The Committee on Government Affairs was called to order at 8:15 a.m., on Friday, March 5, 1999. Chairman Douglas Bache presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All Exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Mr. Douglas Bache, Chairman

Mr. John Jay Lee, Vice Chairman

Ms. Merle Berman

Mrs. Vivian Freeman

Ms. Dawn Gibbons

Mr. David Humke

Mr. Harry Mortenson

Mr. Roy Neighbors

Ms. Bonnie Parnell

Ms. Gene Segerblom

Mr. Kelly Thomas

Ms. Sandra Tiffany

Ms. Kathy Von Tobel

Mr. Wendell Williams

STAFF MEMBERS PRESENT:

OTHERS PRESENT:

Chairman Bache called the meeting to order at 8:15 a.m. and announced a presentation by UICI Administrators.

James L. Jackson, local legal counsel and lobbyist for UICI Administrators, introduced the presentation. UICI, the Third Party Administrator (TPA) for the State of Nevada Employees’ Self-funded Benefits Program, took over TPA duties 18 months previously after the previous TPA, L&H, resigned. Since that time UICI had been successful in reducing a backlog of nearly 140,000 claims left unpaid by L&H. UICI worked very closely with the Committee on Benefits prior to its dissolution, and continued in its cooperative role with the Risk Management Office and the Special task force recently appointed by Governor Guinn.

Mr. Jackson introduced Diana Valdez, President and Chief Executive officer of UICI Administrators, and Jan Marie Reed, Branch Operations Manager and local (Reno) account executive. Prior to the disbanding of the Committee on Benefits, Mr. Jackson continued, UICI had hoped to comment and provide a rebuttal to the Kafoury-Armstrong audit that had been performed several months previously (see Exhibit C). In addition, UICI provided copies of audits by First Consulting Group (Exhibit D), and from Health Care Benefits Review (HBR) (Exhibit E). Each of the three audits was undertaken at the behest of the Committee on Benefits and was previously provided to members of the Committee on Government Affairs.

Mr. Jackson explained no one from the staff of HBR was able to attend the hearing. However several staff persons from First Consulting Group had accompanied them and were prepared to discuss their audit of UICI.

Diana Valdez gave an overall view of UICI Administrators, which was a fully-owned subsidiary of UICI, a publicly-traded financial services company. They administered medical, dental, vision, COBRA (Consolidated Omnibus Budget Reconciliation Act of 1984), HIPPA (Health Insurance Portability and Accountability Act of 1997), and enrollment services for 27 clients nationwide. There were 57 employees in the Reno office, of whom 99 percent were Nevada residents.

UICI took over TPA duties for the State of Nevada in 1997 under an emergency situation, Ms. Valdez continued. In June 1998 UICI was awarded a 3-year contract after extensive negotiations with Risk Management and the Attorney General’s Office. The new contract was more stringent than the original contract; UICI agreed to a 21 percent performance penalty, which was 13 percent higher than any performance contract it held with its other clients.

Ms. Valdez referred to the rebuttal letter (Exhibit C) wherein UICI took exception to the Kafoury-Armstrong audit.

Chairman Bache asked the meaning of the acronym UICI. Ms. Valdez responded it stood for nothing at the present.

Jan Marie Reed, Reno Branch Manager for UICI, continued the discussion. She explained UICI met with the Committee on Benefits monthly, and that they were working with Risk Management on a daily basis. She indicated she would discuss the Kafoury-Armstrong audit in some detail, and read the opening endorsement into the record (Exhibit C, Rebuttal, page 2).

"UICI Administrators appreciates the state’s need to audit our claim functions. It was our suggestion and at our request that the 1999 contract provides for quarterly audits conducted by qualified personnel hired by the state. It is imperative, however that the audits be conducted based on industry standards. The information and assumptions must be valid and accurately reflect the activity of the TPA.

"UICI Administrations rebuts the Kafoury-Armstrong audit on four levels:

1. Selection method/type of audit.

2. Outlier issues on large dollar error.

3. HIAA (Health Insurance Association of America) vs. MDR (Medical Data Research)

4. Prompt payment.

"Attached is the explanation of our rebuttal.

"We have completed an audit of all high dollar claims including system and provider loads. We have corrected any errors and have taken appropriate action. We view audits as an opportunity to learn and make improvements. Thank you for your attention to our concerns."

Ms. Reed discussed each point in greater detail.

1. Selection method/type of audit: There were three types of acceptable industry-wide audits: non-stratified random, stratified random, and invalid sampling. UICI found the Kafoury audit selections had not been made based on an industry standard random sampling, and the inadequacies in the random sample made it impossible to calculate errors across the entire population, which in turn inaccurately reflected the error ratio.

2. Outlier issues: Standard auditing practice required that outlier (far outside) selections be removed from samples prior to commencement of the audit. UICI noted a $113,000 claim had not been eliminated, thus causing a larger than normal error.

3. HIAA versus MDR: These were fee schedule data bases. At the time UICI Administrators assumed TPA administration of the plan, it implemented MDR fee schedules in place of HIAA fee schedules. UICI rebutted the statement there was a verbal agreement with the Risk Manager to do that. All agreements were confirmed and documented in writing.

4. Prompt claim payment: At no time did UICI agree to pay based on terms other than the Preferred Provider Organization (PPO) contracts. UICI was instructed by the state to process claims according to executed contractual agreements between the state and PPO vendors.

Ms. Reed provided UICI’s February Service Report to the State of Nevada (Exhibit F). She called the committee’s attention to the fact UICI had improved turnaround time for claims processing to less than 10 days. Refunds and adjustments were processed within a 24-hour period. There were approximately 3,000 open claims, which was acceptable for an account the size of the State of Nevada.

Assemblywoman Tiffany complimented Ms. Reed on the thoroughness of the report. She asked if other administrators had used reports of the same format and, if the Committee on Benefits had required the information, why the obvious problems had not been more apparent.

The format used by UICI for the audit report was not a required format, Ms. Reed responded. L&H had handled claims unrealistically, processing the easy ones and none of the difficult ones. Several former L&H employees were working for UICI and were able to assist in resolving many problems.

Ms. Tiffany asked when UICI took over the L&H contract if an internal audit had been performed at the time. Ms. Reed replied UICI had gotten a separate contract and had not agreed to emphasize performance penalties. When L&H closed down, its computerized claims data was given to UICI. The data was badly corrupted. UICI spent considerable time trying to reconstruct the information and finally hired an outside vendor to look into the matter.

Assemblywoman Von Tobel inquired if all claims had been overpaid or simply the more obvious ones.

Advance payment was a decision made by the Committee on Benefits, Ms. Reed replied. Lump sum advance payments were paid to many providers based on documentation presented at the time. About 60 advance payments were made and, although later attempts were made to collect them, many remained outstanding. UICI worked directly with the Attorney General’s Office on the problem and hoped to decrease the number of overpaid claims by the end of April.

Assemblywoman Berman asked for a description of "waiting provider load." Contracts with Preferred Provider Organizations (PPOs) were complicated, Ms. Reed said. "Waiting provider load" meant clarification was needed as to the actual service provided and the claim was held open until the PPO furnished more information.

Assemblyman Lee asked Ms. Reed if the relationship between the Committee on Benefits and UICI had contributed to any problems, and if so, what her suggestions would be for improvement.

Ms. Reed said it was difficult to work with people who had little or no understanding of the medical insurance industry, especially under duress.

Assemblywoman Freeman appreciated Mr. Lee’s question. She asked if the Committee on Benefits had made its best judgement based simply on the audit reports. Ms. Reed observed the committee had made decisions based on information besides the audit reports, and it had not been prepared for the unique situation that occurred with L&H. Mrs. Freeman wondered if L&H had provided true information to the auditors. Ms. Reed did not know.

Mrs. Freeman asked with whom UICI was contracted. Two ongoing contracts selected by the Committee on Benefits were in already in place, Ms. Reed replied. Hometown Health Plan served northern Nevada and Sierra Health Services served the southern portion of the state.

