MINUTES OF THE ASSEMBLY COMMITTEE ON LABOR AND MANAGEMENT Sixty-eighth Session January 24, 1995 The Committee on Labor and Management was called to order at 3:30 p.m., on Tuesday, January 24, 1995, Chairman Krenzer presiding in Room 321 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Ms. Saundra (Sandi) Krenzer, Chairman Mr. Dennis Nolan, Chairman Mr. David Goldwater, Vice Chairman Mr. Lynn Hettrick, Vice Chairman Mr. Bernie Anderson Mr. Douglas A. Bache Mr. John C. Carpenter Mr. Pete Ernaut Mr. Mark Manendo Mr. Brian Sandoval COMMITTEE MEMBERS ABSENT: None GUEST LEGISLATORS PRESENT: None STAFF MEMBERS PRESENT: Mr. Vance A. Hughey, LCB Senior Research Analyst Mr. Fred W. Welden, LCB Chief Deputy Research Director OTHERS PRESENT: Douglas Dirks, SIIS Cecilia Colling, SIIS Gayle Sherman, SIIS Assemblyman Nolan pointed out that there were some additions made to the Standing Rules . (See Exhibit C) ASSEMBLYMAN ERNAUT MADE A MOTION TO ADOPT THE RULES. ASSEMBLYMAN HETTRICK SECONDED THE MOTION. THE MOTION WAS CARRIED UNANIMOUSLY. Chairman Krenzer introduced Mr. Doug Dirks, General Manager of SIIS. Mr. Dirks presented a brief review of the history of SIIS. He defined the role of SIIS as the provider of insurance coverage to the employers of Nevada at predictable and affordable rates and to provide quality medical management and wage replacement to the injured workers of Nevada. Last session, the system had negative cash flow for two years and faced bankruptcy in fiscal year 1995 or 1996. There were exploding caseloads, an increase in medical utilization in some specialties of 40-50 percent, no utilization review in place for medical treatment for injured workers, and finally, the system faced an unfunded liability of $2.2 billion. Currently the system has a positive cash flow, the first since 1990. They have decreasing caseloads, a decrease in utilization not only in cost but in the number of treatments being provided per injury and, with the advent of managed care, they have in place treatment protocols, which establish a budget for the injury. Finally, they have utilization review of the work which is done by the managed care organization both during and after the care is given. There has been no increase in rates since 1992. Mr. Dirks proceeded with a brief financial overview of SIIS since the passage of S.B. 316 and A.B. 374. For fiscal year 1992, the net cash flow was a negative $103 million, that meant the system spent $103 million more than it collected. For fiscal year 1993, the cash flow was a negative $81million. In fiscal year 1994, there was a positive cash flow of $61 million. (See Exhibit D) Discussion followed with Mr. Dirks concluding there is an overall increase in revenue, with a decrease in claims expenses. They are projecting a positive net cash flow in fiscal year 1995 of approximately $75 million. Mr. Carpenter questioned why the increase in MCO expense of $15 million and, if there is a $25 million projected loss in premium income, does this $25 million include the businesses that want to pull out of the system. Mr. Dirks responded that in fiscal year 1994, the MCO's were only in place for six months. The $10.2 million represents five months of experience with a projected $25 million for 12 months. As for the second question, the $25 million projected for this fiscal year is only those that go under the existing law. They are still doing estimates for fiscal 1996, but are projecting over a five year period they will lose as much as 25 per cent of the total premiums to group self- insurance. The first year, he thinks the projections will probably come in between $10-20 million. Mr. Carpenter queried whether employers were looking at staying with the system rather than leaving it. Mr. Dirks stated that over the last 18 months they have put a number of things in place that enable them to compete and to provide better services to the employers at a competitive rate. Unfortunately, they are trying to undo 10 years of problems and it won't happen overnight. Again, Mr. Dirks emphasized there has been no rate increase at SIIS since 1992. They were approximately at a break-even last year, and this year with a $75 million positive cash flow they are at a break-even or slightly profitable point. Unfortunately, they still have a $2 billion deficit hanging over their head, which frightens a lot of employers. They think if they stay with the system, they will be stuck with the tab. There has been a reduction of $150 million in the overall unfunded liability in the last two years. Invested assets increased by $24 million last year. The positive cash flow has been re-invested so there is a larger pool from which to pay claims. The fund is still deficient by $2 billion, but they expect to see an improvement in that over the next several years. Finally, there is a $25 million premium deficiency. Mr. Dirks believes that the premium deficiency will be zero in the current year. In the previous year, there was a $200 million premium deficiency. This tells us that we are approximately breaking even now. Mr. Dirks will provide the committee with information regarding the methodology used in making the fiscal projections; a breakdown of how many rehabilitated incidences as shown in the last graph are from prior years; how many people are insured through SIIS; and any available documentation on small business becoming self-insured and using unfunded liabilities as a tax writeoff. Assemblyman Goldwater asked if there were any other revenue sources available to SIIS other than operating assets and premium income. Mr. Dirks replied there were three categories of income: premium income, invested income and deductible income. There are additional options which will be pursued more aggressively in the coming months. Chairman Krenzer asked the committee to review the Balance Sheet and Statements of Operations and Cash Flows from the Peat Marwick study. (Exhibit E) When asked if the 1999 projection of retirement of debt would still be attainable, Mr Dirks answered yes, if all circumstances remained constant. Mr. Dirks then referred the committee to (Exhibit F) The Path to Recovery: Monitoring the Impact of Workers' Compensation Reform, an overview of what's happening in workers' compensation around the country and in SIIS. He defined several proposals he would like the committee to consider: One, a two year moratorium on the implementation of group self-insurance; two, if you either live or work in a county over 100,000 population, you would be covered by managed care; three, elimination of the 20 mile rule; four, an expansion of managed care into Carson and Douglas counties; and five, abolishment of the statutory mandates of seven and five. Mr. Nolan inquired if there was a reduction of staff at SIIS when the MCO's assumed the workload of the claims managers at that agency. Mr. Dirks suggested that Gayle Sherman, Chief of Benefit Services for SIIS, could better explain why there was not a huge decrease in the staff loads as she developed the relationship with MCO's. Ms. Sherman asked the committee to refer to (Exhibit G) SIIS\MCO Duties. Chairman Krenzer asked if Mr. Dirks would return before the committee to continue his presentation at a later date. He responded that he would. Mr. Nolan requested that Mr. Dirks provide the number of claims managed wholly by SIIS versus the number of claims co-managed by the MCO's. As there was no further business to come before the committee, Chairman Krenzer adjourned the meeting at 4:55 p.m. RESPECTFULLY SUBMITTED: Susanne Mund, APPROVED BY: Chairman Saundra Krenzer Chairman Dennis Nolan Assembly Committee on Labor and Management January 24, 1995 Page