SENATE COMMITTEE ON COMMERCE AND LABOR

MINUTES OF THE

SENATE Committee on Commerce and Labor

Seventy-First Session

February 9, 2001

The Senate Committee on Commerce and Laborwas called to order by Chairman Randolph J. Townsend, at 8:06 a.m., on Friday, February 9, 2001, 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 Dean A. Rhoads

Senator Mark Amodei

Senator Raymond C. Shaffer

Senator Michael A. (Mike) Schneider

Senator Maggie Carlton

GUEST LEGISLATORS PRESENT:

Senator Maurice E. Washington, Washoe County Senatorial District No. 2

STAFF MEMBERS PRESENT:

Scott Young, Committee Policy Analyst

Laura Adler, Committee Secretary

OTHERS PRESENT:

Jim L. Werbeckes, Lobbyist, Farmers Insurance Group

Ron West, Insurance Specialist, Farmers Insurance Group

James R. Colgan, M.D., Urologist, Medical Director for Independent Physician Association

John P. Sande III, Lobbyist, Merck Medco Managed Care

Fred L. Hillerby, Lobbyist, Nevada Association of Health Plans

Daryl E. Capurro, Lobbyist, Nevada Motor Transport Association Inc.

Marie H. Soldo, Lobbyist, Sierra Health Services Inc.

Gary E. Milliken, Lobbyist, Associated General Contractors-Las Vegas

Guy A. Perkins, Jr., Chief Insurance Examiner, Division of Insurance, Department of Business and Industry

Janice C. Pine, Lobbyist, Saint Mary’s Health Network

Robert Barengo, Lobbyist, Nevada Consumer Finance Association

Senator Townsend opened the hearing on Bill Draft Request (BDR) 23-450.

BILL DRAFT REQUEST 23-450: Makes various changes to provisions relating to disclosure of improper governmental action. (Later introduced as Senate Bill 96.)

SENATOR SHAFFER MOVED TO INTRODUCE BDR 23-450.

SENATOR CARLTON SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

*****

Senator Townsend opened the hearing on Senate Bill (S.B.) 6.

SENATE BILL 6: Prohibits practice of requiring borrowers to insure improvements to real property for more than replacement value as condition of obtaining loan. (BDR 57-665)

Jim L. Werbeckes, Lobbyist, Farmers Insurance Group, stated the bill resulted from a situation encountered by a Farmers Insurance agent’s experience with mortgages requiring insurance to the full value of the loan. There were several occasions where a mobile home worth $40,000, located on several acres worth $40,000, and the homeowners were being required by the lien holder to carry $80,000 worth of insurance. He stated the problem is, if the home burned down, the lender could only collect $40,000. He stressed this unreasonable requirement is an inequity for all parties.

Ron West, Insurance Specialist, Farmers Insurance Group, said he has many customers in the north valleys that have this situation, and they are the ones who usually can least afford this insurance situation. He said research of state laws showed there was nothing on the books addressing this situation, which prompted the initiation of this bill.

Senator O'Connell stated she needed to disclose that her husband is the chairman of the board of a bank. She added she thinks this bill is a great law.

In answer to Senator Rhoads’ inquiry, Mr. Werbeckes explained that reasonable replacement value of a home is based on what the cost of the home would be. He elaborated, for example, a 1000 square foot home would cost $100 a square foot to replace. He said if there is replacement cost on the homeowners insurance, then the insurance company would pay whatever it costs to replace that home.

Senator Shaffer noted there is another problem relative to this discussion. If a person has a mobile home not on a permanent foundation, the insurance company depreciates the home every year, but they do not depreciate the premium. He stated that was also unfair.

Senator Maurice E. Washington, Washoe County Senatorial District No. 2, said Mr. Werbeckes and Mr. West had adequately represented the bill, and referred any further questions of the committee to them.

Senator Townsend stated that he also serves on the board of a bank. He added that he, too, thinks it is a good bill.

SENATOR O’CONNELL MOVED TO DO PASS S.B. 6.

SENATOR SHAFFER SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

*****

Senator Townsend closed the hearing on S.B. 6 and opened the hearing on S.B. 2.

SENATE BILL 2: Requires provider of insurance coverage for prescription drugs to disclose certain information regarding use of formulary and to continue coverage for prescribed drug under certain circumstances. (BDR 57-597)

Senator Amodei pointed out that the primary operative language of the bill on page 2, section 3, lines 18-23, outlines health plans that provide prescription coverage that use formularies, which are lists of drugs approved for people in the plan. He said that if someone starts a prescription that is on the formulary, if the formulary changes while they are under prescription, the coverage cannot be changed retroactively. He added, “It is a patient’s rights issue.”

Senator O'Connell requested a clearer definition of formulary as used in the bill. Senator Amodei responded that, as applied to this legislation, if the insured has a plan that lists prescription medications covered by the plan, then that is what is being referred to as the formulary.

James R. Colgan, M.D., Urologist, Medical Director for Independent Physician Association (IPA), iterated that the word “formulary” as appears in the dictionary, is exactly what it says. However, as applied in this bill, it is what the patients and physicians are provided for what drugs are approved by the managed care company. He said, essentially it is a list of medications approved for use for the patients in that plan.

Continuing, Senator Amodei referenced the language on page 2, section 3 of S.B. 2, as very important because it “grandfathers” previously prescribed medications when the treating physician indicates it is still the best drug for treating the patient’s condition.

Dr. Colgan stated he initiated S.B. 2 because it really is a patient’s rights issue. He said often a plan would change what medications it covers because the costs change and the operators of the plan want to get the best prices. However, frequently the substitute drug may have already been tried with less than desired results or is not the best medication for optimum treatment of the patient’s condition. He said physicians take the position that they should not have to tell a patient whose drug is working very well for them that they can no longer have that drug because the formulary in the plan changed. He noted he had talked with Keith Macdonald of the State Board of Pharmacy who has received complaints from the public regarding this same issue. Dr. Colgan added that a plan changing drugs because of cost may not, in the long run, be a savings because the patient frequently will require closer monitoring for side effects, even hospitalization, thus adding to the overall cost of treatment. He pointed out that full disclosure of a formulary could be manageable if the companies could put them on their Web sites. He said updating a Web site could be done almost daily, making it easier for everyone to keep up with the changes in the industry.

Senator Amodei stated the balance of the bill covers the various entities offering health insurance plans. He said the bottom line is this bill places the prescription emphasis on the doctor and patient, which is where it should be and not on an administrative process.

Senator Carlton expressed her compliments on the easy-to-understand language in the bill. She said she wanted to know how easy and cost-effective access to changes in the formulary would be to implement.

Dr. Colgan answered that the IPA is rapidly moving forward in using electronics and currently manages the health care of about 8500 patients in self-funded plans that have formularies. Most employers have Web sites which provide information to their employees regarding the self-funded plans. He stated that providers also change in the middle of the year, and that information would also be made available on Web sites. He said using computers would allow for cost-effective real-time update of information on an almost daily basis.

John P. Sande III, Lobbyist, Merck Medco Managed Care, stated it is his understanding that this bill is patterned after one passed in California. He said he is pursuing expert advice on how the plan is working in California, and if needed, would tweak it to make sure it works even better in Nevada and does not cause any violation of law for a Health Maintenance Organization (HMO) or insurance company.

Fred L. Hillerby, Lobbyist, Nevada Association of Health Plans, said he agrees with the basic concept of the bill, but has some concerns about the disclosure part of the bill. He suggested legislators should be sure the requirements do not extend beyond coverage. He reiterated others’ comments that the self-funded and trust plans would not be affected by this bill. He said this bill would help out some people with disclosure, but would not be able to provide for a lot of them, noting the greatest tragedy is all the people who have no prescription coverage. Mr. Hillerby offered to work with Senator Amodei on wording to make the bill as effective as possible.

Senator O'Connell asked if this bill was intended to have a limitation of those it covered. Senator Amodei replied that was not the intention. Senator Townsend commented that it was his understanding there was no jurisdiction over the other plans and that was why they were not included in the bill.

Senator Townsend closed the hearing on S.B. 2, and referred it to the subcommittee on insurance with Senator Schneider as chairman, and Senators Amodei and Rhoads as members.

Senator Townsend opened the hearing on S.B. 28.

SENATE BILL 28: Authorizes formation of associations of self-insured private employers to provide health coverage. (BDR 57-590)

Senator Amodei brought the committee’s attention to the handout on S.B. 28 (Exhibit C.) pointing out that, “This bill would allow small groups in a given association to establish a self-insured product with reinsurance to cover large cases.” He emphasized that statement says in a nutshell the object of this bill. He stated that having served on the health committees of both houses, and with the chairman of the Governor’s Task Force on Access to Public Health Services, and becoming aware of what health costs are doing to Nevada, he had challenged stakeholders in the process to start thinking outside the envelope. He expressed the need to develop other tools that small employers, small-business people, and small groups could access, if they are appropriate for their needs, to try to take some control over costs. He stated the bill continues in the direction this committee took a couple of years ago in addressing a problem in the industrial insurance area where we began to allow people to self-insure under the proper circumstances.

Senator Amodei said S.B. 28 would provide a tool that would be useful to small groups, both in rural and urban areas of Nevada, to better access the market in terms of what is paid for health care costs. He emphasized he has coordinated with others and there is more work to be done on the technical aspects involved. He stressed this is something that can be done within Nevada’s borders to help ourselves rather than wait for others to come around. This process has worked on a large group basis, including the Builders Association of Western Nevada (BAWN). He said his constituents have indicated they are pleased with the way their health care plan is operating and with the cost. He conveyed there is still some technical work to be done on the bill.

Dr. Colgan elucidated that in 1992 he founded the Independent Physician Association, which is called Physician’s Managed Care, but is listed in most places as the IPA. He continued that this IPA is limited to Carson City and Douglas County, but they have an outreach to other counties as a Preferred Provider Organization (PPO). He indicated that this group of physicians has been able to set up self-funded plans for large groups in Carson City, Douglas County, Lyon County and Washoe County. These plans come under federal law rather than state law. He said larger groups of more than 250 and up to 800 people can design their own plan with the help of the PPO. These plans may not have all the bells and whistles of an HMO, but there is coverage for physician visits, pharmacy costs, hospitalization, and so on. Dr. Colgan stated what the PPOs could not do was develop a plan for very small groups. We were made aware that if there could be an association that would create a group of 300 or 400 people, then this would develop a self-funded large group plan with reductions in premiums, he said, noting this scenario became the genesis of S.B. 28.

Daryl E. Capurro, Lobbyist, Nevada Motor Transport Association Inc. (NMTA), and Trustee for the Nevada Transportation Network Self-Insured Group (NTNSG), said the NTNSG is the workmen’s compensation self-insured group. Referring to previous legislation, passed in 1993 regarding industrial insurance, he said several groups have formed since then and all have been successful in providing low-cost Industrial group insurance to members. He pointed out that there is a problem for small employers with five to ten employees to acquire insurance coverage. He stated S.B. 28 offers small employers affordable coverage for their employees.

Marie H. Soldo, Lobbyist, Sierra Health Services Inc., stated the aforementioned bill was not very successful. The 1993 bill was intended to provide low-cost health insurance to small employers, and everything was stripped down to its basics. Ms. Soldo said that because it lacked commissions for salespeople, the salespeople had no incentive to sell the program, and the bill did not produce the kind of results desired. She added that, unfortunately, costs are going up and the health industry is seeing a lot more people without insurance.

In response to Senator O'Connell’s inquiry, Senator Amodei voiced that previous legislation had been reviewed, and the difference is S.B. 28 puts the major providers, in a given area, in a position to contract directly with people looking for health insurance on a small scale. He stressed S.B. 28 will offer more substance.

Senator Townsend asked whether this bill would give the small-business owner one more tool to manage expenses and options for employees. Senator Amodei replied that would be accurate.

Gary E. Milliken, Lobbyist, Associated General Contractors-Las Vegas, asserted the associations do like S.B. 28 and have stated it is good legislation.

Senator Townsend wanted to know if Mr. Milliken was familiar with a bill put together by “restaurant” types for purposes of health care and workers’ compensation.

Mr. Milliken answered that the bill is S.B. 3, which is scheduled to be heard next Wednesday (February 14, 2001).

SENATE BILL 3: Revises provisions governing qualification as association of self-insured private employers. (BDR 53-305)

Scott Young, Committee Policy Analyst, Research Division, Legislative Counsel Bureau, reminded the committee that Monday was the last day to submit bill draft requests.

Senator Townsend reminded the committee members that in 2 weeks from today the committee is expected to appear in Elko to address concerns of the rural communities.

Guy A. Perkins, Jr., Chief Insurance Examiner, Life and Health, Division of Insurance, Department of Business and Industry, commenting on the 1993 bill noted there was only one insurer in the state who participated in the plan. He said at the end of the 2 years there were only 2 small groups insured and 14 people, so it was not a successful plan. He said it was a bare-bones plan intended for insurance companies’ fully insured plans, and S.B. 28 is a self-funded or self-insured plan. Mr. Perkins pointed out to the committee that what S.B. 28 amounts to is known in the trade as Multiple Employer Welfare Arrangement (MEWA). He said MEWA covers groups of employers as opposed to a single employer under Employment Retirement Income Security Act (ERISA). MEWAs are under the jurisdiction and regulation of the U.S. Department of Labor. He stated that in order for such an uninsured group to operate in the United States, it must go the U.S. Department of Labor and get special permission for that particular MEWA to operate. Therefore, he said, one of the first things he discussed with Dr. Colgan was that the insurance division did not know what position the U.S. Department of Labor would take on this bill, and that it may be a good idea for the sponsors or possibly the committee to look into that situation as time goes on.

Senator Townsend asked for clarification and said, as he understands it, if a group of businesses in a neighborhood band together in order to offer health insurance coverage to their employees, the businesses have to go to the federal government to get approval of the plan and permission to do it.

Mr. Perkins replied, “That is correct.” He added he did not know what position the federal government would take on S.B. 28, but it is getting into their area of regulatory authority.

Senator O'Connell asked Janice C. Pine, Lobbyist, Saint Mary’s Health Network, to explain the difference between what her group has done and what Mr. Perkins has discussed in his testimony. Ms. Pine elucidated that the members of St. Mary’s coalition are large employers and each of the employer members is large enough to be self-insured on its own, but they chose to band together as a coalition.

Mr. Perkins expounded that the difference between a single employer and a MEWA is the single employer does not have to go through the loops that a multiple employer welfare arrangement is required to do. He said, under ERISA, a single employer could simply set up a plan document and go into the business of being self-insured, which is not the case when several employers band together. He added that regardless of their size, when they band together, that is a MEWA.

Senator Townsend voiced that the issue seems simple and is what the federal statute says, irrespective of size, if it is two or more employers, then they must get federal authority to do that. He said if that is the case, then there may already be MEWAs in place to reference for guidelines relative to how long it takes and the financial arrangements.

Mr. Perkins expounded that he did not know of one letter of authority from the U.S. Department of Labor granted to a MEWA anywhere in the country. He added that did not mean MEWAs have not been formed, but those MEWAs acting illegally have not resulted in much coverage for consumers across the country.

Mr. Perkins stated he thinks there are two concerns, one is financial and the other is that MEWAs can be formed for purposes other than genuinely trying to insure populations. He explained that one of the rules at the federal level and in S.B. 28 is that the association of multiple employers must have been an association for at least 5 years. So, the association must be a bona fide association established for another purpose, such as a chamber of commerce, the American Bar Association, the American Medical Association, and so on, he said. These would be legitimate associations that could approach the U.S. Department of Labor for self-funding approval.

Senator O'Connell voiced that the difference between workers’ compensation insurance is that the state has control over the workers’ compensation. Mr. Perkins agreed, but added that he is not an expert in workers’ compensation and he may not be helpful in the comparisons.

Senator Townsend said it baffles him to look across the street from his private-sector office at a similar company that does not have insurance for its employees while his does, yet they are working just as hard, but are denied insurance because theirs is a small company. He expressed a need for more logic to providing health insurance coverage.

Senator Townsend stated he understands the insurance companies have to have enough base to cover the risk costs, which is difficult to do with small groups. He said he would add this issue to those he has already submitted to U.S. Senator Reid, and include U.S. Senator Ensign, and U.S. Representatives Buckley and Gibbons.

Mr. Perkins communicated there is movement at the federal level as to a patient’s bill of rights. He said part of that movement is to level the playing field between ERISA-exempt plans and plans that are regulated at the state level, which would involve things like this. He iterated that the U.S. Department of Labor has reviewed rules on MEWAs lately, and it is more possible for someone to form a MEWA than it was a few years ago. He said the point is who would ultimately take jurisdiction over the arrangement proposed in the bill, or if the federal government would claim it is their jurisdiction.

Senator Townsend surmised that if Nevada had a statute in place, then the federal government could look at Nevada and have an option to leave things at the local level.

Mr. Perkins acknowledged that condition was possible. He noted under the current rules that if a state has a plan in place that is at least as good as the federal plan or more restrictive, federal regulators then would allow that state plan to stay in place. He said, to his knowledge, there is no rule like that for MEWAs, but it is possible that the federal regulators may let Nevada go with its bill, because they agree with all the safeguards and provisions contained in the bill.

Mr. Perkins said the U.S. Department of Labor has adopted all the federal rules of the Health Insurance Portability and Accountability Act of 1996 (HIPAA). He said Nevada also has a HIPAA statute and rules, and it is likely the federal Department of Labor may decide this is still their purview, they may apply their version of the HIPAA rules as opposed to Nevada’s. He added that the federal government may not be in quite as strong a position to enforce rules and laws like that as we are at the state level.

Another issue Mr. Perkins said he would like to point out is that the bill, although designed for small employers, does not define small employer as opposed to large employer. He said under Nevada statute there is a definition for small and large employers, and different rules apply to those size groups. He noted that if large and small employers where grouped under the current definitions, the small employers might be treated differently giving rise to discriminatory issues.

Mr. Perkins stated that under the current definition of small group, it is from 2 to 50 employees, and the bill says there must be at least 5 employers. He explained it could be possible that 5 employers band together in an association with only 2 employees each, which means that the whole association would have only 10 employees. He said, under most applications of self-funding, that is not enough people to self-fund. Therefore, it would be advantageous to include a definition in the bill about the minimum number of people in the association, such as 200, which would qualify the association in terms of the number of participants. He stated the way the bill is drafted it would appropriately permit the commissioner of insurance to oversee the whole process. He added the Division of Insurance may need one or two more people to handle the process.

Mr. Perkins opined that the formation of a guaranty association for a self-funded plan is an excellent idea. He said there is a guaranty association for insurers, but not a guaranty association for HMOs. He mentioned that he did not know how much that might increase the cost of providing self-funded coverage to an association, but it is a very good section in the bill.

Senator Amodei stated he wanted to complete the record by pointing out the third item in the handout (Exhibit C) regarding a high-deductible health care plan in which the employer is responsible for the first portion of the employee’s care with reinsurance covering everything above a certain dollar amount. He articulated that what is before the committee is not a totally self-funded proposal, which may or may not have an impact on the MEWAs. Senator Amodei insisted he wanted to impress on the committee that doing nothing in the context of the present market would be wrong. He emphasized it could be difficult, but he said he agrees with Senator Townsend and Mr. Perkins, that given the current health care market, S.B. 28 is something that should be done to force the federal government to act, as opposed to waiting for it to act. Senator Amodei stated he would work with the Office of the Attorney General and Legislative Counsel Bureau regarding wording and existing laws, and he urged the committee to show the kind of leadership it has demonstrated in the past in support of this legislation.

Senator Townsend closed the hearing on S.B. 28, and reopened the hearing on S.B. 6 to address some concerns about the bill.

Robert Barengo, Lobbyist, Nevada Consumer Finance Association (NCFA), stated that after hearing what the bill was about he made some telephone calls. As a result, he said he would like to point out that unlike large institutions that lend on the entire property, the NCFA finances small pieces of remodeling such as a water heater. He said NCFA is concerned, for example, in lines 4-6 of the bill, “to provide property insurance on “an improvement” to real property in an amount that exceeds the reasonable replacement value of the “improvement.” He pointed out that if NCFA finances a kitchen, spa, swimming pool or water heater, that is an “improvement.” He questioned if that wording limited them to requiring the policyholders to only maintain insurance on an improvement, when they could not even buy insurance on an improvement, but only on the whole property.

Senator Townsend said Mr. Barengo’s point was well taken. He restated that it was only to make sure NCFA was insuring for that portion for which the money was borrowed. Mr. Barengo interjected that it was to make sure that the property was not overinsured. He said usually there are second mortgages for home improvements, nothing the NCFA is saying it is for the homeowner to maintain the insurance they already have for the total replacement value of the house. That would then include the improvements the NCFA just financed in the total replacement value. He maintained the NCFA is very concerned that the wording in the bill would stop them from being able to insure improvements only.

Senator Townsend iterated that the interpretation could mean if financing were provided for a spa … Mr. Barengo interjected, “ … only insurance for a spa, and you cannot even buy that because when property is insured it is for the whole value.” Mr. Barengo said he believes the reasonable replacement value of the improvements would solve the problem. He said he talked with Mr. Werbeckes, who said he understands the concern and if the NCFA wants to change the wording in the bill that would be fine with him. Mr. Barengo continued that the bill’s definition of improvement means a fixture, which is the pool, the kitchen or whatever, so it is not the total value of the property.

Senator Townsend directed the committee to reconsider the passage of S.B. 6 for purposes of a legal opinion to clarify the wording issue Mr. Barengo addressed and is working on with Mr. Werbeckes.

Senator Shaffer stated he was concerned about the contents of the residence. He wondered if the contents would not be covered in the rider under the personal liability policy or even under the insurance policy on the home.

Mr. Werbeckes responded that the bill only deals with real property, just with the building itself. A homeowner’s policy has a whole other section that deals with the contents. He said if a hot tub were hardwired to the building instead of just being a plug-in, that would be considered part of the building. The homeowner would not normally take the hot tub with them because it is hardwired.

Senator O'Connell disclosed that her son is a mortgage banker.

SENATOR O’CONNELL MOVED TO RESCIND THE PREVIOUS ACTION TAKEN ON S.B. 6.

SENATOR SHAFFER SECONDED THE MOTION.

THE MOTION CARRIED UNANIMOUSLY.

*****

Senator Townsend directed Mr. Werbeckes and Mr. Barengo to work with the Legislative Counsel Bureau on mutually agreeable wording changes for S.B. 6.

Senator Rhoads mentioned that his earliest available date for the Senate Committee on Commerce and Labor meeting in Elko would be Friday, March 2, 2001. Senator Townsend said the committee members have indicated that all can attend on that date, weather permitting.

There being no further business the hearing was adjourned at 9:25 a.m.

RESPECTFULLY SUBMITTED:

Laura Adler,

Committee Secretary

APPROVED BY:

Senator Randolph J. Townsend, Chairman

DATE: