MINUTES OF THE
SENATE COMMITTEE ON FINANCE
Sixty-seventh Session
April 21, 1993
The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:00 a.m., on Wednesday, April 21, 1993, in Room 223 of the Legislative Building, Carson City, Nevada. Exhibit A is the Meeting Agenda. Exhibit B is the Attendance Roster.
COMMITTEE MEMBERS PRESENT:
Senator William J. Raggio, Chairman
Senator Raymond D. Rawson, Vice Chairman
Senator Lawrence E. Jacobsen
Senator Bob Coffin
Senator Diana M. Glomb
Senator William R. O'Donnell
Senator Matthew Q. Callister
STAFF MEMBERS PRESENT:
Daniel G. Miles, Fiscal Analyst
Robert Guernsey, Principal Deputy Fiscal Analyst
Judy Jacobs, Committee Secretary
OTHERS PRESENT:
Judy Matteucci, Director, Department of Administration
David R. Thomas, State Risk Manager, Risk Management Division, Department of Administration
Robert J. Gagnier, Executive Director, State of Nevada Employees Association
Fred Suwe, Quality Control Manager, Unemployment Compensation Service, Employment Security Department
James T. Richardson, Nevada Faculty Alliance
Mansion Maintenance - Page 5
Senator Jacobsen reported last summer he had arranged for the renovation of the gazebo behind the Governor's mansion to be done by the family of Harvey Gross. He estimated the cost may have been as high as $10,000. He said the gazebo had been completely refurbished. He requested support for a resolution to be drafted to thank the family for their generous donation.
SENATOR JACOBSEN MOVED TO REQUEST THE BILL DRAFT AS DESCRIBED.
SENATOR COFFIN SECONDED THE MOTION.
THE MOTION CARRIED. (SENATOR O'DONNELL WAS ABSENT FOR THE VOTE.)
* * * * *
Senator Raggio reminded the committee there would be a joint meeting at 9:30 with the Assembly Committee on Ways and Means. He counseled all present be cognizant of time constraints.
SENATE BILL 389: Specifies amount to be paid by certain public employers for group insurance for public employees for next biennium.
SENATE BILL 390: Specifies amount payable by state for group insurance for retired public employees.
Judy Matteucci, Director, Department of Administration, suggested both S.B. 389 and S.B. 390 be considered at the same time. She declared the administration had submitted both bills.
Ms. Matteucci stated S.B. 389 proposes an allowance for group insurance payments on behalf of state employees for the coming biennium. She said the state would contribute $213.75 per month per employee for the first year of the biennium through June 30, 1994, and $226.50 per month per employee for the period July 1, 1994 through June 30, 1995. She noted that the explanation of group insurance is set forth on page 16A in the budget books and S.B. 389 implements those payments.
David R. Thomas, State Risk Manager, Risk Management Division, Department of Administration, distributed a packet (Exhibit C) of information delineating the background on the development of rates. He called attention to the first attachment to Exhibit C showing medical and inflationary trends. He said the handout also includes descriptions of the process used by actuaries to set rates for the coming year.
Mr. Thomas said the increase of $12.75 depicted in S.B. 389 was arrived at by increasing the medical component of $148.62 of the total premium by the total trend, which was 16.3 percent. He attributed the component to a medical inflation component of 6.5 percent as portrayed in the first attachment which also shows the other factors comprising the total of 16.3 percent.
Senator Raggio confessed the terminology used by Mr. Thomas was new. He asked why medical inflation was stated at 6.5 percent yet the increase was also due to such factors as "adverse selection."
Mr. Thomas replied the other factors depicted were used by the actuary as influential components of the total increase.
Senator Rawson declared as a state employee he would prefer to stay out of the discussion. However he noted he had heard no open discussion of "leveraging" or "adverse selection." Mr. Thomas stated those factors should have been discussed in the past because they have contributed to the total trend.
