MINUTES OF THE ASSEMBLY SUBCOMMITTEE ON COMMERCE Sixty-eighth Session April 7, 1995 The Subcommittee on Commerce was called to order at 3:15 p.m., on Friday, April 7, 1995, Chairman Tiffany presiding in Room 4412 of the Grant Sawyer State Office Building, Las Vegas, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. SUBCOMMITTEE MEMBERS PRESENT: Mrs. Sandra Tiffany, Chairman Mr. Michael A. (Mike) Schneider, Vice Chairman Mrs. Maureen E. Brower Ms. Barbara E. Buckley GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Paul Mouritsen, Research Analyst Barbara Moss, Secretary OTHERS PRESENT: Frank R. Guisti, Jr., Sedgwick Noble Lowndes Lee Beebe, Health Underwriters Robert Bishop, Health Underwriters Bob McCune, Health Management Associates Janice Pine, Saint Mary's Dale Breck, First Funding of Nevada William Bannen, M.D., Blue Cross/Blue Shield of Nevada Jan Biggerstaff, Graphics 2000 Cheri Warel, Blue Cross/Blue Shield of Nevada Theresa Brushfield, Consumer Bill Cook, Welfare Division Rosalie Clak, National Association of Social Workers Stephanie Tyler, Nevada State Chiropractic Association Dean Pierce, National Association of Social Workers Alice A. Molasky, Division of Insurance Sharon Weaser, Director of Insurance Craig Drubling, Humana Mollie McCall, A-Z Rubber Stamp and Engineering Katherine M. Isibles, Mail Services Plus Barbara Walsh, E. G. Radig, Inc. Punam Mathur, Las Vegas Chamber of Commerce Susan Denton Batt, National Association of Social Workers Bobbie Gang, Nevada Women's Lobby and Planned Parenthood Katherine Gibbs, Las Vegas Chamber of Commerce Dale Breck, Las Vegas Chamber of Commerce Chairman Tiffany opened the hearing on A.B. 299. ASSEMBLY BILL 299 - Regulates provision of health insurance for small enterprises. Chairman Tiffany explained the intent of the Committee was to collect information in support of and against the bill in order to get an idea where Clark County stood on this issue. She stated there was no reason to pass a small business medical bill if there were no people wanting or using it. They were attempting to target the customer base and make sure there would be something available for small business people. Opening the testimony, Greg Ferraro, representing Blue Cross/Blue Shield, introduced William Bannen, M.D. and James Wadhams, Attorney at Law, who would testify on behalf of Blue Cross/Blue Shield and in support of A.B. 299. Mr. Ferraro indicated the testimony would be essentially the same remarks and format as had been given in Carson City on March 20, 1995. He said A.B. 299 was recognized by Blue Cross/Blue Shield as an important step toward market reform in the state of Nevada. It was modeled after a 1991 National Association of Insurance Commissioners (NAIC) small market reform program. The bill was not a panacea and they realized the bill, by itself, did not accomplish true market reform; particularly for the 20 percent or more uninsured population in the state of Nevada. The bill recognized the way to get to employers in that uninsured population and ultimately the employees, was to create an affordable and accessible approach to those people. In order to accomplish that the program featured two very important elements: (1) It was delivered to employee groups from the size of three to 25; and (2) It enabled the employer to essentially select the type of insurance best suited for that group. Dr. Bannen, Director of the Medical Department, Network Administration and Health Services for Blue Cross/Blue Shield in Nevada, proceeded to give his perspective on A.B. 299. He stated he had lived in Nevada for 15 years, was 13 years in the insurance industry, and three years with Blue Cross/Blue Shield. Health care reform had been a top-of-the-mind issue for many Americans for several years. The cost of health care had increased and accessibility had become more difficult. Led by President Clinton, last year's Congress attempted health care reform with models ranging from single payer systems to doing nothing at all. Nothing came out of Congress in form of law, but perhaps more important than a new law, we became more educated consumers of health care delivery. Thus, we realized as consumers we had the best specialized procedures in the world; managed care was not bad and a good method for cost effective delivery of health care; and reaffirmed it was unaffordable for many Americans. Some people could not buy it at any cost. The last statistic he heard was 27 percent of Nevada's population was uninsured. Some did not want it and others simply could not obtain it under any circumstance. As industry leaders, Blue Cross/Blue Shield of Nevada felt it important to take a lead position in health care reform in Nevada. In that position, in a unique industry, they felt it was their social obligation as corporate citizens of the state to present solutions to the problem of the uninsured. The reform model they were supporting did not give Blue Cross/Blue Shield a market advantage. It kept the playing field level for all carriers. It also challenged them as an industry to more effectively manage their business because they would assume some unhealthy people they would not necessarily allow into the system at the present time. A.B. 299 was incremental reform. As Mr. Ferraro mentioned, it was not the panacea but a start in the right direction for coverage of some uninsured individuals. Small group was an important and appropriate place to start reform. Larger employer groups, in their experience, groups numbering more than 100, had less than one percent uninsured. In 1991 the NAIC approved a model small group reform bill. A.B. 299 was based on that model. It was the base used to request the bill. In 1991, 40 states had enacted laws containing all or parts of that NAIC model. It required insurers to set premiums for small businesses in a consistent manner. There were nine actual consistencies, whether it was demographics, industry or whatever, and it did not allow them to vary inside the particular classifications. It gave small businesses a break if they had high medical expenses because rate increases for a single year could not exceed 15 percent and insurers could not cancel coverage because of bad experience. It created new rate setting requirements designated to equalize premiums for small business. It required insurers to accept all eligible employees when offering coverage to a small business. It prohibited pre-existing condition waiting periods on small business employees if they were currently covered by another insurer or if they had coverage within 30 days prior to the effective date of the small group policy. It encouraged insurers to adopt managed care strategies to help small businesses obtain affordable health plans. He reiterated it was an incremental change; it was not shelving the entire system; it was only a couple of changes to fix discrepancies in the medical care insurance system. They did a market research study two years ago. There were 700,000 employees in the state covered by insurance; 125,000 were in the range from 3-25 group, and of that, 32 percent or 40,000 people were uninsured. This model targeted that group. Mr. Jim Wadhams testified he was at the hearing at the request of Blue Cross/Blue Shield to help explain A.B. 299. He proposed to take the bill in segments to categorize what the sections represented. Sections 1-10 were definitions. The definitions would become important to other aspects of the bill. Section 11 excluded from the application of the bill certain kinds of insurance contracts not appropriate to be covered, such as hospital indemnity plans or supplemental plans, which were not considered comprehensive medical insurance. Section 12 was an important section. In particular, lines 38- 41, required the rating factors or analysis of groups for pricing of their insurance had to produce identical or substantially similar premiums for groups based upon their classification, not upon their experience. The insurance companies could group together employers according to certain characteristics, not including their particular medical claims experience. It might be the demographics of their employee group, a standard industry classification for industrial or manufacturing versus a service industry, but not grouped according to their medical claims costs. Section 13 described variations depending on whether or not there was a restricted network or an open network. It was not mandated that either be provided and it identified, as it was developed and selected, it was the basis for a distinction in pricing. Assemblyman Buckley requested more information on Section 13. Mr. Wadhams explained Section 13 provided determination on rates and was the pricing system for the various groupings of employers. A plan that contained a restricted network, such as a Preferred Provider Organization (PPO), was not required to charge the same price as a plan that had open access fee-for- service. That was a sufficient difference in plan design that justified charging those employers who chose an open fee-for- service indemnity type system a different rate than those who chose a restricted network. That kind of distinction was quite common. The open panel were typically more expensive than the PPO's, and in many cases those were more expensive than the most restrictive Health Maintenance Organizations (HMO). Section 14 was critical and he chose to read it. Beginning on line 11 on page 3: "A carrier serving small employers shall not use characteristics other than age, sex, industry, geographic area, composition of family and size of group without the prior approval of the Insurance Commissioner." The point he wanted to emphasize was medical claims experience was not one of those criteria. Section 15 was the Commissioner approval section requiring the Commissioner to adopt regulations to carry out the various sections just identified. Line 18 ensured that the rating systems were reasonable and reflected objective differences. The Commissioner was required to monitor the process to make sure the system was administered fairly by each insurance company getting into the marketplace. Sections 16 and 17 essentially prohibited discrimination within an employment group. In other words, if the insurer was going to offer coverage to an employer it must offer the same coverage to all employees within that group and not single out some employees that would not be offered that coverage. If the coverage was offered, any employee must have the option to select it. Lines 42 and 43 were designed to prohibit industry participation discrimination. From time-to-time some insurers had refused to insure people in the gaming industry which was a significant component of Nevada. Industry participation was not a basis for making a distinction. Section 18 basically said an insurer that offered coverage to an employer may not exclude from benefits an employee who had prior qualifying coverage. The prior qualifying coverage was defined on page 4, line 19 . . . if the employee had a comprehensive medical insurance plan as opposed to a hospital indemnity plan or some limited kind of insurance, they could not be excluded for coverage. An employee who had been in a group before could not have a pre-existing condition clause imposed upon them in the new group. The beneficial aspect was once an individual had satisfied one insurance company's pre- existing clause it had been satisfied for all successive insurance companies. That was an improvement in many respects, although the HMO's did not use the pre-existing condition clause, many of the insurers did and they started it with each new policy. This would protect those individuals from having to start over again and satisfy a pre-existing clause. Section 19 allowed the carrier doing the business not to get into geographic areas where they may not have the capacity or resources, or in some cases, a network of physicians to service that area. Section 20, line 7, an insurer in business of insuring groups in the 3-25 employee range may not increase premium from one year to the next more than 15 percent. The purpose was obvious and designed to contain cost increases. It imposed a certain amount of self-discipline on any particular insurance company, wishing to market in that area, to contain cost and manage claims in a way so cost increases were within the 15 percent range. There was also a phase-in provision for groups in existence prior to the effective date of this bill, stated in sub-section 3, middle of the page, line 19. Section 22, Co-Speaker Hettrick had asked a question about it in the hearing in Carson City, therefore, Mr. Wadhams wished to explain it clearly. The bottom of the page, lines 45-47, stated the insurer was allowed to establish as many as nine classifications of businesses of employers but the premium difference between any two classes may not exceed 20 percent. On the following page, sub-section 2, it stated within each classification the range of premium may not exceed 25 percent. Mr. Hettrick asked if that was inconsistent. Mr. Wadhams explained it was not inconsistent because they applied to different things. Within that classification the range could not exceed 25 percent; and from one class to the next class, in order, the difference between the two classes could not exceed 20 percent. The good news was the bill required the Insurance Commissioner do the arithmetic and ensure the insurance companies had satisfied that mathematical equation. The essence of the provision was to keep the employers within narrow bands, in other words, keep them grouped together. This was similar to the concept in the national debate of community rating, but was narrowed down to as many as nine classes of business to avoid problems that happened with true community rating. It was attempting to achieve some of the beneficial effect of spreading the risk across more employers and yet containing the pricing. Section 24 required the information, the forms, the contracts all be submitted to the Insurance Commissioner to review. Section 25 limited the number of classifications and described the manner in which those classifications may be established. Section 26 required the insurer to make disclosure of how rates were calculated, the provision of the benefit plans, and the opportunities the group had to vary their premium. One of the key benefits in the bill was, for the first time in some 20 years, it allowed the employers and the groups purchasing insurance to dictate what they wanted to buy as opposed to the traditional view the legislature would dictate they had to buy. That flexibility, in the minds of the people who put the model act together, and in the sponsor's view, allowed a more responsive product more likely to be purchased by the employer as opposed to one pre-designed by the legislature and offered on a take-it-or-leave-it basis. Sections 27 and 28 were regulatory provisions requiring the Commissioner to have the power to put the rope around the neck of those who did not comply. It also required in Section 28 the company file an actuarial certification that their rates, pricing and classification systems comply with the statute. The remaining sections were the bill drafter's attempt to integrate the proposal into the existing Chapter 689C. In that regard it was important to point out the bill was designed as a model act to be stand-alone. Forty-four other states adopted variations of the model act. Nevada, the 45th state, chose not to do it. Instead Nevada adopted what currently existed as Nevada Revised Statutes (NRS) 689C, often referred to as S.B. 503, which suffered from extraordinary weaknesses. It said any carrier seeking to offer those kinds of bare-bones plans could not make a profit and could not pay a commission to sell the business of more than two percent. Sales costs on those marketing forces typically exceeded two percent by a fair margin. Therefore, S.B. 503 was essentially doomed to failure. There was an interesting article that talked about the success of the program. Sierra Health Services marketed the program, designed the product, and had less than 15 people participating. The difference between that program and this concept was this allowed the employer/group to design what they wanted to buy rather than have some contrived product, packaged in Carson City, and then sold. It was clear the experience of S.B. 503 indicated people would not buy what they did not want to buy! Ms. Tiffany reiterated if an individual had insurance 30-days prior to applying, there would be no pre-existing conditions and they would be accepted. She asked if, on the prior plan, they had gone beyond their limits and benefits for the year or the life of the policy, would they still be accepted? Mr. Wadhams answered, yes, if that group was offered coverage the insurer was required to offer coverage to all employees on the same basis. If there had been a pre-existing condition clause that had been previously satisfied in the old policy, the new policy could not reimpose that condition. Ms. Tiffany expressed she would like to expand the 30-day period. Ms. Tiffany queried what was the guarantee of the employer if they had high risk utilization. Mr. Wadhams indicated the employer was protected by the section on adjustments and the increase could not be more than 15 percent. The bill was attempting to eliminate medical claims experience as criteria for renewal. An important point to remember was it only applied to the extent that the employee remained in the employ of the employer. Twenty-eight percent of the population of Nevada were covered by commercial insurance policies, 28 percent were covered by self-insured employers over which the legislature had no control for their health and welfare plans, and the balance were under some kind of government program, anything from Medicaid, Medicare, Champas, or a variety. When they dealt with insurance market reforms it was only affecting 28 percent. Portability could only be achieved by a congressional act that changed the Employment Retirement Income Security Act (ERISA) so all employers would be required to participate. Under the bill, if passed, no pre-existing clause could be applied. However, if that individual employee left the small group he was working for and went to work for a self-insured employer having a six month waiting period, followed by a six month pre-existing condition period, there would be no portability and nothing could be done about it. Therefore, the application was limited to staying within the system. Ms. Tiffany returned to renewability. What was the increase based upon from one year to the next, whether it was two percent or 15 percent? Mr. Wadhams responded, page 5, lines 7-11, directly answered . . . "an adjustment not to exceed 15 percent . . . on account of claims experience, health status . . ." That was the maximum of experience change that could happen from year-to-year and was essentially the driver. If the plan was retained the only thing that would change the price of the plan, theoretically, was the experience of the group. Ms. Tiffany declared, to get in, the claims did not apply; but once in, the claims applied. She asked if they were evaluating the claims on some kind of utilization review. Mr. Wadhams stated that flexibility was left to the marketplace. Section 13 basically offered the option to carriers to decide what kind of system of benefit delivery, not claims payment, they preferred. Were they going to have an open panel, fee-for-service system where they would be reimbursed for wherever they received service; or restrictive networks, popularly called PPO's; or perhaps something even more restrictive? Those differentials were the answer to the question. If they had a restrictive network with utilization review and claims management, that was a factor that would apply to carriers who chose to operate that way. An employer may very well prefer -- "I want to go to anyone I want to go to" -- this allowed carriers to offer that. They were not restricted to open panel, closed panel or to PPO's, therefore, depending upon which product the employer chose dictated the answer to her question. Ms. Tiffany asserted portability was mixed in with a core benefit plan or benefits. She asked, why not allow portability if there was a core package that could be transferred, or looked at as a similar class, so the employee could take the coverage, or similar coverage, and be covered when they moved to the next one if it was the same class. Mr. Wadhams called her attention to page 4, lines 22-27, where the benefit program was described . . . "a plan of health insurance or health benefits which provide benefits similar to what would be offered to an HMO that reasonably would maintain good health, including emergency services, in-patient . . ." Rather than dictate a core program, it was a concept that each carrier could innovate from to file forms for the approval of the Commissioner to ensure they were fair. The idea of that section was, if you had qualifying coverage it rolled from one insurer of that employer to the next insurer. Or if you were coming in as a new enrollee, if you had qualifying coverage within 30-days or perhaps a longer period of time, it began again. Therefore, there was some portability, but no dictate. The bill attempted not to dictate to the purchasers what they must buy. Ms. Tiffany asserted portability was on the side of the employee. For example, if she hired an employee, they quit and went to the state of Nevada for a state job, but in between they developed a condition. If they wanted an indemnity plan that did not allow a pre-existing condition, she felt there should be portability in a core-to-core package or comparable-package to comparable-package. She indicated she would like to discuss that more in the work session if Mr. Wadhams thought it was possible. If it was impossible to do a class-to-class commonality, the other would be acceptable, however, she was not convinced the class-to-class portability was impossible. Mr. Wadhams said the concept was being described in the section to which he had drawn her attention. It did allow the possibility, basically to the Commission, to make sure there was the broadest claim portability without the constriction of a mandate that all have to buy a square program when one might want a round or oval program. If there was a reasonable basis of health coverage it would be portable from one program to the next. Ms. Tiffany indicated another concern was a core benefit plan. There had to be a base upon which they could talk. Could they, as insurer, develop a core benefit plan for the Committee to peruse? Mr. Wadhams cautioned about that explaining one of the problems they experienced with the first re-write of the insurance code in 1971 and 1973, was that from then until now, the legislature had dictated "core benefit plans". The fact that Nevada had a substantial uninsured population was, in part, attributable to the nonacceptance of what somebody else had decided what the man in the street should buy. There had to be some flexibility to get acceptance by the buyers of the program. Ms. Tiffany's concern was that a small business person, who had not had coverage, needed knowledge of what a core plan would look like so when they utilized it they knew what to expect. She indicated the insurers should be responsible for at least providing a core package. Dr. Bannen indicated that was very valid. He commented he had come from a small business background before Blue Cross/Blue Shield. He explained the bill being presented was an incremental change. Blue Cross/Blue Shield sensed that small business employers were somewhat sophisticated and the marketplace dictated the size and core of the plan. If it was an all male business, it might not be appropriate to pay for a maternity benefit. Ms. Tiffany reiterated she was not talking about state mandates, she was talking about core benefits. Dr. Bannen said if she looked at the products small business employers could buy she would find they were mostly core benefits. There would be some change insofar as mental and nervous or maternity benefits, but the bill said the Insurance Commissioner had authority to help determine what a qualified core benefit plan was under the plan. Again, they looked at it as an incremental change. As a small business employer she was exactly correct. They may not realize the nuances of the changes but certainly the insurance salesman, when "X" sold against "Y", was going to tell them. Ms. Tiffany encouraged them to come with a core benefit plan to their work session on Wednesday, April 12, 1995. Ms. Buckley asked Mr. Wadhams to clarify cancellation for small employers. It was her understanding they could not be canceled but their rates could be increased. He responded Section 20 specifically addressed the rate increase provision. Ms. Buckley further clarified they did not have the ability to cancel because of claims experience. He answered affirmatively. She queried was there any minimum participation requirement? He pointed out Section 17, page 3, . . . "A carrier serving small employers may vary the application requirements for minimum participation of eligible employees and minimum contributions only by size of the employer's group . . ." and went on to describe it. It allowed the underwriting guidelines to be filed and approved by the Insurance Commissioner. Ms. Buckley stated the small business would not have opportunity to designate how much it would have and it would be set by the carrier. Mr. Wadhams replied the plan design was left to the purchaser, but the participation requirements were left to the carrier. It allowed, at least for a group of three, and in theory there would not be three adverse risks within that grouping. A carrier might say they would take the group but would need at least 80 percent to say yes. One- hundred percent were required to be offered coverage but, unless 80 percent accepted, it would constitute a basis for withdrawing the offer. It did not deal with the design, benefits, deductible or co-payment that might be requested by the purchaser. Ms. Buckley asked would the minimum participation be for all small businesses by class as opposed to claim characteristics. Mr. Wadhams said a particular classification, for example, a classification made up of real estate offices. The carrier might file for approval with the Commissioner a requirement that at least 80 percent of each employer within that classification and 80 percent of the employees accept the coverage. If they dropped it, for example, with no minimum participation requirement, it would no longer be group insurance, it would be individual insurance and that was a completely different risk characterization. The attempt, by grouping people, was to spread the risk over a broader group. If an individual purchased insurance the state of their health would determine the rate. Ms. Buckley asked for an explanation of the nine classes, the 20 percent index rate between the classes, and the 25 percent within each classification. Mr. Wadhams answered in Section 14, line 3, it described the permissible characteristics of such classification systems: age, sex, industry, and geographic area. Obviously rural communities would be a different grouping than the more densely populated Clark County area, which was also different in some respects from the Reno area. There could be classifications based upon where the business was located and in what industry. It would be possible those working in the chemical industry might give rise to a higher risk of medical problems than those who work in the banking industry. It described certain characterizations that would allow new and more creative groupings to allow employers to find a level based upon their characteristics to get the best price. Mr. Wadhams went on to respond to the second question which had to do with the arithmetic found in Section 22, page 5 and 6. The two factors defined the 20 percent and the 25 percent were the base premium rate and the index rate. It became an arithmetic calculation of the rate factors within those classifications. Assume for the moment that one classification was based upon geography and the next one was based upon industry, or between two industry classifications. In each successive industry classification the difference between class 1 and class 2 could not exceed 20 percent. The variations within class 1 could not exceed 25 percent, according to the calculations. Ms. Buckley indicated it would be helpful for the work session if the Committee could be provided a chart indicating each one of the classifications and possible rate indexes. She was not sure she understood it. If the purpose was to keep rates low to get more people insured, she wanted to better understand how the rate would be calculated. Mr. Wadhams indicated he would devise a sample classification system to aid the Committee in understanding how the arithmetic worked. He pointed out, given the opportunity described in Section 14, there might be unlimited varieties of classifications. He said they could provide a representative chart to show a sample way the numbers worked in order to get a better understanding. Ms. Buckley stated it might be helpful to use a common small business in the community as an example. Ms. Buckley's last question was regarding the rate of the annual increases based upon the claims experience and asked if that model was utilized in the national model legislation as well. Mr. Wadhams said he would get the answer because he was unable to recall it without his notes which he did not have with him. Ms. Tiffany asked when the classifications would be fixed. Mr. Wadhams responded the classifications would not be fixed until a particular carrier filed with the Insurance Commissioner a plan of classifications and they were approved. The bill did not require Carson City to contrive nine arbitrary classifications to which any number of insurance companies must adhere. The flexibility allowed the developers of the product to devise classification systems more responsive to the buyer in the marketplace. This allowed the buyer to select a system among the competitors based upon their ability to anticipate what the buyer wanted. Ms. Tiffany said somebody working with chemicals might have a rating of four with one company and a rating of nine with another company, but the rating of four would give them a better premium. Mr. Wadhams replied, absolutely. Ms. Tiffany stated she had to weigh between "buyer beware" and competition when it was not structured ahead of time. Assemblyman Brower asked Mr. Wadhams to play a little scenario with her. She was a small business person who came to him as the insurance agent. She had a group of five employees and needed insurance coverage for them. Would she provide him a list of what she wanted, or would he present a plan? How did it work? He explained underwriters were the professional buyers of insurance for small employers. The way the scenario played out was to define the needs of the small business and the insurance agents would search for plans to fulfill those needs. The needs and desires of the small business person would be incorporated as initial criteria for the broker to shop the marketplace. In shopping the marketplace the broker went to every insurance carrier writing that type of business to find out what kind of program could be offered. They typically brought back a half- dozen proposals, sat down and explained the variations between each plan describing the differences in benefits, co-payments, and restriction to the providers. The small business person had the opportunity to pick and choose between plans. Using a broker was very important because most small business owners did not have time to shop insurance. He pointed out some insurance companies still sold direct or had different marketing techniques, but most health insurance was purchased through brokers who could access virtually the entire marketplace. Therefore, most of the business was done by selecting a broker in which a person had confidence, and the broker would select a number of options and explain them. Section 26 was a disclosure requirement which made it incumbent upon the insurance company to explain the benefit options. The broker, who worked for the small business owner rather than the insurance company, would help sort it out. Assemblyman Schneider gave an example of an employee working for a small construction company whose wife had breast cancer. He got laid off and it was 120-180 days before he found new employment. How would he stand? Would his wife still be covered? Mr. Wadhams answered they would still be covered, except in extraordinary circumstances, because the employer would either be under the federal Consolidated Omnibus Benefit Reconciliation Act (COBRA) which allowed the employee to purchase the group insurance at 102 percent of the existing premium. The COBRA program allowed people who were dropped out of a group for lay-off, termination, or whatever, to continue that insurance. That was for employers of 20 or more. There was also state COBRA for smaller employers that, in most instances, allowed an employee during that period to continue to purchase the insurance until re-employed. Mr. Schneider asked, if the laid off employee got a new job would he be able to get on the new company's insurance immediately, keeping in mind, the wife would not be cancer free at that time. Presumably, if they remained on COBRA until obtaining new employment, she would be covered. Dr. Bannen indicated, from a medical viewpoint, they would be covered under the plan because they had continuous, qualifying coverage. The assumption was they went to another construction company covered under that benefit plan, therefore, they would be automatically covered. If they went to a self- insured plan it might be different. Portability would not be covered in every case. If a construction company was chosen that already had a qualifying plan they would have to accept the wife regardless of her cancer status and not use it as a pre- existing condition. If he went to a self-funded, large company, that would not happen. Mr. Schneider asked, when he was hired and put on the insurance, would it impact the company's premium? Dr. Bannen declared it illegal to ask a prospective employee the health status of any dependent during an interview. Ms. Tiffany clarified COBRA could be offered if that insurance company operated under some federal regulations. Did that mean some companies might not be federally mandated to offer COBRA? Mr. Wadhams replied the federal law applied to employers, it did not apply to insurance companies. Employers with health programs were mandated to continue to allow the terminated employee to purchase insurance through their existing program for a period of 18 months. The COBRA act applied to employers and was designed to address some of the questions the Committee had asked. That was why they had adopted a "state COBRA" or "mini COBRA" so people who lost, quit or were between jobs for seasonal reasons or otherwise, had an opportunity to continue coverage. The bill did not change those two statutes, either federal or state. Mr. Ferraro stated awareness of those in the audience wishing to approach the Subcommittee's work session with amendments and language changes. He encouraged it and expressed they wanted to build a coalition of all those individuals interested in seeking reform in the state. The Chair asked if there were any more questions from the Committee. There being none she invited more testimony. Mr. Frank Guisti, Legislative Chairman for the state of Nevada Health and Life Underwriters Associations from Reno, introduced Mr. Lee Beebe, President of the Southern Nevada Health Underwriters Association, and Mr. Bob Bishop, Southern Nevada Health Underwriters Association. Mr. Guisti indicated they were present to support A.B. 299. Their members served hundreds of employers and thousands of employees who fell into that category. They were the ones who were on the firing line when the employer said, "Our rate has gone up 25 percent, what can you do for me." They knew quite well what their concerns were and the problems with which they were faced. He reiterated they were in support of A.B. 299 and offered assistance to the Committee and/or Subcommittee to respond to questions about insurance terminology. One of the items in A.B. 299 they felt needed extended work was portability/waiver of the pre-existing condition clause. What they were considering was, if an individual was insured through another group insurance policy prior to going to work for a new employer and had met his pre-existing condition clause under the previous contract, (in the insurance industry today the standard length of time was 12 months), the pre-existing condition clause would not apply to that individual. Ms. Tiffany asked about coverage prior to entering into new employment. Mr. Guisti stated the employer would have a waiting period for new employees before they were eligible for group insurance coverage. Some employers used a 30 day waiting period, the majority used 90 days, some used six months and others 12 months before coverage began. Returning to the COBRA/Nevada continuation law which stated if an employer had 20 or more employees and a person was terminated for any reason other than gross misconduct they had the right to continue the coverage for up to 18 months. They pay the premium plus a two percent administration fee. Nevada continuation was for employers with less than 20 employees. That law said continuation could only be continued if the employee was terminated by the employer. If employment was voluntarily terminated coverage could not be continued. The other major difference in the Nevada continuation was the person must pay 125 percent of the premium the employer was paying, not the 102 percent under federal law. Also under federal law a person had the right to continue all lines of medical insurance coverage, generally medical, dental and vision. Nevada law stated medical insurance coverage only. Ms. Tiffany commented it was not motivating to an employee wanting to change jobs to be unable to take his medical insurance with him. Therefore, he would remain in the old job, be obstructive, get fired and work only 20 percent of the time. Mr. Guisti stated the problem had been discussed in great detail. In 1989 the insurance carriers, Insurance Department and insurance brokers were involved in a subcommittee meeting. Their consensus was it was not the best but it solved some of the problems. Ms. Tiffany expressed it would be considered insurance reform if that statute was changed. Regarding an employee not being able to continue insurance coverage if they voluntarily quit, Ms. Tiffany asked what difference it made if there was a charge and the employer was not required to contribute. Mr. Guisti answered the subcommittee had asked themselves what they could do to keep costs as low as possible. Another major difference between federal and state was federal law was between the employer and the insurance carrier; state law was between the terminated employee and the insurance carrier. They took the employer totally out of the loop because they did not have the Human Resources personnel to remain abreast of it. Mr. Beebe indicated another distinction between the federal and state COBRA was under federal COBRA guidelines, if an employee was on the plan for one day you had option of federal COBRA; under the state COBRA guidelines you had to be under that group health insurance plan with that small employer for 12 consecutive months before eligibility. Ms. Tiffany expressed she still did not like the fact that if the employee quit voluntarily he was unable to pick up COBRA. She indicated the subcommittee would be studying that aspect intensely. Mr. Guisti reiterated part of the negotiations were to get the insurance companies to agree on how it would be handled. Mr. Guisti indicated there were a large number of insurance companies doing business in the state of Nevada currently not writing for small groups of 25. He pointed out Assemblyman Buckley had asked if coverage could be canceled because of high claims, and the answer she received was no. That answer was partially correct. The insurance carrier could not cancel that one employer, however, because of red ink on that book of business they could discontinue doing business in the state of Nevada and give a 60-day cancellation notice. Sharon Weaver, Nevada Insurance Division, Life and Health Section, stated under NRS 687B.420 insurance companies were required to give a 60-day advance notice of their intent to cancel or make any kind of altered terms in a health insurance policy, which meant any kind of premium increase. Mr. Guisti said another comment made by previous testifiers indicated A.B. 299 would allow employers to design their own plan, i.e., tell the insurance company what they would like to have and be told the price. In the real world that did not happen. In the real world each insurance company would say, "Here are ten plan designs developed by us and, Mr. Employer, you tell us which plan best fits your needs." Administratively it would be far too expensive for them to allow small employers to design their own plan. It only happened for large self- funded employers who were afforded that flexibility. Mr. Guisti indicated he would like to be part of a work session and suggested they include individuals from underwriting departments of insurance companies. It was one thing to have a medical director and/or marketing person from an insurance company testifying what they think could be done; it was different having the underwriting department indicate whether those particular things could be accomplished. Ms. Tiffany invited him to Carson City the following Wednesday, April 12, 1995, for the work session. Ms. Punam Mathur, Senior Vice President of Government Affairs, Las Vegas Chamber of Commerce, indicated a great many decisions were made that dramatically impacted employers. In making those decisions a fair number of assumptions were made about what employers thought, what they needed, and how they behaved. In an effort to be part of the process they embarked upon a research project with Chamber members, not currently providing medical coverage, to learn what the obstacles were. If energy was to be spent identifying ways to remove cost as a barrier, it was a productive exercise to redetermine that cost was the largest obstacle or the only barrier. Ms. Mathur went on to explain a research firm had been doing statistical analysis for them over the last two weeks. They had been working with the Senate Commerce Committee because they also had been considering health insurance for small employers. Clearly they were motivated to come up with something that dealt with those problems. They were not sure the solutions were addressing the problem appropriately. When asking employers to identify the reasons for not providing insurance coverage currently, it came as no surprise a large number articulated cost as the number one reason; and close to 40 percent identified no need as an additional reason. They had not probed further into the latter reason but she felt it referred to people who employed individuals covered as spouses on other programs, or those who carried their own insurance. In looking at the responses from employers some common stories began to arise. She contacted some of those common stories, to discover they were real business owners, real people with needs, concerns and challenges. She introduced four of these employers who would testify: Molly McCall, Dale Breck, Jan Biggerstaff and Theresa Brushfield. Ms. Tiffany requested the testifiers to make their comments relative to A.B. 299. Ms. Mollie McCall, the owner of A-1 Rubber Stamp and Engraving Company, a family business since 1975, which she, personally, had taken over in 1991, indicated she had six full-time employees and one part-time employee. When she took over the company she intended to "come into the 90's" with insurance and computers. She immediately looked at insurance plans and put the employees on insurance. She had a shock within a short period of time when the rates went up due to the ages of the employees. The way insurance was structured at the present time, young men between the ages of 25-35, who did not get pregnant and were not yet in a position to develop serious diseases had the lowest premiums; women between the ages of 40- 50 caused a much higher premium; men 55 and over caused a higher premium, but women the same age caused the premium to decrease. Her employees were ages 73, 66, 50, 48 and 23. A 15 percent increase, which she had heard in the testimony, would put her premium beyond what she could justify. There was a perception among full-time politicians who had not worked in the private sector that anyone owning a business was "rich". She emphasized she was not "rich"! She hesitated to figure out her hourly wage. Based upon what she had learned in the testimony, she asked if the intent of the bill was to mandate this plan upon all employers. Ms. Tiffany responded it was not the intent of the bill to mandate. Ms. McCall could foresee, if employees were able to walk away from an employer and take their insurance coverage with them, all employees would be told they had to carry insurance. This bill could be the first step to that end. There were companies contracting employees in order to escape carrying insurance. Ms. Theresa Brushfield, owner of a group care home for senior citizens, pointed out she had the same problems as Ms. McCall. She had an employee of 74 years of age. If she could pick and choose between different insurance companies she would like to design her own package because she had men employees whose rate would be lower than the female rate. Her employees did not make a lot of money . . they made $6.65 per hour. Last month she discontinued group insurance coverage because the insurance company had excuses why no claims were paid. There had been three claims between July and February and the carrier had not paid any of them. When a person earned $1,250 per month and it cost $181 for he and his dependent child to be covered, it impacted his pay check quite negatively. She paid 50 percent of the employee's health coverage, but not the dependent. Her 50 year old female employee's coverage was $200 per month, she earned $1,000 per month and her check was about $885, and after her share of $100 was taken out she took home $775. The cost of the insurance for her employees was somewhere around 20 percent of their take-home pay. Last year she was uninsured when she broke her wrist. She chose to go to her physician instead of the emergency room because of the cost. The physician sent her to an orthopedic surgeon who refused to see her because she was uninsured. She went to another orthopedic specialist and paid cash. That one took cash, the other one would only take insurance, not cash. She had to have surgery on her wrist and, in the hospital, she saw a sign saying if a patient had no money the hospital had to treat them. She was called into Admitting and was asked for $4,500 for her out-patient surgery. It made her feel bad! If one had no money, one must be treated. If she had not had $4,500 she would not have been allowed into the hospital. Ms. Tiffany asked would there be a rate per month Ms. Brushfield would consider affordable for she and her under $7 per hour employees. She asserted she did not have an answer to the problem and was depending upon the legislators to come up with a solution. She said it was difficult for her employees being without medical insurance. Ms. Tiffany clarified she owned the company and her profit margin was such that she could not offer the 50 percent on the premium. Ms. Brushfield answered yes, she owned the company; she paid the 50 percent which reduced her profit margin. She took care of six senior citizens in a home with two care providers. Seniors were on limited incomes and she did not get a lot of money from them, but enough for them to live comfortably. When prospective employees called her regarding employment, their first question was, "Do you have fringe benefits?" They were not concerned about the amount of money being paid, their main interest was in health insurance and paid vacations. Money was not the issue, it was benefits! Therefore, to obtain good employees she decided to offer medical insurance and benefits. Unfortunately last month she had to cancel the insurance. She had been looking at different policies and was told she had to have 100 percent employee participation. It was good for the 34 and 44 year old men, and if she could put them on that policy and go to the Chamber and put the 50 and 74 year olds on that policy, it would be wonderful. However, that was not an alternative and she was caught in a "catch 22" situation with nowhere to go! Ms. Tiffany appreciated her testimony but did not have an answer for her. Premiums were a cost that must be paid and they were attempting to determine the threshold. She expressed her business was marginal as well and she did not offer health insurance because she was not yet out of the "red". She certainly understood the dilemma! She asked Ms. Brushfield if she was aware of the "bare bones" program. Ms. Brushfield asked what it was. Ms. Tiffany told her it was a health care plan, offered by Sierra Health from 1991 on, designed to be attractive to small business owners. Mr. Dale Breck from First Funding of Nevada indicated he was Retail Division Manager, which was a big title for a small company. He noted unique problems in the mortgage business because they had salaried-commissioned and commission-only employees. There was a spectrum of employees and some did not know from month-to-month, or week-to-week what their paycheck would be. It was also a very competitive market for mortgage brokers. He said First Funding of Nevada had recently been taken over by new owners. The company offered health insurance before the take over, it was not being offered at the present time because the company was still running in the red due to the buy-out and was basically beginning again and breathing new life into the business. He came up with a solution that might work in the near term. They were going to do employee leasing. He said he only had between three and 13 bargaining chips. If he were sitting at the same table with IBM requesting an HMO, PPO, or attempting to bargain for health care for his employees -- who would get the better deal? Not him! Therefore, throwing his resources into a pool with employee leasing would allow them to bargain with chips of 200, 500 or even 1,000 or more to obtain a better rate. It was a proven factor that economies of scale for small companies, when going through the Chamber of Commerce or employee leasing, would give him a better chance of getting something marketable to his employees. There were problems, however. One, he was retired military and his wife worked at Sunrise Hospital. He did not need health care. If he refused coverage because he did not wish to pay for double coverage, then he was already one against the percentage. With only five employees, and one down, it was quite a percentage saying no. Another employee was retired and did not need coverage, another employee had coverage on the spouse's coverage, now there were three who did not need it. This brought it to 50 percent saying no. If the carrier was requiring at least 80 percent participation, they were out of luck! He indicated their business was cyclical and, in addition, there were loan officers and individuals from mortgage companies unemployed longer than 30 days who did not have the money to pay COBRA. Some people were unemployed for long periods and after a certain length of time they could no longer pay for COBRA. Now they were not covered and pre-existing conditions would eliminate them in any event. Those were the issues and concerns from his point of view as a manager of a small company. The owner of the small business was looking over his shoulder directing him to make it profitable within a certain time frame or they would not stay in business. Specifically to A.B. 299, the employees who turn down the insurance were the ones who defeated the purpose. If there was a lag period without insurance it was assumed the individual was paying for coverage personally until they were employed again. The average unemployment time in Las Vegas for those new to the area was seven months. There were a great number of those who went without insurance before finding new employment. There were also many individuals changing careers, which had not been addressed. He gave an example of an individual changing from construction to being a dealer at the Mirage -- a completely different field. What would be the transportability from one job type to another job type? That was a real issue in Las Vegas. He continued, between group one of the nine categories there could be a 20 percent variance. Within his group, lumping realtors, bankers and mortgage brokers together, and because banks have a lot of pull, their rate would be better than his with a 25 percent variance between the bankers and the mortgage brokers in that class, there could be a 45 percent variance between category one and category eight. If they decided brokers were a risky group they would make it 25 percent more expensive for them than for bankers. In addition, if he had a high incident rate of claims it meant his rates could go up another 15 percent. Within a year the variance could be 60 percent or better. When he looked at that he would not be interested! It was not worth it! Employee leasing, economies of scale, or even a state-wide pool with a clearing house similar to Florida, where small companies could compete on a large scale and procure less expensive insurance, were better options. From his perspective, A.B. 299 had many holes in it. Any incremental change was making another assumption. The person making the second increment understood what was in the mind of the person in the first increment. It could set up real problems in the future. Ms. Tiffany felt he had misconceptions about the bill and invited him to talk with the sponsors. She informed him an option for a person out of work for a length of time would be an HMO where pre-existing conditions were waived. She appreciated his concerns and was aware of renting/leasing employees. She stated her husband was a physician who employed five or six leased individuals. He had found, in order to keep good people and pay affordable salaries, this was the most reasonable option. She stated the Committee was attempting to create another option. She expressed appreciation for his point of view. Ms. Jan Biggerstaff, small business owner of Graphics 2000, described pre-existing conditions as one of her problems. She joined the Chamber of Commerce specifically for the health plan because her partner had a pre-existing condition. At the time the Chamber began their insurance plan, pre-existing conditions were accepted. This was no longer the case. Three years ago they hired an employee. After his trial period they applied for insurance and discovered he had leukemia two years earlier. They were required to have 100 percent participation, therefore, they felt their choices were to either fire the employee because he could not be included, or change insurance plans. Pre-existing conditions were a serious consideration. She had learned from testimony that the program had not worked because of marketing, or lack of it. Most small businesses were not aware of the statutes because it had not been presented to them. All the tweaking in the law was not going to change things. She felt the change had to be in the marketing and approach to small business people. She believed marketing needed to be specifically studied and perhaps raising the percentage offered for the program. Ms. Tiffany indicated it had been discussed. One of the options, which would be discussed at the work session, was to allow insurers access to the business tax enrollment. They could then market to the small business people of 25 employees and under. Ms. Biggerstaff asked if they had considered combining SIIS and the health plan at some future time. Ms. Tiffany answered, "No, never!" Ms. Tiffany asked for questions from the Committee. Ms. McCall expressed the other reason she was not carrying health insurance was because she had a partnership and was constrained by federal law. There was no incentive because of no deductible. She stated she might as well take the money out of her pocket, give it to them, and say, "Do what you want." At the rate of $10,000 to $15,000 per year there should have been some incentive! There should have been some deduction! Ms. Tiffany agreed but, unfortunately, they could not change federal law. Ms. Tiffany thanked Ms. Mathur for providing the Subcommittee other perspectives on health care insurance issues. She encouraged them to read the bill and speak with the sponsors about their concerns. They were the individuals for whom the Committee was addressing the issues in order to provide them the benefits to obtain and keep good employees. Ms. Mathur indicated the Chamber of Commerce had a general business task force, a group of volunteers who had read, researched and discussed A.B. 299. She thought by Wednesday they would be ready with something to share with the Committee. She said the Chamber's health plan had been mentioned in testimony and she wished to submit the literature into the record (Exhibit C). She indicated 225 out of 4,100 members utilized it. Mr. Phil Stout, Executive Director for the Association of Independent Businesses, a small business organization with roughly 800 members, expressed appreciation for the Committee's interest in the issues. He hoped they would continue to keep it in the marketplace and allow the marketplace to develop the situation. Notwithstanding the previous speakers, there were many varied ways it could be done. It could be made to work by keeping government out of it as much as possible but providing the opportunity to make it happen. He had investigated the Sierra Health Club which only had two people the entire time. He was part of the Committee that had looked at the bill and felt the reason it did not work in 1991 was there were no willing buyers and sellers. It just died. Hopefully the dynamics of the marketplace would make A.B. 299 work. Ms. Tiffany queried if his organization had ever done a survey, such as the Chamber of Commerce had done. He replied, no, not about health insurance. Stephanie Tyler, representing the Nevada State Chiropractic Association, stated in regard to A.B. 299, she was thankful to hear the dialogue come forward. Last session she had expected a revisit of S.B. 503 from 1991. She was glad to see the proponents using it as a working base and a document from which to begin. The questions from the Committee to the speakers clearly indicated the members had done their homework. There were provisions in the bill that were very positive. The portability, as related to COBRA laws, from the Chiropractic Association standpoint, was strongly supported. Not using medical claims experience as a way of setting premium was a major step forward to make an affordable and marketable insurance product. Also taking all a company's employees and not being able to cherry pick the risks was another positive step forward. She expressed some concern with the bill for employers within the three to 25 group. Those employee's access to health care was clearly going to be limited to the provisions of some of the policies. An example was important to demonstrate the core benefits and how the policies would be written. From a public policy standpoint, there were 15 years of legislative history tied up within the mandates for insurance and valid reasons they were put on the books. Looking back through the testimony, particularly in the interim committee studies specifically dealing with mandated benefits, none had been repealed. It was an important policy issue to provide health insurance opportunities to the 27 percent not insured. Of that 27 percent there were many people on the edge. Not all problems would be solved within the confines of the bill. She asked how medical riders on current policies would fit into the portability issue. On page 4, lines 25-27, it was outlined in general terms what the core policy might be. She queried would it include chiropractic care. She represented chiropractors and that was a basic question to them. Returning to S.B. 305, or the current law within 689C, she felt there were some negative parts, as addressed by the other speakers. When a product was created where the owner of the company, that being the insurance companies, had no ability to make a profit, there would not be a product marketed. She took her hat off to the companies who attempted to market it. They were good corporate citizens! It was not worth their time for an insurance agent to make a two percent profit. There was no question it was a problem. The $50,000 cap, as far as total benefits allowable, was not practical. There were some good things about S.B. 503, the best of which were providing employers a list of what it would cost to add various mandates. For example, under S.B. 503, an insurance agent presented the basic plan to a business. Providing information about the cost of adding mandated benefits would be a positive step. It would make a more marketable, as well as palatable, plan across the board. In conclusion, she asked what was the target of this public policy. She felt it a good public policy goal to attempt to insure the 27 percent, or at least a part that could possibly afford it. What she did not see in A.B. 299 was a provision, similar to what was in S.B. 503, to make the policy available for those who had not been insured for six months. She felt Ms. Brushfield was exactly the type of employer for which the bill was intended. She would not want to see business owners, who currently provided good benefit packages, whittling them down to the bare bones. She thanked the Committee for listening to her views and concerns and offered her availability as a resource for the work session. Ms. Tiffany suggested there was an appetite to look at the six month issue and ascertain the impact on the insurers. Also, regarding a-la-carte plans, some testimony had indicated it would not happen and only certain fixed plans would be offered. She indicated they would tease it a little in an effort to get better answers. She indicated they were not going to consider state mandates and asserted it would ruin the program. She stated they definitely wanted to be outside state mandates. Ms. Bobbie Gang, representing the Nevada Women's Lobby and Planned Parenthood of Northern and Southern Nevada, stated there were policies that did not include what was considered essential treatment for women, such as mammograms and pap smears. Both organizations she represented were concerned with women's health issues. They recognized it was a difficult problem attempting to provide health insurance to those who did not currently have it. In listening to the testimony regarding existing law, she felt perhaps it had not been marketed properly and/or wondered whether it was a marketable product. Was it really something people felt was worthwhile investing in? Were they going to get something for the insurance premiums? She did not have any solutions or proposed amendments, however, she wished to point out a few things. Some things were included as mandated benefits and, as Stephanie Tyler had said, there were good reasons for including them. If they were going to stay outside of what were considered mandated benefits, as the bill developed she felt the inclusion of some of the items discussed would be a positive step. Insofar as women were concerned it was found they often depended upon others to obtain private, employer-sponsored health insurance. They were more likely to be poor and single parents. Working women frequently obtained coverage through their husband's employers. They were twice as likely to be covered as dependents due in part to the fact that many worked part-time and for small business employers. She felt it essential for any health care plan to provide the following: 1. Benefits that covered services essential to women's health, especially preventative. 2. Any cost sharing was at realistic levels for low income women and their families. 3. Health benefits included coverage for prenatal care, mental health, and reproductive health services. She asserted women were more likely to suffer from depression and other emotional disorders and more likely to use mental health services. Putting that in context with the fact they were covered by spouse-provided insurance, in most cases, was something which needed to be expanded when covering families of the employee to ensure the spouse and children were adequately covered. Ms. Buckley queried she was not sure how the work session would proceed. She had a list of seven items that were of concern. She indicated it would be helpful to have a staff analysis of the bill compared with some of the national legislation. She declared the Reno Chamber of Commerce had provided her with an excellent article which helped her prepare for the hearing. A number of the features of the bill were described and she agreed with most of them. She felt the Committee had a good start. She queried, on the minimum participation rate, if there were an employee with a pre-existing illness would that knock the minimum participation rate down? What were other states doing? Did they prescribe a minimum participation rate? She thought it would be most helpful to have some details of other state's works. Ms. Tiffany requested the Committee list what they felt were the pertinent issues and/or recommend the process they would prefer. She would then pull them together, cull out the common concerns, and Paul Mouritsen, Research Analyst, would research it. She assigned the Committee that task and asked it be accomplished and returned to her by Monday, April 10, 1995. Mr. Ferraro asked what time the Committee would meet on Wednesday. Ms. Tiffany indicated 3:30 p.m. Ms. Tiffany thanked the subcommittee and the testifiers. There being no further business the meeting was adjourned at 5:25 p.m. RESPECTFULLY SUBMITTED: Barbara Moss, Committee Secretary APPROVED BY: Assemblyman Sandra Tiffany, Chairman Assembly Committee on Commerce April 7, 1995 Page