Chairman Bache referred to what he called the "spaghetti management" of the Committee on Benefits in that it had certain responsibilities but no authority, and felt the structure should be changed.

James Jackson commented he had started his relationship with UICI as a result of the lawsuit the State of Nevada brought against L&H Administrators. He believed many of the issues mentioned would be brought out during the suit. He described the pending civil suit for damages as " . . . a bit of an attempt to squeeze some blood out of a rock and there’s a lot more rock than there is blood." L&H was basically bankrupt, he continued, and there were a lot of people besides the State of Nevada hoping for some recovery.

Mr. Jackson introduced James McPhail, Vice President of First Consulting Group.

First Consulting Group, Mr. McPhail said, was a leading provider of operations improvement and information management services for the healthcare industry. Referring to Exhibit G, he discussed the various segments of healthcare in which First Consulting Group was involved.

Upon the instructions of the State of Nevada and UICI, he continued, First Consulting Group conducted an on-site audit from January 18 through January 22, 1999. The audit (Exhibit D) was made to determine if UICI was properly applying benefits during the audit period, which covered the 6-month period from July 1 to December 31, 1998. First Consulting Group reviewed 198 random claims, of which 34 were dental and 164 medical.

Mr. McPhail discussed the audit report in detail. First Consulting Group found UICI was complying with performance guarantees in the areas of financial, payment and processing accuracy standards. What was not met during the claims audit period was the claims turnaround time. The audit showed only 45 percent of claims processed, whereas the performance guarantee was 85 percent.

In addition, he continued, a limited operational assessment was conducted. First Consulting Group recommended the State of Nevada consider working with UICI to maximize electronic adjudication of claims. Nan Coleman and Mary McMeans, who worked on the audit, answered questions from the committee.

Assemblyman Humke asked for definitions of the basic categories of financial, payment and processing.

Nan Coleman referred Mr. Humke to page 47 of the audit report and explained financial accuracy was dependent on actual dollars audited. Payment accuracy was the number of claims, and processing accuracy was a procedural approach, such as proper coding or dates of service. Processing accuracy was not a payment error. If a claim was entered into the system and the date of service was incorrect, Ms. Coleman explained, it would count as a processing error but would not affect payment of the claim.

Mr. Humke reiterated the state’s problems. In 1997 the State of Nevada discovered L&H was going out of business. UICI in 1998 tried to rectify the problems left behind by L&H. "With that background, how does this state’s experience with a catastrophic situation with a contractor, L&H, compare with other states’ experiences you have seen?" he asked. "How are we doing?"

UICI had a big situation which took time to rectify, Mr. McPhail replied. He encouraged the State of Nevada and the legislature to continue monitoring efforts.

Assemblywoman Von Tobel had financial concerns. She did not understand how the financial graphs on page 7 of the audit report showed actual performance better than industry standard when " . . .financially we believe it’s an absolute mess."

Global financing of the benefit plan was not addressed in the audit, Mr. McPhail replied. Ms. Von Tobel recalled that approximately $9 million had been paid out for claims more than 30 days overdue, which would have been paid at 100 percent. She asked if the audit basically showed UICI’s ability to pay claims accurately, not the entire financial shape of the plan. Mr. McPhail responded affirmatively.

Assemblywoman Parnell asked for the global financing picture, not simply an audit. Mr. McPhail responded it was not within First Consulting Group’s scope of work, and that to do an ongoing claims audit would require a different approach.

Ms. Parnell asked Chairman Bache if such information had been requested.

Mr. Bache replied he believed the legislative audit of the Committee on Benefits had addressed the question. Part of the audit looked at what L&H had left behind. "As the people at UICI pointed out, they [L&H] had taken care of all the easy stuff and left the large, difficult claims off to the side. The Committee [on Benefits] then had false information as to the actuarial history. When those larger claims came in that UICI had to handle, that is where the problem was," he said.

James Jackson, UICI, summarized the problems UICI faced when it took over management of the State of Nevada’s health care plan. He referred to the Health Benefits Review report (Exhibit E) provided as an adjunct to the audit from First Consulting Group, and pointed out the audit results were consistent with those of First Consulting Group.

