MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session February 28, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:00 a.m., on Tuesday, February 28, 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 Sue Lowden Senator Kathy M. Augustine Senator Raymond C. Shaffer Senator Jack Regan Senator Joseph M. Neal, Jr. STAFF MEMBERS PRESENT: Scott Young, Senior Research Analyst Vance Hughey, Senior Research Analyst Molly Dondero, Committee Secretary OTHERS PRESENT: Doug Dirks, General Manager, State Industrial Insurance System Alice Molasky, Commissioner, Department of Insurance Lynn Grandlund, President, Grandlund Watson Clark and Associates, Vice President, Employers of Nevada Doug Dirks, General Manager, State Industrial Insurance System (SIIS), discussed the business plan for SIIS. He stated there is a continued reduction in the overall claims expenses for SIIS for the month of January. He commented there is a strong premium revenue which is reflective of the strong economy in Nevada. He projected, as of January 30, 1995, a $90 million positive cash flow for SIIS for the fiscal year of 1995. He discussed managed care for 1994 in comparison to managed care for 1995. He stated during those 12 months, there are reductions in medical costs and Total Temporary Disability (TTD) awards. He cautioned, however, 12 months is not long enough to project realistic figures for comparison. Mr. Dirks declared it is important when looking at reductions in cost, that there is not an inappropriate reduction in medical care for the injured worker. He stated he has been pleased by the reviews of the Managed Care Organizations' (MCOS) programs. He commented the onset of the MCO program proved confusing to many people, but as the program developed people were happier with it, and he feels confident about its continued improvement. He requested reducing the mandate of seven MCOs in Clark County and five MCOs in Washoe County to obtain a more competitive bidding process. Senator Townsend asked Mr. Dirks if he was analyzing the figures relating to the 7 and 5 rule, and what savings could he project for the system based on those figures. Mr. Dirks stated he would like to have the bidding process be as open as possible. He cautioned against choosing an MCO based solely on it presenting the lowest bid. He stressed he is not looking for only large MCOs. He said the smaller ones are doing a very good job, and the policy holders are very pleased with them. He acknowledged there could be 10 or 12 MCOs in the future. He requested the mandate for seven and five MCOs be removed from the law. Senator Townsend stated the 1995 business plan for SIIS contains substantial numbers of changes for management. He commented successful claims management is essential to a well-run system. He stated determining if there is fraud before the fact, not after the fact, is important to the well-being of the system. It is important to prevent the claim which is not a legitimate, work-related injury from getting into the system. He asked what techniques could be used to prevent fraud from entering the system at the onset of a claim. Mr. Dirks stated the best possible communication with the employer is the first place to start to prevent fraud. This communication should start as soon as the claim is filed. One change he is requesting is to permit a claim to be filed over the telephone prior to receipt of the written claim. To do this would accelerate the process and would reduce the number of fraudulent claims. He explained different types of claims should be segregated. Some are simple and can be closed quickly, others, are much more complex, and should be given to the best investigators in SIIS. He pointed out how the difficult claims need to be treated carefully, exercising cost containment initially. These claims cost the greatest proportion of the budget. He stated when a claim is accepted, funds are placed into a reserve, based on projected need. The computer makes the determination as to what the reserve should be. The claim's team is then given a budget to work within. If the claim's team gets to within 80 percent of the projected budget, then the claim is red-flagged, and a manager, then, intercedes to check the claim. He stressed early intervention, then cost-containment, will help to keep the costs in line. Senator Neal commented SIIS is a three part system consisting of the injured worker, the provider, and the insurer. He asked Mr. Dirks how much has been paid out to the injured worker for Partial Permanent Disability (PPD) awards, and Temporary Total Disability (TTD), how much has been paid out to the providers, and how much has been received from the policy holders. He asked how much has been paid out to the MCOs. He asked if the system has been making money, losing money, or if costs have been reduced to the system. Mr. Dirks stated last year SIIS lost money, slightly. Because SIIS was changing accounting systems last year, some of the ways discount reserves were calculated has changed. Because of these changes it is difficult to compare last year to this year. He stated this year there is a slight profit. He said the system paid out $223 million to injured workers last year. He said the year before, the system paid out nearly $280 million. Last year the system paid $99 million to medical providers, and last year the system paid $11 million to MCOs. Senator Neal asked for comparison figures showing what was paid out to injured workers, MCOs, providers, and what was received through premiums and investment income, and a separate category for listing of all administration costs. Mr. Dirks discussed Exhibit C. Senator Townsend asked why the "All Other Claims Expenses" totals doubled in 1994 (Exhibit C). Mr. Dirks stated he is not certain but would obtain that information for the committee. Senator O'Connell asked to what level the unfunded liability will drop during the next 2 years if the trends for 1994 continue. He stated if the system's performance continues as it has, assets will build. Those assets should total $250 million in the bank. It is the actuary's judgement that the claims liability is $2.7 billion. He expects that to be reduced by as much as $300 million dollars next year. Senator O'Connell asked what the "tail" is for each of the self- insured accounts. Mr. Dirks said he would provide that information to the committee as soon as possible. Senator Lowden asked if there are existing MCOs in the rural areas. Mr. Dirks stated there are Preferred Provider Organizations (PPOs) in Carson and Douglas. He stated there is no one in place who can run a workers' compensation program. He pointed out there are existing networks of physicians which could be developed into an MCO. He stated he would like to see the programs remain open-ended to allow the MCOs to tell the system what they think. Senator Lowden asked if Mr. Dirks has considered hiring a third- party administrator. Mr. Dirks stated he has looked at various alternatives, a management transaction or a financial transaction. He has contacted several private insurers and asked for estimates, and has considered using a claims administrator. Senator Neal asked what generates the funds to finance SIIS. Mr. Dirks stated the funding comes entirely from premiums and investment income. Senator O'Connell asked if they are aggressively pursuing closing of old claims. Mr. Dirks stated they are not as aggressive as he would like, but they are improving their techniques. He stated the computer automatically closes claims if there has been no activity for 6 months and the claim is for less than $500. There was an error in the computer program, and it was not closing all the open claims in question. The system is just starting to generate the needed information. Senator O'Connell asked if the "troubled" claims are being shifted into an MCO. Mr. Dirks explained they are not. He stated they could "age" the lost-time claims and would have that information for the committee. Alice Molasky, Commissioner, Insurance Division, was questioned about placing Medicaid under Health Management Organizations (HMOs). Senator Lowden stated the existing MCOs are quickly putting together their applications to become HMOs and readying them for submission to the Insurance Division. She stated, if all progresses as planned, then the requests for proposals will be sent out by July. She stressed it is important for the process to be as competitive as possible to keep the costs down. She asked if the Insurance Division can be ready by July to handle the extra work load these applications will create. Ms. Molasky stated the applications are reviewed by the Board of Health. Once their review is complete, they return the applications to the Insurance Division. The Insurance Division has 90 days to accept or deny the application. She stated they are keeping up with the current flow of applications. Senator Lowden asked what the costs are for the applications and how can the Insurance Division be helped to sort through all the paperwork which will be coming in during the next few months. Ms. Molasky stated there are no funds in the existing budget to hire more staff to handle the extra work. She stated the application fee is General Fund money and is not provided to the Insurance Division for operating funds. She stated the fee is $2450 for applications for certificates of authority, and is set by statute. Senator Shaffer asked how many HMOs are licensed in Nevada. Ms. Molasky indicated she is not certain , but there have been more applications during the past year than in previous years. She stated the requirements do not differ greatly from state to state for an HMO to be licensed. Senator Regan asked if there is reciprocity in Nevada for an HMO from another state. Ms. Molasky stated Nevada does not have reciprocity, but because they are an existing HMO, the task is easier for them to fill out all the paperwork. Senator Lowden asked if Ms. Molasky receives 8-10 more applications, will the Insurance Division be able to fill all the requests by July. Ms. Molasky stated they have 90 days by statute to review the applications, but the application must go to the Board of Health first and she is not certain how long they have to review the application. Senator Lowden expressed her concern that there is not enough time to complete the process by July and the Insurance Division does not have the staff to do the job. Senator O'Connell suggested contract workers be used for the limited time it would take to handle the increased work load. She asked who could do this work. Ms. Molasky replied she could not think of anyone who could do the work, but Senator O'Connell reminded her the staff would have to be trained to do the work, too. Ms. Molasky indicated she feels there are those who can do the work. Senator Townsend stated there are HMOs who have indicated a desire to enter Nevada, whether for SIIS or Medicaid, who are going to flood the department with applications over the next 6 months. He asked how the state should serve them best, to allow them to bid. He acknowledged the idea of contract workers as a good idea. He stated the Legislature needs to raise the application fee through statute, so the Insurance Division may hire the contract people to do the work within the given time frame. He told Ms. Molasky she needs to share with the committee what it is she needs to accomplish the objective. Senator Regan stated when someone applies for a gaming license, the State Gaming Control Board charges the person for all the work involved. He asked if the new fee structure could be changed so the HMO licensing procedure could do the same. He stressed the fee is a user fee and if more staff is needed to process the fees, then the fees should pay for the increased needs. Senator Lowden agreed with the suggestion. She commented the gaming fee is a flexible fee. She stated the General Fund should not be paying for the licenses. Ms. Molasky stated all the fees for certificates of authority, appointments of agents, and other processes of the Insurance Division are deposited into the General Fund. Lynn Grandlund, President, Grandlund, Watson, Clark and Associates, Vice President, Employers of Nevada, expressed the concerns of the small business community. She stressed the small business owners are afraid they will not have input into the insurance company. They are, also, afraid the MCOs will be cut in number and will not be able to offer good care to the injured worker. She stated the smaller MCOs are doing a better job for the worker, than many of the larger MCOs. She expressed her concern that the self-insured associations are not collateralized. She shared a conversation with a business owner in Michigan who is considering locating in Nevada. He compared Nevada's statutes to Michigan's and was concerned that the associations were not collateralized. She cautioned that the associations do not become discriminatory. Ms. Grandlund commented the MCOs are improving and are learning about workers' compensation. She outlined three important points an MCO must remember. They should remember to review the worker's file, contact the employer, and contact their representative. Senator Townsend closed the hearing at 9:50 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor February 28, 1995 Page