Senator Rawson said none of those factors had been considered during discussions of hospital legislation by the health care subcommittee. He conceded health care technology is an ingredient and thus the medical component is accepted rather than just the standard consumer/price index (CPI). He requested more information on the components of the medical trend be given to the subcommittee at a later time.
Senator Raggio interjected the issue held enough importance to be discussed. Ms. Matteucci said the terminology "medical inflation" is frequently used instead of "medical trend" in conversation. She stated "medical inflation" sometimes includes "technology" or "adverse selection" or other components. She pointed out there is a significant difference because the medical CPI is much less than what is normally deemed "medical inflation." She ascribed the confusion to the interchangeable use of both terms.
Senator Raggio asked if the percentage used was the same as that used to determine premium increases in the past. Ms. Matteucci responded the committee had used "medical trend" in the past to
determine the increase. She admitted there may not have been as thorough an explanation in the past as was being proposed this session regarding "trend" versus "inflation." She declared it is most important for the committee to understand the basis of increases in the rates because of the number of things happening in the Committee on Benefits that have not happened before. She said the information available is much more comprehensive than in the past.
Senator Raggio asked for an explanation of why the premium for the first year will not have to be increased if "medical trend" factors are being used to determine the amount. Ms. Matteucci averred the state has been subsidizing dependents very heavily in the past, most notably families. She said the proposal will indicate the true costs for the various groups, so no increase will be recommended in the first year of the biennium because the employee will pick up the true cost and families will no longer be subsidized.
Mr. Thomas again referred to the first attachment in Exhibit C in which the components of the medical trend factor of 16.3 percent were set out. He reiterated the $148.62 increase for the medical component reflects the actual cost at the present time. He added the same process had been used for dental and vision coverage. He explained that figure had been increased by the total trend factor of 16.3 percent to come up with a figure of $172.85 to arrive at the actual cost for the first year of the biennium of the medical plan portion of the total health plan. He said that number, $172.85, had been increased by the medical inflation number of 6.5 percent for the maintenance budget.
Mr. Thomas averred the medical contribution of $213.75 for the first year will be sufficient to cover the total premium cost. He added medical inflation for the second year will require an increase of $12.75 in order to continue past policy in which state contributions comprise total employee coverage.
Mr. Thomas described "medical technology enhancements" as a factor used by the actuary to account for cost increases resulting from new technology advancements in the medical field.
Senator Coffin asked:
As I would understand that to mean...where a CAT (computerized axial tomography) scan might have been the previously recommended procedure, an MRI [magnetic resonance imaging test] might be, which would cost twice as much.... There's no increase in illness....
Mr. Thomas responded it could be attributable to new diagnostic equipment.
Senator Rawson asked if anyone knew what the CPI had been at the time those increases were calculated. Ms. Matteucci conjectured the average CPI had been about 3 percent. Senator Raggio ventured it had been 3.2 percent.
Senator Rawson observed the difference between the 3.2 CPI and the medical inflation of 6.5 percent should be explained as the higher cost of medical goods or technology. He wondered if more procedures will be done using the new technology as well as continuing with the old technology. He admitted he still had no clear understanding of why there should be another 2.6 percent added for "medical technology advancements."
Senator Rawson pointed out an MRI test is significantly more expensive than a CAT scan, which is significantly more expensive than an X-ray. He said, "If it was a replacement, you'd expect it to be a bigger percent...so they must be calculating that there is just going to be a new category of procedures added to this that hasn't been added before."
Mr. Thomas offered the opinion it was a combination of both replacement technology and new technology which had never been available.
Senator Rawson asked if the process was used exclusively in Nevada. Mr. Thomas answered it was not, that the figures used by the actuary were industry standards nationwide.
Mr. Thomas explained:
Cost-shifting by providers, particularly since we have a PPO [Preferred Provider Organization] network in place for the self-funded plan,...is a factor that...the actuary uses to account for the shifting that providers do of their cost to us, to other providers outside of our PPO. ...If they sign up with our PPO...they're providing services to our participants at a discount. They're going to make up that discount somewhere.... They shift that to other plans. Similarly we receive some of that shifting from other plans as a result of their being in PPOs or HMOs [Health Maintenance Organization] or other managed care types of organizations. This is a factor that the actuary uses to account for that type of shifting of costs.
Mr. Thomas declared "adverse selection" is a factor used by the actuary to account for choices made by people that adversely affect the plan due to past medical history. He cited new employees who are automatically covered without evidence of good health or proof of insurability may have bad histories which will contribute to elevated costs.
Senator Coffin asked if the fact dependent coverage is voluntary would be another factor to add into adverse selection. Mr. Thomas agreed that would be another consideration.
Mr. Thomas described "leveraging" as an amount used by the actuary to account for the fact there are deductibles and co-insurance amounts that do not change from one year to the next but which are actually changed by inflation. He said the actuary uses that percentage to account for the inflationary impacts.
Mr. Thomas characterized "utilization" as another factor used by the actuary to account for different use patterns by participants from one provider to the next. He said "social shifts" were simply demographic factors used to account for varying types of participants in the plan, especially in a state which has both major urban centers and major rural areas.
Senator Coffin asked if male-female ratios would also be included in "social shifts." Mr. Thomas replied they would as well as age and the high number of single-parent families.
Mr. Thomas called attention to the second attachment to Exhibit C, a letter dated February 19, 1993, with a description of the actuarial analysis and rate determination process.
Senator Raggio asked if the factors were 12 percent for dental coverage and 5 percent for vision care. Mr. Thomas confirmed those were the factors added.
Mr. Thomas pointed out the third attachment, a year-end report from the actuaries, W F Corroon Corporation (Corroon). He drew attention to page 14 entitled "1993 Self-Funded Medical Enrollments" which depicts the actual numbers enrolled versus the projected enrollments and the percentages of variation. The same figures for dental and vision enrollments are depicted on the following page. He said the chart indicates there were 17,773 actual enrollments as of the end of February in the self-funded plan, or 22,165 with the addition of dental and vision enrollments.
Mr. Thomas said the preceding pages show comparisons between actual enrollments and those projected which were used last August to develop the premiums for the current year and the performance of the plan. He requested the committee to turn to the second page which indicates how the actual enrollments compared to the projections for each of the various rate categories. He noted the projections were very close with only a 1.7 percent variation overall.
Mr. Thomas turned to the chart labeled "Self-Funded Medical w/Rx Claims to Premium Loss Ratios" which indicates the actual numbers of claims versus the number projected. Although Corroon's numbers were off, Mr. Thomas stated, "He was off to the good." He noted the final number of claims was 10.2 percent less than had been projected.
Senator Rawson pointed out there appeared to be two categories that had more error than the others. Those were non-state retirees and COBRA (Consolidated Omnibus Budget Reconciliation Act of 1985) recipients. He asked, "Is there any concern...are we watching that issue of the non-state retirees and how they're hitting the plan?"
Mr. Thomas replied that all retirees are pooled together under one group but the actuary had separated them for comparison purposes. He acknowledged they are being watched. As for the COBRA recipients, he agreed with Senator Rawson the number of persons involved is small.
Senator Rawson asked if it was appropriate for the state to pay the retirees versus the employees. Mr. Thomas responded the state does not make a contribution for non-state employees or retirees. He said the non-state employees and retirees are pooled and rated separately from state employees.
Mr. Thomas called attention to the last attachment labeled "Relative Premium Values." He explained:
One of the key efforts that the committee undertook in studying rates for this year...was to seek the development of rates that would...appropriately assign the risk associated with each...level of coverage in the plan. This shows you the values of the premiums that were used to develop that.
Mr. Thomas explained the first column shows the tier structure that was in effect until January, 1993, called a three-tier structure. Those were employee only, called "EE," employee plus one dependent and employee plus two or more dependents. He noted retiree tiers are included on the page too.
