The Joint Subcommittee on General Government was called to order at 8:15 a.m., on Tuesday, February 23, 1999. Chairman Vonne Chowning presided in Room 3137 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List.

ASSEMBLY COMMITTEE MEMBERS PRESENT:

Mrs.Vonne Chowning, Chairman

Mr. Bob Beers

Mrs. Marcia de Braga

Ms. Chris Giunchigliani

Mr. David Goldwater

Senator William O’Donnell

Senator Joe Neal

Senator Lawrence Jacobsen

STAFF MEMBERS PRESENT:

Mark Stevens, Fiscal Analyst

Bob Guernsey, Principal Deputy Fiscal Analyst

Debbra King, Program Analyst

Jim Rodriguez, Program Analyst

Randy Waterman, Acting State Risk Manager, Department of Administration, Risk Management Division, introduced Susan Dunt, Workers’ Compensation and Safety Manager, who would present the budget to the committee.

Chairman Chowning advised there had been questions concerning the division’s performance indicators, however, she noted the committee was in receipt of the agency’s performance indicators as included in Exhibit C, and instructed Ms. Dunt to proceed with her presentation.

Ms. Dunt stated the Risk Management Division provided a packet of information to the committee, Exhibit C, which she would review in an attempt to answer questions regarding performance indicators and the proposed enhancements to Budget Account 1329. The exhibit included a chart that basically showed the success the division had enjoyed in the Workers’ Compensation Program over the past 4 years. The chart, entitled "State of Nevada – Premium Analysis – 1995 to 1998," included the actual up-front premium amounts paid to the former State Industrial Insurance System (SIIS), now the Employers Insurance Company of Nevada (EICN). Ms. Dunt went on to explain the bottom line, or "pink" line on the chart, (Exhibit C), indicated the actual premium costs the agency ultimately paid after receipt of refunds over the 4-year period. The middle, or "yellow" line, depicted the actual premium costs paid up-front to EICN, and the top, or "red" dotted line, indicated the maximum premium liability the division carried in the event of a catastrophic year insofar as workers’ compensation costs were concerned.

According to Ms. Dunt, the division was very pleased to inform the committee that over the 4-year period it had received approximately $27 million in premium refunds from EICN for the compensation program. For FY 1998-99, the amount was approximately $15 million in premium refunds. The next page in Exhibit C entitled "State Employees Workers Comp – Budget Account 1329," included the division’s program statement and performance indicators for FY 1998-99. She explained the division was able to meet or exceed the assigned performance indicators, with the exception of number 6, "Reduce Average Claim Cost." That performance indicator proposed to reduce the average claim cost from the FY 1996 figure, however, the current premium cost indicated a 30 percent increase. Ms. Dunt stated every year during April or May, the division had the opportunity to challenge the reserve set on its claims for that fiscal year, and it had not yet had the opportunity to do so.

Ms. Dunt noted the division had reduced its claim costs by approximately $2 million by evaluating and challenging the reserves. It was anticipated the reduction for the current fiscal year would be approximately the same. She advised she had reviewed the claims which caused the increase in costs, and was fairly confident the division would be able to reduce many of those claim costs when an accurate reflection of actual FY 1998 costs was completed. That report would be released July 1, 1999, and the division would provide the revised figures to Legislative Counsel Bureau (LCB) staff.

The next page of Exhibit C entitled "Central Payroll Workers’ Compensation Statistics," was an averaged summary that depicted claim activity and all associated costs. Ms. Dunt informed the committee the division had been able to reduce the number of total claims, and also the total number of lost-time claims from the FY 1996 figures. That page of the exhibit contained a break down between lost-time claims and medical-only claims, and also categorized the severity of the claims based on dollar amount, i.e., claims over $100,000, between $50,000 to $100,000, et cetera. She called the committee’s attention to figures contained in the "breakdown of claims by cost" column, noting in the over $100,000 category there were 10 claims in 1996, and in FY 1998 there were 18 claims. The claims in that category were the ones Ms. Dunt had reviewed, and she felt some of the reserves were very high. The division would address that issue when the time arrived to complete the actual evaluation and challenge of the reserves.

Ms. Dunt indicated the next page of Exhibit C contained a summary of the claims audit contract. As part of the division’s services last biennium, it was able to contract with a group to audit all claims. That was done in order to ascertain which claims might qualify for cost relief programs and which needed review to assure the division was receiving the recoveries due to it. That page also showed the division had subsequent injury claims which were accepted from the Subsequent Injury Fund. Also, as previously mentioned, the division was able to reduce its costs by approximately $2 million solely based on evaluation of the reserves. The division also assigned a number of claims for evaluation, in order to determine eligibility for subrogation recovery against third parties. Ms. Dunt indicated the division was able to achieve almost $5 million in claims cost savings through that contract, which was a good investment for the state.

Continuing her presentation, Ms. Dunt addressed the page of Exhibit C entitled "State of Nevada – Heart/Lung Statistics." She explained the greatest workers’ compensation liabilities were the disabling heart and lung claims filed by police and fire fighters. That exhibit page was a break down of claim and cost statistics in that category from FY 1994 through FY 1998. She noted during FY 1998 the state had experienced an increase in the number of heart claims. The division attributed that in part to the fact that in FY 1997 it coordinated a statewide contract for heart/lung claims on behalf of all agencies employing police and fire fighters. Further, stated Ms. Dunt, through that contract the division was able to achieve a higher quality of physical examination, where employees with a beginning stage heart or lung disease could be identified. As a consequence, the division was able to address those diseases and/or injuries at an early stage, rather than waiting until the point where they became disabling or life threatening. The division expected to experience an increase in heart claims during FY 1998, however, Ms. Dunt felt it should level out in the future. Ms. Dunt informed the committee that part of the division’s program enhancements correlated directly with the cost and increase of heart claims.

Exhibit C contained a second page showing statistics for heart/lung disease by individual department, and Ms. Dunt noted the division had a significantly higher number of heart claims within the Nevada Department of Prisons (NDOP). She explained prior to the division negotiating the statewide contract, NDOP performed all physical examinations in-house, and the division felt the degree of reporting and the extent of examinations were not as thorough. Many problems discovered during the last year were with employees of NDOP.

According to Ms. Dunt, the last page of the exhibit titled "Heart Lung Demographics FY 1997-98," depicted a sample of a statistical study being enacted by the division regarding demographics in regard to heart/lung claims. That particular report indicated only southern Nevada claims, because the contractor there voluntarily assimilated those statistics for the division. Basically, she stated, the chart indicated the type of risk factors involved in the development of heart/lung disease for police and fire fighters. Ms. Dent explained the division’s southern Nevada contractor had performed 792 different tests, and of those only 142 employees showed no risk factors for heart/lung disease. Based upon the previous statistics and information, Ms. Dunt indicated she would discuss the proposed enhancements to the budget.

Chairman Chowning stated there were several questions from the committee, however, she first wanted to note it was unfortunate that out of 792 employees tested, only 142 showed no risk of heart/lung problems.

Assemblywoman Giunchigliani advised she felt the division’s performance indicators for FY 1995-97 were more easily understood and asked if it would be possible to secure a copy of those indicators, thereby providing the committee with a comparison between fiscal years. For example, she stated, there was a category for yearly comparison of average costs, and inquired if the division tracked that category. Ms. Dunt responded in the affirmative, and explained Exhibit C contained that information. In addition, Ms. Giunchigliani inquired about the statistics regarding heart/lung disease, asking if the division was tracking problems and, if so, did it have a commensurate program to deal with the prevention of heart/lung disease.

Ms. Dunt replied it was the division’s goal to initiate a program within the state to address heart/lung disease, basically due to the fact none of the departments involved offered safety training programs, or any other type of training which would address that particular issue. The primary enhancement the division was asking for in its current budget was the addition of an occupational health nurse position. The goal for that position would be to provide assistance in the development and implementation of a statewide agency stress management and wellness program for police and fire fighters.

Ms. Giunchigliani inquired if Risk Management ever had any prevention focused programs. Ms. Dunt stressed there were many prevention programs, but heart/lung disease had been identified as the state’s biggest liability, and the division needed to focus on prevention in that area. Ms. Giunchigliani asked what authority the division had to order other agencies to set up prevention programs, asking if Ms. Dunt thought those agencies would complain. Ms. Dunt replied she did not feel other agencies would complain. The State Administrative Manual (SAM), gave the division the authority to develop programs and require agencies to implement certain aspects of training within their individual safety programs. For example, while working with various agencies in the development of the heart/lung contract for physical examinations, Ms. Dent explained the division had received a great deal of cooperation. It would be her expectation that those agencies would be just as receptive to participation in additional training programs.

Ms. Giunchigliani asked if the contractors in southern and northern Nevada would provide employees anything other than physical fitness assessments. They would provide counseling, stated Ms. Dent, and at the time the employee underwent his annual physical, the doctor would review risk factors and provide written guidelines to address those risk factors. In southern Nevada the division was using the Jean Hanna Health Center, which contained a complete rehabilitation center. The health center also offered state employees admittance into its physical fitness program at a greatly reduced cost. The division found that many employees in southern Nevada who suffered health problems were taking advantage of that fitness program.

