The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 7:35 a.m., on Thursday, March 11, 1999, in Room 2135 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.

COMMITTEE MEMBERS PRESENT:

Senator Randolph J. Townsend, Chairman

Senator Ann O’Connell, Vice Chairman

Senator Mark Amodei

Senator Dean A. Rhoads

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Kathryn Lawrence, Committee Secretary

OTHERS PRESENT:

Howard I. Goldblatt, Lobbyist, Director of Government Affairs, Coalition Against Insurance Fraud, stated the coalition is a national organization of consumer groups, government agencies and insurance agencies dedicated to combating all forms of insurance fraud through public information and advocacy. He referred to his statement of estimated Nevada fraud claims (Exhibit C) and the nationwide fraud claims (Exhibit D), and stated that was the latest statistics they were able to retrieve. He explained insurer fraud as fraudulent companies in business who are not paying insurance claims, and insurer fraud as individuals embezzling from insurance companies. He stated he felt that reporting insurance fraud should be broader in allowing anybody to report insurance fraud and allowing these individuals immunity. Senator O’Connell asked what other states were equal to Nevada in terms of fraud bureau and if any states currently have more effective means of dealing with insurance fraud. Mr. Goldblatt stated some of the states are Pennsylvania, South Carolina, New Jersey, Mississippi, and Oklahoma. He explained there are individuals who earn a living committing insurance fraud, and there is a pattern for the types of fraud they commit. Senator O’Connell inquired if someone committing fraud in Pennsylvania moved to Nevada, could Pennsylvania network with the investigators. Mr. Goldblatt stated yes, they would not be violating any privacy act.

Senator Schneider inquired about the fraud in health care. Mr. Goldblatt stated providers are committing health care fraud by billing of services not rendered, for unbundling services such as down coding, and taxi and car services are billing fraudulently. He explained physicians may bill for patient visits, which did not occur, or a physician may x-ray a patient upon every visit. Senator O’Connell asked if there were certain fraud acts being committed against a certain class of individuals, such as senior citizens. Mr. Goldblatt stated he did not have that information.

Frankie Sue Del Papa, Attorney General, stated her office has engaged in a private public partnership to better address fraud prevention in our state. She stressed one of our biggest challenges in fighting fraud was the attorney general did not have concentrated units. She stated the first fraud unit the attorney general’s office (AGO) built was in the Medicaid fraud unit. Ms. Del Papa explained S.B. 224 and S.B. 225 together enhance Nevada’s ability to fight fraud. She referred to her letter (Exhibit E) and summary (Exhibit F), and stated when fraud occurs, we all lose. She pointed out that immunity is good in order to share information.

Chairman Townsend temporarily closed the hearing on S.B. 224, and opened the hearing on S.B. 225.

Ronda Clifton, Deputy Attorney General, Office of the Attorney General, introduced her packet titled, "Work Session Senate Committee on Commerce and Labor" to the committee (Exhibit G.). She questioned Amendment B-2 of Exhibit G submitted by Kevin Higgins, Chief Deputy Attorney General, Fraud Control Unit for Industrial Insurance, Office of the Attorney General, if the AG’s office could transfer and share resources within the various fraud units. She referred to Amendment B-3 of Exhibit G and stated certain procedures should not be alleged as fraud. Chairman Townsend stated if you are practicing within your scope of work as a physician that should be covered. Ms. Clifton stressed the standards of medical practice, as written, in the administrative codes and Nevada Revised Statutes (NRS) are ample, but the AG’s office was concerned with the initial allegation, which states that is fraud.

J. Marty Howard, Senior Deputy Attorney General, Insurance Fraud Control Unit, Office of the Attorney General, stated he desired to review the homeopathic Amendment B-3 of Exhibit G. Ms. Del Papa stated this has already been addressed.

Chairman Townsend temporarily closed the hearing on S.B. 225, and reopened the hearing on S.B. 224.

Bill Bradley, Lobbyist, Nevada Trial Lawyers’ Association, stated it has never been the intent of the Nevada Trial Lawyers’ Association to derail or to see this bill fail. He stated this committee has an opportunity to do more for the consumers of the state by allowing insurer fraud to be prosecuted by the attorney general’s office. He stated he agreed and disagreed with Mr. Goldblatt. He explained he had heard that insurer fraud will not be prosecuted in this state and that was a concern to him. He stated he was concerned with Amendment B-1 of Exhibit G, regarding an adjuster without malice. He suggested the standard should be "reasonable and in good faith," and they should have immunity. He stated had he had not fully concurred with the AGO. Chairman Townsend stated his understanding of the AGO was that they desired the bill to move forward, as is. Chairman Townsend stated Mr. Bradley could bring another bill forward in the future. Mr. Bradley suggested S.B. 224, section 16, purports to utilitize a nolo contendere plea as evidence of a conviction in order to seek restitution. He expressed he did not believe that to be fair when it goes across the board to an accident case. He stressed if you are involved in an accident, you will be instructed by your insurance company to plead no contest. Mr. Bradley maintained in Nevada a no contest plea is not admissible on the issue of liability in an auto accident.

David F. Sarnowski, Chief Deputy Attorney General, Criminal Justice Division, Office of the Attorney General, stated in Nevada when a criminal defendant who pleads nolo contendere and is then found guilty upon submitting that plea to the trial judge, the trial judge will treat that defendant just as guilty as anyone who enters a straight-up guilty plea. He stated there is no reason to differentiate the treatment of insurance company victims and insurance fraud cases in instances when the defendants plead nolo contendere. Chairman Townsend stated a nolo contendere plea is not available in a civil case and he wanted that to be equal. He stated if we have nolo contendere pleas on the criminal side, we should have it on the civil side. Mr. Sarnowski stated the only reason to have a nolo contendere plea is to protect the defendant in that civil liability context.

Robert B. Feldman, Lobbyist, Nevada General Insurance Company, stated his company assessment is being increased by $500 yearly. He stated the majority of fraud in Nevada is soft fraud. He explained soft fraud is committed by individuals that are either exaggerating accidents or building up claims, and this requires extensive field investigation.

Chairman Townsend closed the hearing on S.B. 224 and reopened the hearing on S.B. 225.

Ms. Clifton referred to Mr. Guild’s Amendment A-1 of Exhibit G to prevent reinsures having to pay twice. She stated there was a concern regarding the prevention of people who have to pay for both the workers’ compensation unit and the insurance fraud unit, and referred to the Amendment A-2 of Exhibit G.

C. Joseph Guild, Lobbyist, State Farm Insurance Companies, stated he supported Ms. Clifton’s testimony.

Robert Crowell, Lobbyist, Farmers Insurance Group, stated he concurred with Mr. Guild.

Alice A. Molasky-Arman, Commissioner, Division of Insurance, Department of Business and Industry, stated she fully supported S.B. 224 and S.B. 225.

Lenard Ormsby, General Counsel, Employers Insurance Company of Nevada, stated he did not agree with the Amendment A-2 of Exhibit G, section 1, subsection 4, paragraph (f). He stated the exclusion pertains only to private workers’ compensation carriers who are on-line carriers. He suggested removing the word "private" or inserting "system or" in front of the word "private," which is consistent.

Jack Kim, Lobbyist, Sierra Insurance Group, stated he concurred with this amendment.

Mr. Guild submitted his index (Exhibit H) and introduced Mr. Crowell.

Mr. Crowell referred to Exhibit H and pointed out the price differences between each of the different companies. He explained the Herfindahl Index is an index used by the U.S. Department of Justice in evaluating mergers. He declared the index enables insurance companies to review the markets of particular areas and a method of determining whether or not a combination of companies in a market would cause anticompetitive activities.

Mr. Guild referred to a proposed amendment (Exhibit I) and section 4, subsection 1, paragraphs (a) and (b), and stated they were going to amend both paragraphs. He referred to section 1, stating they would submit a worksheet to the committee in the future. He stated section 2 is based upon having a competitive, mature market and therefore the companies can file and use a certain rate. He explained section 3 is an information filing section. Mr. Guild stated his company tried to create a situation where the insurance market could file rates and use them without undue scrutiny by the insurance commissioner. He stressed they needed enough scrutiny by the commissioner that in cases of suspicion by her or her successor, the commissioner could do further research. He explained section 4 gives the commissioner the right to determine proposed rates and section 5 grants the commissioner the right to consider any proposed increase or decrease in accordance with the NRS 686B.070.

Mr. Guild remarked if the insurance commissioner decides the insurance company is insolvent, he/she can immediately undertake procedures to stop the rate from being in effect. He expounded this proposal strikes a good balance for a competitive market, the ability of mature market competitive insurers to file rates, and also gives the commissioner ample opportunities to step in and stop the rate from being in effect. Senator Shaffer asked Ms. Molasky-Arman if this would take more people to monitor the director of the insurance companies. Ms. Molasky-Arman stated it would not create a bigger burden. She stated that by passage of this bill, it would give her a bigger safety net. Senator Carlton asked for an explanation of discriminatory practices. Mr. Guild stated an unfair discriminatory practice is where the price difference does not reflect the expected loss and the expense differences in a rate.

Chairman Townsend inquired if there is enough protection under the law to make sure no one enters this market or persons who are in this market sell below costs. He inquired of Ms. Molasky-Arman if she felt there was enough regulatory authority in the marketplace to meet the needs of senior citizens. Ms. Molasky-Arman stated this draft has been amended to that effect. Chairman Townsend asked if her office could keep a current provider or a potential licensee from selling below cost and catching that immediately. Ms. Molasky-Arman stated her office could under this proposal.

Mr. Feldman referred to his magazine article (Exhibit J) and stated the commissioner was concerned with senior citizens that might have a difficult time obtaining insurance. He stated in the exhibit, 25 states have filed and use statutes such as we are proposing. Mr. Feldman submitted a table of rate filing methods to the committee (Exhibit K).

Sam Sorich, Lobbyist, National Association of Independent Insurers, stated lower rates tend to be in states where there is a competitive market and a lack of strict prior approval of regulations. He suggested this bill would allow insurers to serve customers better.

Judith M. Fitzgerald, Lobbyist, Director of Government Affairs, National Insurance Crime Bureau, stated she would like to address section 1. Chairman Townsend stated this bill would remove everything except the rate issue. He asked Ms. Fitzgerald to keep the committee abreast of the national statistics on fraud.

Robert Cedar, Actuary, Property and Casualty, Division of Insurance, Department of Business and Industry, stated the burden is now on the insurance commissioner to prove the rates should not be changed.

Clifford King, Supervisor, Property and Casualty, Division of Insurance, Department of Business and Industry, stated in the rate-making basis you determine the losses and the losses actually dictate where you go with the rate. He clarified if an individual takes losses and divides that figure by expenses, that will determine the rate. He explained it is considered discriminatory when those losses and the rate portion are out of sync with each other. Mr. King stated passage of this bill would enable the insurance division to concentrate on those companies which are out of sync, as opposed to analyzing every single one.

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The meeting was adjourned at 10:10 a.m.

RESPECTFULLY SUBMITTED:

Kathryn Lawrence,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

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