Mr. Thomas said the column labeled "Current Monthly Premium" indicates the medical portion of the premium last year. He said:
[The] "Current Relative Value" column shows you, if you consider that employee-only premium was 100 percent, the relative value of the other tiers in relation to employee-only coverage, such that employee-plus-one premium at $246.58 is 37.73 percent more than employee-only coverage. Full-family coverage was 41.26 percent more than employee-only coverage.
Mr. Thomas continued:
To put that on a basis where the risk of those tiers is assigned appropriately, where they are paying their fair share...the next column...shows you how that's done. Instead of employee-plus-one coverage, for example, being 37.73 percent more than employee-only coverage, it ought to be 98 percent more.
Senator Raggio asked Mr. Thomas to explain why the coverage should be 98 percent more. Mr. Thomas answered:
In this tier structure employee-plus-one can be an employee-plus-spouse, it can be an employee-plus-a-child. The cost of that additional dependent...is 98 percent more.... If that is a spouse it ought to be 100 percent more, but since it could be a child he reduces that...by 2 percent to account for the lessor costs of children.
Senator Raggio asked if the figures depend upon age or gender or other demographics. Mr. Thomas confirmed the query.
Mr. Thomas said the move to a four-tier structure had been made primarily to recognize the fact there are an increasing number of single-parent families. He conceded it had been recognized that a single parent in the three-tier structure with two or more children had been paying a premium for employee-plus-two-or-more, yet a family consisting of two parents and one child was paying the same rate. He acknowledged the costs are higher for the latter situation because of the additional adult.
Mr. Thomas said that was why the four-tier structure had been adopted, the values for which are used for premiums as depicted on the chart. He admitted children cost less to a health plan than adults. He pointed out childhood ailments include such things as colds, childhood diseases, broken arms or other problems from which they recover, while adults have major catastrophic ailments such as cancers or heart disease that are very costly.
Senator Rawson opined the new premium structure is "a major philosophical shift." He suggested large families may have been subsidized under the old system, with which Mr. Thomas agreed.
Senator Rawson declared Nevada has 65,000 uninsured children. He asked if estimates had been made as to how many children may be taken off the insurance plan due to increased premiums. Mr. Thomas said an analysis had been made of December enrollments compared to January enrollments when the shift occurred. He declared there had not been many families dropping dependents and using employee-only coverage.
Senator Rawson observed, "I see the major direction in the country being to add children first, and this seems to be going counter to that. It may be that there's not that many children involved among the state employees." Mr. Thomas responded the observable shift in full-family situations was generally where the spouse was excluded from the plan because the spouse had coverage from another employer. He declared those shifts will be considered in the coming year's rates.
Mr. Thomas said there had been an increase in employee-only coverage in the self-funded plan and a shift from full-family coverage to employee-plus-children or employee-plus-spouse coverage. He admitted to difficulty in establishing how many children or spouses had been dropped, but he opined those dropped had been transferred to the spouse's coverage.
Mr. Thomas called attention to the last page of Exhibit C which shows the actual premiums. He said the table on the left charted the 1992 premium rates while the table on the right charted the 1993 premium rates using the four-tier structure.
Mr. Thomas said the same methodology was used for retiree rate structures, which are depicted on each of the charts.
Ms. Matteucci declared the issue during a tight fiscal situation was whether or not the state should continue to subsidize dependent rates, in particular rates for two-parent families. She recommended state subsidization be eliminated and charges for dependents should be assessed at cost. She acknowledged the Committee on Benefits had different recommendations. She felt the confusion and inequity of the three-tier plan would be eliminated by the new rate structure.
Calling attention to the last attachment of Exhibit C, Senator Raggio asked:
You're indicating that, for an employee only, the total rate, $187.45...the state would be paying under this proposal $213.75. So in effect the state is paying a portion of a situation where an employee and one spouse are covered. That cost is $361.10, for example, so that the state's...subsidizing a portion up to $213.75. Is that the fact?
Mr Thomas responded:
The Committee on Benefits took specific action in November to take that difference between $213.75 and the $187.45, some $26, and apply that to the cost of the full-family coverage. It reduced that full-family coverage by $100. So there is now...a direct subsidy but it's to the full-family rate only.
