MINUTES OF THE meeting
of the
ASSEMBLY Committee on Ways and Means
Seventy-Second Session
March 17, 2003
The Committee on Ways and Meanswas called to order at 8:09 a.m., on Monday, March 17, 2003. Vice Chairwoman Chris Giunchigliani presided in Room 3137 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. Morse Arberry Jr., Chairman
Ms. Chris Giunchigliani, Vice Chairwoman
Mr. Walter Andonov
Mr. Bob Beers
Mrs. Vonne Chowning
Mrs. Dawn Gibbons
Mr. David Goldwater
Mr. Josh Griffin
Mr. Lynn Hettrick
Ms. Sheila Leslie
Mr. John Marvel
Ms. Kathy McClain
Mr. David Parks
Mr. Richard Perkins
GUEST LEGISLATORS PRESENT:
Mr. Pete Goicoechea, Assembly District No. 35
STAFF MEMBERS PRESENT:
Mark Stevens, Assembly Fiscal Analyst
Steve Abba, Principal Deputy Fiscal Analyst
Jeffrey Ferguson, Program Analyst
Susan Cherpeski, Committee Secretary
Carol Thomsen, Committee Secretary
Vice Chairwoman Giunchigliani called the meeting to order and informed the Committee the agenda would be heard out of order. The Gaming Control Board would present their budgets first.
GAMING CONTROL BOARD (101-4061) – BUDGET PAGE GAMING -1
Dennis Neilander, Chairman, State Gaming Control Board, identified himself for the record and indicated he was accompanied by Joe Bertolone, Chief, Administration Division of the State Gaming Control Board, and Peter Bernhard, Chairman, Nevada Gaming Commission. Mr. Neilander explained that he had provided a fairly detailed overview to the Legislative Commission’s Budget Subcommittee prior to the start of session, so he would keep his presentation brief. The budget for the State Gaming Control Board was in compliance with the Governor’s required 3 percent reduction, so it was essentially a flat budget with a few enhancements.
Decision unit M-400 was an increase in intrastate travel for the Audit Division in order to deal with increases in airline travel, motor pool rental, and per diem costs. Mr. Neilander indicated the Audit Division had curtailed intrastate travel, primarily to the rural areas, so M-400 would provide $90,000 in the first year of the biennium, $74,000 in the second and would allow the Division to resume intrastate travel in order to complete the needed audits. He noted he could provide a schedule of audits and the consequent travel to the Committee.
Mr. Neilander explained that decision unit E-176 was the work permit program. The program had been instituted as Clark County had decided to stop issuing work permits. The local jurisdictions were the primary work card issuers by law; however, they could choose to not issue the work cards. Thus, the Gaming Control Board, which had never issued cards, would be required to do that. Mr. Neilander pointed out that the Las Vegas Metropolitan Police Department had agreed to continue providing that service through the end of the 2003 calendar year. The Gaming Control Board would then issue the permits, and decision unit E‑176 was the request for the funding to do that for the time being. The Gaming Control Board had developed a plan that would resolve the problem and would be in the best interest of the state in the future. That plan was currently being drafted in a separate bill, and Mr. Neilander asked that the Committee wait until that bill was heard and then consider that bill in conjunction with the current budget.
Mr. Neilander indicated the proposed plan would eliminate the need for a work card. Rather, an applicant would obtain his application directly from the licensee, and it would be the applicant’s responsibility to be fingerprinted. Then the applicant would give the application and the fingerprint card to the Gaming Control Board, which would send the fingerprint cards to the National Crime Information Center (NCIC) and the Federal Bureau of Investigation (FBI). Upon receiving the results of the fingerprint and background checks, the Gaming Control Board would compile a list of persons eligible for employment and a list of persons ineligible for employment in the gaming industry. Licensees would have the responsibility of verifying an applicant was on the eligible list before hiring him.
Mr. Neilander claimed the new program would decrease the costs associated with the current program. He said the program would be on a statewide basis; the local governments would no longer have the responsibility of issuing work cards. Of the amount charged for a work card, $45 went to the NCIC and the FBI for background checks, and the remainder was used by the local governments to administer the program. The new proposal would mean the remainder would be used by the state to administer the program, and the cost would be maintained at the current $75 cap. Mr. Neilander conceded it was possible the cost would increase, but that cost adjustment would be part of the bill. The goal was to keep the program revenue neutral so it would not cost the state additional money, and it would lower the cost to applicants as they would only need to renew registration once every five years. Mr. Neilander requested that the Committee allow decision unit E-176 to remain in the budget in case the aforementioned bill was not passed and the Board would have to begin issuing work cards. He mentioned that the costs from NCIC had increased.
Vice Chairwoman Giunchigliani asked if the bill would be written to anticipate increasing the $75 cap. Mr. Neilander responded affirmatively, and said he would like the bill to provide flexibility so the Board could respond to those increases.
Assemblywoman Leslie verified that there would no longer be a physical work card; there would be a list of persons eligible for employment in the gaming industry. The lack of a physical work card would save on production costs and staffing costs. She inquired whether the applicant’s cost would decrease. Mr. Neilander said the cost would not go down because the program would be statewide, and it would be a matter of 45,000 work permits for the entire state rather than 20,000 for Clark County. The cost to the applicants would have been lower, but the fee for obtaining fingerprint cards was included in the estimated cost. Ms. Leslie remarked that she wanted the end result to be advantageous to the applicants; Mr. Neilander indicated he understood her concern.
Ms. Leslie asked if Mr. Neilander had been in contact with agencies outside of Clark County. Mr. Neilander replied that he had discussed the program concept with representatives from Washoe County, and he indicated there would be more discussion when the bill was finalized. Ms. Leslie remarked that the changes would have a significant impact on Washoe County. Mr. Neilander agreed and said the Board had spent 18 months drafting the current regulations as the local governments had been concerned about the escalating costs and their ability to handle the program. Many of the local governments wanted to repeal the local ordinances. Ms. Leslie remarked that the local governments were waiting to see what the Legislature would do.
In response to Vice Chairwoman Giunchigliani’s question regarding an appeals process, Mr. Neilander indicated the appeals process would be the same—a decision would be made at an agent level, that decision could be appealed to a hearing examiner at an administrative hearing, then to the full Gaming Control Board, and finally to a court of law.
Mr. Marvel asked if the program would be self-supporting, and Mr. Neilander replied that a revenue-neutral program was the goal.
Vice Chairwoman Giunchigliani commented that there were several options for dealing with Mr. Neilander’s request to maintain the current budget and wait for the bill outlining the plan. She asked him to continue.
Mr. Neilander addressed decision unit E-177, the expansion of the electronic services laboratory. He mentioned that he had attended a meeting of the Interim Finance Committee (IFC) and asked for the authority to expend the funds to begin that expansion of the lab. The expansion involved a physical expansion as well as an expansion of staff with six additional electronic engineers. Mr. Neilander indicated that the IFC had granted four of the six positions, and the Gaming Control Board was in the process of hiring two employees, two more would be hired in April, and the other two, if approved, would be hired after the end of the 2003 Legislative Session. The recruitment for the first two engineers had gone well, and the quality of the applicants had been good. Those additional employees would help with testing new slot machines and modifications to existing slot machines, as well as testing new systems that used electronic gaming devices.
Vice Chairwoman Giunchigliani noted that the positions would be funded through fees. She asked if the two initial positions were meant to reduce backlog. Mr. Neilander responded affirmatively and said the phase-in of the positions was a way to deal with training the new employees. In order to pay for the new positions, the fees had increased as soon as the IFC made its decision. Vice Chairwoman Giunchigliani asked that Mr. Neilander provide a report detailing decision unit E-177. Mr. Neilander agreed to provide that to the Fiscal Analysis Division.
Mr. Marvel asked how employees were trained in order to stay current with the constantly changing technology. He asked if employees were sent to outside companies for training or if the training was provided in-house. Mr. Neilander explained that employees were trained in-house, but that required cooperation from the gaming industry for training on specific technology. Mr. Neilander expressed his appreciation for his staff and said they were very qualified and doing a good job.
Mr. Marvel asked if there had been high turnover in employees, and Mr. Neilander answered the rate had been low for the past two years. Mr. Marvel confirmed that the employees were unclassified.
Vice Chairwoman Giunchigliani asked whether the three new positions would be needed if the two positions were able to reduce the backlog to 30 days. Mr. Neilander indicated those positions would still be needed as there was ample work to be done with the number of devices, the modification of those devices, and the testing of the new systems. He explained that the goal was to reduce turnaround time to 30 days and maintain it at 30 days. Also, the Board would like to perform an expanded modification review. Mr. Neilander indicated the Board currently reviewed 1,000 to 1,800 modifications per year and had a good sampling method and testing method to ensure results, but the Board would like to expand testing on some of those modifications.
Mr. Neilander added that the necessary number of positions had been eliminated to meet the Governor’s requested 3 percent reduction.
Vice Chairwoman Giunchigliani requested an explanation of the credential pay plan. Mr. Neilander explained that the plan had been initiated by the Legislature in 1995 in an effort to recruit and retain qualified employees. The pay was available to licensed attorneys, certified public accountants, and engineers in order to compensate for salaries that were somewhat lower than salaries offered in private industry. Vice Chairwoman Giunchigliani said the credential pay plan had made the salaries competitive, and she wanted to know if that had affected the turnover rate. Mr. Neilander replied that the turnover rate had been approximately 13 percent before the credential pay plan had been put in place, and currently the turnover rate was approximately 8 percent.
In response to a question posed by Mr. Marvel regarding a “cooling off” period, Mr. Neilander explained that a person could not go to work in the industry for one year following termination of employment with the Gaming Control Board. That cooling off period of one year made it difficult to recruit qualified people.
Vice Chairwoman Giunchigliani commented that the additional pay had made salaries competitive so there did not seem to be a need to continue the credential pay plan. Mr. Neilander emphatically stated there was a need. He explained that there were 85 auditors with the Audit Division who received that credential pay, and that credential pay was essentially part of their salaries. The credential pay plan had been extremely beneficial to the Gaming Control Board. Vice Chairwoman Giunchigliani asked if those positions were included in the unclassified pay bill, and Mr. Neilander indicated that was correct. Mr. Neilander said the Board was asking the Legislature to authorize a portion of the credential pay, as the rest was generated through fees. Vice Chairwoman Giunchigliani requested a breakdown of the funding for the credential pay in regard to General Fund monies and fees. Mr. Neilander said that the General Fund appropriation was $177,000 in FY2003. In FY2004, the requested amount was $197,500 from the General Fund and the Board would contribute $252,000 generated through fees. Mr. Neilander pointed out that the amount would increase in part due to the addition of six engineers. Vice Chairwoman Giunchigliani asked if the costs were the same for both years of the biennium. Mr. Neilander said that the Board would contribute $252,000 and request $212,500 from the General Fund in FY2005.
Vice Chairwoman Giunchigliani remarked that the revenue generated from fee collections could be used in a different way in order to save General Fund monies. Vice Chairwoman Giunchigliani requested that Mr. Neilander explain the cost of audit travel. Mr. Neilander said the audit travel cost was a result of increases in the per diem rate, the airline travel rates, and the motor pool rates, which had occurred after the 2001 Legislative Session adjourned. In addition, the Audit Division had had several closure audits, which were mandatory when there was a transfer of a license or a closing of a business. Mr. Neilander indicated the Board had delayed some audits that would have required additional travel. The requested amount would allow the Audit Division to resume the regular audit schedule. Vice Chairwoman Giunchigliani verified that was due to the closings mentioned in his opening remarks.
Vice Chairwoman Giunchigliani inquired whether the gaming percentage fee collection would improve over the next biennium. Mr. Neilander voiced his concern regarding the impact of Native American gaming on gaming in northern Nevada. Southern Nevada had not been affected as drastically, but Native American gaming was a direct threat to the health of northern Nevada’s gaming economy. Mr. Neilander explained that the number of new visitors and repeat visitors visiting southern Nevada had remained constant, while they had decreased in northern Nevada. He said that gaming in northern Nevada was in a difficult situation that depended on the national economy and consumer confidence.
Vice Chairwoman Giunchigliani asked what information Mr. Neilander would present to the Economic Forum on May 1, 2003. Mr. Neilander said he did not have the exact figures he would be giving the Forum, but he thought the projection would be slow to very moderate growth. He indicated there were not any major properties opening until 2005, so growth would be slow. Vice Chairwoman Giunchigliani asked if gaming throughout the nation was struggling. Mr. Neilander replied that the problems in Nevada were different. Other states with gaming relied on drive-in markets and less competition, which gave them much more flexibility to respond in a crisis. Nevada relied on airline traffic, and it was an extremely competitive environment. There were approximately 2,700 licensees in the state of Nevada, whereas other states generally had 8 to 10 licensees. Vice Chairwoman Giunchigliani confirmed that Mr. Neilander was projecting approximately 3.7 percent to 4 percent growth, and Mr. Neilander indicated that was correct.
Vice Chairwoman Giunchigliani asked if there were any questions, there being none, she indicated the Committee would hear the next budget.
GAMING COMMISSION (101-4067) – BUDGET PAGE GAMING -8
Peter Bernhard, Chairman, Nevada Gaming Commission, presented the budget for the Nevada Gaming Commission and indicated the budget was essentially the same as the budget during the previous biennium. He mentioned that the 2001 Legislature had funded a senior research analyst position, which had proven to be very beneficial in addressing policy issues. The senior analyst position had provided much of the information to the Commission on Internet and interactive gaming. That information would allow the Commission to move forward when it was deemed appropriate at the federal level for Internet or interactive gaming to proceed. Mr. Bernhard reiterated that there were no changes in the budget, and the budget had met the Governor’s 3 percent reduction request. Vice Chairwoman Giunchigliani indicated there were no questions.
GAMING CONTROL BOARD INVESTIGATION FUND (244-4063) – BUDGET PAGE GAMING ‑12
Mr. Neilander presented the Investigation Fund and said there had been no changes from the previous biennium. The money in the fund reverted and was used to pay expenses. Vice Chairwoman Giunchigliani indicated there were no questions and thanked Mr. Neilander for presenting his budgets. Mr. Neilander interjected that he had neglected to mention that Scott Scherer, Gaming Control Board, was present as well. Vice Chairwoman Giunchigliani closed the hearing on the budgets and moved to the Washington Office Budget.
WASHINGTON OFFICE (101-1011) – BUDGET PAGE ELECTED -7
Michael Pieper, Director, Nevada Washington Office, read a statement to the Committee (Exhibit C). He said it had been his honor to represent the Nevada State Government in Washington, D.C. since July 1999. He provided background on the Nevada Washington Office, which was located in the Hall of States. There were two employees: Mr. Pieper and Ashley Carrigan. Mr. Pieper stated that the focus of the Washington Office was transportation, tourism, and economic development, and those state agencies contributed to the budget of the Washington Office.
Mr. Pieper stated that his priority was to obtain more federal funding for Nevada, and he had instituted a daily report that was sent to state agencies containing funding opportunities from the Federal Register. The Washington Office had devoted much time and effort to reauthorization of the Temporary Assistance to Needy Families (TANF) program. Nevada had experienced large TANF caseload increases, driven in large part by population increases. Mr. Pieper indicated that Ms. Carrigan had been working with the Nevada congressional delegation to develop a proposal that would increase Nevada’s High Growth Supplemental Grant to address those caseload increases. Congress had not yet reauthorized the program, and it was operating under a temporary extension until June 2003.
Mr. Pieper explained that reauthorization of the federal highway program would be a significant part of the workload for the office during the year. He had been working with three metropolitan planning organizations in Nevada to develop transportation priorities for the congressional debate. The federal highway program had been one of the best sources of federal funds for the state of Nevada. The state received nearly $200 million annually with little or no state match required. Mr. Pieper’s goal was to increase that funding to meet the increasing transportation demands due to the fast growing population.
Mr. Pieper said there were a number of issues that he would be working on for the Nevada Commission on Tourism, including the funding for the Truckee River Recreation Plan and providing tax incentives to the film industry to remain in the United States.
The Washington Office had worked the previous year on behalf of the Economic Development Commission to obtain approval for construction of a power plant and pipeline in Eureka County. Mr. Pieper also indicated that due to the efforts of his office, the federal Environmental Protection Agency recently approved a new airshed designation for the Boulder Valley. He hoped that level of success would continue through the next biennium, and he thanked the members of the Committee for their time.
Vice Chairwoman Giunchigliani asked if there were any performance indicators for the budget. Mr. Pieper indicated there was a list of accomplishments attached to the statement he had given to the Committee (Exhibit C). The accomplishments were primarily in the areas of transportation, tourism, and economic development.
Assemblyman Goldwater said the Committee had been requesting performance indicators since 1995. He pointed out that the list of accomplishments seemed very similar to the list of accomplishments claimed by other agency administrators, particularly the Lieutenant Governor’s Office. Mr. Goldwater asked if it was necessary to have the Washington Office if the Lieutenant Governor’s Office was able to perform those tasks. Mr. Pieper replied that teamwork was the key to success, and no one person could appear before the Committee and take credit for any one action that had taken place. Mr. Pieper emphasized that he was part of that team, and he worked with the Governor’s Office, the Lieutenant Governor’s Office, and the three agencies that funded the Washington Office. He did not think that any one of those entities could claim full credit for any of the accomplishments that had been achieved because it had been a team effort.
Assemblywoman Chowning agreed, but said that made it difficult to track accountability. She asked how the effectiveness of the Washington Office could be measured. She mentioned nuclear waste and the Department of Transportation and funds that were given to the state to build roads, and she wanted to know what part the Washington Office had played in obtaining that funding. Mrs. Chowning asked if Mr. Pieper testified in congressional committees or if he provided background information to the congressional delegation regarding those transportation issues. Mr. Pieper explained that in the case of transportation issues, he worked with the staff at the Nevada Department of Transportation (NDOT) to develop the descriptions of projects and the lists of projects that the Nevada congressional delegation then submitted to the appropriations and the authorization committees in Congress in order to request funds. Mr. Pieper said he was essentially a member of the delegation staff. The staff of the congressional delegation was generally covering approximately 20 issues, and they did not have time to study and prepare the detailed reports needed for those projects. Mr. Pieper prepared the documents and the information and gave that to the congressional delegation so that a request for appropriations could be made.
Mrs. Chowning asked if the congressional delegation staff did the same work that Mr. Pieper did, and Mr. Pieper replied that he gathered the information, gave it to the congressional delegation staff, and they submitted that to the appropriate committees. Mrs. Chowning commented that the congressional delegation staff was paid with federal dollars and Mr. Pieper was paid with state dollars, and it seemed that Mr. Pieper was providing them with information that they should be gathering. Mr. Pieper indicated that each House member had approximately three policy staff, and those three people gathered information on every federal issue that came before Congress. The congressional delegation staff simply did not have the time to research in detail each one of Nevada’s highway projects, so Mr. Pieper provided that service for the state and for the congressional delegation, and then requests could be made to the appropriations or authorization committees.
Vice Chairwoman Giunchigliani indicated she had received additional information on the Nevada Washington Office budget and said $259,300 was the amount currently in the budget, but a new amount of $267,078.96 had been submitted (Exhibit D). She inquired as to the reason for the increase. Mr. Pieper indicated the increase of approximately $8,000 for the next two years was from the Nevada Department of Transportation (NDOT). It would be the first budget increase in four years, and was due to the increase in expenses, such as rent. Mr. Pieper pointed out that NDOT would be funding that increase because his office would be working on transportation issues.
Vice Chairwoman Giunchigliani inquired whether that increase would require an adjustment in NDOT’s budget as well as the adjustment to the Washington Office budget. Mr. Pieper said that would not be necessary as the increase had been included in the budget request from NDOT.
Vice Chairwoman Giunchigliani reemphasized the need for performance indicators in order to measure the efficiency of the Office. She acknowledged that teamwork was important and it was necessary to coordinate with multiple agencies, but there was a budget crisis, and duplication of effort needed to be avoided. The performance indicators would show what the Washington Office actually accomplished, and the Legislature would then be better able to fund budgets accordingly.
Assemblyman Parks asked why Nevada was ranked last in the nation for receiving federal funds. Mr. Pieper explained that was a result of the funding formulas built into the major funding programs. The major sources of federal money were social programs, particularly Medicaid and education. The state of Nevada was a high growth state; the adjustments in funding levels were made every ten years according to the census, but during the interim funding could not keep pace with the population growth. Thus, every ten years the funding for Nevada increased. Mr. Pieper indicated that another factor was the level of poverty in Nevada. The level of poverty in the state was generally lower than it was in some of the other states that ranked very high in federal funds received so Nevada did not receive as much money per capita. He pointed out that states like Wyoming and Alaska had low populations yet received funding in the form of oil and gas royalties.
Mr. Parks asked what efforts were being made to improve opportunities for receiving federal funding. Mr. Pieper replied that the most effective approach would be to work on the funding formulas, and his office had focused on the Temporary Assistance to Needy Families (TANF) fund as mentioned in his opening remarks. Mr. Pieper said there was a high growth grant that Nevada received as a result of high levels of growth for TANF, but that grant had been frozen at the 2001 level. Nevada continued to receive the high growth grant, but it had not increased in size, despite the continued increase in population. The Nevada Washington Office, working with Nancy Ford of the Welfare Division, had developed a proposal for a new high growth grant that would continue to grow. Mr. Pieper pointed out that was an example of the necessity of teamwork as his office used Ms. Ford’s expertise to craft the proposal, which was then given to the Nevada congressional delegation. If successful, Nevada would see an increase in the amount of funding received.
Vice Chairwoman Giunchigliani remarked that it sounded like the state was subsidizing the congressional delegation. Mr. Goldwater added that it did appear the state was subsidizing the congressional delegation. He mentioned that many of the state agencies had come before the Committee and asked for a staff position to write grants. He asked if that would be necessary as the Washington Office did that. Mr. Pieper said grant writing required time and manpower, and he opined it would be a good idea to have grant writers in the various agencies as Nevada had not previously emphasized grant writing at the department level and there were not dedicated professional grant writers in most state agencies.
Vice Chairwoman Giunchigliani agreed and said that had been a concern because there were many grants the state was not receiving. She asked Mr. Pieper why Nevada was last in the region for balance of payment deficit. Mr. Pieper reiterated that funding was dependent on the funding formulas. He indicated that Nevada could receive every discretionary grant possible, but would still be behind in funding because the discretionary grants were minuscule compared to the large formula programs. Thus, it was important to work to change the formulas, but there were 49 other states in Congress, and it was a difficult proposition.
In response to Vice Chairwoman Giunchigliani’s question regarding the disparity between New Mexico and Nevada, Mr. Pieper explained that New Mexico had a large Native American population as well as oil and gas revenue, which greatly increased the amount of federal funds received by New Mexico. New Mexico also had a large Department of Energy presence for which a significant amount of federal funds were received. Vice Chairwoman Giunchigliani commented that Nevada did not receive funds for its federal land, and Mr. Pieper added that Nevada did not have oil and gas revenues.
Vice Chairwoman Giunchigliani indicated the budget presentations were concluded, and relinquished the chair to Chairman Arberry. Chairman Arberry thanked Vice Chairwoman Giunchigliani and indicated the Committee would hear Assembly Bill 165.
Assembly Bill 165: Revises provisions relating to Public Employees’ Benefits Program. (BDR 23-399)
Assembly Bill 222: Revises provisions relating to Public Employees’ Benefits Program. (BDR 23-634)
Assemblyman Pete Goicoechea, District No. 35, presented A.B. 165 to the Committee. He provided background on the bill and said that in 1985 the Nevada self-funded plan was changed to allow local governments to come into the Public Employees’ Benefits Program. After 1985, local governments were solicited to participate in the program. Mr. Goicoechea read the PEBP mission statement, which said, “The mission of the Public Employees’ Benefits Program is to design and manage a quality health care program for public employees and retirees in the state of Nevada.” He pointed out the mission statement said “public employees” not “state public employees.” The local non-state participants had been singled out through a rate increase; most non-state retirees would pay $711 per month for a participant and approximately $1,400 for a participant and spouse. Mr. Goicoechea said that had forced all non-state retirees participating in the program to obtain different health care insurance. Unfortunately, many of those retirees had preexisting health conditions, making them unable to find other coverage.
Mr. Goicoechea indicated that Doug Bierman, Senior Research Associate, Intertech Services Corporation, was present with amendments to A.B. 165. Those amendments would make A.B. 165 very similar to A.B. 222. Mr. Goicoechea said non-state and state retirees and active employees created a pool of approximately 32,000 members, which would spread the risk assessment and lower rates; however, those 32,000 members had been separated into smaller groups with higher rates. Mr. Goicoechea stated emphatically that $2,000 per month for a participant, spouse, and one family member was unacceptable.
Mr. Goicoechea emphasized that the jurisdictions he represented were not seeking equity at the expense of the state participants, who were having their own difficulties with health insurance. Rather, they were seeking equitable treatment. In the case of Eureka County, the public employees had participated in PEBP for 12 years. They were not retirees that had been “dumped” into the system. They were people who had participated as active employees, paid their premiums for the last 12 years, retired, and were informed their health care premiums would increase 145 percent as of January 1, 2003.
Mr. Goicoechea related the experience of Buddy Sampson, the former sheriff of White Pine County. Mr. Sampson had retired after approximately 25 years in law enforcement. He could not afford to pay $1,400 per month, but he could not obtain other coverage as he had a preexisting back condition. Mr. Goicoechea said he had received many letters from educators in southern Nevada who were in similar situations. Mr. Goicoechea thanked the Committee and indicated Michael Rebaleati, Recorder and Auditor, Eureka County, was present to answer questions, as was Mr. Bierman.
Doug Bierman, Senior Research Associate, Intertech Services Corporation, testified on behalf of Eureka County, Lander County, and the City of Caliente in support of A.B. 165. Mr. Bierman explained that those public employees belonged to PEBP and had been active members of PEBP before retiring. They had not been “dumped” into the system; they had contributed for several years. In addition, the local government employers were contributing and subsidizing the premiums. It was a compound problem for some of the rural areas because many of the rural areas were in an economically depressed state and the hits that the county and city governments were taking on the increased health insurance costs were double-fold. The intent of A.B. 165 was to bring parity to the system for state and non-state workers, especially in the rural areas where health service was limited and many of those rural areas could not get health care coverage from any other carrier. Mr. Bierman indicated the Committee had received an amendment to A.B. 165 attached to a handout (Exhibit E). The amendment pertained to page 3 of A.B. 165 and removed lines 10 through 14. That amendment would bring A.B. 165 into conformance with A.B. 222.
Michael Rebaleati, Recorder and Auditor, Eureka County, addressed the Committee and said as an auditor he had helped Eureka County employees deal with most of their insurance needs. He indicated he was also the Eureka County representative to the Nevada Public Agency Insurance Pool. The Nevada Public Agency Insurance Pool was a self-insured agency that provided liability and property insurance to over 75 Nevada public agencies. Those agencies included 15 counties, several incorporated cities, 14 school districts, many public hospital districts, and many smaller general improvement districts. Eureka County joined the Nevada Public Agency Insurance Pool in the late 1980s. Mr. Rebaleati said he was the current chairman of the Executive Committee of the Nevada Public Agency Insurance Pool. He admitted he was not an insurance expert, but having served on that Executive Committee, he had learned the basic procedure for setting insurance rates.
Mr. Rebaleati explained that Eureka County had been a member of PEBP since the early 1990s. Eureka County was solicited to join the state’s self-insured health insurance system. There had been other options, and the state’s self-insured insurance system had not been the cheapest option, but Eureka County joined the state’s program because it had appeared to be the best long-term choice and had offered the retirees a decent option for health insurance coverage. Eureka County had been paying premiums into the state system for over 10 years. During that time, the insurance expenses had not exceeded the premiums, so Eureka County had been supplementing the system for over 10 years.
Mr. Rebaleati understood that premiums had increased because Eureka County was part of the segregated group called the non-state entities, but he did not feel it was fair that Eureka County’s health insurance premiums had been increased by 45 percent. He wanted to see the actuarial studies that justified the premium increases as well as the $5 million fiscal note that PEBP attached to A.B. 222. Eureka County would be forced to find another health insurance carrier for Eureka County employees, but that did not solve the problem. The Eureka County retirees had paid into the system for 12 years and their expenses had not exceeded their premiums, yet their premiums had increased by over 100 percent. It would be difficult to find a group health insurance that would include those retirees.
Mr. Rebaleati expressed his desire that a legislative subcommittee be formed to address the current health insurance premium crisis and find a long-term solution. In the meantime, he asked that Eureka County active employees and retirees be reaggregated into the state’s system until a long-term solution could be found.
Assemblyman Goldwater asked if Mr. Rebaleati had expressed those concerns to the Public Employees’ Benefits Program Board. Mr. Rebaleati indicated he had not testified before the Board in person, but he had made telephone calls and had written letters regarding his concerns. Mr. Bierman interjected that the Board had met on March 7 and March 14, and he had testified concerning the plight of the non-state workers at those meetings.
Mr. Goldwater inquired whether Mr. Bierman felt those problems received adequate attention from the Board. Mr. Bierman replied that he thought the Board was aware of the problems, but the Board was operating under certain statutory constraints, which forced the Board to take certain actions. Mr. Bierman indicated he was working to give the Board more flexibility in determining rates and aggregating the various groups into one large public employees’ pool as had been the intent when the non-state employees were recruited into the system.
Mr. Rebaleati interjected that Eureka County was willing to pay its portion of the costs, but he wanted to see the actuarial studies that justified the drastic increases.
Stephen Augspurger, Executive Director, Clark County Association of School Administrators, testifying in Las Vegas, spoke in favor of A.B. 165. He explained that from 1985 to 1998, members of the Clark County School District Administrators had participated in the state’s health insurance program. Until 1991 that plan had functioned as a true group plan with the risks being spread among all participants and rates being the same for all participants. In 1991 legislation had been passed that allowed separate rates for various participating groups. Those groups included state employees and state retirees, non-state greater than 100, non-state less than 100, and non-state retirees. As a result of that legislation, the benefits of the group plan were lost; rates of the small groups were increased significantly and there was tremendous fluctuation. In 1993, new legislation was passed that continued the separate ratings, but also stipulated that if group utilization was within 5 percent of state utilization then the rates would be the same. Mr. Augspurger opined that the legislation was good, but it had never been implemented. In 1996, the Clark County Association of School Administrators (CCASA), a non-state agency over 100, had claims utilization that was less than the state’s utilization. That was demonstrated actuarily, yet the premiums were 23 percent higher. Mr. Augspurger said the CCASA had tried unsuccessfully to correct the situation but had been unable to do so. As a result, the active employees and many of the retirees of CCASA had left the state plan in 1998. Mr. Augspurger claimed the recent monthly premiums for the state’s Preferred Provider Organization (PPO) raised the premiums for individuals and the premiums now ranged from $468 to $1,253 for a non-state active employee, and from $711 to approximately $1,900 for a non-state retiree. In some cases, a retiree’s premium had exceeded his monthly income. Mr. Augspurger strongly urged the passage of A.B. 165 as well as A.B. 222, which would require all the group rates to be the same. Mr. Augspurger submitted Exhibit F and requested it be included in the record.
Robert Hadfield, Executive Director, Nevada Association of Counties (NACO), spoke in favor of A.B. 165, and said he had been involved in the health insurance discussion since he had begun working for NACO. He said it was a difficult and complex situation without a simple solution, but he felt it was critical to devise a way to help those retired employees who, through no fault of their own, were trapped in an incredibly difficult situation. Mr. Hadfield said he had worked with the Public Employees’ Retirement System (PERS) to devise a pre-funded health plan for retired employees, but they had not been able to reach a consensus on the plan. If they had, some of the issues might have been resolved.
Mr. Hadfield urged the Committee to pass A.B. 165 or A.B. 222 as well as consider an interim study to find a solution that would treat all public employees in an equitable manner and provide retirement security with a large enough pool to ensure lower rates. Mr. Hadfield reiterated that it was a critical issue without a simple solution, but the retired employees from non-state entities that had been participating in the program needed help.
Assemblywoman McClain asked Mr. Hadfield what he thought about all local governments, including the large entities such as Clark County, consolidating into one plan. She asked if that would be feasible and would create better rates. Mr. Hadfield answered that he could not speak officially for the counties, but in his experience with the attempts at a pre-funded plan for retirees, in which the suggestion had been to use a percentage of payroll to build a fund that could then be used to provide funds to retired employees to pay for health care, there had been a consensus in the local governments, but it was not feasible at a state level. Collective bargaining was a complication as the collective bargaining process had created separate insurance benefits for employees within the same entity throughout the state. That made it difficult to create a single plan as those different levels of benefits needed to be addressed. Mr. Hadfield opined that a large, single plan would be the best solution if those situations could be resolved by having a basic plan that could be added to and paid for by the entity that negotiated the collective bargaining agreements. Mr. Hadfield conceded that he was not an insurance expert, but he knew the current system was not working and the situation would worsen if action was not taken.
Chairman Arberry requested that P. Forrest Thorne, Executive Officer, Public Employees’ Benefits Program, come forward to answer questions.
Ms. McClain said she personally thought a large, single plan was the best solution because Nevada was a fairly small state and local governments tended to be small, but there was a large number of public employees statewide. She pointed out that part of the problem was that public employees tended to retire earlier then private employees, and there was a gap between retirement and qualification for Medicare. Ms. McClain said there would be more people in that situation as the baby boomers began to retire. Unfortunately, retirement would not be enjoyable if the retiree only made $2,000 per month and had to pay $1,500 per month in health insurance. She voiced her opinion that an interim study was needed to solve the problem, and she asked Mr. Thorne to comment on that.
Mr. Thorne said that conceptually he agreed with the idea of a single, statewide plan as it would more than triple the number of participants in the plan, which would greatly increase the program’s leverage in dealing with insurance carriers and providers of care. However, that would be a complex issue and needed to be studied. He said that Assemblywoman Giunchigliani had indicated she would support an interim study to deal with those problems and other health care‑related issues. Mr. Thorne explained that while the Board supported the concept of commingling the experience, A.B. 165 and its companion bill A.B. 222, had an attached fiscal note of $5 million in the first year. He indicated that amount would be refined as the Board had made plan decisions for the plan year starting in July 2003 and included two higher deductible options in order to provide a lower premium, particularly for the non-state early retirees. The fiscal note translated into a rate increase of approximately 3.5 percent for state participants, which would need to be paid through contributions from the General Fund or the state participants.
Chairman Arberry asked if the $5 million would be a one-time appropriation or if the amount would continue to increase. Mr. Thorne said the $5 million was the amount for the first year only; the subsequent amounts would continue to increase. He explained that if the rates were commingled and compared to the current rates for local entities, the commingled rates would be lower. Therefore, additional non-state retirees would join the plan for those reduced rates. Mr. Thorne indicated he had a survey of eight local entity plans. Out of those eight, five did not provide a subsidy for their retirees, and the rates ranged from $322 to $637 for a single early retiree and from $787 to $1,911 for a retiree with family. It was a difficult situation regardless of whether it was a state plan or a local entity plan.
Assemblyman Goldwater commented that in his private life, he provided investment consulting in health and welfare funds. He said he did not work with benefits programs, but there was not a plan or an entity or a trust that he was aware of that was not having similar issues. While an interim study sounded like a good idea, the issues were not unique to Nevada. Everywhere health care costs were increasing, rate setting was difficult, and retirees were a drag on the system.
Mr. Thorne agreed that the problem was not unique and was being faced by private business and government throughout the country. The demographics of government tended to show an older population that was approaching retirement age, and the most expensive group was the largest part of the population, regardless of active or retired status.
Assemblywoman Giunchigliani requested that Mr. Thorne provide information regarding the $5 million fiscal note attached to A.B. 222. She was aware that some local entities in the program had not been paying in as non-state active employees and retirees while other local entities had been, and she wanted to know what those figures were and what the effects of reaggregation would be. She asked for assurance that the $5 million fiscal note would be sufficient to ensure the rates approved previously would not increase if the separate groups were reaggregated.
Mr. Thorne indicated he would provide the experience information for non-state active employees and retirees. He explained that there were individual groups that were able to obtain better rates because their experience was better than the non-state pool, which was fairly small. Thus, a number of the larger non‑state entities had left the program for that reason. Their experience was better than the group, they left for better rates, the experience of those that were left was worse, the rates increased, groups left in search of lower rates, and it was a self-perpetuating process. The problem with putting the non-state groups and the retirees into the plan was that it would worsen the overall costs for the plan, and statutorily groups of 300 could leave to obtain better rates, which would generally be the younger and healthier group, further exacerbating the problem. Mr. Thorne said he would provide the cost information to the Committee as well as a more refined fiscal note with the new plan design changes.
Ms. Giunchigliani requested clarification of the difference between an actuarial study and an experience study. Mr. Thorne explained that the experience study was used to determine trends, and the trends were used to set rates. If a group with an experience rating that dictated a rate increase of 25 percent was brought into a larger pool and that 25 percent was spread out, that would result in a much smaller impact on the whole pool. So, instead of a 25 percent premium increase for the small group, it would be a 3.5 percent increase for the consolidated large group.
Ms. Giunchigliani indicated she would like to see those figures in a report. She noted the Legislature had previously helped the Public Employees’ Benefits Program twice, and she realized funding might be added to A.B. 165 or A.B. 222 but she wanted additional documentation of the exact amount needed. Ms. Giunchigliani said she had submitted a bill draft request for an interim study, and she had assured the PEBP Board members she would be willing to work with them to include issues they felt needed to be addressed. Ms. Giunchigliani opined that the interim study was needed to deal with issues like collective bargaining agreements. She indicated that some counties were comfortable with their current health plans, but had admitted there would be problems in the next five years that would need to addressed, and possibly the answer would be a statewide pool. Mr. Thorne said he would provide a report.
Carol Aalbers, a retired school psychologist, addressed the Committee and voiced her support of A.B. 165 and A.B. 222. Ms. Aalbers indicated she had worked for the Douglas County School District and the Carson City School District, and upon retirement she was offered the option of entering the state self-funded program, which she chose because she believed she would be in a larger pool, which would lower her rates. She had not been told that she would be placed in a separate smaller group of non-state retirees, and she did not have the option of leaving the state program and returning to the school district program. As a breast cancer survivor, Ms. Aalbers was unable to find another insurance carrier, and her current premium was $64 a month more than her entire retirement check. In addition, the benefit had decreased, and she was paying approximately $200 per month more than she had the previous year. That $200 in addition to the $364 increase in premium meant she was paying approximately $600 more per month for the same benefit. Ms. Aalbers requested that the Legislature change the law and reaggregate the separate groups. The non-state retiree pool was decreasing as people who had other options were leaving the program or choosing to go without insurance while no one was choosing to enter the program because of the difficulties.
Ms. Aalbers commented on recent newspaper articles that said the proposed increase in state workers’ premiums was due to the non-state retirees being “dumped” into the system. She emphatically stated that it was impossible that the small group of non-state retirees was responsible for the huge shortfall in funding, and she felt non-state retirees were being made “scapegoats” for the problems in the system.
Ms. Aalbers questioned why the PEBP Board had chosen to vote and set premium rates on March 14, 2003, when the Legislature had passed an emergency measure to allow an additional 30 days to make the decision. She opined that it appeared the Board was circumventing possible legislative action, and she wanted to know why the Board had acted so quickly. Ms. Aalbers said time should be taken to allow the figures for aggregation to be calculated and studied so the Legislature could make an informed decision about the appropriate course of action.
Ms. Aalbers continued and stated that the solution that the PEBP Board had offered was a higher deductible in exchange for a premium that would be $100 less per month. However, that option would mean that someone with a chronic medical condition who met his deductible every year would actually pay $125 more per month. Additionally, the PEBP proposal demonstrated that if the different groups were not aggregated, the non-state retirees’ premiums could continue to increase at a rate of 100 percent per year. Ms. Aalbers urged the Committee to consider whether that was fair treatment for retired educators.
Chairman Arberry thanked her for her testimony and indicated there were others who wished to testify. He asked Mr. Thorne to return to the witness table to answer questions regarding the Board’s adoption of rates.
Mr. Thorne informed the Committee that the PEBP Board had taken action on March 14, 2003, and adopted a plan design in order to establish the rates for the program as of July 1, 2003. Until action had been taken, the fiscal note could not be refined. Mr. Thorne explained that an established plan had been needed in order to make changes, and with that basis the impact of commingled rates on state and non-state entities could be better determined.
Chairman Arberry inquired whether Mr. Thorne was referring to A.B. 165 and A.B. 222 or the emergency measure. Mr. Thorne indicated he was referring to A.B. 165 and A.B. 222. Chairman Arberry asked if the Board had been aware of the emergency measure passed by the Legislature, and Mr. Thorne indicated the Board had been aware of that, but they had chosen to take action in order to have a basis from which to work and make changes and provide accurate figures to the Committee regarding the fiscal impact.
Chairman Arberry stressed that the Legislature would not have gone through the process of passing an emergency measure if they had known the Board would adopt rates without waiting that 30 days. The intent of the emergency measure had been to allow the Board those 30 days to examine the options more fully. Chairman Arberry said that the Board’s decision to act based on A.B. 165 and A.B. 222, which had not been heard before the current meeting, had not been the intent of the emergency measure. Chairman Arberry asked why the Board had not understood that the intent had been to provide additional time to examine the situation.
Mr. Thorne insisted that the Board had understood the emergency measure. The Board had needed to vote on a plan design in order to put the fund in a fiscally solvent position for the upcoming year. Changes could be made if necessary during the 30-day time period provided by the emergency measure. Mr. Thorne stated that regardless of the Legislature’s decisions on A.B. 165 and A.B. 222, a decision had been needed on plan design as plan design determined rates. The action taken on those bills would have an impact on the rates, which would be indeterminate without a set plan design.
Ms. Giunchigliani remarked that Chairman Arberry had effectively noted the Committee’s frustration. She thought the emergency measure had been passed to allow time to examine the various options for plan design; however, a plan design had been adopted and any changes at this point would create tension between the various employee groups involved. Ms. Giunchigliani indicated that she had seen Michael Hillerby, Deputy Chief of Staff, Office of the Governor, in the audience and she requested that he come forward and address the Committee regarding the Governor’s position. Chairman Arberry indicated the Committee would hear other testimony while waiting for Mr. Hillerby.
Terri Clark, a retired teacher from the Carson City School District, spoke in favor of A.B. 165 and A.B. 222. Ms. Clark retired in 1999 after teaching science for 30 years. Upon retiring, she chose to enroll in PEBP because she thought it would be a larger group with smaller premiums. That had not been the case, and she had tried to find other insurance, but as a cancer survivor she had been unable to find another carrier. Ms. Clark said she was in favor of commingling rates, and she expressed frustration that, had she worked 30 years for the state rather than for a school district, her premium would be $5.85 per month rather than $711 per month. Ms. Clark reiterated that she had taught for 30 years, and had even been voted outstanding biology teacher for the state of Nevada by the Association of Biology Teachers, and she did not feel it was fair to be placed in the current insurance situation. She urged the Committee to consider passing A.B. 165 and A.B. 222.
Sandy Lawrence, a retired Carson City School District classified employee, addressed the Committee and voiced her support of A.B. 165 and A.B. 222. She said she had worked for the Carson City School District for 13 years, retired in 1999, and had joined PEBP as part of the non-state retiree group. Ms. Lawrence said the retirement payment she received from the Public Employees’ Retirement System (PERS) was $600 per month. In 2002 she had paid $349 per month for health insurance, but in 2003 that amount had doubled and she now paid $711 per month. She had dropped her health insurance coverage because she could no longer afford it. The state of Nevada offered no other option for those retirees who lived in northern Nevada. Ms. Lawrence had been unable to obtain even a catastrophic policy as she was a cancer survivor. She expressed her frustration that she was forced to go without medical coverage because of a decision made by school administrators many years earlier to exclude school district employees from the state program. Ms. Lawrence asked the Committee to pass legislation that would rectify the situation.
Frank Brusa, Nevada Association of School Administrators (NASA), addressed the Committee and said that Mr. Augspurger had provided testimony regarding the position of the Clark County Association of School Administrators, and he wished to express NASA’s desire that A.B. 165 and A.B. 222 be passed. He felt the non-state retirees who had spoken to the Committee had eloquently described the situation of the non-state retirees, and he asked for the Committee’s support.
Al Bellister, Nevada State Education Association, said he supported A.B. 165 and A.B. 222 because he felt the expansion of the pool would have a positive impact on the rate structure. He urged the Committee to pass both bills.
Martin Bibb, Executive Director, Retired Public Employees of Nevada, spoke in support of the commingling provisions of A.B. 165 and A.B. 222 as it would help those non-state retirees who were in a very small pool with high rates. He stated his belief that local governments should subsidize their retirees. Mr. Bibb mentioned that Mr. Goldwater had referred to retirees as a “drag” on the system, and he noted that it was true as there were health care considerations as one grew older, but those public employees who received Medicare actually saved the system money. Medicare paid approximately 80 percent of medical bills and then the state became the secondary insurer. Mr. Bibb said he supported commingling and expressed his hope that local entities would participate in funding their retirees.
Chairman Arberry asked Michael Hillerby, Deputy Chief of Staff, Office of the Governor, to come to the witness table to answer questions from the Committee.
Ms. Giunchigliani informed Mr. Hillerby the Committee was discussing A.B. 165 and A.B. 222, and she asked if Governor Guinn had taken a position regarding the issues in the bills.
Mr. Hillerby noted that the proposed amendment to A.B. 165 removed the provision that a plan benefit option could not be offered unless it was offered everywhere in the state, and he agreed with the amendment. He indicated that the Governor was concerned about commingling for several reasons. Commingling without a legislative appropriation would have a long-term impact on the system. Mr. Hillerby said that providing a specific line item appropriation to non-state retirees as an interim benefit would be less problematic, but it would be a temporary solution. An interim study might address some of those issues. The issue of subsidies was important as well. Many of the local governments did not subsidize their retirees, and some of those retirees were seeking help from the state rather than their employers. Mr. Hillerby said the subsidization was of great concern, and acknowledged that the pool for the non-state retirees was small and had been greatly affected by bad experiences.
Mr. Hillerby indicated that the larger problem was that with the age and the number of current state actives and the size of the state retiree pool, which could be increased by adding the non-state retirees, Nevada would be facing social security problems even sooner than the nation would be facing social security problems. Mr. Hillerby commented that the Governor would be more comfortable with the proposed bills if there was an appropriation and a very clear statement that it was an interim solution pending the outcome of a study determining how non-state retirees would participate and what those local governments would do for their retirees.
Mr. Hillerby admitted he was concerned by those retirees who felt insurance coverage was part of a contract. The Governor’s position was that it was a benefit that was available to people for which they paid. That benefit would change over time because it was a benefit and not a specific contract. He felt those issues would also need to be dealt with in the study. Mr. Hillerby reemphasized that commingling to lower non-state retiree rates and raising all the state retiree and active employee rates would not solve the problem. A very specific and express statement that any solution was temporary and a study would be conducted to determine long-term solutions would make the Governor more comfortable with the legislation.
Ms. Giunchigliani pointed out that the Governor had asked to take over the plan four years earlier because there were problems. The Legislature had given approximately $29 million to the Public Employees’ Benefits Program (PEBP). During those four years the Governor had reshaped the Board and its membership, but there were still many of the same problems. Insurance carriers were not buying into the program, there was not a health maintenance organization (HMO) option in northern Nevada, and the rural entities were still struggling. A long-term solution was needed, rather than just “throwing” money at the problem. She asked if the Governor’s Office had any solutions to offer.
Mr. Hillerby said the Governor was pleased with the quality of the PEBP Board members as well as the decisions the Board was making and their attempts to find a solution. One solution that had been discussed and would continue to be discussed was expanding the pool by including local governments from around the state. Mr. Hillerby indicated that HMO participation was dependent on the size of the pool. Also, depending on the size of the pool, past experience would have a greater or lesser impact. The Governor was very concerned about the size of the plan in the long-term. Mr. Hillerby conceded the volatility of the plan was of concern to the Legislature as the Legislature would be asked to vote on an appropriation for the program and to find a funding source. State employees were also concerned, and Mr. Hillerby indicated the Governor’s Office had spoken with many participants in the program, particularly non-state retirees who were in a very difficult position. It was not uncommon in the rural counties of Nevada to have both a husband and wife who were public employee retirees and were now paying a premium of $1,422 per month.
Ms. Giunchigliani asked how many entities used a flat dollar amount versus a percentage of payroll, which had been a system used in insurance plans for labor unions. Mr. Thorne responded to Ms. Giunchigliani’s question and said that PEBP, and the majority of local entities, used a flat dollar amount that varied according to coverage.
Ms. Giunchigliani said the study should examine the best way to fund the plan long-term because people did think it was a contract, and it should be clearly defined as a benefit. That misconception led people to think they were entitled to a specific amount. Ms. Giunchigliani agreed that it was a nationwide problem, and a study would need to examine those factors. She said one option had been that anyone who was a member of the Public Employees’ Retirement System (PERS) would have to belong to PEBP, and there were many other options that needed to be examined. Ms. Giunchigliani said that it was a difficult situation as active employees in the system claimed they were subsidizing those with dependents, and some claimed that the HMOs were subsidizing the PPOs. A clearly defined plan would make it easier to understand that it was a benefit and not a contract, and that fluctuations would occur and adjustments would have to be made.
Mr. Hillerby agreed that the perception of the employees was an important aspect. He stated that the program was offered as a benefit, and the benefit was an insurance policy for the active employee. That benefit was available to the employee’s spouse and family at an additional cost. The state did not have a cafeteria plan, also called a flexible benefit plan. Nor did the state have a program where employees were able to buy sick days, vacation days, retirement, health insurance, and other benefits. The mistaken belief that it was a contract also contributed to the problem of different groups within the program feeling as though they were paying a higher premium in order to subsidize other groups. Mr. Hillerby indicated that as budgets and plans were created, unit costs were discussed, which led people to believe there was a specific amount of money for each individual, and people in the program then felt they should be allowed to decide what to do with that amount. Mr. Hillerby assured the Committee he was not opposed to individuals being involved in their own health care choices, but that was difficult with the current system.
Ms. Giunchigliani noted that she had been looking into the federal cafeteria plan and she thought it might be something to include in the study. Groups might be more willing to participate in the plan if there was a standard cost, and the participants could choose to contribute more according to the level of benefit.
Mr. Thorne interjected that he wished to clarify that the comparisons that had been made of the state and non-state retiree premiums were faulty comparisons as the state subsidized retirees. Many public entities did not, including Clark County School District and Carson City School District, and non-state retirees paid the entire amount rather than a portion after subsidization.
Jim Richardson, Nevada Faculty Alliance, spoke in opposition to A.B. 165 and A.B. 222. He said that in 1985, when non-state entities were allowed into the state plan, there had been a separate rating for them. That had been done because there was great concern that the group joining would have a negative impact on the state employees’ rates. That had been a long-term provision of the plan.
Mr. Richardson indicated that he had chaired the Committee on Benefits at that time, and it had been an argument within the Committee and within the Legislature as to whether to allow non-state entities into the program, and the decision had been made to allow them to enter. He had supported that, but he had also supported the separate rating provision to protect the state employees. Mr. Richardson commented that it was true that four years earlier Governor Guinn had assumed control of the plan and there had been a new PEBP Board created, which had functioned very well. The Board had functioned well enough that in the third year, the decision had been made to spend $20 million in reserves that had been accumulated in order to avoid a rate increase for state employees, despite an inflation rate of approximately 13 percent for health care. The PEBP board had recommended a 10 percent increase, but that was not accepted, and the reserves had been spent.
Mr. Richardson said he favored looking for long-term solutions supported by an interim study, and he felt that A.B. 165 and A.B. 222 were not solutions. He said he understood why the PEBP Board had taken action on March 14, 2003, and approved a plan design so the costs of changes could be calculated. The Board understood there would have to be additional meetings depending on actions taken by the Legislature. He pointed out that passing either bill without an appropriation would raise the rates for the state active employees and state retirees. Mr. Richardson suggested there might be other options besides using money from the state’s General Fund. He opined that the real problem was that many entities did not subsidize their retirees, while the state subsidized retirees according to their years of service.
Mr. Richardson indicated there was another bill, A.B. 286, proposed by Assemblywoman Koivisto, that would be heard March 19 in a meeting of the Committee on Government Affairs. That bill included a requirement that local governments that participated in the state’s health plan would be required to pay a subsidy equal to that of the state. Mr. Richardson said if that were in effect, the non-state retirees would be treated the same as the state retirees. He commented he was being “hanged in effigy” by various city officials, but he believed that was a possible solution, and retirees who had spent 30 years in public service deserved that support. Mr. Richardson said that given the severe plan cuts and the rate increase that had been approved at the last PEBP Board meeting, he would urge the Committee not to pass A.B. 165 or A.B. 222 without some mechanism to fund the resultant expenses to PEBP. Mr. Richardson concluded his statement by providing a handout to the Committee regarding subsidization by non-state entities and pointing out that, of the eight entities studied, only three provided subsidies (Exhibit G).
Bonnie Parnell, a citizen of Carson City, addressed the Committee and spoke in support of A.B. 165 and A.B. 222. Ms. Parnell explained that she was not a member of PEBP, but as a retired teacher and a former assemblywoman, she had received many calls from non-state retirees concerned about the situation. Ms. Parnell pointed out that one of the reasons many of the previous speakers were from Carson City was because they were an organized group, and she had asked them to come. Carson City and other northern counties were concerned because the non-state retirees did not have an HMO option. She conjectured that if Clark County did not have an HMO option and the non-state retirees in Clark County were paying the same premium as those in the north, there would be many more people present for the videoconference in Las Vegas.
Ms. Parnell continued and explained that there were several groups of retirees—the state retirees, the non-state retirees who were Medicare eligible, and the non-state retirees who had the HMO option. Those three groups had lower premiums compared to the non-state retirees who did not have an HMO option and were not Medicare eligible. She opined that they seemed to be covering the cost of another group, and she directed the Committee’s attention to the chart she had provided (Exhibit H). The chart showed the projected 2004 premiums for the various plans as a result of the action taken by the PEBP Board on March 14, 2003.
Ms. Parnell explained that option 1 would increase the deductible to $1,000 per person and option 2 would increase the deductible to $2,500 per person. Ms. Parnell indicated that with the state subsidy of approximately $265, the total premium for a state retiree was approximately $385 per month, but the total premium for the non-state retiree was approximately $700 per month. She asked why two groups with similar characteristics had such a difference in cost. Ms. Parnell supported a long-term study, and she believed local governments should take responsibility and provide some subsidization. The non-state retirees did not want to increase costs for state active employees and retirees, but a temporary solution was needed until a long-term solution could be found. She thanked the Committee for their time and consideration.
Ms. Giunchigliani wished to note for the record that A.B. 222 was her bill, but it had been requested by Ms. Parnell, which was why Ms. Parnell had spoken to the Committee. Ms. Giunchigliani voiced her appreciation for the handouts regarding subsidization that had been given to the Committee and said they would be helpful.
Assemblywoman McClain questioned the handout provided by Mr. Richardson and indicated there were two separate programs offered in Clark County, yet only one was shown on the handout, and she wanted to know whether that was the self-funded program or the HMO program. Mr. Richardson said he believed the figures were those of the self-funded program, but he would verify that and provide additional information.
Ms. McClain asked Mr. Richardson to include whether any of the other entities included in the report had two programs as well. Mr. Richardson indicated he would provide that and explained that a more thorough study was being conducted that would show all local governments, rather than the eight on the handout.
Danny Coyle, President, State of Nevada Employees Association (SNEA) and American Federation of State, County, and Municipal Employees (AFSCME), Retiree Chapter No. 4041, spoke in opposition to A.B. 165 and A.B. 222. Mr. Coyle said his position was similar to that voiced by Mr. Hillerby. He was concerned about the impact on the state retirees. Mr. Coyle said he agreed with Mr. Richardson as well, and felt that Mr. Richardson was correct in saying that without a legislative appropriation the premiums for the state retirees would increase by 3.5 percent if rates were commingled. Mr. Coyle said he was sympathetic to the difficulties faced by the non-state retirees, but he was concerned about the state retirees. In conclusion, he was not opposed to some sort of temporary solution while an interim study was conducted to determine a long-term solution.
Roger Maillard, also representing the Retiree Chapter of SNEA & AFSCME, voiced his opposition to A.B. 165 and A.B. 222. He said he was not opposed to commingling because he believed that was a temporary solution to the problem, but he did not want the rates of the state retirees to increase as a result of commingling. Mr. Maillard felt the Legislature should make an appropriation to help the current situation as well as conduct an interim study to find a long-term solution. He concluded by stating his opinion that all members of PERS should be members of PEBP as well.
Cheryl Olson, a retired teacher, addressed the Committee. Ms. Olson was a native of Nevada, had taught in Churchill County, and had retired and moved to Reno. She acknowledged the state’s budget problems, and she noted that Governor Guinn had said he did not want to balance the budget “on the backs of the seniors,” and she felt the situation with taxes was similar to the situation with insurance. She knew her taxes would increase as she was part of the “state pool” for taxes, but she hoped the taxes would be spread out so that one group or entity would not be taxed excessively. In the same respect, public employees, whether state or non-state, were also part of a large pool and the costs should be spread out evenly. Dividing the pool into smaller groups seemed to defeat the purpose and only increased premiums. A large group was better able to absorb catastrophic health events to individual participants. The state had many people who could become part of a larger conglomerated insurance pool.
Ms. Olson stated that she was not asking for a state subsidy; she was intrigued by Ms. Parnell’s assertions that the total rate for a state retiree without a subsidy was approximately $400, but the rate for a non-state retiree was approximately $700. Ms. Olson said there were non-state retirees who had contributed to the system throughout their entire careers; they had not been “dumped” into the system. Ms. Olson reiterated that she was not asking for a subsidy, but she did want to be placed in the larger group so that she could pay $400 per month rather than $700 per month. She conceded that commingling the groups would cause the rates for the state active employees and retirees to increase by approximately 3.5 percent, but leaving the groups separate would harm the small group of non-state retirees and force many of them to go without insurance. Ms. Olson did not feel that was a fair way to treat teachers and other public employees. She reemphasized that she was not asking for a state subsidy, but she wanted the costs to be more equitable and affordable for all those who had been invited to join PEBP. In conclusion, she pointed out that Nevada ranked very low in the number of insured people per capita. The current system was forcing a group of retirees to go without insurance. She urged the Committee to pass A.B. 165 or A.B. 222 in order to help that group of non-state retirees.
Chairman Arberry acknowledged a speaker in Las Vegas. Wendy Reinan, a retired school nurse, addressed the Committee. She was a survivor of two open-heart surgeries and had taken a medical retirement after 19.5 years of service. She referred to Ms. Parnell’s earlier comment about non-state retirees in Las Vegas and said there were non-state retirees in Las Vegas who were active and concerned and she was representing them. Ms. Reinan explained that at the time she retired, she had been solicited and not “dumped” into the system. The school district had not informed her that there was a subsidy issue and the school district did not contribute to the retirement system. Ms. Reinan said the rates of the non-state retirees had increased 115 percent while those of state retirees had decreased. She opined that if the cost of the premiums could be made more equitable by commingling, she hoped the Legislature would pass A.B. 165 or A.B. 222. Ms. Reinan said she was willing to pay, and she was not asking for a state subsidy, but she was asking for equitable treatment. She thanked the Committee for allowing her to speak, and she requested that a letter she had submitted be included in the record (Exhibit I).
Chairman Arberry asked if there were any other members of the public who wished to testify. There were none, and he declared the hearing on A.B. 165 and A.B. 222 closed. Chairman Arberry adjourned the meeting at 10:26 a.m.
Susan Cherpeski
Committee Secretary
APPROVED BY:
Assemblyman Morse Arberry Jr., Chairman
DATE: