MINUTES OF THE meeting
of the
ASSEMBLY Committee on Government Affairs
Seventy-Second Session
February 10, 2003
The Committee on Government Affairswas called to order at 9:11 a.m., on Monday, February 10, 2003. Chairman Mark Manendo presided in Room 3143 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Guest List. All exhibits are available and on file at the Research Library of the Legislative Counsel Bureau.
COMMITTEE MEMBERS PRESENT:
Mr. Mark Manendo, Chairman
Mr. Wendell P. Williams, Vice Chairman
Mr. Kelvin Atkinson
Mr. Chad Christensen
Mr. Tom Collins
Mr. Pete Goicoechea
Mr. Tom Grady
Mr. Joe Hardy
Mr. Ron Knecht
Mrs. Ellen Koivisto
Mr. Bob McCleary
Ms. Peggy Pierce
Ms. Valerie Weber
COMMITTEE MEMBERS ABSENT:
None
GUEST LEGISLATORS PRESENT:
None
STAFF MEMBERS PRESENT:
Susan Scholley, Committee Policy Analyst
Eileen O'Grady, Committee Counsel
Pat Hughey, Committee Secretary
OTHERS PRESENT:
Ben Graham, Legislative Representative, Nevada District Attorney’s Association
Stan Olsen, Government Liaison, Office of Intergovernmental Service, Las Vegas Metropolitan Police Department
Ron Pierini, Douglas County Sheriff
Jim Nadeau, Nadeau Associates, representing the Washoe County Sheriff’s Office
John Wagner, Nevada Republican Assembly
David Schumann, Citizen
Mr. Woody Thorne, Executive Officer, Public Employees’ Benefits Program
Leslie Johnstone, Accounting Officer, Public Employees’ Benefits Program
Bonnie Parnell, representing Non-State Retirees
Martin Bibb, Executive Director, Retired Public Employees of Nevada
Gary Wolff, Business Agent, Teamsters Local No. 14, Las Vegas
Frank Brusa, Nevada Association of School Administrators
Chairman Manendo reminded the members of the Assembly Committee on Government Affairs that February 10, 2003, would be the last day to submit individual bill draft requests (BDRs). Chairman Manendo announced that the Committee would not meet on February 11, 2003. He also announced that several BDRs would be introduced in the Committee in the near future and that the end of the current week’s agendas and as well as the next week’s Committee hearing agendas would be full.
Chairman Manendo read the bill draft request number and description for BDR 28-521.
ASSEMBLYMAN COLLINS MOVED TO INTRODUCE BDR 28-521.
ASSEMBLYMAN GRADY SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
Chairman Manendo indicated he thought this BDR would be heard on the Floor of the Assembly on Wednesday, February 12, 2003.
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Chairman Manendo read the bill draft request number and description for
BDR 20-170.
ASSEMBLYMAN COLLINS MOVED TO INTRODUCE BDR 20-170.
ASSEMBLYMAN KNECHT SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
In answer to a question from Assemblyman Goicoechea, Chairman Manendo indicated that BDR 20-170 would not be heard on the Floor of the Assembly on Wednesday, February 12, 2003.
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Chairman Manendo read the bill draft request number and description for S-457.
ASSEMBLYMAN WILLIAMS MOVED TO INTRODUCE S-457.
ASSEMBLYMAN COLLINS SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
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Chairman Manendo read the bill draft request number and description for BDR 23-725.
ASSEMBLYMAN WILLIAMS MOVED TO INTRODUCE BDR 23-725.
ASSEMBLYMAN GOICOECHEA SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
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Chairman Manendo read the bill draft request number and description for BDR 23-659.
ASSEMBLYMAN WILLIAMS MOVED TO INTRODUCE BDR 23-659.
ASSEMBLYMAN COLLINS SECONDED THE MOTION.
THE MOTION PASSED UNANIMOUSLY.
********
Chairman Manendo opened the hearing on Assembly Bill 23.
A.B. 23: Increases compensation of district attorneys and sheriffs. (BDR 20‑163)
Chairman Manendo read the bill summary of A.B. 23 into the record and indicated that Assemblyman Perkins had sponsored the bill. Chairman Manendo welcomed Ben Graham, Legislative Representative, Nevada District Attorney’s Association. Mr. Graham indicated it was a privilege to be able to appear before the Committee. He then proceeded to give the Committee some background information about himself. Mr. Graham indicated he thought there would be another bill introduced shortly that would include pay raises for their elected officials, as well as for sheriffs and district attorneys. Mr. Graham then gave a short history of how it had come to pass that the Legislature set salaries for the various elected officials. Mr. Graham said that the salary figures that had been proposed in A.B. 23 closely reflected what people in similar positions in the private sector would make. Mr. Graham pointed out that, at the salary levels that were in place at that time, approximately 70 people in the Clark County District Attorney’s Office would earn more money than the Clark County District Attorney.
Mr. Graham said that most counties had budgeted for the proposed increases in their 2001-2002 fiscal year budgets in anticipation of a similar bill being passed during the 2001 Legislative Session, but that the bill had not been passed. He further explained that Section 2 of A.B. 23 had contained an “escape clause” which would allow a county to roll back the proposed salary increases if the county were to experience a financial crisis. He said that the process to roll back salaries had not been made simple because the sponsors of the bill did not want to make the ability to roll back salaries something that could be accomplished easily. Chairman Manendo thanked Mr. Graham for his presentation.
Assemblyman Goicoechea asked if the salaries for sheriffs and district attorneys were comparable in A.B. 23 and the Nevada Association of Counties (NACO) bill, and Mr. Graham answered that the salaries were the same in both bills. Mr. Goicoechea then asked about time limits for exemptions, and Mr. Graham stated he believed that if a county were to cancel its emergency status, the salaries proposed in A.B. 23 would automatically take effect. Mr. Goicoechea stated that he supported A.B. 23. Mr. Graham remarked about comments he had heard to the effect of, “Well, they knew what the salary was when they ran for it.” Mr. Graham said his response would be that legislators had known what the right thing was and had known that a pay increase would be due, and he said he hoped that the right thing would happen during the current session. Mr. Graham said he appreciated the Committee’s support.
Assemblyman Grady referred to Sections 2 and 3 of A.B. 23 and asked for an explanation of how the two sections were not in conflict with each other. Mr. Graham said he believed that the “escape clause” in Section 2 would completely remove a county from the bill and would not make the county a part of it. He said that A.B. 23 would apply only to those sheriffs and district attorneys who had been newly elected on January 6, 2003. He said if that were incorrect, he would defer to the Committee Counsel’s interpretation, but that had been the intent of the bill.
Assemblyman Knecht said he supported the concept of A.B. 23. He said that there had apparently been some misrepresentations made in the broadcast media that the proposed increases would apply to all sheriffs and police officers in the state and asked Mr. Graham to clarify that this would not be true. Mr. Graham replied that this would not be true and that the increases would apply to elected district attorneys and elected sheriffs only.
Mr. Knecht stated he thought that Mr. Graham’s last point had gone to the essence of the issue which was that the adoption of A.B. 23 would essentially bring the compensation of the sheriffs and the district attorneys in line with the rest of the employees in their departments. Mr. Graham answered that A.B. 23 would bring the compensation of the sheriffs and district attorneys closer to and more equitable to similar positions in their respective counties.
Mr. Knecht stated that before the meeting, he had told Mr. Graham that he had been looking forward to the NACO bill because it would allow the Legislature to do what it ought to do for the reason that Mr. Graham as well as others had explained, which was that those current salaries were too low. Mr. Knecht said he knew the Carson City District Attorney and the Carson City Sheriff deserved the increases proposed in A.B. 23, and he said he was sure that would also be true of the other district attorneys and sheriffs around the state, but he said that elected officials such as the Carson City Clerk-Recorder and the Carson City Treasurer deserved the increases as well. Mr. Knecht said he wanted to support a bill that would reach all county officials with justified increases, but rather than making the increases state-mandated, he wanted to make the increases permissive so that county governments would be allowed to raise salaries up to proposed levels, but that they would not be required to, and that any proposed increases would require an affirmative action on the county’s part. Mr. Knecht then asked Mr. Graham if he would entertain an amendment that would make the proposed increases permissive rather than mandatory. Mr. Graham answered that he would have a number of concerns. He said one of his concerns had to do with the independence each elected official was allowed to have by being on his or her own and by not being beholden to another branch of county government. He also said that he thought the authority to grant such increases was the state’s and that the authority was constitutionally mandated. Mr. Graham said he had not given that avenue much thought, but said he thought that the present system worked well but slowly.
Assemblyman Knecht said he respected and understood Mr. Graham’s point about independence and Mr. Knecht said the counterpoint to that would be that he would ultimately favor home rule, and that he favored giving the counties the authority rather than mandating the increases. Mr. Knecht said that this would be a balancing act and that he understood what Mr. Graham was saying, but that when the time was appropriate, Mr. Knecht would be proposing an amendment to A.B. 23 to make the proposed increases permissive rather than mandatory. Mr. Knecht said he supported the concept. He thanked Chairman Manendo for the opportunity to question Mr. Graham and he thanked Mr. Graham for his forthcoming answers.
Assemblyman Goicoechea said he wanted to further address Assemblyman Grady’s point regarding Section 3 of A.B. 23. He said that if a local government applied for and was granted a waiver, it could be interpreted that the waiver would no longer be justified and that the county would have to pay any increases retroactively back to January 6, 2003. He also said that, if the waiver were in effect for several years, a county might never be able to get to the point where it could afford to pay the increases. Mr. Goicoechea asked if others had interpreted the bill in the same way, and he said he thought the language should be cleaned up.
Mr. Graham said he would defer to the Committee Counsel’s interpretation and said that if the language needed to be made clearer, he would have no objection. Mr. Graham said he appreciated being present at the hearing and thanked the Committee members for their time.
Mr. Stan Olsen, Government Liaison, Office of Intergovernmental Service, Las Vegas Metropolitan Police Department (LVMPD), introduced himself and also introduced Mr. Ron Pierini, Douglas County Sheriff. Mr. Pierini said he had been the Douglas County Sheriff for five years, had been elected for another term, and had 30 years of law enforcement experience in Nevada. He said that he had testified on a similar bill two years ago and that his testimony at this meeting would be the same as what he had testified to two years ago. He said that what he had wanted to do was to raise his salary so that it would be comparable to other employees within his department. He said he presently earned $5,000 less a year than a sergeant in his department, and $10 an hour less than chief deputies in his department. He said he felt it would be fair to say that, as a member of the Nevada Sheriffs and Chiefs Association, the sheriffs endorsed the raises and that what they wanted to do was to be comparable with the rest of the employees inside of their own organizations. He said they loved their jobs and that this was not the issue. He strongly urged the Committee members to support A.B. 23. He said that the Douglas County Board of Commissioners had already set money aside in the hopes that this bill would be passed, and he said that Douglas County would not have a financial problem with the passing of the bill.
Mr. Jim Nadeau, Nadeau Associates, representing the Washoe County Sheriff’s Office, stated that, among the six major law enforcement agencies in Washoe County, the Washoe County Sheriff was the lowest paid law enforcement chief executive officer, yet had the greatest number of employees and responsibilities. Mr. Nadeau said that what they would want to do in A.B. 23 would be to eliminate the vast disparity in salaries that existed between those chief executive officers. He said the Washoe County Sheriff was responsible for 700-750 employees, which was almost double of any other agency in the area, but that his compensation was approximately $40,000 less than the law enforcement chief executive officer of the agency next closest in size.
Assemblyman Goicoechea said he wanted to echo the point that Mr. Nadeau had made. Mr. Goicoechea said the Eureka County Board of Commissioners had allocated funds for the proposed increases in their last year’s budget as well as in their current year’s budget. He said he thought everyone should understand that most counties had been prepared to fund the raises during the previous fiscal year and that making the raises retroactive would not have an impact on county budgets.
Mr. Stan Olsen, Government Liaison, Office of Intergovernmental Service, Las Vegas Metropolitan Police Department (LVMPD), stated that his organization would also be in support of A.B. 23. He said that many of the counties had planned for the increases during the last legislative session as well as the current session. He said that the same would be true with all of the rural counties because they had been trying to raise their sheriffs’ salaries so that the sheriffs would make a reasonable salary in relation to the other employees in their organizations. He said that the Sheriff of the LVMPD had almost 4,000 employees and that the next largest agency in Clark County had approximately 330 employees, yet the chief executive officer of the latter agency made significantly more than the Sheriff of the LVMPD. Mr. Olsen said that the Chief of the Boulder City Police Department, who oversaw a department of less than 30 people, made over $100,000 a year. Mr. Olsen said that these were the types of inequities that people would want to see corrected.
Assemblyman Knecht stated that the witnesses had presented their cases on the basis of equity in terms of what the sheriffs and district attorneys made compared to their subordinates, and that he thought the witnesses had made a very good case. In regard to the counterclaim that, “Well, you all knew what the salary was when you ran for it and you can live with it,” Mr. Knecht said there would have been a strong answer that he thought the witnesses had failed to state and he wanted to see if the witnesses concurred. Mr. Knecht said that, in the long run, the question would be whether the counties would be offering the kind of compensation for these jobs that would attract good candidates. He said that the counties had good sheriffs and good district attorneys who, like many of the people on the Assembly Committee on Government Affairs, served at a loss to themselves and their families relative to what they would receive in other employment, but that there was only a limited reservoir of people who were willing and able to make such sacrifices. Mr. Knecht said it seemed to him that a very important aspect of the bill would be the offering of compensatory, competitive salaries so that comparable sheriff and district attorney candidates were attracted to the positions in the future. Mr. Knecht asked if the witnesses agreed with that statement.
Mr. Olsen answered that he agreed and added that the sheriff’s position, out of all of the elected official positions, was probably the position that would be held the most civilly liable out of all elected officials for the actions of everyone around them, and that this could make it increasingly harder for people to consider entering that line of work for such a reduced salary. He said that if the counties wanted to continue to attract qualified people to run for those elected positions, the counties would have to pay for them.
Assemblyman Knecht reiterated that he had asked Mr. Graham earlier if he had any opposition to the NACO bill which would raise the salaries of other elected officials, and Mr. Knecht said he had understood Mr. Graham to say that he supported the bill. Mr. Knecht then asked Mr. Pierini, Mr. Olsen, and Mr. Nadeau if they had any opposition to including other elected officials besides sheriffs and district attorneys in this bill.
Mr. Nadeau stated that they supported the NACO compensation bill. He said he believed that the reason for bringing A.B. 23 forward was to attempt to make some headway for the NACO bill and to insure that there would not be complications in the area of law enforcement chief executive officer compensation. Mr. Nadeau again stated that they would like the Assembly Committee on Government Affairs to pass A.B. 23, and that they would be happy to support NACO’s bill.
Assemblyman Grady asked Mr. Olsen to explain how he had arrived at the compensation figures that were being used in A.B. 23. Mr. Olsen explained that the compensation figures used in A.B. 23 were the same figures that were used in the NACO bill, and that the figures that had been used in the NACO bill were the same as those proposed in the last legislative session, with a 7 or 7½ percent cost of living increase added.
Chairman Manendo asked if anyone else in the audience wished to speak in favor of A.B. 23. There were none. He then asked if anyone else in the audience wished to speak against A.B. 23. Mr. John Wagner, representing the Nevada Republican Assembly, explained that the Nevada Republican Assembly was a volunteer group that supported candidates during primary elections and, during the rest of the year, supported or opposed certain bills. Mr. Wagner said that this particular bill had some merit, but not as much merit as the district attorneys and sheriffs had seemed to think it should have. He said that everyone was going through a financial crunch. He noted that some salary increases in A.B. 23 totaled 25 percent or higher, and some of the increases had totaled 50 percent. He said he thought that approving such large increases when others were being told to reduce their budgets would not look good to the public. He pointed out that Carson City and Washoe County each had several people run for sheriff in the last election, and he said that if the salaries were so pathetic, so many people would not have run. He said he thought it might be more acceptable to the public if the Committee were to increase the salaries by 10 percent.
Mr. David Schumann, representing himself, said that the unfunded mandate would represent salary increases of 36 to 55 percent. He said that he saw the need for pay increases, but suggested that the Committee approve a 10 percent mandated increase, with the counties being free to increase salaries to anything over and above the 10 percent if they chose to. He said that the citizens of the counties would then be introduced to the idea of each county paying what it thought the services would be worth. Mr. Schumann said he felt that the Committee would need to give a lot of thought to whether or not the citizens of a county should have input into what their elected officials were paid. Mr. Schumann said that Nevada had a lower cost of living than many comparable states, and he also stated that there had been some bogus statistics used in the past. Mr. Schumann said,
“The teachers for some time have been saying that they’re poorly paid. It turns out that the American Federation of Teachers—that’s the second largest teachers’ union—put out a survey in which they found out that the teachers in the state of Nevada are the twelfth- best-paid teachers in the country; that in fact they made $10,000 plus a year more than the teachers in California, which many of you may or may not have come from California. Mr. Knecht has, and the cost of living there is an awful lot higher.”
Mr. Schumann said that if the Legislature were to mandate increases of 36 to 55 percent, he felt that the Legislature would be overreaching what it should be doing. He said that he would like to see the Assembly Committee on Government Affairs consider a 10 percent mandated increase, with the counties being allowed to pay more if they chose to. Chairman Manendo thanked Mr. Schumann and commented not to believe everything you read.
Assemblyman Knecht thanked Mr. Wagner and Mr. Schumann for their remarks regarding A.B. 23. Mr. Knecht said he thought he had heard Mr. Wagner say that the cost of the proposed increases would add to the Governor’s budget deficit. Mr. Knecht clarified for Mr. Wagner that all of the dollars for the proposed increases would come from county treasuries and not from the State Treasury. Mr. Wagner indicated that the county where he lived was experiencing a particularly tough economic time because some retailers had recently left the county, which would mean that the county’s budget would be hard pressed because of this proposal. He again stated that this would be a state mandate and that he had a problem with that. Chairman Manendo said that he had found Mr. Wagner’s comments interesting, but that the counties had also been asking for the raises.
Assemblyman Knecht said it seemed to him that his proposal for an amendment to make the increases permissive and not mandatory would cover most of the concerns that Mr. Wagner and Mr. Schumann had voiced and asked them to clarify if he had missed something. Mr. Schumann replied, “No, if you made this permissive, I’d go away.” Mr. Wagner replied, “Likewise.”
Mary Walker, President, Walker and Associates, representing Carson City, Douglas County and Lyon County, said that she wanted to clarify that the three counties she represented supported A.B. 23 and that the commissioners in each county had allocated the appropriate funding in their budgets for the increases. Ms. Walker also stated that permissive directives to the counties would not be allowed by the Constitution of the State of Nevada. She said that, as she had understood it, even an “up to” clause would not be allowed by the Constitution of the State of Nevada because the Constitution required that the Legislature set the actual salaries. Mr. Knecht asked for confirmation of that from the Committee Legal Counsel. Ms. O’Grady, Committee Legal Counsel, stated that Section 32 of Article 4, of the Constitution of the State of Nevada required by law that the Legislature fix the compensation of the county offices.
Mr. Schumann noted that two counties in the bill, Humboldt and Storey Counties, had previously granted raises to elected officials and he asked how that could happen if counties were not allowed to do that. Assemblyman Goicoechea explained, “The way you would have got a raise would be change the category of your county. You would have went from a four to a three or a three to a two, and I’m sure that’s what happened in Humboldt County.”
Chairman Manendo closed the hearing on A.B. 23 and noted that no action would be taken on the bill. He said that he also had concerns with the proposed amounts and that it would be something he needed to study further. He said he had appreciated Assemblyman Knecht’s comments on the bill.
Mr. Woody Thorne, Executive Officer, Public Employees’ Benefits Program (PEBP), introduced himself and his colleague, Leslie Johnstone, Accounting Officer, also of PEBP. Via a PowerPoint presentation, Mr. Thorne presented the Committee with a Program Overview (Exhibit C) of PEBP. He said the presentation would review the organization’s mission, plan design history, and participant demographics that have had a significant impact on the program, as well as premium rate history and the future of the organization. Mr. Thorne said he wanted to explain the difference between an insured plan and a self-funded plan. Mr. Thorne said that, in both cases, the program paid for claim costs plus administrative costs. However, with an insured plan, payment of the profit margin for an insurance carrier also had to be dealt with. Mr. Thorne said that when the Legislature had authorized the creation of the self-funded plan in 1983, the plan was fully insured. However, after having recently sent out 112 requests for bids for the insured plan, PEBP had received only one response, and that response had been from the incumbent who had proposed a 40 percent rate increase. Mr. Thorne said that the program had been administered by the Committee on Benefits and in 1986, a regulation had been passed which allowed non-state entities to join the program. In 1999 the Nevada Board of the Public Employees’ Benefits Program had been created. Mr. Thorne said, as shown on Page 4 (Exhibit C) of the PEBP Program Overview:
“The mission of the Public Employees’ Benefits Program (PEBP) is to design and manage a quality health care program for public employees and retirees in the State of Nevada so they are assured of excellent service, responsiveness to changing benefit needs over career/life spans, equitable cost sharing among all participant groups, and fiscal soundness for long term viability of the program.”
Mr. Thorne said that with the events of the past couple of years, the program had struggled with the last element of the mission statement. He said that when looking at the “Plan Design History,” pages 5-12 of Exhibit C, the graphs demonstrated that there had been a fair amount of stability in the plan design itself. He said that deductibles had been set to a level equal to what they had been in 1998. The “Out of Pocket Maximum 1998-2003” graph, page 6 of Exhibit C, showed that there had been a shift in the combined 1999-2000 benefit years where there had been a combined Preferred Provider Organization (PPO) and non-PPO out-of-pocket maximum. Mr. Thorne said that the two had been separated in 2001 and that both had been relatively constant until a change had been made in January 2003. He stated that primary care physicians had gone from a coinsurance to a fixed dollar copayment in the period from 1998 to 2003 and that they had been stable for the past four years, page 7 of Exhibit C. He said that there had also been a similar pattern in specialist physician coinsurance having gone to a fixed dollar copayment and having remained stable over the past several years, on page 8 of Exhibit C. Mr. Thorne said the program that had received the greatest amount of attention and had seen the greatest amount of change had been “Pharmacy Benefits”, pages 9-12 of Exhibit C. He noted that there had been a tremendous price increase and utilization increase in the prescription drug market over the previous six or seven years. He said that there had also been a tremendous increase in the amount of direct consumer advertising, and that the pharmacy companies had become very good marketers in creating demand for their prescription drugs. He said that in 1998 there had been a $25 per calendar year deductible-to-percentage copayment for the retail program and that the mail order program had a flat dollar amount for its copayment, page 9 of Exhibit C. He said that in 1999 the retail program had gone to a fixed percentage copayment with increased mail order dollar amount copayments and that there had been no changes in the year 2000, page 10 of Exhibit C. Mr. Thorne said that in 2001, the calendar year deductible had been eliminated and a fixed dollar amount copayment had been implemented for the retail program. He also said that at the same time, there had been an increase in the mail order program copayment amounts, page 11 of Exhibit C. Mr. Thorne indicated that the biggest change had come in 2002 when the management of the prescription drug program was changed to Catalyst RX. He said that at the time management changed to Catalyst RX, a three-tier program had been implemented that included generic, preferred, and non-preferred prescription drug choices in the both retail and mail order programs. He also stated that the generic copayment had been reduced in both the retail and mail order programs and that dollar copayments for preferred and non-preferred prescription drugs had been set progressively higher. He said that there had been no additional changes in 2003, page 12 of Exhibit C.
Mr. Thorne directed the members of the Assembly Committee on Government Affairs to the “Plan Demographics”, pages 13-16 of Exhibit C, and asked the Committee members to note that there had been a significant decrease in Health Maintenance Organization (HMO) participation from the year 2001 forward, page 13 of Exhibit C. He said that the decrease had coincided with the loss of the HMO option in northern Nevada and that PEBP had gone to bid to attempt to obtain a statewide HMO, but no bids had been received. He said that when the Committee looked at program participation by tier, with a tier being “a participant, a participant with spouse, a single parent with children, or a full family,” the Committee would have seen a relatively higher percentage of single participants and single parents with children in the HMO plans, page 14 of Exhibit C. Next, Mr. Thorne had directed the Committee’s attention to participation of “State Actives and Retirees,” as well as “Non-State Actives and Retirees”, page 15 of Exhibit C. He noted that participation by non-state actives had remained fairly stable as a percentage of the total over the past six years. He also noted that there had been a slight drop in state actives as a percentage of the total and a slight increase in state retirees as a percentage of the total.
Mr. Thorne then directed the Committee’s attention to page 16 of Exhibit C, which contained information regarding population demographics. He said that the greatest number of plan participants would be in the 40-49 and 50-59 age brackets. He said that these would be the ages where people would start facing age-related illnesses that would be very costly to treat. He also said that the dependent population followed the same pattern as the primary participant population. Mr. Thorne said that this trend had been a big contributor to the program’s rate costs because it had become an issue of plan utilization as well as inflation. Mr. Thorne said that pages 17-22 of Exhibit C would show the trend in premium rates over the previous six years. Mr. Thorne noted that during the period from 1998-2003, contributions by “State Actives” had increased from 39 percent to 64 percent, with the state subsidy having increased by 88 percent, page 17 of Exhibit C. He also said that there had been comparable numbers for “State Early Retirees,” page 18 of Exhibit C. Mr. Thorne explained that state early retirees had been those people who had retired but were not yet eligible for Medicare. He then talked about the “State Medicare Retirees,” page 19 of Exhibit C and said that, with a change in the requirement to comingle the claims of state actives and state retirees when developing the rates that had become effective in 2002, retiree contributions had dropped off during the two years that the contributions of actives had remained stable or rose. Mr. Thorne said that this disparity would level out over time and that they would move together in the future.
Mr. Thorne said that when the Assembly Committee on Government Affairs looked at “Non-State Active—Self-Funded Contributions”, page 20 of Exhibit C, and “Non-State Early Retirees,” page 21 of Exhibit C, Committee members would see that the contributions for the two groups had risen significantly going into the year 2003. He said that PEBP had been required to rate the non-state groups separately from the state groups and that the rates were based on their experiences. He said that the two groups had been smaller and, as a result, had tended to have much more volatile claims. He noted that the two groups had a horrendous year in 2002, which had led to the large increases that had occurred in January 2003. He said that, at that point, the organization had looked at a 45 percent increase for non-state actives and increases in excess of 100 percent for non-state retirees. Mr. Thorne said that PEBP had been prohibited from comingling the non-state active and retiree experiences in order to develop the rates. He said that when PEBP had looked at comingling the two groups, they had determined that the results would have generated a blended‑rate increase of over 60 percent for the combined group for that period of time. He said that the problem that would have resulted was that non-state active participation would have been dependent on the market and on the particular groups. He said that PEBP had tended to act as the assigned risk pool for non-state entities in that the entities that had the worst experience had looked to PEBP as a safety net, but that when their experiences and demographics had been good, they obtained better coverage on their own. Mr. Thorne said that this would mean that the local entities usually had left their retirees in the state program because many of the local entities either had not offered retiree coverage at all or, if they had, they had not provided any subsidy towards coverage, and this had meant that the non-state retirees had no choice except to look to the state plan for coverage.
Mr. Thorne noted that pages 21 and 22 of Exhibit C had referred to non-state early retirees and non-state Medicare retirees and what had happened to their contributions. Mr. Thorne referred to pages 23 and 24 of Exhibit C, which contained information on the program’s future. Mr. Thorne said that during the previous 18months, PEBP had done an extensive review of all of its vendors and programs and had gone to bid on most of them. He said that PEBP had also looked at changing the plan year to match the fiscal year starting on July 1, 2003. He said that the change help PEBP to budget more effectively and to be on the same schedule as the state’s fiscal year. He said that the Requests for Proposals (RFPs) that had been completed or were in process were for vision, a fully insured medical/Rx/vision program, and for a preferred provider organization (PPO), but that no responses had been received. He said that no one had been interested in assuming the risk based upon the state’s experiences and demographics. He said that for the PPO, the Nevada Board of the Public Employees’ Benefits Program had selected a single statewide self-funded network that would begin operation on July 1, 2003. He said that RFPs had been completed and new vendors had been selected for basic group life insurance, accidental death and dismemberment, and long-term disability, and that a vendor for utilization management was to be selected at the March 2003 meeting of the Nevada Board of the Public Employees’ Benefits Program. Mr. Thorne said that the biggest items scheduled to be heard by the Board at the March 2003 meeting had been plan design and rate setting. He said that the Board had planned to look at how it could build a foundation for longer-term health care in a very difficult environment, and how it wanted to deal with the demographics and utilization of the population in particular. He said that this was not going to be an easy process and that the decisions would not be easy to make. He said that no matter what decisions were made, the decisions would be unpopular with someone. Some of the things that the Board had planned to look at were the restructuring of the benefit program itself, significant rate increases, and/or a combination of both. Mr. Thorne said that the Board would have some difficult decisions to make, but that they had planned to develop a sounder financial foundation for the future which they hoped would make adjustments that had to be made in the future less difficult than they had been during the previous two years.
Assemblywoman Koivisto asked Mr. Thorne who the non-state actives were and how much their employers had paid to cover them in comparison to what the state had paid for state employees to be covered.
Mr. Thorne answered that non-state entities could have been from any local government and that it would have been the employer who had made the decision as to whether or not a local government would have joined the state program. He said that PEBP had no control over and had no requirements for how much the local government entities contributed toward the plan. He said that first the rates had been set and then an internal decision had been made as to how much they would contribute toward the plan. Mr. Thorne said that a number of local entities had provided no benefits for their retirees or, if they had provided benefits, they had provided no contribution. He said that, in some cases, this would have been a negotiated issue through collective bargaining. He also said that this had changed the demographics of their active employees and had brought them down to a much younger average age.
Assemblyman Grady had congratulated Mr. Thorne on his presentation. He pointed out that on page 3 of Exhibit C it had been stated that in 1986, non‑state entities had been allowed to join the state program. Mr. Grady stated that non-state entities had been solicited to join the program in order to make it a pooled operation and that the state currently was getting away from the pooled operation. Mr. Grady said he had received more correspondence on this particular subject than anything else, and that most of the correspondence had been from teachers who had seen their insurance rates increased from approximately $700 to $1,400. Mr. Grady then asked why the state retirement system had not been able to force the local entities that left the state program to take their retirees with them. He said that, at one time, he had administered an insurance plan for a local government and that one of the regulations had been that if the entity left, it took its retirees with it, which he felt was fair to the system. He also stated that, a number of years ago, the previous director of PERS had proposed to the Legislature a program that would have raised retirement rates by approximately one quarter of 1 percent and that the additional funds would have been used to help fund the retirees. He asked Mr. Thorne if any thought had been given to considering that proposal again.
Mr. Thorne answered that, initially, because of a statute that had allowed any PERS retiree to be able to opt into the state’s retirement program, the program had not been able to force a local entity that no longer wished to participate in the program to take its retirees with them. He said that the way the Nevada Revised Statutes had been written, the choice had remained the individual choice of the retiree. Mr. Thorne said he agreed that having entities take their retirees with them would have been an appropriate underwriting methodology. He said that, with the rural counties in particular, the situation had stemmed from the fact that the entities would not have had the financial means to provide health benefits to their retirees, and that there would have been a need to provide a safety net for public entity employees when they retired so that they would have access to health care. Mr. Thorne said that as for a long-term solution, the Board had approved a request for an interim study on that issue, and they had also wanted to look at a long-term solution to pre-fund for future retirement health benefits. He said that a number of different mechanisms had been tried across the county to deal with those issues. Mr. Thorne said some entities had set up a separate fund and that some entities in the eastern part of the United States had set up a separate fund whereby an additional amount of money would be contributed to their fund for a period ranging from between 10 and 16 years, and then at the appropriate time, the earnings of the fund would be used to subsidize retiree health care benefits. Mr. Thorne said that other entities had tried to take the approach of wrapping the funds into existing retirement systems. Mr. Thorne said that whatever mechanism was decided upon, the chosen mechanism would not help anyone who would be retiring within the next 10 to 15 years. He also said that given the level of present-day health care costs, full or even significant funding would not be able to be developed in that time frame towards retiree health costs.
Assemblyman Goicoechea asked if Mr. Thorne was aware that there would be three to five legislative bills that would address in various ways local government entities’ participation in PEBP. Mr. Goicoechea said that, like Assemblyman Grady, he had also received a great deal of correspondence on why the PEBP program was not working. He said that, in most cases, the rural non-state entities had not realized that they had been separate. He said he believed that there were approximately five non-state government entities that had participated in the PEBP program, with three of them being the Lander County School District, Eureka County, and the Churchill County School District. He said he believed that the reason there had been so few that participated was because of the rate structure. He said that in the 18th Special Legislative Session, a subsidy in the amount of $18 million had been allocated to the state side of the program and yet contributions for non‑state entities had still increased between 45 and 145 percent, especially in the case of early retirees. Assemblyman Goicoechea pointed out that a single participant’s rates had risen to $711 and that rates for a participant and spouse had risen to $1,422, and he questioned who could afford such increases. He said that Eureka County as well as several others had submitted bill draft requests (BDRs) concerning this issue. He then asked why the local government entities had to participate in PERS but then were treated separately on the benefits side of the program. He said it made sense to him to bring the pools together. He pointed out that 85,000 members formed a large pool of members and that the program administrators should have been able to solicit affordable health care rates with a pool that large. He also said that, if the law were changed, a requirement should be included that if an entity had decided to participate in PERS, the entity would also have the ability to also participate in PEBP. He also said he wanted to see some equity across the board.
Mr. Thorne stated that he would have been amazed if Committee members had not heard from constituents over the proposed rate increases that had been put into place on January 1, 2003. He also stated that it had been the non-comingling requirement that had caused the large rate increases. He agreed that the rates were unaffordable for many people and that the situation from an underwriter’s standpoint would be the law of large numbers and that Assemblyman Goicoechea was absolutely correct. He said that the more participants the state would be able to bring into the pool, particularly if younger participants could be brought in to help lower the average age of the pool, the more positive effect it would have had on the rate structure. Mr. Thorne then added that just as it was an option for local government entities to decide whether or not to participate, the entities were looking for the best deal and that the local entities may or may not have been able to obtain a better rate elsewhere. He said that, from a pure numbers standpoint, a mandate for all of the entities to participate in the state program made sense. He said that there would be both winners and losers in the process and that there be collective bargaining issues raised at the local level that conflict with what the program offered and that PEBP would have to work to accommodate those differences. He said that the process would not be an easy one and that he thought that the Committee would encounter significant resistance from those entities that would be able to obtain significantly better and lower cost benefits. He said that the southern part of the state was a prime example of that and indicated that it was one of the reasons why PEBP had been able to obtain an HMO in southern Nevada but not in northern Nevada. He said that the southern portion of the state contained a large metropolitan area with a concentration of participants and providers in a small geographic area and with a competitive work force that had purchasing leverage, but in the northern part of the state and in the rural areas, that equation did not exist, which would have made obtaining the same coverage far more difficult.
Assemblyman Goicoechea said that he had seen that even in the Clark County School District there had been an impact by PEBP, even though the Clark County School District had its own self-funded health care insurance program. He indicated that he disagreed with Mr. Thorne about negotiating and that PEBP needed to talk about putting a basic package in place and about enhancements above that basic package that would be negotiated between local governments and their bargaining units. Mr. Goicoechea also said that he thought PEBP needed to develop a basic, affordable package across the state at one price. He said he believed that it would be possible to negotiate a one-size-fits-all package across the state that would address the needs of retirees.
Assemblyman Christensen thanked Mr. Thorne for his presentation. Mr. Christensen said he had also received much correspondence regarding the same topic. He referred to page 24 of Exhibit C and asked if the March meeting of the Nevada Board of the Public Employees’ Benefits Program would be a public meeting and where it would be held. Mr. Thorne answered that the meeting would be held on March 5, 6, and 7, 2003, and that it would be a public meeting. He said that the Board planned to look at plan design and rate setting issues on March 6. He also indicated that the meeting agenda and board packet would be available on the PEBP website, www.pebp.state.nv.us, at least three days prior to the meeting. Chairman Manendo asked Mr. Thorne to provide enough business cards for the entire Assembly Committee on Government Affairs in case any Committee members wanted to contact him with questions. Chairman Manendo noted that Committee members who received questions from constituents could refer their constituents to the PEBP website.
Assemblyman Hardy stated that there were people who had been given a choice of retirement plans to join and that, as he understood it, they had chosen the less expensive plan thinking that they would be carried through, and then they had gotten caught in a situation whereby their health had deteriorated and they had then found themselves in a situation where their insurance premiums had risen to $1,400 a month, which was higher than their mortgage payments in many cases. Mr. Hardy indicated that he was speaking about Clark County School District employees and he asked Mr. Thorne to review how the choices had been presented to them and how the situation was affecting them.
Mr. Thorne said that the employees’ employer had presented the plan choices. He indicated that PEBP would not have been involved in that process and that the employees would have had a 60-day window in which to decide if they wanted to join the state plan or, if their employer had its own plan, to stay with the employer’s plan. Mr. Thorne said PEBP had been available to provide information regarding the state plan, including costs, but that PEBP would not have advised anyone as to which plan to join. He said it might have been possible that the Clark County School District plan had been more expensive than the state plan at that time, but that the opposite had become true. Mr. Thorne said that he did not know enough about the benefits received by teachers who had joined the Clark County School District’s program, but that he was aware that once the choice had been made to join the state program, a teacher would not have had the option to return to the Clark County School District program. Mr. Thorne said in the state program, employees were given an option at the time of retirement to enter into the program, and that in January of every even-numbered year, any PERS retiree would have been able to opt back into the program. He said that, once again, PEBP would have been the safety net.
Assemblywoman Koivisto said she would be able to shed some light on Assemblyman Hardy’s question. She said that if a Clark County School District teacher retired and joined the school district’s plan and if the retiree died, that retiree’s spouse would not have been able to continue to be covered under the school district’s plan. Mrs. Koivisto said that with the state plan, the retiree’s spouse would have been able to retain coverage. Mrs. Koivisto said she believed that a number of retirees had opted to join the state plan for that reason.
Chairman Manendo requested that Leslie Johnstone, Accounting Officer with the Public Employees’ Benefits Program, identify herself for the record. Chairman Manendo thanked Mr. Thorne and Ms. Johnstone for having appeared before the Committee and asked for any other comments.
Ms. Bonnie Parnell stated that she had been at the hearing in order to join the approximately 1,900 non-state retirees who had expressed their alarm over the cost of their health care premiums. She said that it had been hard for her to understand how public employees had been treated. She said that there had been individuals from all across the state who had dedicated themselves to teaching children, who had dedicated themselves to being the best city or county employee that they could possibly be, who had been working for a state agency, and who had been helping legislators by working at the Legislative Counsel Bureau, and that these individuals had joined a system that had been in which all of them had been pitted against one another. She said an extremely critical situation had been created and, in finding a solution, the Legislature would have to deal with a group of active state employees who had been upset at non-state retirees. She said that the groups had been pitted against one another and that she felt it was a shameful situation. She said that there were retirees from state service who paid as little as $56 a month, and there were employees from non-state services who paid $711.67 a month, which was 13 times more than what a state retiree paid. She said that even if the state subsidy for state retirees had been factored in, the non-state retirees were still paying twice as much. She said that the current system was simply and blatantly unfair and unjust. She said that there was a group of non-state retired public employees who were denied access to affordable health care. She further stated that the current system was discriminatory, because in southern Nevada employees had been able to opt to join an HMO at approximately half the cost of a PPO, but that northern Nevada non-state retirees had been denied that option. She also said that adding to the existing problem was the consideration of what would happen to this group of approximately 1,900 employees as decisions were made based on exorbitant rates. She asked if the population had shrunk further, what that would have done to their rates at that time. She also pointed out that there were three BDRs aimed at solving the inequity and that it was her hope that legislative action would be taken that would insure fairness for all of the individuals who had served the state through the years.
Mr. Martin Bibb, Executive Director, Retired Public Employees of Nevada, said that there had been some points brought up by Committee members that he thought he would be able to clarify. He said that Assemblyman Grady noted that there had been an attempt some years ago to develop a program that would have provided a pre-funded, “while-you-are-working” subsidy to assist persons with their health care costs when they retired. Mr. Bibb said he recalled two options. He said that the first one had been to add an approximately ½ percent post-retirement increase to the retirement benefits of retirees, and that the second option would have been the pre-funded health care insurance option that Assemblyman Grady had very accurately described. Mr. Bibb said that at that time the issue had been one of finances. He said that there had been enough legislative support for such a program, but not to do both options, and that he believed that had been the reason that the particular pre-funded effort had not succeeded. He noted, however, that the Nevada Board of the Public Employees’ Benefits Program had discussed initiating an effort to request a legislative study expressly for the purpose of considering a pre-funded health care insurance program. He said that most people had not seemed to realize what the critical nature of their health care situation would be once they had retired. Mr. Bibb said that the problem had begun several years ago and had been created by L&H Administrators, who had failed to pay claims in the state program. He said that L&H Administrators had also failed to pay claims in other states as well and that legal action had been initiated against them in other states over that issue. He said that the problem had been identified in 1999 and that, at the same time, the former Committee on Benefits, which had overseen the state group health insurance program, had been reconfigured into the Public Employees’ Benefits Program. He said the same thing happened again in 2001. He said that the new claims payer had also failed to pay claims on time and that as a result, the program’s financial situation had become critical. He said he realized that non-state retirees had been in a very critical situation and that they had been in a terrible plight. He said there had been a recommendation before the 2001 Legislature to place non-state retirees and state retirees into the same pool, but he said this would clearly have been “age banding” and that if there had been a crisis in such a large pool with only older people in that pool, there would have been no sharing of rate and no spreading of risk. Mr. Bibb said he thought that what had been referred to as a “theory of large numbers” would have thoroughly thwarted. Mr. Bibb said Assemblyman Goicoechea had mentioned the notion of one large pool, which would have had some appeal, but that he thought there were some concerns associated with that. He said that one issue would be that of negotiated benefits that existed in some plans but not in others. Mr. Bibb said another notion was something that Mr. Thorne touched on, which was the question of local governments and the state providing subsidies for their retirees to help offset their health care costs. He said he believed that Mrs. Koivisto noted accurately that there had been a situation several years ago in which retirees had left local government plans, and at that time there had not been an option for many of those retirees to be able to continue their health care insurance. He said that they had been covered while they were working, but upon retirement there had been no option. He said that in 1993, a bill had been introduced by Republican State Assemblyman McGinness, and in 1995, a bill had been introduced by Democratic State Assemblyman Dini, and that both bills had proposed to permit local government employees, who would otherwise have had no continuation of health care options, to be able to participate in the state’s group health insurance plan on a “safety net” basis when they retired, with the conditions that they be rated and pooled separately and that they pay their own costs, which is what had happened. He said that some of the crises that the state had been experiencing had been because of the financial crisis that had been caused by the many claims that had not been processed in a timely manner. Mr. Bibb said that the debate had been a serious one. On behalf of the 23,000 retired public employees in Nevada, some 8,000 of them members of RPEN, he said RPEN looked forward to working with the Assembly Committee on Government Affairs and its capable staff and that he would be happy to answer any questions that the Committee members had.
Mr. Gary Wolff, Business Agent, Teamsters Local No. 14, Las Vegas, which represented state troopers across the state as well as several other employees throughout the state, said he wanted to answer a question regarding the Clark County School District issue. Mr. Wolff said that health insurance was more critical than pay raises. He said that the support staff of the Clark County School District had been so frustrated over their health plan that they had signed over 4,000 signature cards which would allow them to leave their organization and move over to the Teamsters. Mr. Wolff said that there had been people who had filed bankruptcy for lack of being able to make payments, the same as in the state system. Mr. Wolff said he thought that Mr. Thorne had been handed an enormous task, and that he had nothing but good to say about Mr. Thorne. Mr. Wolff also said that when 4,000 people signed signature cards because they were so frustrated over their health insurance, he thought that sent a clear message that bureaucratic systems were having a difficult time. Mr. Wolff said that the Teamsters Local No. 14 would be happy to appear before the Committee to show the Committee why the Teamsters’ plan would be able to insure an entire family under a composite rate for approximately $460 a month. Mr. Wolff said that the state program had become a pool for every county and city that could not provide a subsidy to its employees and that he thought there was a big problem with the system. Mr. Wolff also offered to make a presentation to the Committee that would show how the Taft-Hartley Act would fully regulate the plan under federal rules and guidelines and how it had been operated compared to some other plans.
Assemblyman Goicoechea asked Mr. Wolff if the Teamsters had been solicited for RFPs by the state for any involvement in the state’s program. Mr. Wolff answered that they had not. He added that in 1999, a bill had been passed through the Legislature to allow groups of 300 or more to leave the state program. He indicated that there had been a problem in adopting the regulations and that the Teamsters had been in negotiations and had been working with the Public Employees’ Benefits Program for that option as a test. He indicated that the same was true with the Clark County School District. He said there had been some legal avenues levied to block employees from leaving and that the Teamsters had a fundamental problem with that. He said that he understood the money part, but that there was a fundamental problem when people were barred from the right to choose.
Mr. Frank Brusa, Nevada Association of School Administrators, spoke before the Committee as a non-state retiree. He said that he wanted the Committee to know that, of all the issues that he had tracked during the past two legislative sessions, the most critical one from state employees around the state had been health insurance. He said that he wanted the Committee to know that dealing with this issue was a monumental task and that, if his organization would be able to help in any way, representatives would be present whenever the Committee addressed those issues.
Chairman Manendo announced that the next meeting of the
Assembly Committee on Government Affairs would be on Wednesday, February 11, at
8:00 a.m. There being no further
business, Chairman Manendo adjourned the meeting at 10:51 a.m.
RESPECTFULLY SUBMITTED:
Pat Hughey
Committee Secretary
APPROVED BY:
Assemblyman Mark Manendo, Chairman
DATE: