MINUTES OF THE
SENATE COMMITTEE ON COMMERCE AND LABOR
Sixty-seventh Session
March 2, 1993
The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Tuesday, March 2, 1993, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator Randolph J. Townsend, Chairman
Senator Sue Lowden, Vice Chairman
Senator Ann O'Connell
Senator Mike McGinness
Senator Raymond C. Shaffer
Senator Leonard V. Nevin
Senator Lori L. Brown
STAFF MEMBERS PRESENT:
Denise Pinnock, Committee Secretary
Brian Davie, Senior Research Analyst
Frank Krajewski, Senior Research Analyst
OTHERS PRESENT:
Don Jayne, General Manager, Nevada State Industrial Insurance System
Scott Craigie, Chief of Staff, Governor's Office, State of Nevada
Dean Hardy, Lobbyist, Nevada Trial Lawyers Association
George McNally, Lobbyist, Nevada Trial Lawyers Association
Terry Rankin, Commissioner, Department of Insurance, State of Nevada
Mark Hechter, Assistant General Manager, Administrative Division, Nevada State Industrial Insurance System
Danny Thompson, Lobbyist, Nevada State American Federation of Labor/Congress of Industrial Organizations
Jack Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades Council
Blackie Evans, Lobbyist, Nevada State American Federation of Labor/Congress of Industrial Organizations
Ray Bacon, Lobbyist, Nevada Manufacturers Association
Carol Jackson, Director, Department of Industrial Relations, State of Nevada
Senator Townsend opened the meeting and introduced several Bill Draft Requests (BDRs) to the committee:
BDR 54-896:Makes change concerning grading and drainage plans for residential subdivisions.
BDR 54-619:Makes various changes concerning pharmacists and pharmacies.
BDR 54-616:Increases various fees concerning optometry.
BDR 54-809:Makes various changes relating to regulation of practice of optometry.
BDR 54-600:Repeal ban on outdoor advertising of hotel and motel rates.
BDR 54-614:Makes various changes relating to funeral directors and embalmers.
Senator Shaffer asked to be given BDR 54-896 for further study. Senator Townsend agreed.
SENATOR O'CONNELL MOVED TO COMMITTEE INTRODUCE BDRs 54-619, 54-616, 54-809, 54-600, AND 54-614.
SENATOR LOWDEN SECONDED THE MOTION.
THE MOTION CARRIED UNANIMOUSLY.
* * * * *
Senator Townsend stated Exhibit C, Distribution of the [Nevada State Industrial Insurance System] SIIS Claims Expense Dollar, was submitted in response to Senator Nevin's request.
Senator Townsend said the committee had decided the Governor's proposal to use net income instead of gross would create an uneven playing field. He submitted Exhibits D and E, memorandums from Frank Krajewski, Senior Research Analyst. Exhibit F was submitted by Scott Young, General Counsel, Nevada State Industrial Insurance System (SIIS).
Don Jayne, General Manager, Nevada State Industrial Insurance System (SIIS), testified that approximately 80 percent of the rehabilitation expenses were compensation maintenance expenses. Senator Townsend asked if there had been an increase in that amount. Mr. Jayne said there had been an increase, but not a dramatic one. He stated:
As the lost time claims have gone up and taken the average weeks out, the medical expenses have increased with them somewhat proportionately. The disability payments are somewhere between 60 and 65 percent ... 63 percent of our claims expenditures are, in fact, in compensation payments which includes that rehab [rehabilitation] maintenance.
There followed discussion on Exhibit F. Senator Townsend said:
On Friday we're going to need some support for what Brian [Davie, Senior Research Analyst] is going to bring forward, so when we vote we know the kind of financial impact we're going to have. And not just the first year, but we have to semi-project this. We have to have something for our colleagues to weigh. This committee's options today are so vast we have to get some kind of focus. We can either leave compensation alone, we can utilize a basic philosophy brought forward by the Governor, and that is to reduce across the board some of the benefits, or we can take each benefit on its own, meaning vocational rehab [rehabilitation] maintenance, PPD [permanent partial disability], TTD [temporary total disability], and the others and deal with those individually. Unless I'm mistaken those are the options we're facing. One of the things I had our staff do was to provide for us a document which utilizes the Governor's philosophy, which is to reduce benefits across the board under gross to net. However, due to the complexities with which we decided to stay at gross we would use a formula that's basically used in establishing your property taxes. That would be take a percentage of gross and then take 66 2/3 of that for all those things. You will see by the handout which is the one dated February 28 [1993], to me from Dr. Krajewski regarding average monthly wage.
Senator Townsend discussed the projected savings to be gained by decreasing disability awards. He asked Scott Craigie, Chief of Staff, Governor's Office, State of Nevada, to explain the Governor's philosophy. Mr. Craigie said his office had not, at that point, found "numbers we're comfortable with" in regard to decreasing benefits. The impact on some of the salaries would have been unacceptable after the 66 2/3 percent equation was applied.
Dean Hardy, Lobbyist, Nevada Trial Lawyers Association, gave a brief history of his experience with workers' compensation. He stated vehemently that reduction of benefits was not the solution to the problem. He said individuals faced with injuries were financially devastated, and would gladly give up any compensation given them through the SIIS for the opportunity to live a pain-free life.
George NcNally, Lobbyist, Nevada Trial Lawyers Association, clarified Exhibit D would take an injured worker's wage, reduce it by 15 percent, then reduce it by 33 1/3. Senator Townsend agreed.
Senator Townsend stated the committee was aware the workers had not created the problems with the SIIS. He said they were addressing the causes of those problems, but it had not been enough to make the system solvent. More cutbacks were needed.
Senator Nevin said:
The system is there to help the injured worker, to get him better, get him fixed, get him back to work. The problem is now we're going after that injured worker who has no control over what is happening to his life, and now we're going to tell him, "You got injured and now we're going to make you pay for it, and take money away from you." I've got a problem with that. We should leave the injured worker alone. Let's look at some of the problems we're having under management, and other things. I say we leave that injured worker alone. Why should he have to suffer because the system has a problem? Let's help the injured worker. That's what the program's there for. I've got a problem if we start taking money away from injured workers.
Mr. Hardy said in the past 6 months he had noticed a tremendous increase in the services the SIIS provided. He felt even if no new legislation were passed there would be an appreciable decrease of the deficit. He said the efficacy of the system was increasing, in part, because of the new employees who were getting up to speed.
Senator Townsend stated he had been through the minutes of the Sixty-sixth Session in which the PPD award rate was raised from .5 to .6, and could not find a reason for doing so. He asked if Mr. McNally could supply the committee with that reason. Mr. McNally could not, but volunteered to research the question.
Mr. Craigie acknowledged the improvements already made to the SIIS, but said there were fundamental institutional structural changes which had to be made in order for any management to effectively deal with the debt already there. He described the workers' compensation benefits as "subsistence level income" not meant to parallel the living wage income a worker could earn.
Senator Townsend asked if Mr. Craigie perceived that a reduction of benefits would impact workers already in the system, and given the improvements already seen, would there come a time when the rates could be restored. Mr. Craigie said he believed the benefits would be restored eventually. He stated those workers already in the system who had not gotten to the stage where they were awarded a PPD or receiving rehabilitation maintenance would be affected by reductions.
Terry Rankin, Commissioner, Department of Insurance, State of Nevada, in response to a question from Senator O'Connell, stated the system was losing $1 million per day.
Senator Townsend stated the fact that portfolio had been sold to accommodate the cashflow problem was a real concern. The board should have seen the need to do so as a definite indication of trouble.
Marc Hechter, Assistant General Manager, Administrative Division, Nevada State Industrial Insurance System, said:
The first time the annual financial statements showed a substantive loss that would have been a red flag in terms of cashflow operations was fiscal year 1991, after the close of the session. If I am not mistaken we started publishing everything we could publish and screaming everything we could scream as loud as we could. Now the problem, of course, goes back well before that, and we think there were certain indicators that the consultants of the time might have been able to glean and advise then management and then board ... you know that's being handled in a different fashion and we're not at liberty to discuss that in great detail right now. But, from perspective of the current makeup of the board, and certainly for obvious self-serving reasons, the current makeup of management, as soon as our independent consultants said, "You've got a problem in your financials," we started rooting around in cashflow, then the screaming went wild. One thing, again, to reiterate what Don [Jayne] said, cashflow is current year's losses, not actuarial losses over the next 60 years, which is about how far out you project those kind of things. The $293 million premium deficiency ... all of those are predicated on 60 years of claims activity going back to this particular premium year. Cashflow losses are somewhere between $10 million and $12 million per month, depending on the ebb and flow of cash on any given monthly basis. It is not $1 million per day by any stretch of the imagination. If it was the bankruptcy would have occurred last year, not in 1996.
Mr. Craigie said there were indeed differences of opinion regarding the numbers, but the Governor's Office appreciated the fact the present management of the SIIS had been up-front with them about the fact that there was greater debt than originally estimated.
Danny Thompson, Nevada State American Federation of Labor/Congress of Industrial Organizations (AFL/CIO), stated when a worker gets injured, and his wages go down by one-third, his house payment does not go down by one-third, nor do his children eat less by one-third. He strongly objected to further reductions of the benefits.
Jack Jeffrey, Lobbyist, Southern Nevada Building and Construction Trades Council, said proper claims management was the single most important issue.
Senator O'Connell said the committee had been told a closed panel was the only way to get the problem under control. As Mr. Jeffrey opposed closed panels, Senator O'Connell asked how he reconciled the two positions. Mr. Jeffrey said managed care and claims management were two different things. He believed no physician should be excluded from the chance to be part of the system, as an accommodation to established patients.
Blackie Evans, Lobbyist, Nevada State American Federation of Labor/Congress of Industrial Organizations, pointed out health insurance premiums were no longer paid by the employer after the injured employee was off work more than 60 days. He opposed any reduction of benefits. He testified on behalf of the Culinary Workers' Union, stating they supported managed care with open panels.
Senator Townsend asked Mr. Evans when the board had been notified for the first time that it would be necessary to sell portfolio to cover a cashflow shortage. Mr. Evans said it had been 2 or 3 years prior to that time. Mr. Hechter stated:
Rate increases were filed in fiscal [year] 1989, ultimately approved at 13.9 percent. Rates were again filed in fiscal year 1990, ultimately approved at 14.5 percent. The fiscal 1991 effective was 7.1 percent. The fiscal 1992 effective was 11.4, and of course, the most recent one was 9.2, which generated a lot of the problems. As far as what we have been able to glean, and working in concert with the Department of Insurance's solvency work and some of the work the Governor's Office has been doing once this began to come to light ... this did not come to light until the fiscal year 1991 financial statements were presented to the board of directors by, at that time, a new accounting firm.
Mr. Hechter said the first direct sales of assets had been triggered in fiscal year 1991.
Senator Townsend stated something should be established to prevent the selling of assets in the future. Senator Shaffer pointed out the proposed legislation allowed for the sale of assets for a variety of reasons. Mr. Hechter said using interest income over the course of a fiscal year to subsidize rates or to make payments when annual cashflow was at a valley was acceptable business practice. Continuously having to invade investment income should be a red flag, according to Mr. Hechter.
Ray Bacon, Lobbyist, Nevada Manufacturers Association, said the main problem with capping PPDs would be the impact to the attorneys' income. He stated because the 66 2/3 percent compensation was non-taxable it only cost a person making minimum wage about $5 per week to stay home. The employee making $26,000 per year saw a net loss of about $14 per week. He felt the fact the compensation income was non-taxable was a major point being overlooked. He testified as to his organization's support of the reduction in benefits.
Ms. Rankin stated a 1 percent rate increase at the current premium level would translate to $45 million.
Senator Townsend asked if an across-the-board increase were possible. Mr. Jayne said it was not possible. He said in concept it sounded fine, but in order to have a structure that recognized the different loss experiences in different classifications, they would have to increase proportionately.
Mr. Craigie agreed with Mr. Jayne, and predicted there would be lawsuits if they tried to increase rates unilaterally.
Senator Brown hoped the committee would look very closely at alternatives to cutting benefits.
Mr. Craigie said the Governor's Office team had tried to design a fiscally conservative system that had minimum benefits, and found a way to pay the best prices for quality care. They felt they were redefining the system the way it should have been in the first place.
Senator Townsend closed the discussion on decreasing benefits, and asked Carol Jackson, Director, Department of Industrial Relations, about the availability of the compliance audit. Ms. Jackson stated the audit would be ready sometime that week. Senator Townsend asked her to make it available to the committee by March 4, 1993. Ms. Jackson agreed to do so.
Senator Brown gave a summary of Exhibit G, Hearings and Appeals of Contested Claims. Senator Townsend suggested Mr. McNally meet with Senator Brown to discuss policy differences regarding Exhibit G.
As there was no further business the meeting was adjourned at 10:20 a.m.
RESPECTFULLY SUBMITTED:
Denise Pinnock,
Committee Secretary
APPROVED BY:
Senator Randolph J. Townsend, Chairman
DATE:
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Senate Committee on Commerce and Labor
March 2, 1993
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