Senator Coffin observed the full crisis last fall was due to the fact premiums were outstripped by claims. He continued to say, "Your incurred but not reported reserve, IBNR [Incurred But Not Reported], was being completed. You had to recalculate. You found out that you...either needed more premium, in midyear, or lower claims, so, to force lower claims you cut benefits." He suggested the make-up of enrollments may change because of the radical change of the benefit structure. He assumed the rates were based upon lower benefits, not upon the benefits for which the legislature had appropriated funds at the last session. He averred the major issue before the committee was whether or not benefits should be kept lower as at present or how much would have to be added to bring them up to the previous level.
Mr. Thomas said Senator Coffin was correct in his appraisal of the benefit structure. Ms. Matteucci agreed the statement was basically correct with one addition. She suggested the committee may want to determine whether to make some sort of direct or indirect subsidization through contributions by the state.
Senator Coffin acknowledged there had always been some sort of subsidy, but that it had grown considerably during the 10 years in which he had served. He asked if the shift had affected HMO rates, since those with several dependents may be driven to HMOs for care.
Mr. Thomas responded the rates at HMOs had also increased significantly to the point where employees must contribute for employee-only coverage in the northern part of the state.
Senator Coffin countered, "So they have suffered adverse selection because of the changes we made...?" Mr. Thomas responded, "If we lost any I suspect it was families...to HMOs." Senator Coffin rejoined, "I notice that one of the HMOs...Hospital Health Plan [HHP] up north...gained participants equally, the employee and dependent."
Mr. Thomas explained one reason had been due to the addition of the Airport Authority of Washoe County which had mostly HHP participants. He asserted that was not an actual shift, but he admitted it will affect the premiums charged by HMOs.
Senator Raggio asked, "So that we have it on the record, what were the reductions in benefits that were put in place and are now being retained. What actual reductions--" Mr. Thomas interjected:
Actually there were very few reductions. In the dental they reduced the annual maximum benefit level from $1,500 to $1,000. The major change was to put some teeth into our PPO network. Prior to this year the plan provided that for a PPO provider versus a non-PPO provider we would pay the same percentage. The law provides that we can have up to a 30 percentage point difference in what we pay PPO providers versus non-PPO providers. They implemented that so that we now have a 30 percent spread.
Senator Raggio asked if that was for all providers, including hospital providers. Mr. Thomas replied:
No,...the hospitals are different. The important change there, although we did increase the difference between what we pay a PPO hospital versus a non-PPO hospital, and we only have two non-PPO hospitals in the whole state...the major difference there was in the co-insurance threshold. The co-insurance threshold is that amount to which your hospital and provider charges apply.... Once it reaches that level we pay 100 percent. Some people call it stop-loss.... It's truly a co-insurance threshold. Once your charges to which co-insurance applies reaches that level, which last year was $7,500, we pay everything else. So there was no incentive for someone to use our PPO hospital in the north, Washoe Med [Medical Center] versus Saint Mary's [Hospital], our non-PPO hospital, particularly for a major problem, because they knew they were going to hit the $7,500 level real quick and we'd be paying everything else. So we increased the...co-insurance threshold on the PPO facilities to $10,000 and to the non-PPO facilities, $20,000. So now there is a real disincentive for someone to use a non-PPO and a real incentive for them to stay within the PPO network.
Senator Raggio inquired if that meant the charges for a person using a non-PPO hospital would not be paid at 100 percent until the hospital charges reached $20,000. Mr. Thomas responded that was essentially correct.
Senator Coffin asked, "Does the statutory threshold that we have in place for insured carriers approach this, or have you exceeded that? Does it cover the...disincentive maximum?" Mr. Thomas answered the maximum was 30 percent.
Robert J. Gagnier, Executive Director, State of Nevada Employees Association (SNEA), called the issue critical and declared it was one of the top three issues for the year to confront the legislature from the standpoint of SNEA.
Mr. Gagnier distributed a handout (Exhibit D) to which he referred while reading his testimony (Exhibit E). He called attention to the low contributions made by the state over the past 2 years as depicted on the front of his handout. He asserted the increases which must be paid by the employees are substantial as shown in chart B of Exhibit E. He pointed out the last line indicates the costs since the Committee on Benefits postponed $100 of the $176 increase for families. He stressed the fact that $100 was made as a postponement, not as a cancellation.
Mr. Gagnier continued reading his testimony which explained the ensuing charts. He alleged state employees are not only falling behind local government salaries but also are falling behind on insurance benefits.
Senator Raggio asked about the private industry category on chart E. He related the private sector has experienced the same kind of situation regarding health care benefits in which there is a reluctance to pay costs for dependents and there is a trend toward increasing copayments. He averred his law firm and others that he has surveyed are limiting benefits and are requiring higher copayments. He asked, "If that's the trend in the private sector, why should the public sector be treated differently?"
Mr. Gagnier contended Senator Raggio was using a narrow group of private industry as a basis for his allegations. Senator Raggio rebutted he had heard many outside his profession make similar statements regarding higher copayments, lowered benefits and treatment insofar as PPO or non-PPO usage.
Mr. Gagnier responded:
It very well may be the trend in the private sector, but that's why we've included the information that we did from the U.S. [United States] Chamber of Commerce Research Center. We subscribe to that, I believe the research division also subscribes to that. Based upon the average salary of state employees in Nevada we should be getting $261.50. That's what is paid, 10.9 percent of salary, in the U.S. Chamber of Commerce study. And that...is not all large employers. It includes smaller employers also. They have a very large cross-section throughout the United States. As an example, my 12-employee office is one of those that is surveyed by the U.S. Chamber of Commerce. The other states...you can see that...the tendency is to break down and have direct subsidies of family while ours is indirect, and their direct subsidy average is $297 for families throughout the United States.
Mr. Gagnier said chart F was prepared to show the deductible for Nevada local governments because there was a $50 increase in the deductible payments for state workers beginning the first of January. The total deductible for state workers is now $250. He asserted, "Not one of these local governments has a deductible as high as $250. Some of them have no deductible and the rest of them, the average is $200 per employee or per person with a combined total of $400 per family. Ours is $250 and $500. So we're getting hit up front and we're getting hit at the tail end also."
Mr. Gagnier declared SNEA had caused introduction of A.B. 97.
ASSEMBLY BILL 97:Specifies amount to be paid by certain public employers for group insurance for public employees for next biennium.
He said, "That bill calls for amounts $275 the first year, $324 the second year. We believe that's the amount that is necessary to restore the lost benefits and to lower the dependent premiums."
Senator Raggio asked what the total dollar amount would add up to under A.B. 97. Mr. Gagnier said the fiscal note indicated it would cost about $15 million for the first year. He said the cost of A.B. 97 is displayed on the back of the handout (Exhibit D).
Senator Coffin asked if Mr. Gagnier had provided the Assembly Committee on Ways and Means with a list of options with concomitant costs if the legislature were to return some of the benefits. Mr. Gagnier replied he had not made a list of individual costs such as the cost to return the $50 deductible. He said, "All we've done is what it would impact the total state funds for various levels...."
Senator Coffin requested copies of any such information that the Risk Management Division might provide to the Assembly Committee on Ways and Means. Mr. Gagnier responded the question had not been posed when the hearing was held on A.B. 97. He offered to get the information from the Committee on Benefits.
Mr. Gagnier asserted the increases in A.B. 97 would not restore all the benefits that had been cut and some of the changes would remain in effect. He admitted the price to implement A.B. 97 is high and will cause concern among legislators regarding the fiscal ramifications. He pointed out the total funds displayed in chart G of the handout. He reminded the committee the figures represent total funds, not just general funds.
Mr. Gagnier said chart H indicates the number of participants in the plan by family category.
Fred Suwe, Quality Control Manager, Unemployment Compensation Service, Employment Security Department, stated the Committee on Benefits has not adopted a philosophy to reduce or move away from subsidization of dependents. He alleged that philosophy had been developed and encouraged by the administration, as reflected in S.B. 389. He said the Committee on Benefits did adopt the four-tier plan in recognition of the growing number of single-parent households.
Mr. Suwe pointed out there is an increase of about $40 for a single parent with one child, to nearly $500 per year. He asserted there will be spouses and children left without health insurance if there is no subsidy. He said the reason there had not been a heavier departure of families in the plan was due to the fact the Committee on Benefits made a decision not to "raid" the premium of $306 per month. He said the increase had been delayed, but it will be implemented if no more funding is forthcoming from the employer side.
Mr. Suwe maintained a cost of $306 per month out-of-pocket to cover spouses and children will drive many employees away from taking out coverage of their families. He said:
We only implemented a $206 a month out-of-pocket by taking the difference between what the single employee without dependents and without covering their spouse was paid by the state for $213 and the roughly $187 that it cost. Instead of putting that back to build back the reserves we're delaying building back the reserves. At some point we're going to have to face that issue of getting back to a safe level of reserves and not subsidize that family rate.
Mr. Suwe stated the Committee on Benefits had authorized him to report that it had gone on the record in support of A.B. 97. He said the committee considers A.B. 97 the crucial piece of legislation to maintain the integrity of the health-maintenance plan employees have come to rely upon for themselves and for their dependents.
Senator Coffin asked if employees were delaying treatment and reducing claims since it became apparent that there are financial problems and a decision was made to cut funding. Mr. Suwe said the data from January made it appear as though the reduction in benefits, especially greater disincentive to use non-PPOs, had caused a reduction in the amount of reserve needed. As an example he cited at the time the decision was made to make the changes it was necessary to have reserves for approximately 2.7 months in order to pay for IBNR claims. He said in January it began to look as though 2 months reserve would be adequate.
Mr. Suwe attributed the drop to two circumstances. He said the claim turnaround time is faster from preferred providers and also the state has a discounted-rate agreement with PPO physicians.
Senator Coffin asked if December claims had been higher because employees may have been taking advantage of the existing benefits before they were lowered. Mr. Suwe confirmed that appeared to be true as far as dental benefits, especially regarding reimbursements for crowns. He said under the previous copayment the state paid 80 percent.
Mr. Suwe stated:
While costs are going up, and we had enjoyed for some time a maximum benefit of $1,500 a year for dental work, we reduced it to $1,000 at a time when it doesn't take much to get to $1,000 on dental work that needs to be done....
Senator Glomb asked for another explanation of how A.B. 97 would fit into the picture. Mr. Suwe repeated:
A.B. 97 asks for an increase of how much the employers' contribution would be that the Committee on Benefits has adopted as would be able to substantially restore the benefits that were reduced as well as continue to subsidize the philosophy of subsidization of the dependents. Now, I think the committee agrees that as costs go up, employees will have to also increase the amount that they contribute. We're asking them to do that at the time when there's no increase of any kind to employees' income.
Senator Glomb noted according to figures provided by the State Risk Manager on the second page of a memorandum dated April 8, 1993, (Exhibit F), the new cost for one dependent of an employee will be $130 beginning in July, then $182 from January 1994 through June 1994, followed by a reduction to $170 and then an increase to $230. She asked if those figures were correct according to Mr. Suwe's understanding.
Mr. Suwe responded he did not anticipate any rate change in July. He said rate changes generally occur after open enrollment, which generally takes place in January. He stated the rate is already $130 and the figure will remain the same until the end of the year, at which time the Committee on Benefits would make an actuarial analysis of anticipated costs.
Mr. Suwe said the rates cited at the top of the second page of the exhibit are the present rates. He indicated he did not know what the source was for the other figures.
Mr. Thomas interjected the figures were estimates that had been supplied by the actuary. He said, "Given the current scene today and assuming...no increase in the state contribution the first year and a $12.75 increase in the second year, ...what would...the employee have to pay for dependent coverage through the biennium. These are merely estimates taking a picture of today's enrollments...."