Chairman Bache, hearing no further questions for the presentation panel, opened the hearing on Assembly Joint Resolution 10.

George Pyne, Executive Officer, Public Employees Retirement System of Nevada (PERS) testified in favor of A.J.R. 10. Reading from a prepared statement (Exhibit H), he said mandatory Social Security coverage of newly hired state and local government employees would seriously disrupt the PERS system and listed the following scenarios:

1. "Should we be forced to overlay the cost of Social Security on our current plan structure, it is estimated the cost to Nevada employers and new hires would be $27 million in the first year rising to $157 million after just 5 years. It is easy to see the serious financial disruption this unfunded mandate would cause.
2. "If, on the other hand, we were to lower contributions to PERS by the amount of the Social Security (FICA) tax to maintain level costs, public employee benefits for new hires in Nevada would be eroded from 13 to 25 percent. Why? Because a dollar invested in PERS buys more than a dollar contributed to Social Security.
3. "As a final scenario, consider the impact on contribution rates if it were decided to maintain the same benefit level for new hires, the cost of their retirement would be increased significantly. Regular member contribution rates would increase to 27 percent of payroll from 18.75 percent."

No evidence supported the statement that the coverage of new hires would solve Social Security’s funding problems, Mr. Pyne continued. Workers’ benefits would be lowered, taxpayer burdens raised, public dollars diverted away from education and public safety programs, and increase the long-term cost of Social Security. He closed by requesting committee support of A.J.R. 10.

In response to a statement from Assemblyman Mortenson that he "loved Social Security," Mr. Pyne agreed the system was one of the most successful social programs in the history of mankind, but it needed to be fixed. PERS supported voluntary affiliation of public pension plans and Social Security but reiterated the PERS plan was excellent. Mr. Mortenson asked if PERS participants received yearly benefit increases in proportion to the Consumer Price Index (CPI). Mr. Pyne explained that PERS retirees received a 2 percent yearly increase after the first 3 years of retirement; that was raised to 3 percent after 6 years; 3.5 percent after 9 nears; and 4 percent after 12 years. All increases were permanently funded.

Mr. Mortenson asked about caps on increases. Retirees always received the increases stated above, Mr. Pyne responded, unless he or she was in a situation where the cumulative PERS benefits exceeded whatever inflation was over the same period of time. The graduated increases were in place to recognize erosion of purchasing power for long-term retirees over time.

Assemblywoman Tiffany asked where the issue of mandatory Social Security coverage originated. Several national commissions had studied Social Security problems, Mr. Pyne responded. Mandatory coverage was only one of many issues recommended for solving the financial problems of the program. Even though the issue was not in the 1999 presidential budget, the issue was critical enough for PERS to lobby Nevada’s congressional delegation. He felt it was a real possibility the 1999 Congress would consider mandatory Social Security coverage.

Assemblywoman Von Tobel wondered how many state employees, especially those with a second job out of state, were part of the Social Security system. Mr. Pyne did not have the actual numbers, but indicated nearly 7 million public employees nationwide were not covered by Social Security.

Assemblywoman Segerblom indicated her favor of A.J.R. 10.

Chairman Bache, a vested member of PERS, said passage of A.J.R. 10 would have no financial impact whatsoever. He felt sending A.J.R. 10 to Congress would reinforce the State of Nevada’s position that PERS was an excellent system and the state would like to keep it that way.

Mr. Pyne mentioned Congressman (Jim) Gibbons was drafting a House resolution that addressed the same problem.

Assemblyman Mortenson indicated he would vote for the resolution.

Assemblyman Neighbors said he was a member of both PERS and the Social Security system, and in his opinion there was no comparison. He supported A.J.R. 10.

Chairman Bache said Debbie Cahill, who represented the Nevada State Education Association, was unable to remain at the hearing, and that she and her organization were in total support of A.J.R. 10.

Marty Bibb, Executive Director, Retired Public Employees of Nevada (RPEN) supported the resolution. The PERS system was solvent and he did not want to see it merged with a system that "changes with the political winds."

Bob Johnson, Legislative Chairman of RPEN, indicated many people were not aware if he or she drew a pension from a public retirement system, Social Security benefits were reduced accordingly.

Chairman Bache commented, "We have, as I’ve observed over the years, one of the best retirement systems in the country. Because of the investment policy of the PERS board . . . I’d like to commend Mr. Pyne, Ms. [Dana] Bilyeu, Ms. [Laura] Wallace, and the members and staff of PERS for how they handle the funds. Because of their investment policies and what they do . . .our system is well braced to handle hard times. A well-managed fund!"

Mr. Bache asked for a motion on A.J.R. 10.

After a brief recess, Chairman Bache opened the hearing on Assembly Bill 318.

Assemblywoman Barbara Buckley, Assembly District 8, introduced A.B. 318. In the 1997 session the legislature adopted a bill allowing cities and counties to donate surplus land for the purpose of affordable housing. The bill passed and was enacted into law. Clark County was the first entity to test the statute. A piece of land was identified and a charitable organization, Catholic Charities of Southern Nevada, was identified.

In trying to put the project together, Ms. Buckley continued, the county ran into two stumbling blocks. Housing and Urban Development (HUD) gave Catholic Charities a federal grant to build affordable senior housing. It was then realized the statutes stated if the property stopped being affordable housing, the property would automatically revert back to the county. The lender would not finalize the loan with the automatic reverter clause in the statutes. The purpose of the first set of amendments to A.B. 318 would be a modification of conditions of conveyance.

Secondly, the banks and HUD were concerned with the subordination issue found on page 3, lines 23 through 27 of the bill. Basically, it clarified the county could subordinate its interest in the property conveyed to a first holder of the mortgage, so if the bank was going to finance the money to lend, the bank would be in the first position over the county. A.B. 318 was a housekeeping bill based on problems encountered by HUD and lenders.

Assemblyman Humke asked for an explanation of the type of conveyance that was made.

Ms. Buckley indicated Michael Pawlak of Clark County would address the question.

Clark County with the help of the District Attorney, crafted a use agreement which was recorded against and essentially acted as a lien against the property, Mr. Pawlak responded. An affordable housing committee identified an appropriate parcel of land it felt would be a good development site. The recommendation was submitted to the Board of Commissioners. The commission designated the parcel as surplus and available for affordable housing. The citizens’ committee then invited local nonprofit corporations to submit proposals for a specific senior housing development. Through a competitive process, Catholic Charities was selected as the best developer with the best project. The proposal was approved by the Board of Commissioners. The housing committee entered into the contingent conveyance agreement with Catholic Charities, which then was responsible for obtaining the financing for the project. Problems surfaced when HUD granted Catholic charities $4 million, subject to the change in the reverter clause.

Assemblyman Humke understood the need for the amendments was to correct any problem with the reverter clause and the subordination. However, he wondered if Clark County actually owned the land. "I see people in the back nodding ‘yes’," Mr. Humke said. "Let the record show ‘yes’." If so, he continued, the conveyance that had been made was not a full fee conveyance; and the conveyance to the second party was not a fee simple but more a right to use.

Assemblywoman Buckley indicated Mr. Humke was correct. The county owned the land, it entered into the land use agreement and it was not fee simple. The county wanted to retain control to make sure the property was not given away to a nonprofit organization who would use it for something other than affordable housing.

Assemblyman Mortenson had concern about the definition of affordable housing. The bill was designed so a county could essentially turn land over to an assignee who would use the property to develop affordable housing for families whose income "at the time of application does not exceed 80 percent of the median gross income for families residing in the same county . . ." Unfortunately, Nevada Revised Statutes (NRS) 278.0105 defined affordable housing as "housing, affordable to families with total gross income not less than 110 percent of the median gross income." He wondered if it would not be a good idea to change the affordable housing definition in NRS Chapter 298 to 80 percent to be consistent with the intent of A.B. 318.

Assemblywoman Buckley explained that the provisions in NRS 298.0105 more globally addressed issues of counties and cities having to look at affordable housing for all ranges of income. She admitted she was apprehensive about making wholesale changes to another statute.

Assemblyman Thomas noted another automatic reversion clause on page 3, section 8 of the bill and wondered if Ms. Buckley was not concerned.

The clause was not of concern, Ms. Buckley responded, because it required an automatic conveyance if the nonprofit organization was not building. There was no concern with the lenders or with HUD.

Mr. Thomas referred to a portion of section 2 which had been removed. By removing that language, issues would not be referred to the planning commission and would essentially lock in land use for 50 years by turning it over to affordable housing.

No local land use was overridden by legislation, Mike Pawlak responded. All local approvals, variances and ordinances would still be required. Mr. Thomas cited an example whereby a parcel of land was already zoned R-3 (multi-family, high density) and which was also master planned for high-density use.

The removed language was redundant, Assemblywoman Buckley said. Plenty of safeguards were already in the bill. By adding an unnecessary additional requirement for more hearings, applications, and meetings the process would become so cumbersome it would become unworkable. She assured Mr. Thomas she and the members of the affordable housing committee, together with bankers, private citizens, and nonprofit organizations, made certain all requirements were met by the applicants.

Mr. Thomas wondered about the requirements of public hearing notification (page 2, lines 1 through 8). He felt it did not match other public hearing notice requirements for rezoning.

The language was sufficient, Ms. Buckley replied. "You have to be careful that you’re not being discriminatory for affordable housing with seniors. If you make them jump through more hoops than everybody else, that could violate the Federal Fair Housing Act," she said.

Assemblyman Humke had a problem with elimination of the requirement to go to a planning commission.

Normal zoning processes were not eliminated in the bill, Ms. Buckley answered. The double planning commission requirement was eliminated. It was one step out of the 25 that were listed in the bill, and it did not subvert the planning commission process.

Mike Pawlak, in response to Mr. Humke’s concerns, said the Clark County District Attorney had made some interpretations of the bill. When a project identified a parcel to be donated, review would go to the planning commission. At that point the planning commission was not reviewing a project, it was simply looking at a parcel of land. Because the project was not established at the time of the review, the merits of the overall project could not be judged. The district attorney felt review by the planning commission should be done after the project had a semblance of substance, thereby allowing its fair evaluation.

Ms. Buckley amplified Mr. Pawlak’s statement by quoting the Clark County District Attorney’s remarks: "If the county that receives an application for conveyance pursuant to subsection 1 of the planning commission, the board shall refer the application to the commission. The commission shall consider the application and submit its recommendation."

Mr. Humke still felt private nonprofit entities were excused from one level of review. Ms. Buckley differed by saying nonprofit entities were subject to the same zoning and planning commission reviews as were for-profit entities.

Dave Elnes, representing Catholic Charities of Southern Nevada, supported A.B. 318. His group sponsored three senior affordable housing projects. As Catholic Charities approached financing of its projects, it was readily apparent the bill would allow county government greater latitude to incorporate regulatory mechanisms. He felt A.B. 318 would correct problems encountered in attracting acceptable financing. Zoning was not the issue. Catholic Charities wished to avoid the situation where the regulatory requirements of the original statute precluded the enforcement rights of HUD.

Joseph Johnson, representing the Nevada Housing Coalition, testified in favor of A.B. 318 (Exhibit I).

Chairman Bache closed the hearing on A.B. 318 and indicated the committee would not vote on the matter. He suggested Assemblyman Humke do some research on the issue before the committee considered a vote.

Chairman Bache introduced a Bill Draft Request (BDR).

• BDR 48-1541 – Revises provisions relating to appropriation of water.(A.B. 408)

Chairman Bache announced a subcommittee meeting on March 6 at 8 a.m. to be followed by a regular work session upon the adjournment of the subcommittee. He indicated Speaker Dini was pleased with the committee’s progress.

The meeting adjourned at 10:35 a.m.

RESPECTFULLY SUBMITTED:

Charlotte Tucker,

Committee Secretary

APPROVED BY:

Assemblyman Douglas Bache, Chairman

DATE: