The Senate Committee on Finance was called to order by Chairman William J. Raggio, at 8:12 a.m., on Friday, February 19, 1999, in Room 2134 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 William J. Raggio, Chairman

Senator Raymond D. Rawson, Vice Chairman

Senator Lawrence E. Jacobsen

Senator William R. O’Donnell

Senator Joseph M. Neal, Jr.

Senator Bob Coffin

Senator Bernice Mathews

STAFF MEMBERS PRESENT:

Millard Clark, Committee Secretary

OTHERS PRESENT:

Senator Raggio stated that Assembly Bill (A.B.) 176 was an appropriation to the benefit services fund and suspends operation of the Committee on Benefits indefinitely.

John P. (Perry) Comeaux, Director, Department of Administration, stated that A.B. 176 would provide an appropriation of $9 million from the state General Fund and $1 million from the state Highway Fund as the first installment on the amount necessary to restore the solvency of the Benefit Services Fund. Additionally, he said, section 3 of A.B. 176 indefinitely suspended the operation of the Committee on Benefits and the Governor will be given the responsibility and the necessary authority to administer the state’s benefits program until other arrangements are made.

Mr. Comeaux said the original version of this bill was designed to provide the funding necessary to restore the fund to solvency. When the bill was heard by the Assembly Committee on Ways and Means, concern was expressed that until a plan was developed to change the operation of the Committee on Benefits to satisfy both the Governor and the Legislature, there was a likelihood of a recurrence of the problems experienced over the past few years. The amount provided in the original bill, $26 million, would be reduced to only that necessary to allow payment of claims well into May 1999. This bill will give the Legislature and the Governor time to work out a long-range plan to ensure the future solvency of the Public Employees Health Program. Further, the provision for indefinitely suspending the operations of the Committee on Benefits came about as a result of some alarm on the part of both the Governor and members of the Assembly ways and means committee over some potential action on the Committee on Benefits meeting agenda for next week.

Senator Raggio stated that the Senate Committee on Finance is aware of what the problems were and the reasons the situation exists. He said the Public Employees Health Program would be out of money by the end of February 1999. This bill is a partial infusion of money into the Public Employees Health Program that will provide the necessary funding for the next 3 months. Mr. Comeaux replied that the $10 million included in A.B. 176 would last into May 1999.

Senator Neal asked whether Mr. Comeaux planned to provide the organizational structure that will be utilized to govern the Public Employees Health Program. The senator said one problem that was identified was the Public Employees Health Program had no clear lines of authority. Simply placing the Governor at the top of the organization chart does not identify the total organizational structure of the Public Employees Health Program. Senator Neal asked what the total organizational structure would be. He noted that A.B. 176 stated the Governor might appoint a designee. He inquired who the designee would be and what the proposed organizational structure was. Mr. Comeaux replied that the Governor had established a working group to look at the organization of the Committee on Benefits and to design an organization that would shore up the management of the Public Employees Health Program. That working group was scheduled to meet February 23, 1999. Mr. Comeaux said the Governor’s intention is to designate an individual with a background in administration of benefit programs to temporarily oversee the operation of the program until a bill draft can be created that will permanently provide for the organization and management of the Public Employees Health Program.

Senator Neal stated it would be necessary to submit more details of the Governor’s plan. A.B. 176 gives the Governor authority to make decisions that may expose the state to liability. Mr. Comeaux replied the state’s position will not change as a result of A.B. 176; the Governor will have the responsibility of running the Public Employees Health Program even after a designee is named. The Governor will take the place of the Committee on Benefits. This measure is intended to be temporary until legislation that will permanently change the Public Employees Health Program is approved by the Legislature. Senator Raggio said the Senate Committee on Government Affairs is already having hearings on the proposals to restructure the Committee on Benefits and the Public Employees Health Program. Senator Raggio stated the Governor’s proposal had not yet been presented.

Senator Coffin stated that the problem had been two years in the making and he had hoped for more than two days to solve it. He said some of the members of the Assembly Committee on Ways and Means were surprised by the recommendation to indefinitely suspend the Committee on Benefits. Senator Coffin expressed his concern that no organizational detail was provided. He said that if the responsibility is simply moved from the Committee on Benefits to the Governor, no real change is apparent. He said that while the Committee on Benefits was partially culpable, the administration was partially culpable also. The senator expressed concern that no clear line of responsibility was evident. The risk manager reported to the director of the Department of Administration, who reported to the Governor. The Committee on Benefits could not act to replace, if they chose, the risk manager. Senator Coffin stated that he felt the Committee on Benefits had been used as a scapegoat. He said the Committee on Benefits could have been restructured to include people with more insurance knowledge rather than indefinitely suspending or abolishing the Committee on Benefits.

Mr. Comeaux replied that the Committee on Benefits had been running the Public Employees Health Program. The staff of Risk Management had been carrying out the Committee on Benefits policies and taking care of the day-to-day operations that were assigned to them, primarily eligibility. Mr. Comeaux said one of the problems in the administration of the Public Employees Health Program was that the Committee on Benefits’ had to rely on contracts with vendors for most of the expertise required to manage the program. There was no insurance expertise on the Committee on Benefits. He said that A.B. 176 would not solve the problem, but it will keep the problem from getting worse until the problem can be resolved by the end of the current legislative session. Mr. Comeaux said the Governor would be able to find a person with benefits program experience to guide the Public Employees Health Program until a permanent solution can be developed. This action would not do anything to strengthen the staff of the Risk Management Division but would keep the situation from getting worse, he said.

Senator Mathews asked whether the $10 million included in A.B. 176 would help in reducing any cost to the Public Employees Health Program recipients. Mr. Comeaux replied that it would not; what the infusion of the $10 million would do is allow the Public Employees Health Program to continue to pay claims uninterrupted. If the money were not approved, the Public Employees Health Program would be unable to pay claims within the next two weeks.

Gary Wolff, Lobbyist, Nevada Highway Patrol Association, said the Nevada Highway Patrol Association supports A.B. 176. Mr. Wolff said it was important to have employee participation in the administration of the Public Employees Health Program.

Pete Ernaut, Chief of Staff, Governor’s Office, said the Governor and his staff had discussed A.B. 176 at length during the past 48 hours. Mr. Ernaut said it was important to understand that the program was in a major crisis that is getting worse every day. The Public Employees Health Program is losing $50,000-$60,000 each day. By the end of February 1999 the Public Employees Health Program will have a deficit of $2 million. If the Public Employees Health Program does not get a $10 million cash infusion, the program will lose an additional $4.5 million during March. Mr. Ernaut said the Governor would bring to both the Senate Committee on Finance and the Assembly Committee on Ways and Means a plan to fix the immediate problems as well as a plan for the long term. He said the Governor welcomes comments and suggestions about how to resolve the Public Employees Health Program problems; he does not plan to develop his plans in a vacuum or work behind closed doors.

Mr. Ernaut further stated that any question asked by any member of the Legislature will be responded to timely. He remarked, "The problems of the Public Employees Health Program impact all of us." He said the immediacy of the cash flow and the structural problems of the Committee on Benefits have necessitated the action described in A.B. 176. Mr. Ernaut requested that the Legislature give the Governor the authority contained in the bill. He shared that the Governor has one goal for the Public Employees Health Program, which is to provide a health care plan with appropriate benefits at an appropriate cost to the state employees.

Senator Coffin asked whether the Governor had any indication or fear that the Committee on Benefits was going to take some rash or precipitated action at its next meeting. Mr. Ernaut replied yes, the Committee on Benefits had put on the agenda for their next meeting the possibility of disbanding their contract with the Risk Management Division. He said that in the Governor’s opinion the Risk Management Division was the professional staff that the Committee on Benefits employed. Senator Coffin asked why the Governor thought the Committee on Benefits would terminate the contract with the Risk Management Division. Mr. Ernaut replied the topic was on the agenda, but he had no idea whom the Committee on Benefits might hire to replace the Risk Management Division if that contract were terminated. Mr. Ernaut said the basic problem is that by March 1, 1999, without the additional funding contained in A.B. 176, the Public Employees Health Program would have to begin a process of apportioning bill-paying again, which is how the program got into this problem. By April 1999 the Public Employees Health Program would close its doors without A.B. 176. Senator Coffin remarked that the appropriation could have been given without killing the Committee on Benefits.

Martin Bibb, Lobbyist, Executive Director, Retired Public Employees of Nevada, testified next. He said the Retired Public Employees of Nevada, which includes 7,300 members, supports A.B. 176. Noting that this measure suspends the operation of the Committee on Benefits and transfers the administration of the Public Employees Health Program to the Governor, Mr. Bibb said he saw the indefinite suspension as an interim, stopgap measure. He stated that the 13 findings the Legislative Counsel Bureau’s audit identified relative to the condition of the Public Employees Health Program outlined the problems very succinctly. He said that A.B. 176 is an emergency measure, and the Public Employees Health Program is in intensive care; it can be removed from that status by passage of this bill and subsequent enactment this legislative session of measures to provide the long-term care for the program. Mr. Bibb submitted Exhibit C, which was his prepared testimony.

David Smith, private citizen, spoke in opposition to A.B. 176. He said he has an appeal scheduled for February 24, 1999, with the Committee on Benefits. He complained the passage of A.B. 176 will eliminate that scheduled appeal because it suspends the operation of the Committee on Benefits. Mr. Smith expressed concern that his appeal to the Committee on Benefits directly reflects the performance of UICI Administrators and the Risk Management Division’s behavior. He was concerned that with passage of A.B. 176, which strips the Committee on Benefits of its authority, the Risk Management Division will have more authority. Mr. Smith said that his experience in dealing with the Risk Management Division during the past 9 months leads him to believe the division has contributed to the problem and the failure of the Public Employees Health Program. Mr. Comeaux stated that section 3 of A.B. 176 transfers the authority the Committee on Benefits had to the Governor or his designee, so there would still be an appeals process in place. He said he would speak to the Governor to identify what other appeals may be pending so something can be scheduled and those issues can be resolved.

Senator Raggio asked for assurance that if A.B. 176 is passed, adequate provision will be made for the processing of outstanding appeals. Mr. Comeaux replied he could give that assurance.

James Richardson, Lobbyist, Nevada Faculty Alliance (NFA), urged passage of A.B. 176. Dr. Richardson said he was going to support the bill with just the infusion of the $10 million. He then became aware that the Committee on Benefits had included the Risk Management Division discussion on the agenda for their next meeting and it was not clear what the plan was or who would be in charge of the Public Employees Health Program. Because of that, Dr. Richardson said, with some regret he does support the bill in its entirety.

Robert Gagnier, Lobbyist, State of Nevada Employees Association (SNEA), said that SNEA wholeheartedly supports sections 1 and 2 of A.B. 176. Mr. Gagnier said these sections are necessary and have been necessary for several months. He said he understood why the previous amendments were passed to lower the amount to $10 million, and hopefully additional money will not be necessary. Mr. Gagnier said there was a problem with section 3 of A.B. 176 because it had not been adequately discussed during the Assembly ways and means committee hearing. There was confusion on the floor of the Assembly when A.B. 176 was passed. Most people were under the impression that section 3 was temporary; it is not temporary, it is permanent, Mr. Gagnier stated. He suggested that, to assure legislation is passed during this session of the legislature, a sunset clause in section 3 be added to A.B. 176. This would guarantee that some legislation will pass regarding the composition of the Committee on Benefits and the manner in which the committee works.

Mr. Gagnier further stated that if the intent is to have legislation passed during this session which replaces the Committee on Benefits, a sunset clause on section 3 of A.B. 176 for June 30, 1999, would be appropriate. He said that with the sunset amendment added to A.B. 176, SNEA would support the entire bill.

Senator O’Donnell asked whether the Committee on Benefits would revert to the same membership currently in place if the sunset clause were included in section 3 of A.B. 176. Mr. Gagnier replied that it would revert to the same five appointments that are on the board currently. It would be the same Committee on Benefits if no legislation were passed. Mr. Gagnier said he was fearful that if A.B. 176 is passed as is there is no guarantee this Legislature will pass a law and that it would be signed into effect. That would mean the Governor would run the program indefinitely. Mr. Gagnier said SNEA wanted some assurance there would be a bill making the changes passed during the current legislative session. He suggested the only way to get that assurance is to put a sunset clause in section 3 of A.B. 176.

Senator Raggio asked why Mr. Gagnier felt the Governor would want to keep the Public Employees Health Program directly under his purview. He noted there was a precedent for placing a troubled program directly under the Governor, involving the state’s workers’ compensation program. The former Governor took responsibility and control of that program to resolve a bankrupt or insolvent situation. The senator asserted Governor Guinn is not looking to assume the additional responsibilities of running the Public Employees Health Program, he has enough to do without assuming this responsibility permanently. Senator Raggio said that unless action is taken immediately to resolve the problems the situation will get worse and the Public Employees Health Program could stop functioning entirely. He said someone must step forward and take responsibility for resolving the problems and the Governor is willing to take this responsibility.

Senator Raggio further stated he did not understand why Mr. Gagnier felt that a governor would undertake this responsibility for his own purposes. He said any governor willing to assume this responsibility should be given credit for being willing to do so. Mr. Gagnier replied that the same analogy was raised in the Assembly Committee on Ways and Means meeting. He said there was a big difference between what occurred with the State Industrial Insurance System (SIIS) and what is occurring today. He noted that when the Governor took control of SIIS all of the benefits were set by law. The Governor had no control over the benefits, only the management of SIIS. Mr. Gagnier said that in this situation the Governor would have total control over everything including the benefits which contain no taxpayer dollars. He pointed out there are benefit programs under the jurisdiction of the Committee on Benefits that are voluntary and paid for in total by the employees.

Senator Raggio stated that if A.B. 176 is passed there is $10 million in taxpayer dollars from both the General Fund and the Highway Fund that is being infused to salvage the Public Employees Health Program, and more will possibly be needed. The senator stated that the public now has a real stake in the Public Employees Health Program, not just the participants in the program. Mr. Gagnier responded that all SNEA is asking for is legal assurance there will be somebody who will take the program forward. He stated that if there is a sunset clause included in section 3 of A.B. 176, then it is known legislation will be passed and signed into law during the current legislative session.

Senator Raggio closed the hearing on A.B. 176.

Senator Raggio stated that Bill Draft Request (BDR) 23-20 adds individuals other than program participants to the Committee on Benefits.

Senator Raggio adjourned the meeting at 8:35 a.m.

RESPECTFULLY SUBMITTED:

Millard Clark

Committee Secretary

APPROVED BY:

Senator William J. Raggio, Chairman

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