Ms. Giunchigliani inquired about the risk factors contained on the last page of Exhibit C, "Heart Lung Demographics FY 1997-98," asking for clarification of some of the column headings. Ms. Dunt explained the first heading, "Fam.Hx" indicated family history; "HTN" indicated hypertension; "HxCHD" indicated triglyceride levels; "DM" indicated diabetes; and "Life" indicated lifestyle, or a person who lacked exercise, was out of shape or overweight. Ms. Giunchigliani asked if those individuals had to undergo physical examinations in order to secure employment, to which Ms. Dunt replied in the affirmative. Ms. Giunchigliani then ask if there were any requirements for maintaining employment if a person’s physical health deteriorated. Ms. Dunt advised most agencies currently did not have ongoing fitness standards, and employees were only required to take the initial physical agility test. Ms. Giunchigliani inquired what would happen if an employee did not pass his annual physical. Ms. Dunt explained the only requirement was passing the pre-employment test.

Ms. Giunchigliani referred to the "Central Payroll Workers’ Compensation Statistics" page of Exhibit C, which contained information regarding the lost-time costs. She noted in 1997 the cost was $3.5 million, and it increased to $6 million in 1998. She inquired if there was any particular reason for the increase. Ms. Dunt stated the division had experienced additional heart claims in FY 1998. Ms. Giunchigliani then asked if that caused the increase, or were there contractor costs involved. Ms. Dent replied it was totally based on claim costs, as contractor costs were separate.

Ms. Giunchigliani inquired where contractor costs were delineated in Exhibit C. Ms. Dunt stated the division did not pay those costs, as each agency was responsible for payment of its own contractor costs. She went on to explain the incurred cost of the average disabling heart claim, one where the employee was unable to continue working and was placed on permanent total disability, was between $400,000 to $600,000 per employee.

Senator Neal asked if the performance indicators shown on the first page of Exhibit C were a revision of the indicators included in the division’s budget. Ms. Dunt responded that it was a revision intended to replace those indicators contained in the original budget. Senator Neal indicated he was looking at indicator number 3, "Annual audit report with minimal adjustments," and asked Ms. Dunt to explain those figures.

Responding to Senator Neal’s inquiry, Ms. Dunt explained the division received an annual audit from the EICN containing payroll and risk classification assignments. At the end of the audit period, EICN advised the division if there were employees inadvertently placed in the wrong risk class, or if there were payroll factors that had not been taken into consideration for individual employees. That particular performance indicator indicated how well the division was maintaining its policy data with the payroll system.

Moving to number 5 on the performance indicators, "Number of claims assigned to audit/costs recovered," (Exhibit C), Senator Neal requested clarification. Ms. Dunt stated that was the division’s claim audit, and it correlated with the exhibit page entitled, "BA 1329 – Claims Audit Contract for Fiscal Year 98 $74,076," which referred to claims reviewed. Based on the possibility of a variety of cost reductions, the division assigned those claims to its contractor. The contractor then physically reviewed all information in the files in order to determine if the division had the necessary information to assign certain claims for a request for subsequent injury relief. Also reviewed was the ability to reduce the claim costs through reserve reduction, or other cost relief programs available for that specific type of claim. Senator Neal inquired which company the division employed as its contractor; Ms. Dunt replied it was the Diversified Management Group, located in Reno.

Senator Neal stated in Budget Account 1329, the base budget showed a reimbursement of $7 million, and asked for explanation. Ms. Dunt advised that figure represented the premium refund received by the division based on the actual amount versus the projected amount of losses for the workers’ compensation policy.

Chairman Chowning returned to the performance indicators contained in Exhibit C. On page one, number 5, "Number of claims assigned to audit/costs recovered," indicated a figure of $4.2 million; however, she noted on the third page of the exhibit, number 5, "Claims Audit Contract," indicated a figure of $4.9 million, and inquired about the discrepancy. Ms. Dunt explained the information contained on page one of the exhibit was compiled approximately two months ago. Page three contained information updated as of February 22, 1999, after the division had received additional decisions on pending claims. The information on page three was, therefore, the most updated information the division could provide. Further, when the exhibit was originally compiled, a group of 327 claims assigned for reserve reduction were not included.

According to Chairman Chowning, critical information to assist committee members in preparation for budget hearings needed to be given to LCB staff for disbursement to members. Apparently, LCB staff did not receive information from the division regarding Budget Account 1329 until 2:00 p.m. on February 22, 1999, and on Budget Account 1352, the information was received at 5:00 p.m. that same date. Chairman Chowning inquired if there was a particular reason the information was not delivered sooner, and explained it was detrimental to the division because members were not able to peruse the information prior to budget hearings. The committee was holding hearings under severe time constraints, and if updated information was not received in a timely manner, the hearing was simply a waste of time.

Ms. Dunt inquired which information Chairman Chowning was referring to. Chairman Chowning advised it was addendum or adjustment items to the budget, which were critical to committee decisions. Ms. Dunt stated the division provided the revisions to the Budget Office some time ago, and she sent a letter to Debbra King, Program Analyst, LCB, on January 29, 1999 explaining that action. Chairman Chowning inquired if there was a representative present from the Budget Office who could explain the reason for the delay. Perry Comeaux, Director, Department of Administration, advised he had no idea what caused the delay in forwarding the information to the committee, and he hoped the Budget Office would not make a practice of that. Revisions were usually given a quick review by Budget Office staff and forwarded to LCB as soon as possible. Mr. Comeaux advised he would look into the matter. Chairman Chowning thanked Mr. Comeaux, and instructed Ms. Dunt to continue her presentation.

Ms. Dunt stated Module M-200 referred to increased premium costs anticipated by the division based on additional payroll and the change in the workers’ compensation policy for the next biennium. The division had negotiated a plan with EICN where it paid a fixed premium cost, which was done primarily to assist in projected budgeting. If there were any discrepancies or differences, the division would be able to make adjustments during the first yearly rate adjustment period. The division knew it had a $9 million fixed premium to pay to EICN for the next 2 years, which represented a $500,000 difference each year of the biennium.

Chairman Chowning inquired if the premium cost was negotiated after the initial budget was completed, and Ms. Dunt replied in the affirmative. Further, she noted the division had also provided that information to the Budget Office in January. Chairman Chowning then asked what would happen to the central payroll rate since the negotiation was quite significant; would there not be some carry-over to, or reduction of the payroll charge. Ms. Dunt responded it was her understanding the Budget Office made the final determination regarding the composite rate, but she understood the rate was $2.18 per $100 of salary, and recently, the Budget Office indicated that rate would be reduced to $2.00. Chairman Chowning asked the Budget Office to inform the committee if there were any revisions necessary in order to accomplish the rate reduction. Mr. Comeaux stated he would provide that information to committee members before the end of the working day.

Ms. Dunt inquired how the committee would like to proceed through the budget items, whether or not she should include small budget items or move to the enhancements. Chairman Chowning stated the next item the committee would consider was Module E-125. Ms. Dunt explained that was the primary enhancement the division was requesting for its workers’ compensation program. The module dealt with the requested additional occupational health nurse position. In addition to assigning that position to work on reduction of the heart/lung claims, there were two other primary areas where the division anticipated using it in order to provide further premium reductions for the state.

Ms. Dunt went on to explain the occupational health nurse would enhance the division’s early return to work program, and would ensure employees were being returned to work in the most timely manner possible. Currently, the division evaluated employees who were off work for 30 days or more. With the addition of the health nurse position, the division expected to evaluate employees off work for a week or more, and assist those employees back to the workforce in a more timely fashion. According to Ms. Dunt, if the health nurse assisted 15 employees in returning to work 1 month earlier than previously possible, it would mean a savings to the state of approximately $15,000. The position would also assist in coordinating the return to work of employees with permanent injuries. When there was an employee with a permanent disability, the division made every effort to locate an alternate position with state service for that employee in lieu of vocational rehabilitation services. Therefore, the main objective for the occupational health nurse position was to closely monitor and work with other agencies to bring disabled employees back to work. The division enjoyed a success rate of approximately 50 percent in returning employees to alternate positions, and hopefully that rate could be improved.

The third area of assistance for the health nurse position would be the coordination of a statewide blood-borne pathogen program. Currently, explained Ms. Dunt, each division was responsible for securing contracts for hepatitis inoculations and coordinating with local hospitals or medical facilities to provide consultation. Divisions were also responsible for providing prophylactic medicine to state employees in the event they suffered a serious exposure. The division felt agencies were doing a good job at providing the hepatitis vaccinations through vendors, but also felt the costs could be reduced by at least 50 percent if the state purchased and administered the inoculations through an occupational health nurse.

In addition, stated Ms. Dunt, the division needed to develop better contracts for medical consultation and administration of prophylactic medication to employees who suffered an incident of serious exposure. Ms. Dunt advised generally those type of exposures might or might not be covered under worker’s compensation, but Occupational Health and Safety Administration (OSHA) laws required that the state provide the medical consultation and prophylactic medicine. If, for instance, a person suffered a serious exposure to HIV, the cost of the prophylactic medication would be approximately $1,500, and the dosage had to commence within 2 hours of the exposure.

