assembly Committee on Labor and Management was called to order by Chairman Christina R. Giunchigliani, at 6:14 p.m., on Wednesday, May 19, 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. Christina R. Giunchigliani, Chairman

      Mr. Bernie Anderson, Vice Chairman

      Mr. Douglas A. Bache

      Mr. John C. Bonaventura

      Mr. John C. Carpenter  

      Mr. Tom Collins, Jr.

      Mr. Peter G. Ernaut                 Late/Excused

      Mr. Lynn Hettrick

      Ms. Erin Kenny

      Mr. John B. Regan             Late/Excused

      Mr. Michael A. Schneider            Late/Excused

 

 

COMMITTEE MEMBERS ABSENT:

 

      None

 

 

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:

 

      Terry Rankin, Nevada State Insurance Commissioner

      Scott Craigie, Chief of Staff, Governor's Office

      Marc Hechter, SIIS Assistant General Manager

      Don Jayne, SIIS General Manager

      Thomas Hartley, Chairman Nevada Development Authority

 

 

Following roll call, Chairman Giunchigliani submitted Exhibit C which corrected a false statement made during the previous meeting of the Assembly Committee on Labor and Management concerning a Las Vegas businessman who, it was said, was no longer a member of Local 399.  She then opened the work session on SB 316 and asked Mr. Thomas Hartley, Chairman of the Nevada Development Authority, to come forward for testimony.

 

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

 

Mr. Hartley told the committee the Development Authority was the economic diversification branch of economic development in southern Nevada.  Their goal was to create jobs, and in order to do this they had to be competitive with other states.  Mr. Hartley submitted Exhibit D and read his testimony into the record.  Ultimately, Mr. Hartley said, he did not see workers' compensation as a labor/management issue, but rather a jobs issue.  He urged the committee to consider workers' compensation in that light and seek to address the problems of SIIS by enhancing the job environment.

 

Chairman Giunchigliani told the committee a recent survey of businesses listed in the phone book had revealed only 462 of the 595 businesses listed actually had business licenses.  This meant 133 businesses were not paying business license fees, workers' compensation and other business-related costs.  Thus, good businesses were subsidizing this behavior.  Also, unlicensed contractors was another segment of the business community they would have to consider, Chairman Giunchigliani said.

 

The Chairman then turned the meeting over to Scott Craigie, the Governor's Chief of Staff, Marc Hechter, SIIS Assistant General Manager and Terry Rankin, Insurance Commissioner, for a computerized graphic presentation.  Mr. Craigie submitted Exhibit E, a display of the information regarding solvency which Mr. Craigie wished to present to the committee.  Mr. Craigie pointed out representatives from SIIS, the Insurance Division and the Governor's Office had all come together in cooperation and unity to consider target points and how the SIIS budget would have to be balanced.  He stressed all the numbers they would be using were those numbers submitted by SIIS and any differences which had arisen regarding numbers were irrelevant.  Mr. Craigie then elaborated on the information presented in Exhibit E.

 

Mr. Craigie told the committee major employers were leaving the State Industrial Insurance System in droves.  In the beginning of 1993, he said there were 99 self-insured major employers.  Since the Legislature convened and the Governor had made his state-of-the-state address, 21 more major employers had left the system.  Thus, the system's pool was rapidly shrinking to where only the highest risk employers remained inside the pool.  Not only did this rising cost and rising debt place the system at even higher risk, it also killed economic development.

 

The Insurance Commissioner, Terry Rankin, added the essence of insurance was the promise to pay in the future with the guarantee the money was there to fulfill those promises.  As the system now stood, it was questionable whether that promise could hold good.

 

Chairman Giunchigliani asked Mr. Craigie if he had a position on self-insured assessments.  In response, Mr. Craigie said at this time they did not believe there should be self-insured assessments because those employers were, in fact, in a separate insurance company.  The Chairman pointed out some of the proposals in SB 316 provided a windfall profit margin which would be given to self-insured employers as opposed to the employers in the system.  If this was to be a shared effort to attain solvency, she thought everyone who was previously under the system should share in the effort. 

 

Mr. Hechter then submitted Exhibit F which illustrated the State Industrial Insurance System Projection of Cash Flows (Baseline), State Industrial Insurance System Projection of Cash Flows (SB 316) and State Industrial Insurance System Claims Paid Projections for FY94-FY97 by FAY.  This exhibit formed the basis for Mr. Hechter's following computerized graphic display.  Mr. Hechter stated the figures he would be discussing were figures SIIS, the Insurance Commissioner and the Governor's Office had developed, and they were all satisfied these were appropriate representations.

 

Referring to remarks made by Mr. Hechter which indicated there had been errors in numbers in the past, Chairman Giunchigliani asked how the committee could have confidence the numbers he was presenting were accurate.  Mr. Hechter said the numbers they were using were predicated on the reserve studies done by both the Commissioner's actuary and the SIIS consulting actuary.  The variation between what Mr. Taylor at Walker and Associates determined to be the actuarial liability (Department of Insurance) and Tillinghaust (SIIS consulting actuary) determined this to be less than a 10 percent variation.  On the gross incurred liability numbers, Mr. Hechter said he believed SIIS's were approximately 2.6 percent and the Insurance Commissioner's Office was approximately 2.7 percent.  Mr. Hechter said a 10 percent variation in an actuarial analysis was not statistically significant.

 

Referring to past practices, Mr. Hechter reported the numbers now developed had also indicated the clear and relatively obvious difference between how the fiscal year 1994, 1995 and perhaps 1993 analysis should have been reported, as opposed to how it was reported.  The system, he remarked, was probably actuarially upside down at least as far back as 1984.

 

The Chairman further questioned just where the errors in projections had occurred.  In answer to her question, Don Jayne, SIIS General Manager, agreed it was impossible to lose $1.4 billion overnight.  It was the recalculation of the reserves being carried (based on the trends at the time) which drove the change.  The reserving now being practiced reflected the trends they saw in the past.  Thus, he said he was comfortable with the present professionals, their projections of liabilities and the present methods of reserving.  He further said they were now training all their teams on the process instituted by Coopers and Lybrand, and this training should be finished within the next two or three months.

 

Further discussion and explanation of the figures shown in Exhibit F ensued.

 

Summarizing, Mr. Jayne said the claims were growing at an average of approximately 11 percent; while revenues coming into the agency were growing at 6 percent.  Revenues as opposed to claims expenses were further discussed.

 

In an effort to clarify, Mr. Craigie explained obviously there would have to be a rate increase at some point in time, even if the entire set of changes were put in place.  He also said SB 316 was designed with what they believed the target had to be if they were to turn sharp enough to avoid the Insurance Commission taking over SIIS completely. 

 

Mr. Anderson asked whether they could extend the date of recovery from six years to perhaps nine years, making the interim less onerous.  Mr. Jayne reiterated what Mr. Craigie had said, that it was deemed necessary to avoid having the assets go below approximately $400 million.  Below that figure they entered a danger zone in which the assets held on hand fell below what the expected claims payments would be in any given year.

 

Continuing, Mr. Jayne said they could play with the figures shown on Exhibit F as they wanted, but any combination of the reduction in claims paid, combined with an increase in revenue (a rate increase) which kept the reserve from going below $400 million, was acceptable.  However, beyond this it was a policy-level decision to decide what those numbers should be.  Mr. Jayne stressed the one absolute was the reserve could not be allowed to drop below $400 million to cover expected claims payments.  Discussion of a short-term surcharge occurred, as well as the issue of extending the six year solvency to ten years since no one had justified a ten year period of time.

 

In response to a question from Chairman Giunchigliani, Mr. Jayne explained in order to see the reserve begin to rebuild, they needed to look at some proper combination of two variables:  1) a combination of reform or revenue increases to begin to stem the cash flow in the first year; and 2) they needed to realize any elements of reform would not have the same dramatic impact on the old claims they would have on the new claims.

 

Mr. Carpenter asked what the projected revenue would be from the $200 deductible.  In response, Mr. Craigie said this would be approximately $17 million.  Recapping, Mr. Jayne said a rough estimate would equate a 1 percent rate increase to approximately $4 million.  Ultimately, there was $110 million in increases from business which were built into SB 316, Mr. Craigie said.  The Chairman questioned where this cost was since the only dollar amount was the $200 deductible which was a 4.5 percent increase.

 

Mr. Jayne and Mr. Craigie agreed when the reserve fund reached $950 million, this would be the point at which solvency was attained.  If they also saw trend reversals and had $950 million in premium reserves, the fund would be fully funded.  Discussion followed. 

 

Referring to self-insureds, Mr. Craigie pointed out it was difficult to know how many employers would pull out of the system and how intense the high risk pool would become.  Although he had no data to offer, it was a factor they needed to consider.  The Chairman agreed and remarked there were other factors in SB 316 which would add a cost savings to the system. 

 

Mr. Ernaut insisted the committee should look at why Nevada paid benefits at four times the rates paid in other states.  The Chairman thought this basically had to do with the duration of claims.  However, she believed there were offsets to that as well.

 

There being no further business, the meeting was adjourned at 8:25 p.m.

 

 

                                          RESPECTFULLY SUBMITTED:

 

 

 

                                                                 

                                          Iris Bellinger

                                          Committee Secretary

 

 

 

 

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Assembly Committee on Labor and Management

Date:  May 19, 1993

Page:  1