Senator Glomb asked if the Committee on Benefits had to give approval to any changes. Mr. Thomas replied she was correct and the figures shown had not been adopted. He opined if no dependent increases were approved by the committee it would be necessary to raid reserves just as had been necessary the previous year.
Senator Glomb stated it seemed to her that not enough money had been appropriated for employee benefits. She said, "Either way we go we're putting ourselves at risk, because the money just isn't there to adequately take care of this need." Mr. Thomas agreed with her, stating that was the position of the Risk Management Division.
Mr. Thomas reiterated there would be no other issue during the session which was of such interest to state workers. He declared employees have no place to go for relief except to the legislature as their employer.
Senator Raggio inquired if, in order to provide those requests, the additional cost would be in excess of $12 million per year. Mr. Gagnier responded that was true for the amount in A.B. 97 and it would be even more the second year.
James T. Richardson, Nevada Faculty Alliance, disclosed he had chaired the Committee on Benefits for six years. He asserted the issue of health support from the state would impact the problem of the university budget. He admitted an understanding that the change of philosophy was budget-driven, but declared, "The...professional employees at the university simply do not understand why it seems to be the preferred policy to hold this state harmless in the face of considerable medical...and dental inflation that is occurring."
Mr. Richardson repeated the 16.3 percent figure for medical inflation and 11 percent for dental inflation. Admittedly he had urged discussion of the problem last fall by the Interim Finance Committee (IFC) to determine if relief could be found. He also had requested that a discussion of the problem be presented to the legislature early in the session.
Mr. Richardson conceded he had no idea where the legislature could find the funds, pointed out that was not his job, but declared he would be glad to discuss any ideas that were being proposed. He recognized there would be no pay increase for a period of 3 years. He called the cut significant for those who have dependents and will have to pay much higher rates.
Mr. Richardson averred:
It's also a benefit cut for every state employee in another sense, and that has to do with the retiree bill before you. This state has had a policy...of subsidization of dependent rates. This state has also had a policy of using extra money...to prefund retirement health care costs. ...when you retire your health costs typically skyrocket and to bear the total brunt of that is a...serious problem. And so we...have had a policy that's called prefunding, where you put a little in the kitty every year....
Mr. Richardson asserted the cessation of prefunding presented a significant shift that affects the health benefits and the well-being of every state employee who retires. He urged the committee to try to find some money with which to fund prefunding. He admitted it may not be possible to fully fund A.B. 97, but he declared any gesture, albeit small, would be greatly appreciated by all state employees.
Senator Raggio asked the committee to consider S.B. 329 which had been heard on April 2, 1993.
SENATE BILL 329: Makes supplemental appropriation to state distributive school account.
He pointed out the state's share of the distributive school account would be at zero by the end of the month. He voiced his intention to take a vote, refer the bill to the floor and have it acted upon as an emergency measure so that it could be passed along to the assembly.
Senator Raggio asked if there were any further discussion on the bill.
SENATOR COFFIN MOVED TO DO PASS S.B. 329.
SENATOR JACOBSEN SECONDED THE MOTION.
Senator O'Donnell announced his wife is a school teacher, and if he were to vote the way he intended to vote, he would be voting for a reduction in his wife's potential salary increase. He said he felt, therefore, that he did not have a conflict. He declared he was going to support the measure.
THE MOTION CARRIED UNANIMOUSLY.
* * * * *
Senator Raggio asked if there was any further testimony on S.B. 389 or S.B. 390. Noting that there were two individuals who desired to testify he inquired if they could return the following day. They agreed to return on the following day.
Senator Raggio adjourned the meeting at 9:35 a.m. to enable members of the committee to attend a joint meeting with the Assembly Committee on Ways and Means.
RESPECTFULLY SUBMITTED:
Judy Jacobs,
Committee Secretary
APPROVED BY:
Senator William J. Raggio, Chairman
DATE:
??
Senate Committee on Finance
April 21, 1993
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