Ms. Dunt mentioned there had been several incidents in the past at the Ely State Prison where employees suffered serious exposure to HIV. In order to maintain the mandatory 2 hour time frame and ascertain who would pay the cost for the prophylactic medication, the division could not afford to "guess," but had to have a program in place to ensure the safety of the employees.

Chairman Chowning noted that cost savings were projected from $530,000 to $1.8 million, however, those figures were not reflected in the budget. She inquired if were there cost savings which could be built into the budget such as premium reduction. Ms. Dunt stated the division would feel more comfortable if the actual premium cost was established before a cost reduction was attempted. Further, she advised, there were many other areas not involved with the proposed occupational health nurse position that could affect the actual premium cost. The division felt it needed to be prudent in the reduction of premium costs. Perhaps, suggested Ms. Dunt, the division could quantify the activities of the occupational health nurse position and provide a report to the committee which documented what type of cost savings could be achieved, and incorporated overall cost savings. Chairman Chowning felt that was a good idea, and advised such a report would be appreciated by the committee.

Ms. Giunchigliani noted Ms. Dunt had stated the occupational health nurse position was to be used to create programs for wellness, safety, and so forth, but the budget descriptor stated it was, "***to enhance the claims management program through monitoring and coordination***." Ms. Giunchigliani stated that sounded like two completely different uses. Ms. Dunt replied the division anticipated the position would have three primary functions:

• Addressing the heart/lung wellness program;
• Coordination of the early return to work program, which was a claims management function; and,
• Coordination of the statewide blood-borne pathogen program.

Would the occupational health nurse coordinate those programs with the State Board of Health, or would the position work independently, asked Ms. Giunchigliani. Ms. Dunt explained there was no statewide occupational health nurse position currently in existence. Ms. Giunchigliani then asked if that was the role of the division, or would it be something that should be done through the Board of Health or the Health Division? Ms. Dunt stated she believed it was the division’s role because of OSHA requirements, which fell under the safety and health program. However, she advised the division would research the possibility of coordinating with the Health Division in an attempt to prevent duplication of positions and/or programming. Ms. Giunchigliani inquired what percentage of time Ms. Dunt thought the Health Division might spend on safety and wellness programs, or targeting those individuals who could not pass a physical examination. Ms. Dunt replied the Health Division would probably spend 40 to 50 percent of its time on such an endeavor.

Ms. Giunchigliani then stated perhaps, as previously suggested by Chairman Chowning, the Risk Management Division should track individuals by their activities, rather than using a paper trail. She then requested clarification regarding annual employee physicals. For instance, employees of the NDOP were required to submit to an annual physical, but were not required to pass an annual fitness test, and inquired if there were any local governmental agencies that required their employees to pass an annual fitness test. Ms. Dunt stated she thought some local agencies did require their employees to pass such a test. Ms. Giunchigliani then inquired if the division had pursued review of such a requirement, or worked with the various employee groups and departments to make such testing a potential requirement. If such testing was required, perhaps employees who failed an annual fitness test could be placed in a program to maintain fitness.

According to Ms. Dunt, the division had achieved some steps toward that goal. It was a major project with many areas where the division expected resistance from some of the employee groups. She advised the Department of Motor Vehicles and Public Safety (DMV-PS) was attempting to initiate some type of annual fitness testing, if only for new employees. It seemed where the "gray-area" or "roadblock" occurred was dealing with career employees who had never been required to pass such a test in the past, and who would then be expected to participate in an annual fitness test. Ideally, stated Ms. Dunt, the state would have a very comprehensive annual physical fitness test for all police and fire employees, but it was a costly program and she felt it would take time to coordinate and address all the legalities.

While she appreciated the status of current employees and would not advocate termination, Ms. Giunchigliani stated she felt when a problem was identified, assistance could be provided to the employee in order to assist him in becoming physically fit. That could be accomplished through the use of programs such as the Jean Hanna Center in Clark County. She also inquired about the current screening method being used by doctors at NDOP. Ms. Dunt advised the division had removed that function from NDOP last year which was, in her opinion, a very good move. Was there a fitness program within NDOP which would provide assistance to its employees, inquired Ms. Giunchigliani. Ms. Dunt replied there was no such program currently in existence. Ms. Giunchigliani stated that was definitely an issue for review, and due to the high turnover and the overtime rate at NDOP, it would make sense to have such a program available onsite.

Chairman Chowning requested information about the reserves. She stated there was $8.9 million in reserve, which included $3 million recommended for reversion, and wanted to know how the amount of $3 million was selected for reversion to the General Fund. Chairman Chowning also asked what then would happen to the other funds, i.e., highway fund, federal grant fund, and other fee-based accounts, and again inquired how the amount of $3 million was determined. Mr. Comeaux stated Ms. Dunt notified the Budget Office that premiums set for the year were too high and were producing excess reserves. The Budget Office had two choices, either reducing the premiums immediately or planning for reversion and refund at the end of the year, and the Budget Office chose the latter solution. While he did not have any details regarding the breakdown, Mr. Comeaux stated it was intended to revert only the General Fund portion of the reserve, and refund the balance back where it belonged. It was never the intention to revert 100 percent of excess premiums to the General Fund. He advised he would provide the details on the amounts involved to the committee. Chairman Chowning also requested information regarding who would receive the refunds.

Chairman Chowning inquired if there was anyone present who wished to address the committee regarding Budget Account 1329, State Employees’ Workers Compensation. Seeing none, Chairman Chowning declared that budget closed, and opened Budget Account 1352.

Randy Waterman, Acting Risk Manager, Risk Management Division, stated Budget 1352 was charged with the responsibility of providing loss prevention information and tools to various agencies in order to prevent loss to property or employees. The account also provided funding mechanisms in the form of both commercial insurance as well as self-insurance programs for automobile physical damage, watercraft and property damage. A large part of the Insurance and Loss Prevention Division’s duties involved self-insurance programs; the majority of staff time went toward administering those programs and managing claims.

Mr. Waterman stated during the last 2 years, the division had been operating at half-speed, due to fact he had been appointed Acting Risk Manager from his former position of Insurance and Loss Prevention Manager, the position which oversaw the program. As a result, some of the activities planned for the current biennium were not completed. Staff was not able to continue the outreach program to various agencies, as that had been his role prior to reappointment. Mr. Waterman explained the proposed budget for the upcoming biennium intended to put the program back on track.

As for new programming, Mr. Waterman explained the budget contained a recommendation to separate the Benefit Services Account from the Insurance and Loss Prevention budget. That also created a request for additional monies to assist with that separation, i.e., minimal office furniture and office supplies. Mr. Waterman advised Chairman Chowning those revisions were also not delivered to members until the afternoon of February 22, but were provided to the Budget Office 2 or 3 weeks prior to that date.

Further, explained Mr. Waterman, the budget contained a request for reclassification of the Insurance and Loss Prevention Specialist to the position of Risk Manager. The Risk Manager position held responsibility for overseeing the Insurance & Loss Prevention Program, the Workers’ Compensation Program, and the Benefit Services Account. Due to the requested separation of budgets regarding the Benefit Services Account, that reclassification became necessary. Chairman Chowning inquired if that request was shown in Module E-805, to which Mr. Waterman replied in the affirmative.

Mr. Waterman stated minor budget revisions for account 1352 had been submitted, and basically consisted of the following:

• Approximately $3,900 in FY 2000 and $2,200 in FY 2001 to provide office furniture and office equipment necessitated by the aforementioned separation of the Benefit Services Account.

• Approximately $20,000 which would enable Insurance and Loss Prevention to have the Division of Administrative Services perform its accounting work. Currently, that function was being handled by accounting staff at Risk Management.

• Proposed funding for training two staff members in the current software program; also requested was $5,500 to re-establish the software licensing and maintenance agreement. In the original budget request, those funds were overlooked because a like amount had not been spent in FY 1998.

Chairman Chowning stated it was frustrating for the committee because members did not have the revisions Mr. Waterman was referring to, however, they would be reviewed upon receipt. If the committee found it necessary to discuss any of those revisions, it would ask Mr. Waterman to appear again.

Chairman Chowning stated the performance indicators for Insurance & Loss Prevention painted a very "glowing picture," and if those indicators had been exceeded or met, why was the agency requesting increased funds for travel, dues and registration, and motor vehicle appraisals in Module E-125? Mr. Waterman advised many of the performance indicators met by the agency were done through outside contractors. In many cases, Insurance and Loss Prevention utilized the services of commercial insurance companies, and its property insurer also provided many loss control services, thereby eliminating the need for him to go out and complete loss control surveys. Mr. Waterman explained last session the agency hired a contract analyst, and he had utilized some of the analyst’s time to ensure the indicators were met. The additional money requested for travel was needed in order to allow staff to actually go out and observe property losses and provide outreach to other agencies.

According to Mr. Waterman, when he visited various sites, it was not uncommon for him to find entire buildings in state complexes that had been built within the last 2 years, but had not been reported by the agencies. Chairman Chowning advised Mr. Waterman to change and/or enhance the Insurance and Loss Prevention performance indicators to reflect the need for the additional funds requested in Module E-125. She stated the indicators did not paint a true picture of the agency’s accomplishments.

Chairman Chowning then addressed Module E-175, which requested $10,000 to fund a training program entitled, "Sexual Harassment Prevention for Supervisors." She asked why Insurance & Loss Prevention would offer such a course, to whom it would be offered, and why it was not offered through the Attorney General’s (AG’s) Office budget. Mr. Waterman noted in the past that training had not been offered through the AG’s Office. That agency’s Tort Claim Fund did pay self-funded liability claims, but it did not provide risk management or loss prevention services. While the AG’s Office did pay claims and provide investigative services, it really did not have the ability to provide the outreach training which, traditionally, Insurance and Loss Prevention had provided.

According to Mr. Waterman, sexual harassment claims cost the state anywhere between $200,000 and $1 million per year, so he felt the cost for training would be money well spent. In the past, Insurance and Loss Prevention funded the training and coordinated with the AG’s Office, and that office assisted in the preparation of the presentation; however, Insurance and Loss Prevention hired an outside contractor to present the training, which was aimed at high-level agency supervisors.

Chairman Chowning inquired why the cost was not in the base budget rather than enhancements if the training was funded by the agency in 1998. She stated it was rather confusing, and asked if Insurance and Loss Prevention involved property risk management, how did that correlate to liability for sexual harassment? Mr. Waterman responded the agency provided not only property risk management, but also liability risk management. The only service provided by the AG’s Office was the self-funded liability program. Within the Risk Management Division, many commercial insurance policies were handled which addressed liability issues as well, and it was important for the agency to become involved in the liability side also. Chairman Chowning asked if the agency presented the training in FY 1998 and, if so, why was the cost not carried over? Mr. Waterman replied he did not know why the funds were not in the base budget instead of requested as an enhancement, as the training was provided in FY 1998 by the agency. He indicated he thought the FY 1998 funding came from a special project category, possibly Category 11.

Senator Neal stated he would like to follow-up on the line of questioning relative to sexual complaints, and asked why the Equal Rights Commission was not involved in that issue, in terms of training or investigation. Mr. Waterman stated he was sure the commission would be involved in the investigation of claims that qualified as equal rights claims. Senator Neal stated all sexual harassment claims should qualify under equal rights, and the commission should have the authority to deal with them. Mr. Waterman advised he was not sure what the commission offered as far as outreach or training programs, and he was not aware of any such programs being offered for state employees.

Senator Neal stated that should be of concern to the legislature. He knew from budget hearings that the Equal Rights Commission was not adequately funded, and perhaps that was the reason for its lack of availability for training and/or programming. Mr. Waterman stated Insurance and Loss Prevention saw a need for the training, and any funding source would be acceptable, be it through Risk Management, the Equal Rights Commission or the AG’s Office. Senator Neal stated perhaps it would be better to direct the question to Mr. Comeaux for reply.

Chairman Chowning stated if the sexual harassment training had been effective in FY 1998, the committee needed to know the particulars, such as how much training was offered, how much it cost, who provided the training, which agencies participated in the outreach program, and future projected costs. She advised she would like to know which agencies would be involved in future training efforts. While Chairman Chowning felt it was relevant and necessary training, the committee needed to be aware of which agency provided past training, previous funding sources, future funding needs, and whether or not an outside consultant was paid to provide the training.

Mr. Comeaux stated he did not know why historically the funding for training in connection with sexual harassment had not been included in the Equal Rights Commission budget. He stated it was basically an investigative-type agency. In the past, the Department of Personnel offered sexual harassment training on a fairly routine basis and the Risk Management Division had also been involved to some extent. He advised the AG’s Office had taken a role in such training from the standpoint of the significant number of claims in that area. Again, the AG’s Office did not offer any specific training; that had been done basically by the Department of Personnel and the Department of Administration in the past.

Senator Neal noted the Equal Rights Commission seemed to be specialists in that particular area, and was the state discounting the commission? Mr. Comeaux stated he did not recall the issue of the commission providing sexual harassment training. Senator Neal stated it was the most logical agency to provide such training because it investigated claims, had the authority and understanding of the law, and should be able to impart that information to employees throughout the state. Mr. Comeaux explained he did not know if that issue had ever been raised previously. Senator Neal advised maybe that was because no one had asked, and maybe if someone would ask, the commission would respond.

Mr. Waterman stated he would provide the requested information regarding training cost, agencies providing training, and number of attendees to the committee as soon as possible. Chairman Chowning advised if the training had already been provided to supervisory employees, the committee needed to know if it was effective.

Mr. Beers stated he was somewhat confused with Module E-125. Mr. Waterman previously explained that the agency had a contract administrator who was pulled off her assigned job in order to assist Insurance and Loss Prevention in several different areas. One of those areas corresponded with performance indicator number 8, "Monitor contracts to ensure compliance with insurance and bond requirements." According to the agency, it met that performance indicator 100 percent, and Mr. Beers inquired if the agency needed only a half-time person to handle contract compliance. Mr. Waterman explained that was a new position and, as with many new positions, there were initially changes in duties. The original idea was that two positions could completely centralize tracking of the state contracting process, tracking insurance certificates, bonding requirements, et cetera. That philosophy was abandoned and the division determined it would be better for that position to work with the AG’s Office in the development of a contracts manual, and presentation of outreach and training to agency staff regarding better contract management. The current contract administrator had been on staff approximately 1 year, and initially much of her time was spent in the planning and development of manuals, and revision of contracts. Quite honestly, stated Mr. Waterman, the job probably went somewhat slower than it should have because he pulled that employee to complete other jobs.

Ms. Giunchigliani stated she felt Senator Neal was absolutely correct in his statements regarding the Equal Rights Commission, and the committee should take that under consideration when the commission’s budget was reviewed. The majority of its role was not just to be investigative, but also to provide training. She indicated she remembered a former commission member who actually traveled through the state and provided training regarding equal rights and prevention matters. She stated she felt the Senator’s point was well taken.

Chairman Chowning inquired if there was anyone in the audience who wished to testify on Budget Account 1352. There being none, the hearing was closed, and the hearing on Budget Account 3813 was opened.

Alice Molasky-Arman, Commissioner of Insurance for the Insurance Division advised the committee that present with her at the hearing were John P. Laxalt, Deputy Commissioner of Insurance and Marilyn Espinosa, Administrative Services Office. She went on to explain Budget Account 3813 was the Insurance Division’s operating account. It funded 56 full-time positions, which included those mandated by the Health Insurance Portability and Accountability Act (HIPAA) of 1977. In Decision Module M-501 the division requested continued funding of that federally mandated program.

Ms. Molasky-Arman went on to explain the Insurance Division’s responsibilities for insurance regulations encompassed reaching its goal of protecting the rights of Nevada consumers in dealing with the insurance industry. As of December 31, 1998, the division regulated 1,414 insurance companies, as well as approximately 29,000 agents, brokers, third party administrators, utilization review agents, and other types of licensees.

According to Ms. Molasky-Arman, the Insurance Regulation budget account, 3813 was, pursuant to Nevada Revised Statutes (NRS) 679B.380, funded by legislative appropriation from the General Fund. There were additional revenue sources to offset the General Fund need, derived from miscellaneous fees received for the medical-dental legal screening panel, and user fees from Assessment Systems Incorporated (ASI), the vendor which administered insurance agent licensing examinations. ASI also remitted a contractually specified amount to the division to offset costs.

Ms. Molasky-Arman went on to explain the division also received revenue from special services derived from copies and reports provided to the public. There was an administrative overhead charge assessed to other budgets maintained by the division in the amount of $33,080 for FY 1998. The budget also included a transfer from the AG’s Office budget to offset some of the division’s expenses related to the fraud assessment. Pursuant to NRS 679B.158, the fraud assessment was for the purpose of supporting the commissioner’s program of compliance with the Unfair Trade Practices Act, and also to support the Fraud Unit of the AG’s Office. The division also received a transfer in its budget from the Examination Fund, Budget Account 3817.

Ms. Molasky-Arman noted there were eight programs funded by the Insurance Regulation account:

• Property and Casualty Actuarial Services with five full-time employees;
• Life and Health Actuarial Services with five full-time employees;
• HIPAA program with five full-time employees;
• The Commissioner’s section with six full-time employees;
• Administrative Services with four full-time employees;
• Corporate and Financial Section, which included both company and agent licensing, with 15 full-time employees;
• Legal Services and Enforcement with 11 employees, including those who served the medical-dental legal screening panel process; and,
• Consumer Services consisting of six full-time employees.

The division included other employees who were funded under separate budgets, such as Self-Insured Workers’ Compensation, Budget Account 4684; Cost Stabilization, account 3833; and Education and Research, account 3824.

Module M-100 provided for inflation, advised Ms. Molasky-Arman, and consisted of funding for postage, printing and insurance costs. The first major module was M-203, which requested funding for a supervising legal secretary. That position was being requested to assist with the increased number of hearings the division expected from 3-way workers’ compensation, as well as an increase in the workload of the division’s Legal Enforcement Section. She explained that one-half of the position’s cost would be funded by an assessment from the Division of Industrial Relations (DIR). There was $32,116 requested for FY 2000, of which $19,445 would come from the DIR assessment.

