MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session February 1, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on , Wednesday, February 1, 1995, in Room 227 of the Legislative Building, Carson City, Nevada. Exhibit A is the Agenda. Exhibit B is the Attendance Roster. COMMITTEE MEMBERS PRESENT: Senator Randolph J. Townsend, Chairman Senator Ann O'Connell, Vice Chairman Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator Jack Regan Senator Joseph M. Neal, Jr. COMMITTEE MEMBERS ABSENT: Senator Sue Lowden (Excused) STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Molly Dondero, Secretary OTHERS PRESENT: Alice Anne Molasky, Insurance Commissioner, Division of Insurance, Department of Business and Industry Sharon Weaver, Supervisor, Life and Health, Division of Insurance, Department of Business and Industry Glenn Shippey, Actuary I, Division of Insurance, Department of Business and Industry David Kikumoto, President and Chief Executive Officer, BlueCross BlueShield of Nevada William Bannen, M.D., Medical Director, BlueCross BlueShield of Nevada Norman Becker, Regional Vice President, BlueCross BlueShield of Nevada The meeting was called to order by Senator Townsend at 8:00 a.m. He announced there would be presentations by the State of Nevada Commissioner of Insurance and representatives of BlueCross BlueShield of Nevada. Alice Anne Molasky, Insurance Commissioner, Division of Insurance, Department of Business and Industry, referred the committee to her handout entitled "Health Day" (Exhibit C. Original is on file in the Research Library.). Senator Townsend commented there were a number of things in the handout which the committee had already reviewed as the presentation had been distributed to the members several days ago. One of the things absolutely crucial to Ms. Molasky's presentation this morning is the answer to Senate Bill (S.B.) 503 of the Sixty-sixth Session, which allows companies to provide "their own policies." There are two companies now providing their own policies. The committee needs to know how those companies are faring and would also like to hear some specifics on how many people are involved, costs, etc. SENATE BILL 503 OF THE SIXTY-SIXTH SESSION: Authorizes establishment of plan of health insurance for small employers. Ms. Molasky referred to the diagrams and pie charts in the handout, which show the premiums written. They demonstrate the premiums written among various types of methods of obtaining life insurance, annuity insurance and health insurance. They set apart nonprofit organizations and demonstrate those which are authorized in the State of Nevada. They also designate the health maintenance organizations (HMOs). At the present time six HMOs are shown. Applications are pending for four additional HMOs, and there are 10 more in the pipeline which she believes will be coming in for applications. The diagrams and pie charts also show the organizations for dental care and the prepaid limited health service organizations. She referred to the pages of the handout which described Nevada Revised Statutes (NRS) Chapters 689A and 689B, which contain the basic mechanisms for obtaining health insurance through the standard types of indemnity policies. Senator Townsend suggested Ms. Molasky skip to the big numbers. He said he did not see anything under NRS Chapter 695 which allows small groups to band together to create self-insured organizations. He asked if that was because they would come under the Employment Retirement Income Security Act (ERISA)? Ms. Molasky explained a single employer would come under ERISA, but if they were a multiple employer the insurance commissioner has jurisdiction over those, even if they self-insure as a group. Group contracts come under NRS Chapter 689B. Ms. Molasky proceeded to review the handout with the committee. She wanted to point out to committee members that Nevada regulation of the associated marketing plans for group contracts has been used by the National Association of Insurance Commissioners (NAIC) as one of the small employer group models. Nevada was one of the front runners in establishing this type of regulation. Bare bones insurance was the next subject in the handout. Bare bones was established by S.B. 503 of the Sixty-sixth Session in 1991. The Insurance Division does not yet have the report which is required by S.B. 503 of the Sixty-sixth Session. It will be provided to the committee on April 1, 1995. Basically, what is available is the information given to the committee in a prior report. Senator Townsend asked how many bare bones plans are in existence. Ms. Molasky replied there is currently one plan in existence covering three employees. There has apparently not been much interest by the public. Employees and employers want more comprehensive plans. Senator Townsend inquired about the average monthly payment for bare bones insurance. Sharon Weaver, Supervisor, Life and Health, Division of Insurance, Department of Business and Industry was asked to respond to Senator Townsend's question. She said the average monthly premium is approximately $70 to $80 per member, per month. Bare bones coverage includes anywhere from a $200 to $1,000 deductible, $50,000 annual and $250,000 lifetime benefit. Mandated benefits may be purchased as an optional rider for $22 to $34 per member, per month, but the product is fully underwritten. There are just not many takers. Senator Townsend asked if the Division of Insurance had drawn a conclusion about whether price was a barrier to insurance, even bare bones insurance at $70 to $80 per employee? Ms. Molasky stated the public wants more comprehensive plans, but they want those plans at the bare bones insurance price. Such coverage is not available for that price. Senator Townsend asked if the report contained any interviews with employees inquiring what the employee would prefer if given the option of a $100 per month salary increase, or $100 paid on their health insurance premium. Ms. Molasky said most of the research was surveying the various state divisions of insurance and the statistics of what has occurred in the marketplace. Senator Townsend told Ms. Molasky the committee needs information the Division of Insurance garners from colleagues working with the industry nationwide which will enable the division to reach marketing conclusions of why there are 130,000 citizens in Nevada without health insurance. Senator Shaffer wanted to know how many employers are familiar with bare bones insurance. Ms. Molasky replied there had been $18,000 spent on advertising to publicize the bare bones plan, and there had been over 200 inquiries received. She said the committee requested the Division of Insurance provide members with the NAIC small employer group model. After she left the committee meeting, she received several calls asking if the NAIC was a model the Nevada insurance division was promulgating. It is not. There are a number of small employer group models by the NAIC. The NAIC model provided in the handout is the most recent one. There has been no attempt to introduce any type of legislation to adopt any NAIC model. The committee also wanted to be guided through significant portions of the Small Employer Act. Ms. Molasky asked Ms. Weaver to provide the guidance, because she is the one in the division most familiar with the NAIC model provided to the committee members. Ms. Weaver began by touching base with the committee on the groups formed to purchase insurance through insurers. The Division of Insurance currently has a list of 72 companies offering association marketing programs in the State of Nevada. The division plans to send these companies a letter asking for information to update files to make sure what level of insurance a small employer may purchase through these associations, and if, in fact, the programs are still available. There is a market out there for small employers, which leads her to believe the premium structure is one small employer companies are not willing to bend and/or they are not an acceptable underwriting risk. Senator Neal asked Ms. Weaver to explain how rates to one employer's group can be increased more than other employer groups in an association. He also wanted more information on the 3.5 percent premium tax. Ms. Weaver explained for association marketing programs, the insurance division attempted to put some controls on the premium increases which would be imposed on the small employers. First of all, the small employer joins the association because he wants to obtain economies of the larger scale, by having several small employers band together and join the association. In the past, there were abuses and unauthorized activities. Insurance companies wanted to go in and increase the premium on one, individual small employer within the association. The insurance division attempted to put safeguards in place through the regulations which said premiums could not be increased on any one individual small employer. The premiums could be increased up to 100 percent greater than all the other small employers that belonged to that association as long as it could be proved that one employer's losses were at least 150 percent worse than the association as a whole. On groups formed to purchase insurance, the insurance division did not give the insurance companies a break. The insurance companies had to pay the premium tax to the State of Nevada as a part of their cost of doing business in Nevada. On the other hand, the premium tax was eliminated for those companies offering bare bones insurance as an incentive to insurers to sell the product. Of course, they made absolutely no profit on the bare bones policies. With respect to the advertising on the bare bones policies, the insurance division did refer several consumers to Sierra Health and Life, which, at that time, was the only company offering the product. Now, Humana is also offering a bare bones product. Remember, on the bare bones , it is not a guaranteed issue product. Just because the employer applies for the product doe not mean the employer will receive it. Bare bones products are underwritten by the regular standards everyone knows exist in the insurance world. On the bare bones, as is pointed out, there was zero profit to the insurers, and agents and brokers could only make a 2 percent commission. On the other side of the coin, insurance companies were not required to pay a 3.5 percent premium tax on every dollar they earned on any bare bones product. Basically, this bare bones product has a good design to it. The deductible ranges are listed; there is a preexisting limitation of 6 months, before and after. In the 6 months before the insurance becomes effective, if a doctor has been seen, or should have been seen for what would cause an ordinarily prudent to know they needed health care, the insurance company is not required to pay for any claim relating to such visits or needed care until 6 month's worth of premiums have been collected. It is an additional safeguard for the insurance companies so that in the 6 months prior to the purchase of a policy the consumer did not find out he had a dread disease and purchased the policy because immediate surgery was needed and the consumer wanted it covered. It helps keep premiums down. In the past, preexisting conditions have reached as far back as 12 months, 24 months, or 3 years. The insurance division has come a long way in requiring pre-existing conditions to be no greater than 6 months. However, it has caused a premium increase. The bare bones also has an annual maximum benefit of $50,000 and a lifetime maximum benefit of $250,000. Senator Augustine wanted to know what the relationships between deductibles and premium costs are. Mr. Glenn Shippey, Actuary I, Division of Insurance, Department of Business and Industry, responded the premiums of $70 to $80 per month were based on an average deductible amount. Actual premiums would reflect a lesser amount for a greater deductible, but he was unsure just how much difference it would make in the premium. He also wanted to point out that numbers used in the handout were based on data collected in 1992. A lot has changed in the past 3 years. Senator Augustine asked Mr. Shippey to find out what the premiums for bare bones products would be for the various deductibles. Ms. Weaver continued saying the bare bones policy is also guaranteed renewable, except it could be canceled for employers' failures to pay the premiums, or misrepresentation about eligibility. Bare bones does not provide guaranteed issue, does not have portability, but is a fully underwritten product. The insurance division has information from the NAIC concerning their small employer health insurance availability product. NAIC came out with a model act in April of 1993. Later there were regulations commensurate with that version. NAIC then refined the model into a December 7, 1994 draft, included in the handout. The NAIC has taken the need for access and the need for portability and attempted to put forth something the states could consider. Several States have adopted this new draft model. The insurance division does not have any detailed information to give the committee as far as how well the model is working in various states where it has been adopted. This model would basically allow coverage for self-employed, sole proprietors and small employers with no more than 25 employees. It is a guaranteed issue. It has a modified community rating and the modifications for the community rating is based on age, family composition and geographic location. There are bans to limit the percentage increases on the community rate. The April version had premium structures which dealt with classifications and then tax on the increase in premiums. The modified community rating is entirely different from what is seen right now. Thus, the NAIC model brings forth several products Nevada does not have in its market at the present time. The model also has two different products....the basic and the standard....which could be offered. The basic product might be like NRS Chapter 689C, bare bones insurance. The standard product would be anything greater than the bare bones. Ms. Weaver continued to guide the committee through the handout material. She concluded by telling the committee the information furnished was for their future consideration. Nevada has groups formed to purchase insurance through association programs; Division personnel will aggregate the numbers of how many such policies are currently being sold and get the information to the committee. Bare bones is also available, which does not allow the insurers to make a profit, caps the commissions for agents, and waives the premium tax for the insurers. There are also the NAIC models to be considered. One of those models is directed to modified community rating, which would be a huge step for Nevada. That model also has guaranteed issue and speaks to portability. Younger ages will pay an increased premium under community rating. Senator Neal asked Ms. Weaver to tell the committee the composition of the NAIC and Senator Shaffer wanted to know if dependent coverage was included in the NAIC model and the bare bones product. Ms. Weave responded the products discussed included dependent coverage. The NAIC is comprised of the commissioners from all of the states. Nevada's commissioner is a member. NAIC provides Nevada with a valuable source of information. They have actuarial staff, also. Senator Neal questioned whether the handout proposals were merely proposals, or whether there were actual programs of this ilk in existence at this time. Ms. Weaver stated the bare bones product is in existence under NRS Chapter 689C, which could be amended and/or changed. The NAIC programs are in existence. Senator Neal asked for clarification about the statement concerning the reinsur- ance pool and possible additional funding needed for the board as indicated in the handout. Ms. Weaver explained the board might need to receive additional funding from the State of Nevada beyond 5 percent of the premium. In order for the insurance commissioner to have the authority to levy a greater than 5 percent assessment on the industry at large is something which must be closely scrutinized. It may be the insurance commissioner would cause some of these insurers to become impaired, certainly the smaller ones, over a longer period of time. At that point, it may be the insurance commissioner's recommendation, in order to save the market, to 1) disband the entire program and continue to pay off the existing losses, or 2) come before the Legislature and ask for subsidies to assist the programs to carry them through periods of poor experience. It is possible to either have the reinsurance pool and to levy assessments through the board which would regulate the pool, and/or to have a risk adjustment mechanism. The risk adjustment mechanism is just that. It is a mechanism which is left open for the insurance commissioner or the board, whoever is in charge, to make a determination on how to seek the proper funds to pay the losses. It is not very clear in the handout material. The insurance division will have to work on this particular portion to make it clearer. Ms. Molasky finished the presentation by stating a 1993 assembly concurrent resolution urged the insurance commissioner to determine how people between the ages of 50 and 65 years of age, taking early retirement and were not yet eligible for Medicare, could be provided with more comprehensive medical plans which would be more affordable. Subsequent hearings determined the insurance premiums for this group of people could not effectively be reduced and provide the kinds of coverage and comprehensive care desired unless subsidized. Senator Townsend asked Ms. Molasky to get information to the committee as soon as possible on how many closed claims there are regarding medical malpractice cases in the State of Nevada over the last 10 years. When that information was gathered, Senator Townsend wanted to know how long it would take for the insurance division, internally, to analyze those claims and tell the committee how the claims were handled. He wanted the information to be presented similar to the study done by the State of Minnesota on closed medical malpractice claims. He then offered Ms. Molasky a copy of the Minnesota report to use as a guide. Senator Townsend wanted to know where the problem is for medical malpractice and why the premiums are where they are. Is it a lawyer problem, a doctor problem, or is it an insurance company problem? He asked Ms. Molasky to provide him with time lines for preparing this study, and also how much it would cost if the project had to be contracted out. Senator Neal wanted to know if it was the intent of the insurance division to have any of the particular act contained in the handout introduced in some form. Ms. Molasky answered in the negative. Senator Neal wanted to know why it was included in the handout. Ms. Molasky explained the committee requested the insurance division provide the small employer group model act, and that is exactly what is in the handout....a model. It has been adopted by a number of states, but it was submitted primarily for informational purposes at the request of the committee. Senator Neal wanted to know if the insurance division felt a legislated model act is necessary. Ms. Molasky said she was not prepared to give an answer to that question at this time. The insurance division has not really studied that particular model to any great extent. Nevada's demographics are very different from other states and staff questions whether self-insured employers are in any greater proportion in Nevada than in other states. The division does not have that information. There is some information which cannot be obtained from self-insured employers because of ERISA regulations. The division cannot collect insurance data from self-insured employers. It is prohibited by the Federal Government, as far as self-inured employers under ERISA plans. Senator Neal could not recall such a prohibition and asked Ms. Molasky to cite the statute which prohibits the collection of this data. Ms. Molasky could not cite the statute, but recalled the prohibition appeared in the federal ERISA. Senator Neal stated the prevention in the ERISA law only applies when an agency seeks to administer a program, but to request information is not prohibited. Ms. Molasky said her understanding is that there is a limitation on the data which may be collected from the employers. Senator Neal disagreed with Ms. Molasky's understanding and asked her if she had sought an opinion from the Attorney General's Office. She had not. David Kikumoto, President and Chief Executive Officer, BlueCross BlueShield of Nevada, presented the committee with his credentials (Exhibit D). He presented an overview of written materials he submitted to the committee, THE ALOHA WAY, HEALTH CARE STRUCTURE AND FINANCE IN HAWAII (Exhibit E. Original is on file in the Research Library.), and STATE LEGISLATIVE HEALTH CARE AND INSURANCE ISSUES (Exhibit F. Original is on file in the Research Library.). The overview covered three main concepts of health care reform being conducted at the state level across the country (Exhibit G). In summary, Mr. Kikumoto stated BlueCross BlueShield of Nevada is in favor of proposing small group reform. The NAIC model act here in Nevada will improve access, portability and the level of the rate structures. It makes sense to look at expanding Medicaid to attempt to fund more insurance for the near poor. Also, a great deal may be learned from the Hawaii Plan. At the conclusion of Mr. Kikumoto's presentation, Senator O' Connell asked if he had any information on the effect on Hawaii businesses since the enactment of the Hawaii law. How many new businesses have opened in Hawaii? How many established businesses are expanding, and how many are leaving Hawaii? Mr. Kikumoto said he did not have that information, but felt he could get the answers and promised to furnish the answers to the committee. Senator O'Connell offered she had attended several National Taxpayer Association meetings and had gleaned information which indicated the Hawaii law has been very detrimental to the businesses in Hawaii as far as expansion and trying to attract new businesses to the state. Therefore, statistics and information detailing the effects of the law would be very helpful. Senator Augustine agreed with Senator O'Connell because her information, via the assistant minority leader of Hawaii's House of Representatives, supports the fact Hawaii is having quite a bit of financial trouble due to this law. Dr. William Bannen, Medical Director, BlueCross BlueShield of Nevada, and a small business owner for 9 years in Nevada, felt insurance, as unpalatable as it is, needs to have everybody participate in some form in order for it to work at the lowest cost levels. Being very pro business, he is not sure the Hawaii model is the right model, but he feels it is imperative everyone must participate to have a workable, low-cost insurance for each citizen. It is a risk pool sharing of the well and the sick. Senator Townsend reminded the committee, the jurisdiction of the committee is over those employed or seeking employment as opposed to those who are indigent or have some kind of catastrophic medical situation. The fact the medically indigent are not covered in Nevada, per se, leaves a big gap. It becomes the problem because there is no medically needy program in Nevada. The whole issue of the employer/employee is critical and it is important both these groups are involved in making the choices concerning what kind of insurance is wanted. Mr. Kikumoto went on record as supporting the efforts of the committee. His company has a great deal of information, at both the state level and the national level, and is willingly to share it with the committee. Senator O'Connell asked if there is anything going on where there are tax credits due for businesses who are involved with some kind of a medical program. Norman Becker, Regional Vice President, BlueCross Blue Shield of Nevada, responded the only tax credits he has heard of are for employers participating in alliances. Those employers get tax credits. Senator Townsend gave Ms. Molasky a copy of the study on the Minnesota closed medical malpractice claims. He asked her to review the information and give him a report. There being no further business, the meeting was adjourned at 9:30 a.m. RESPECTFULLY SUBMITTED: Sandy Arraiz, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor February 1, 1995 Page