Ms. Molasky-Arman mentioned that pursuant to NRS, Chapter 232, the DIR assessment would also support the commissioner’s rate reviews of workers’ compensation insurance. Those rate reviews consisted of not only the reviews, but also carried on through an appeals process that served employers who essentially appealed their rates, classifications, or experience modifications to the insurance commissioner rather than the State Industrial Insurance System (SIIS), where the appeals were formerly filed.

Module M-300 provided for an increase in fringe benefits, and Ms. Molasky-Arman stated the next critical Module was M-501, which would provide continued funding for the HIPAA positions, created through A.B. 521 in 1997. Those positions consisted of the Chief Insurance Assistant, who was labeled the "HIPAA Manager," an Actuary I position, two Compliance Investigator II positions, two Consumer Services Officers, one each for Carson City and Las Vegas, and a Management Assistant II position. The program also included the cost of printing and mailing the HIPAA guide. Committee members should have recently received a copy of the guide, which was very informative, was edited primarily by Georgetown University, and division staff had added language specific to Nevada.

Chairman Chowning noted another budget reviewed by the committee contained a $5,000 allocation for a graphic artist to create the cover of a report, and she inquired if the Insurance Division had spent that amount to prepare the cover of its guide. Ms. Molasky-Arman stated her staff went to the Division of Tourism and obtained copies of non-copyrighted slides in order to choose the cover design. That was done after the division learned the cost of designing a cover which included copyrighted graphics.

Ms. Molasky-Arman next addressed Module E-128, which requested $132,279 for FY 2000, of which $72,500 would be funded from DIR assessments. That was because a great deal of that cost was attributable to actuarial contract services related to the review of rates for 3-way workers’ compensation. There was also an increase in court reporting services, again due to 3-way Workers’ Compensation and the number of hearings the division was anticipating. As indicated earlier, Ms. Molasky-Arman stated, those hearings were formerly conducted by SIIS, and that responsibility would shift to the Division of Insurance as of July 1, 1999. The module also contained a request for $5,000 in each year of the biennium for skip-tracing services, to trace respondents who had not paid fines and penalties due the division. Ms. Molasky-Arman explained the responsibility for enforcing the division’s orders, as far as collections were concerned, fell to the AG’s Office. The division was advised by the AG’s Office that it would need $400 to $500 per case, in order to trace certain respondents who were not within Nevada’s jurisdiction. That was the reason for the requested $5,000 each year of the biennium.

Also included in Module E-128 was a request for $40,765 in FY 2000 and $46,293 in FY 2001 to assume additional office space being vacated by the Division of Aging Services. The purpose for assuming the additional space would be to move the division’s consumer services section. That section consisted of three consumer officers who were quite cramped for space. Those officers serve members of the public, some with medical problems, and current office space allowed no room for private consultations in order to keep medical problems confidential.

Ms. Molasky-Arman noted Module E-128 also included a request for $1,600 in FY 2000 and $3,125 in FY 2001 for computer and telephone wiring, and reconfiguration of the requested additional space. Also included was a request for $3,000 in each year of the biennium for computerized public record information search. Those funds would assist the division’s investigators and enforcement officers with research of possible violations of the Insurance Code. Another element of Module E-128 was a request for $765 each year of the biennium in order to obtain managed care reports on Health Maintenance Organizations (HMO’s). She explained the division felt that would assist the division in making more informed decisions concerning HMO operations in Nevada.

According to Ms. Molasky-Arman, the last component of Module E-128 represented $3,600 each year of the biennium for lock-box fees of approximately $300 per month. The division had been using a lock-box since 1996 with the Treasurer’s Office paying the costs, however, the division would now assume its own expenditures for the lock-box.

Chairman Chowning inquired who decided whether or not the division would assume that expense. Marilyn Espinosa, Administrative Services Officer, Division of Insurance, explained the Treasurer’s Office advised the division it would be required to assume that cost for the upcoming biennium.

Chairman Chowning asked Ms. Molasky-Arman to continue her presentation by highlighting the major budget modules. Ms. Molasky-Arman stated Module E-130 was important because it reflected funding from the Workers’ Compensation Fund assessment by DIR to cover expenditures included in the base budget for activities related to 3-way insurance. She explained the assessment would cover the applicable percentage of salaries in the amount of 50 percent for the Lead Actuarial position, 5 percent for the Insurance Commissioner, and 5 percent for the Chief Insurance Assistant. She stated she could guarantee the committee she and the Chief Insurance Assistant had spent at least 5 percent of their time during the past 2 years in bringing 3-way insurance forward.

Continuing her presentation, Ms. Molasky-Arman addressed Module E-712, explaining that requested upgrades of the division’s computer system infrastructure. Don Hataway, Deputy Director, Department of Administration had forwarded a memorandum to the committee on February 11, 1999, indicating removal of that request from the budget due to the fact the upgrade had been accelerated. The computer system crashed several weeks ago and completely disabled the Insurance Division in both Las Vegas and Carson City. It also disabled the Director’s Office of Business and Industry as far as computer programs were concerned, and also affected the Real Estate Division. She noted it was necessary for the division to proceed with computer upgrades on an emergency basis.

Ms. Giunchigliani inquired how the funds for the upgrade had been dispersed, was it from one-shot money? Electing to respond was Ms. Espinosa, who explained the completed repairs were partially funded from existing funds in Budget Account 3813, which was combined with additional reserve monies from Budget Account 3833, as both budgets included portions of the upgrade request. The balance of funding needed to upgrade the infrastructure was moved to budget 3833. Ms. Giunchigliani asked if there was adequate money to finish the upgrade, to which Ms. Espinosa replied in the affirmative.

Ms. Giunchigliani then made inquires regarding 3-way insurance. She noted the division had asked for seven positions, however, only one was approved. When the committee looked at the SIIS budget, it noted the DIR funding was quite large. She then asked if the division would be able to handle the workload with only one additional position, or should the committee direct some of the DIR funding to the division’s budget in an effort to segregate those dollars and allow the division to implement the program.

Ms. Molasky-Arman responded that much of what the division requested was based on predictions, and it did not have a guide to follow because no other state had changed to a 3-way insurance plan in over 30 years, so there were no models available. All requests from the division were based on predictions. She stated she would guarantee the committee if the division found it could not carry out its responsibilities, she would return to the Budget Office with a request for additional resources. Ms. Giunchigliani stated if there were resources in the DIR budget, it might be more appropriate to allocate those funds, rather than General Fund dollars.

Ms. Giunchigliani then inquired what would happen if the idea of privatizing SIIS was implemented, would that impact the division. Ms. Molasky-Arman advised that would have very little effect on the division. As a private insurer, SIIS would be required to apply for a Certificate of Authority, which would be processed in the same manner as other applications. Ms. Giunchigliani thought perhaps staff and workloads might be increased in that event, and inquired if the division had been involved in any plan for such privatization? Ms. Molasky-Arman stated the division had not been approached as yet. Further, she advised, the request by the division for positions related to 3-way insurance did include a calculation for application of the DIR assessment for appropriate positions. Ms. Giunchigliani asked Ms. Molasky-Arman to provide the committee with a report indicating how many of the 7 requested positions would have been funded by DIR assessment.

Ms. Molasky-Arman noted the next major module to be addressed was E-805, which included the request for a major reclassification of one Actuarial position to a Lead Actuary position. The division recently lost its Lead Actuary and had been unable to replace him. She noted the actuary for SIIS was retained at a salary in excess of six figures per year. The salary rate paid by the division was considerably lower than that offered by SIIS, and also considerably lower than most other states paid actuaries in their insurance regulation agencies. The requested funding of $95,000 for salary would enable the division to compete for a competent actuary. Partial funding for the position would come from the DIR assessment in the amount of $28,437 and $27,504 respectively for each year of the biennium. Ms. Molasky-Arman reiterated she felt that salary would enable the division to attract a competent actuary, and would also provide incentive to the division’s other actuaries who had not secured credentials, were not fellows, and were not associates.

Mrs. de Braga stated she had a question regarding performance indicator number 13, "Percentage of consumer requests processed within 3 days of receipt," and inquired if the percentages shown indicated complaints or consumer requests which had been completed. Ms. Molasky-Arman explained that time frame was from the date of receipt until the date the division provided a response to the consumer. Mrs. de Braga again inquired if "processed" actually meant the division had taken action on the request. According to Ms. Molasky-Arman, that category of consumer assistance consisted basically of requests for information, assistance in understanding an insurance product, or how to secure insurance, and did not include consumer "complaints," which would require assistance through investigation. Mrs. de Braga stated the percentages were actually very low, and inquired if the division had taken action to correct that.

Chairman Chowning instructed Ms. Molasky-Arman to address the performance indicators for the committee and provide details via a written report. She felt many indicators became confusing when comparing the projected percentage to the actual percentage achieved by the division, which were substantially lower than projected. In spite of that, the future fiscal year projections were again elevated. The committee would like to know if the activities indicated by the performance indicators were actually being accomplished and, if not, what steps were being taken to correct that situation.

Ms. Molasky-Arman advised she would stand by the performance indicators, and felt they raised the consciousness of both division management and the employees who were to perform under those standards. She went on to explain because those were relatively new indicators adopted by the division in 1997, there were a few problems. The first problem was in data collection, which formerly had been amassed via the PARADOX program, and was now being collected via the ACCESS program. Also, there was a definition problem in the legal and enforcement area regarding the term "determinations." The division was returning to its original determination of the performance indicators, because many standards were modeled after statutory obligations. One thing the division was doing in the investigation and enforcement area was the implementation of a tracking form which would document every step of a case, and enable the division to not only process the case, but accurately report the data. Currently, legal secretaries were required to search files, and make determinations regarding the status of a case. For example, she testified, the requirement for producing an order 30 days after a hearing was a statutory requirement for all contested cases, and was meant to measure those cases.

Chairman Chowning instructed Ms. Molasky-Arman to provide a written report to the committee regarding the division’s performance indicators. She specifically mentioned the two indicators which showed 0 percent for actual FY 1998, asking for clarification. Also, Chairman Chowning stated the committee would like a response to the following questions:

• What was the contributing factor in the decrease of funding available for transfer from the examiner’s fund?

• How was the overhead assessment derived?

• What were the details regarding the division’s internal cost allocation formula, including information regarding charges made to each budget account for FY 1998-99, and charges for the upcoming biennium. Provide explanation for any changes made in the allocation formula.

Chairman Chowning instructed Ms. Molasky-Arman to respond to those questions within the week. She then asked if there was any further testimony on Budget Account 3813, and hearing none, the hearing was closed. The next item for committee review was Budget Account 3817.

Ms. Molasky-Arman stated budget 3817 was used to fund the cost of examining insurers and HMO’s who were authorized to transact business in the State of Nevada. In addition to the cost of performing the insurance examinations, the division charged a 50 percent administrative fee, which was designed to defray additional expenses the division incurred in completing those examinations. The budget retained a reserve balance at the end of the fiscal year which represented operating cash to fund examinations, which were ongoing. The balance of cash not retained in reserve was transferred to Budget Account 3813 to offset the General Fund need. According to Ms. Molasky-Arman, in the last biennium the budget transfers were set at $813,396 for FY 1998, and $618,740 in FY 1999, effectively reducing the reserve balance. She informed the committee that had been accomplished and the fund was operating right now with marginal cash flow.

Ms. Molasky-Arman went on to explain the actual examination fees collected in FY 1998 were $201,272 under budgeted figures without a corresponding adjustment to the transfer amount to Budget Account 3813. Presently, there were 21 examiners, 15 of which specialized in financial examinations, and 6 in market conduct examinations. For the next biennium, the division projected a total of 20 examiners, 14 acting as financial examiners and 6 in the market conduct area.

Guidelines for examination participation for insurers who were not living in the State of Nevada were changed, resulting in diminished financial examination participation by division examiners. Ms. Molasky-Arman explained that was the reason the need for examiners had decreased and the revenue stream to account 3817 was also adversely impacted.

There were essentially two changes in the National Association of Insurance Commissioners’ structure. Ms. Molasky-Arman explained the first change involved zone participation. Each state was placed in a certain zone, with Nevada being in the western zone. The association raised the premium level for zone participation to $25 million as the standard, which determined whether or not a zone could participate in the examination of foreign insurers. The western zone itself changed as far as selection of the state which would represent the zone. Formerly, she advised, Nevada provided representation because it had probably the most competent examiners, who participated in and acted as the western zone examiner. That standard was changed under a new rule which allowed the domestic insurer to assign the western zone examiner. That meant, for example, if the State of Arizona wished to have its examiner act as the western zone examiner, their wishes would take precedence over those of the State of Nevada. Ms. Molasky-Arman interjected she had protested that procedure because of the danger of influences placed upon a domestic regulatory official by the domestic insurers of that state. She did not think the standard would change for some time, until something occurred to raise awareness of the situation.

During 1995-96, the number of HMO’s doubled in the State of Nevada, going from a total of 6 to 12. Ms. Molasky-Arman informed the committee there were now 11 operating HMO’s and one which was insolvent. The division’s examination requirement for HMO’s was once every 3 years; however during the first 3 years of operation, an examination was conducted every year. Since the new HMO’s had matured to the 3-year age level, the division was changing its examination standard to the requirement of once every 3-years, rather than once every year for the first 3 years.

Ms. Molasky-Arman called attention to Module M-125, which provided for examinations conducted by in-house staff. She stated she had learned that many of the division’s investigators, who were not examiners, frequently audited or investigated agents and bail bondsmen. The cost of those investigations and audits should be borne by the insurance companies represented by those agents and bail bondsmen. The division had been bearing those expenses from account 3813, even though they were recoverable, and she felt account 3813 was the most appropriate vehicle to represent that expense.

Chairman Chowning stated the committee also needed clarification regarding the performance indicators for that budget account. The report should also include the following information:

• How many examiners the division employed, how many days they worked and the number of examinations completed.

• What was the total amount of the administrative fees collected, and what were the overhead costs that could reasonably be charged against those fees.

Chairman Chowning asked for explanation of the administrative fee. Responding was Ms. Espinosa, who explained the administrative fee amount was set by statute, and had been designated at 50 percent for the last two bienniums. Chairman Chowning asked staff to provide the location of the statute.

Mark Stevens, LCB Fiscal Analyst, indicated he believed the fee was administratively set, and was not set by statute to his knowledge. Ms. Molasky-Arman stated she felt there was some confusion regarding fees, and explained the actual cost of examining insurers was set by regulation, however, that cost did not include the administrative fee. At one time there was 100 percent administrative overhead fee, but that caused a great deal of protest from the insurance industry itself. Chairman Chowning then inquired how the fee was cut to 50 percent. Ms. Molasky-Arman replied the fee was cut at the urging of the legislature at a past session, either 1993 or 1995.

Ms. Chowning instructed the division to provide information regarding the status of the transfer of funds from Budget Account 3817 to Budget Account 3813, explain exactly how short the examiner’s fund transfer was going to be, and explain the revised projections of revenues and expenditures which apparently were going to be necessary. Ms. Molasky-Arman stated the division would provide the requested information.

Ms. Giunchigliani inquired if the 50 percent administrative fee was something the committee could review for possible change. Ms. Molasky-Arman stated there certainly could be a change, however, she felt the industry would vehemently protest any increase in that level. Ms. Giunchigliani stated that might be, however, she felt the committee needed to see some projected figures if the fee was increased to 55 or 60 percent. Ms. Molasky-Arman informed the committee most of the companies the division examined were domestic rather than foreign insurers, and the thrust of the increase would, therefore, essentially fall on the domestic insurers. Ms. Giunchigliani inquired how many foreign insurers were investigated by the division. Ms. Molasky-Arman stated there were 1,420 insurers and the responsibility for examining those insurers was essentially that of the domestic regulatory office. Ms. Giunchigliani then asked if there was a difference in fees between foreign and domestic investigations, and did one require more work than the other. Ms. Molasky-Arman replied that charges and requirements for domestic and foreign investigation were identical.

Ms. Molasky-Arman advised there were manuals of procedure produced by the National Association of Insurance Commissioners for both financial and market conduct examinations, and all examinations were conducted according to those procedures.

There being no further testimony on Budget Account 3817, the hearing was closed and Chairman Chowning opened the hearing on Budget Account 3824.

Ms. Molasky-Arman indicated that Budget Account 3824 was established to provide staff training, and education to the general public, insurance companies, licensees and legislators pursuant to NRS 679B.305. The staff training included concepts of insurance and actuarial studies. The division believed the industry and public were both served through the various publications such as newsletters, bulletins and guides it produced. According to Ms. Molasky-Arman, the budget account also worked to establish educational requirements for agents. It provided that support by approving specific educational courses, which allowed division licensees to achieve their original educational requirements, as well as meet their continuing educational requirements.

Further, advised Ms. Molasky-Arman, the oversight of the agent licensing examination was also funded through account 3824, which supported two positions, the Educational Coordinator, who was also the licensing supervisor, and a Management Assistant I. Presently, the division was looking into the possibility of producing public service announcements to advise the public of assistance the division could provide to them. Also under development was a series of targeted courses to provide education to such groups as drivers under the age of 21 and small businesses. Ms. Molasky-Arman disclosed that those plans arose from a legislative request during the 1997 session. In Module E-126, the amount of $25,000 was recommended for each year of the biennium for those courses.

Ms. Molasky-Arman stated last session legislators asked the division to review possible research programs, which would be supported by the allocated $25,000. She indicated the division’s implementation of HIPAA and 3-way insurance had taken precedence over everything the division had done during the last 2 years, however, it had learned it was virtually impossible to fund any important research project with only $25,000. For example, when the Legislative Interim Committee on Health compiled research on the uninsured population, over $100,000 was expended in order to accomplish that research. She noted the division had submitted a letter to the committee, which indicated the desire to pursue the possibility of producing public service announcements. The division would propose to use the existing $25,000 designated for insurance research for the current biennium to produce those announcements. The division would continue that effort during the next biennium. The educational program the division would submit was produced with substantial cooperation from Lauren House, Executive Director, Nevada Independent Insurance Agents. The division felt it should also approach the other associations which represented agents, such as the life and health underwriters, so they could possibly assist with development of educational programs for the public.

Chairman Chowning advised the committee felt there should be more research and training done through use of the $15 assessment charged on all license applications and annual renewals. She asked if the division had considered that possibility and, if so, what were the projections. Ms. Molasky-Arman replied it would be incorporated in the educational programs the division was working on in conjunction with the various associations.

Ms. Giunchigliani inquired about Module E-126, which was the $25,000 for research grant, and was the division taking the money from the reserve, i.e., the money it had already collected. Ms. Molasky-Arman replied in the affirmative. Ms. Giunchigliani stated by statute, the division was charged with providing training or assisting with driver’s education training regarding insurance, and she asked if part of that money could be used to offset that training. Responding was Ms. Espinosa, who advised the division did participate in funding that training program, which was presented by the Department of Motor Vehicles/Public Safety (DMV/PS). The division contributed approximately $5,000 from account 3824 toward that training.

Ms. Giunchigliani stated her concern was that the division had close to a $425,000 reserve for insurance training education and research. She indicated she would suggest to the committee that a percentage of that reserve be shifted to the Department of Education for its Driver’s Education Program for insurance, which might help the division inadvertently accomplish some of its goals without needing additional staff. Ms. Giunchigliani declared she wanted to hear from the division what amount it thought was needed for research, and how much could be diverted. Perhaps the State Board of Education could set up a grant structure for districts to apply for the funds. It made no sense to let the reserve funds sit idle, but she wanted to hear from the division before any suggestions were made to the committee. Ms. Molasky-Arman mentioned the division’s goal was to target drivers under the age of 21, and schools were a perfect place for funding, because not all districts offered driver’s education, or had problems financing such education, and perhaps both departments could work via a joint partnership regarding funding.

Chairman Chowning interjected the legislature had mandated that a certain amount of hours be spent in driver’s education before a teenager could obtain a driver’s license. Therefore, on one hand it was a mandate, and yet on the other hand, not all teenagers were provided the opportunity to obtain that education. Ms. Giunchigliani’s suggestion would perhaps provide the assistance needed. There was another bill before the legislature that would determine graduated driver’s license requirements.

Ms. Molasky-Arman stated the division also considered it important to educate youth about insurance, their responsibilities in securing insurance, and what was required of them in selecting and purchasing insurance.

Chairman Chowning asked Ms. Molasky-Arman to touch on the COSMOS program. The program was not recommended or approved for COSMOS, but if funding did become available, what was the priority of the software, why did the division pick that program, and how many states were currently using the system. There were currently several software programs in the state experiencing problems, and the committee would like to know in advance about the COSMOS program.

Ms. Molasky-Arman advised she would defer to Ms. Espinosa, as she had been working extensively in collecting information about the program. Ms. Espinosa stated the COSMOS program was developed specifically for insurance regulatory bodies. There were five states which had implemented either all or portions of the program. One of the reasons it was attractive to the division was because it was a "canned" program, without customizations that usually caused problems. The division wanted a program where it would not be the "test-site," but rather a program which was proven and could be put into use upon purchase.

Ms. Espinosa explained COSMOS was a fully integrated licensing and data base program that took into consideration all facets of the division’s operations, including producing licenses and issuing renewals, company administration for the corporate and financial section, consumer services, tracking of consumer complaints, and requests for enforcement. Also included were files for investigation and enforcement of cases, as well as a financial module which would allow the division to integrate its collection of revenues with the licensing process. Currently, advised Ms. Espinosa, the division had a piecemeal, patchwork of "home grown" computer programs that were developed by staff to track information and provide the data necessary to complete its functions. Ms. Espinosa advised the COSMOS program was established, and contained internal controls and protection as far as access to and availability of data was concerned. It also contained security levels to insure integrity of that data. She felt COSMOS was the only software package on the market suited to the division’s needs.

Chairman Chowning inquired about the total cost of the program with the addition of maintenance and the Department of Information Technology (DoIT) charges, asking if the correct figure was approximately $350,000. Ms. Espinosa replied the original estimates were between $350,000 and $460,000, and that would depend on how much external support the division needed. Chairman Chowning inquired if the other states were able to have the program up and running in approximately 2 to 3 months. Ms. Espinosa replied in the affirmative.

Mr. Beers asked if the committee could have a list of the five states currently using the COSMOS program. Ms. Espinosa stated the division actually had conducted a telephone survey with those states, and she had talked to either the data processing individuals who were involved in the conversion, or the actual users in the various divisions of insurance. What she felt was remarkable, was they were all very favorable. The main complaint was that the data was not flexible, which had to do with data control within the program, and staff complained they were unable to change the program. Ms. Espinosa stated that was a consistent complaint, but the overall response was quite favorable. All users reported once the program was up and running, it ran with very little down time or problem areas. Mr. Beers inquired if the program contained report-generating ability so the division could design its own reports. Ms. Espinosa stated it contained a limited ability for report writing, and the division could create its own customized reports from the data base. Mr. Beers requested a copy of the division’s report on the research for the COSMOS program. Ms. Espinosa stated she had a report and also DoIT had completed a needs assessment which included an evaluation of the program. Mr. Beers then inquired if the division had the hardware to support the program. Ms. Espinosa advised that part of the previously discussed infrastructure upgrade of the division’s network provided much of the necessary hardware needed to run COSMOS.

Chairman Chowning instructed Ms. Espinosa to provide the detailed information to the committee for review prior to committee budget closing decisions. She then asked if there were any other persons wishing to speak to Budget Account 3824. Hearing none, the hearing was closed. The next item for committee review was Budget Account 4684.

Eloise Koenig, Self-Insurance Coordinator, Workers’ Compensation Section, testified account 4684 was funded by a special component of the DIR assessment levied against self-insured employers and the Association of Self-Insured Employers. The only major component contained in the budget was Module M-200, which requested the continuation of a contingent position which had been in the budget for quite some time. In case the workload suddenly exploded, Ms. Koenig explained, she would have a position in reserve and could appear before the Interim Finance Committee (IFC) to justify triggering it. The position had been a part of the budget for 3 years and, to date, she had not seen a need to trigger it. For her comfort level, she would ask that it remain a part of the budget.

Module E-125 asked for additional out-of-state travel and registration expenses to send staff to the International Association of Industrial Accident Boards and Commissioners Workers’ Compensation College. She had attended the college, found it to be excellent, and wanted the opportunity to send her staff as well. The college provided terrific training regarding workers’ compensation. Ms. Koenig stated the request also included attendance at the National Council on Compensation Insurance, Inc. (NCCI) Annual Workers’ Compensation Symposium, in order for staff to remain current on workers’ compensation issues throughout the nation.

Under new equipment, she stated, the division asked for a paper shredder and some keyboard arms in order to retrofit the computer tables so they were ergonomically correct. Those were the only two major components within Budget Account 4684.

Chairman Chowning revisited the contingent position, asking if it was just there in case Ms. Koenig needed it later; Ms. Koenig assured the committee it was simply a contingent position. Chairman Chowning asked for further testimony, and hearing none, closed the hearing on account 4684 and opened the hearing on Budget Account 4680.

Roger Bremner, Administrator, Division of Industrial Relations (DIR) advised that present with him was Mary Keating, CPA, Chief Administrative Officer. Mr. Bremner stated the mission of DIR was to enhance the health and safety of employees while on the work site. In addition, the division ensured that injured employees received the full benefit to which they were entitled under workers’ compensation, and assisted employers in the determination and elimination of work site hazards. DIR also inspected and trained personnel at working mine sites throughout the State of Nevada. It was organized into five working sections and the administrator’s office.

Mr. Bremner explained Budget Account 4680 included the Office of the Administrator, the Industrial Insurance Regulation Section (IIRS), and the Administrative Services Unit, with a total of 87 positions.

Mr. Bremner advised the committee he wanted to mention a situation which arose due to contract failure with the National Council on Compensation Insurance (NCCI), the vendor who was going to receive information for the division’s claims indexing information system. DIR was notified in early February that NCCI no longer wished to be the receiver of that information. Apparently, it had become uneconomical for NCCI to continue receiving information, because DIR had downsized the project. DIR notified the Budget Office, the Governor’s Office, the 3-way insurance task force, and LCB fiscal staff of the situation. According to Mr. Bremner, DIR was currently meeting with DoIT regarding the situation and anticipated completing that function in-house rather than contracting it out. One reason for the decision to remain in-house was because the project had been downsized. It was currently anticipated DIR would require two data input positions, along with additional programming and software monies. Mr. Bremner explained to date the division did not have the exact figures for implementation of the in-house program, but he wanted the committee to be aware of the situation so it would not come as a total surprise when the figures were submitted.

Chairman Chowning inquired how soon DIR anticipated providing that information to the committee. Mr. Bremner replied it should be by the end of the current week.

Module M-200 was a decision unit which recommended funding for the operation of the ongoing costs of 17 positions related to the transition to 3-way insurance. According to Mr. Bremner, it also funded the Information Services positions housed at DoIT. In addition, it funded the rent cost for the new Las Vegas Office. He reminded the committee that DIR had appeared before the IFC in early December requesting the funds for leasing the new Las Vegas premises.

Chairman Chowning advised Mr. Bremner the committee would like to know how the division planned to use the positions referred to in Exhibit D, composed of organizational charts depicting current and proposed positions. Chairman Chowning stated she was particularly interested in page 4 of the exhibit, which showed positions approved by IFC, and inquired what the division hoped to accomplish with the added positions.

Mr. Bremner stated DIR was currently creating standards for those positions which would delineate the division’s plans and ideas regarding the additional staff. In addition, he explained, the new Industrial Insurance Regulation Section (IIRS) Administrator, Mr. Chuck Verre, was working on that plan, which was all but completed. Chairman Chowning asked if the plan would include caseload and/or workload information as well. Mr. Bremner stated he would provide copies of all reports to committee members regarding how the division planned to utilize those added positions.

Continuing his presentation, Mr. Bremner stated due to time constraints, he would quickly address the remaining modules:

• Module M-201 recommended the addition of a Management Analyst III position and associated operating costs, to enhance the management of assessments and grants in the Administrative Services Unit.

• Module M-203 recommended the addition of a legal secretary position with associated operating costs, to provide support staff for the division’s legal office in Las Vegas.

• Module E-126 recommended funding for the operational costs of the two Subsequent Injury Fund Boards, including travel, attorney fees, court reporter, et cetera.

• Module E-275 was the unit which recommended funding for costs related to out-of-state travel for the Administrator, increased costs for medical advisors, review of the medical fee schedule and employee training.

• Module E-710 recommended replacement of one vehicle and selected office and computer equipment.

• Module E-720 recommended the purchase of one new vehicle, one fax machine, two paper shredders, and computer tables and hardware. Currently, the division had budgeted for seven vehicles, and was requesting one additional vehicle, for a total of eight.

Chairman Chowning stated in the division’s first performance indicator, which reflected comparisons of lost-time claims to average workforce, there were no figures for FY 1998, and asked Mr. Bremner when the committee could expect that information. Mr. Bremner stated that was one of the few performance indicators that was outcome-driven, and figures for FY 1998 were not available, however, the average for FY 1997 was 1.73 percent. DIR projected that figure would not change too much over the next 2 to 3 years, but did not have the FY 1998 figures yet; that information would be provided to the committee as soon as possible.

Regarding performance indicator number 2, Chairman Chowning noted DIR was required to audit each insurer once every three years, and had projected 85 audits for FY 1998, however, was only able to accomplish 69 audits, or 81 percent. She inquired if DIR would continue to be in compliance with statutorily mandated time frames. Electing to respond was Mr. Verre, who indicated he believed DIR would continue to meet those time frames.

Chairman Chowning asked DIR to report on the 1998 legislative audit, and what changes were implemented by the agency to comply with the recommendations from that audit. Responding to the request was Mary Keating, CPA, Chief Administrative Officer, Administrative Services Unit, DIR, who indicated the legislative audit found several areas where the agency was lacking in documentation, and had failed to follow statutory requirements in a timely fashion. She stated most of the significant changes had already been implemented, specifically in the area of documentation of the audit files for the IIRS. The IIRS audit manual was updated to include the recommendations from the legislative audit.

In the Occupational Safety and Health Enforcement Section (OSHES), Ms. Keating stated the audit had specifically pointed out areas where DIR had not acted in a timely manner, and she advised the operations manual had been changed to include that recommendation. Regarding the Mine Safety and Health Training Section, the audit recommended DIR put into place a data base that would more accurately track the activities of the inspectors, and DIR was currently working with DoIT to have that completed in the near future. Ms. Keating stated she believed DIR would be in compliance with all recommendations of the legislative audit in the very near future, as 90 percent had already been implemented.

Mr. Bremner added he had provided a progress report to Gary Crews, Legislative Auditor, just prior to the start of session, however, they had not had the opportunity to meet for review of the report. Chairman Chowning requested a copy of that report for the committee and Mr. Bremner indicated he would comply with that request.

Senator O’Donnell asked why DIR had requested so many additional positions, as its total budget appeared to be approximately $8 million more than last biennium. While all other agencies had suffered either funding cuts or maintenance of current budget funding, DIR’s budgets increased approximately 23.9 percent. Ms. Keating stated the current budget request included 17 positions funded by IFC, four of which had been assigned, two were filled and two were pending. The remaining 13 positions in Budget Account 4680 would deal with the advent of 3-way insurance, and DIR anticipated filling those positions by June 30, 1999.

According to Ms. Keating, also included in the division’s budgets was a request for 24 additional positions, plus the two data entry positions previously mentioned by Mr. Bremner. Eighteen positions would deal with occupational safety and health, which was driven by the demographics of the state. Ten positions would deal with the growth of properties, i.e., 155 properties and over $10 million in Clark County on the drawing board right now, and 55 properties in northern Nevada, over $5 million on the drawing board as well. All of those properties would require inspection during construction and operation. The other eight positions in occupational safety and health would deal with the required inspections of interior items such as boilers, elevators, pressure vessels, and dumbwaiters. Ms. Keating explained the properties currently on the drawing board were very large and substantial, and included many of those interior objects. She emphasized in order for DIR to maintain inspection schedules, it would require the additional staff.

Senator O’Donnell stated it appeared there was a 23 percent growth rate in DIR’s budget, however, he could not ascertain whether or not there was a corresponding statewide growth rate in boilers, elevators, pressure vessels or dumbwaiters. Ms. Keating stated the positions were not specifically all for use in that area, and reiterated 17 of the requested positions were for implementation of 3-way insurance. Eighteen positions would deal with growth in the two specified areas of additional property inspection and the required inspection of boilers, elevators, et cetera. Senator O’Donnell noted the growth in the OSHA assessment alone was 45 percent, and inquired if DIR could make do with less. Mr. Bremner advised the committee DIR would make do with whatever the committee approved. Senator O’Donnell requested caseload information be provided to the committee in order to ascertain exactly what the division required.

Ms. Giunchigliani stated DIR dealt with health and safety issues, and she did not feel its budget should be cut to "bare bones" in order to ensure that both employers and employees were properly educated and cared for. She felt DIR should make sure the dollars and caseload fit. The impact of 3-way insurance was an unknown, which could ultimately be higher than the requested budget amount. She asked if DIR was involved in such things as the recent chemical plant explosion in Reno, noting that the State Fire Marshal’s Office had informed the committee it did not have enough investigators, and inquired if DIR worked directly with that office. Mr. Bremner stated part of DIR’s budget request was as a result of the Clark Report, which was the commission that conducted the interim study. He advised the committee that Mr. Danny Evans was present in the audience and would be happy to explain the impact on DIR. Ms. Giunchigliani stated that due to time constraints, perhaps that information could be provided to the committee at a later date.

Chairman Chowning requested Mr. Comeaux address the issue of unfunded liability in the amount of approximately $1 billion, stating the committee wanted to know how much revenue would be generated from the premium tax to the State Industrial Insurance System (SIIS) for payment toward that unfunded liability. Mr. Comeaux replied he could not provide that information at the current time, but would certainly report back to the committee at a later date.

Chairman Chowning complimented Mr. Bremner for the DIR performance indicators, stating they were excellent and the committee was very happy with the increased safety track record. She noted in FY 1992 the lost-time claims to average workforce was 3.38 percent, which was reduced to 1.73 percent by FY 1997. That indicated a reduction in injuries and lost-time, and depicted more economic efficiency.

Mr. Beers stated while he agreed with Chairman Chowning’s previous statement regarding DIR’s performance indicators, he felt there might be some small measure of improvement in that area. He advised he would like to see the following indicators expressed in a time-frame manner, i.e., what percentage of informational inquiries were addressed within the specified time frame.

• Number 11: IIRS – Ensure timely and accurate delivery of benefits – complaints investigated and resolved;

• Number 12: IIRS – Ensure timely and accurate delivery of benefits – complaints investigated and resolved – notices of correction issued by type of violation;

• Number 14: IIRS – Ensure timely and accurate delivery of benefits – informational inquiries addressed;

• Number 15: IIRS – Ensure timely and accurate delivery of benefits – claim recommendations referred to Subsequent Injury Fund Boards from IIRS; and,

• Number 22: IIRS – Ensure employer coverage – informational inquires addressed.

Chairman Chowning informed Mr. Bremner the committee had also asked other agencies to provide that information because it wanted to know the outcome of the stated performance indicators. With no further testimony forthcoming on Budget Account 4680, the hearing was closed.

Chairman Chowning advised the audience that due to time constraints, the committee would be adjourned, and apologized for any inconvenience caused by rescheduling the remaining agenda items. Chairman Chowning declared the hearing adjourned at 10:55 a.m.

RESPECTFULLY SUBMITTED

Carol Thomsen,

Committee Secretary

APPROVED BY:

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Vonne Chowning, Chairman

DATE:

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Senator William O’Donnell, Chairman

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