MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session March 24, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:05 a.m., on Friday, March 24, 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 John B. (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: Renee Diamond, Administrator, Manufactured Housing Division, Department of Business and Industry Charles W. Joerg, Lobbyist, Nevada Manufactured Housing Association Nancyanne Leeder, Attorney, Nevada Attorney for Injured Workers Brian Stockton, Associate General Counsel, State Industrial Insurance System (SIIS) Douglas Dirks, General Manager, State Industrial Insurance System Senator Townsend explained that after the discussion of the bill the hearing on Workers' Compensation Proposals will continue from the previous day. Renee Diamond, Administrator, Manufactured Housing Division, Department of Business and Industry, read Exhibit C expressing her opposition to Senate Bill (S.B.) 252. SENATE BILL 252: Authorizes manufactured housing division of business and industry to establish trust account for advance fees. Senator O'Connell asked if Ms. Diamond had been asked to place a fiscal note on the bill. Ms. Diamond explained she had not. Senator O'Connell commented the problem seems to be in the timing and receiving of information. Ms. Diamond agreed. She further explained that the agency does not have the personnel to do the work quickly. She illustrated that often, employees do other people's work. She explained when titling is behind, then everyone stops their own work to work on titling. She stated the agency has two problems. There are not enough people to do titling and title searches. The request has been placed for two more people in titling, and one more in education. She stated she is addressing the issues. She emphasized, currently, everyone is working at capacity. She explained she does not have the personnel to do the debit entries. Charles W. Joerg, Lobbyist, Nevada Manufactured Housing Association, spoke in favor of the bill. He explained the need to update the agency. He explained there is a drafting error in the bill on line 3. He wishes to remove "state treasurer" from that line. He pointed out how the office is understaffed and the equipment is so outdated, the computers cannot add and subtract. He disagrees that the bill will cause problems for the division. He explained it will not take more time to debit an account, as opposed to accounting for every check that comes into the office. He stated it will take less time, especially if they get new equipment. He emphasized the bill does not mandate. It is permissive, giving powers to the administrator to set up the trust account in the future if she chooses. Previously, the division has not had statutory rights to do this. Senator Augustine asked if the reference to the state treasurer should be removed throughout the bill. Mr. Joerg agreed, it must be removed from each line in which it appears. He said the division will continue to handle funds as they do now. Ms. Diamond pointed out "state treasurer" should not be removed from line 10. She stated the state treasurer does prescribe the procedure for depositing and withdrawing of money. Senator Neal asked how much money and how many people will be needed. Mr. Joerg explained he does not have the exact figures. He stated there are approximately 9,000 title searches done each year at $5 each. He guessed at a number of 50 people requesting to establish trust accounts. They will be park owners, lawyers, and dealers. Senator Neal stated the bill does not suggest an amount. Ms. Diamond commented the division will pre-estimate based on past performance as to the amount individuals will need to deposit. She explained she does not have the staff nor the computer to set up and monitor the accounts, and pointed out she does not have a computer on her desk. Senator Regan asked if the division has considered contracting the title searches out to a title company. Ms. Diamond said she does not think that will work. She said it will increase the fees to do so. Senator Townsend instructed Mr. Joerg and Ms. Diamond to agree to language for the bill and to return at a later date. He continued the hearing on Workmen's Compensation Proposals (Exhibit D). Discussion began with a continuation of testimony from March 23 where there was a presentation by Mr. John Taylor, an injured worker. His testimony explained the demand by SIIS for an excessive refund of money paid to him for an injured eye. Nancyanne Leeder, Attorney, Nevada Attorney for Injured Workers, presented Exhibit E. Ms. Leeder presented Exhibit F, a different version of Exhibit E. Brian Stockton, Associate General Counsel, State Industrial Insurance System (SIIS), discussed Exhibit F. He stated the lump sum payments are discounted to present terms based on the time value of money. He stated the statutes need to be more specific. Senator Townsend asked when the Hayes Decision stopped being used to determine payments. Mr. Stockton stated that happened in 1992. He commented Exhibit F is the Hayes Decision put into statutory language. Ms. Leeder indicated the language in Exhibit F needs to be changed slightly, for it to assist claimants like Mr. Taylor. Ms. Leeder explained Exhibit F, section (a) where the age of 70 is mentioned. She suggested the wording be changed to "upon which his disability was calculated." She said there needs to be an "or" at the end of the line. Senator Townsend instructed Mr. Stockton, Ms. Leeder, and the self-insured representatives to agree on their language for the bill, and to do so as quickly as possible. Douglas Dirks, General Manager, State Industrial Insurance System, listened to a detailed illustration of the goals of the committee for SIIS. Senator Townsend enumerated the goals of workers' compensation and SIIS. 1) Solvency for the system will be achieved, not through mandate, but through a formula which will be equal for all and will be used in the future. 2) Three-way insurance will be placed into the statute to become effective 4 years from now. 3) A board will go into place at the time of three-way insurance. The general manager will continue to answer to the Governor. 4) Those injured workers with a higher disability rate than 25 percent will receive vocational rehabilitation. In general, the program will be eliminated and the savings will be shared between SIIS and the legitimately injured claimants. Permanent Partial Disability (PPD) will go up at the same time. The insurer will pay the accumulated bills of a claimant, then the balance of the PPD will be structured. Claims management will be customized to allow people to attend school, tend to family needs, or whatever it takes to do the best for the needs of the claimant. Senator O'Connell added that a buy out should be considered for those who wish it. Senator Townsend agreed stating if a claimant wishes to be bought out for all things medical, this will be allowed through negotiation. Senator Regan commented selling SIIS might be considered. He suggested going to mediation within the hearings and appeals system to expedite the system. He suggested the Nevada Revised Statutes may be the problem in many of the hearings. He suggested if the law is wrong, then the law should be changed. Mr. Dirks responded to the list of proposals. He commented it is the goal of SIIS to restrain any further reduction in benefits. He expressed his concern that the limitation of vocational rehabilitation may lead to reduction in benefits. Solvency is a goal of SIIS without a significant reduction in benefits. Lifetime buy out with a structured settlement might increase the amount paid out by SIIS. He said he is not opposed to a fully represented claimant sitting down with the system and negotiating their case. He stressed, though he would like the option, the people must be fully aware of the consequences of their decision if they should choose to accept a buy out. Mr. Dirks stated SIIS is a constitutional trust fund established by statute. He said he does not have the authority to sell the system. Mr. Dirks stated if vocational rehabilitation dollars are moved from that category, to a PPD category, the system may find itself in a situation where people who might not have been entitled to a PPD award may now be allowed an award. The opposite might, also, occur. The injured worker will be making rehabilitation decisions for himself. There might be a $12 million savings to the system, if this occurs. Senator Townsend asked about the discount rate which is set in statute. Mr. Dirks commented, "given where interest rates are headed if you were [to] allow it to float, the discount rate would result in a reduction of the amount that is received. It depends where you statutorily set that." Senator Townsend asked why a discount rate should be set in statute because the cost of money floats. Mr. Dirks suggested an adjustable rate with a cap. Mr. Dirks stated the board will be delayed, allowing the Governor to maintain control of the system for another 24 months. He commented the law currently states that once the 24 months is up, the general manager of SIIS will be in control. The Governor's control will be limited to the appointment of the general manager. Senator Townsend emphasized that the committee is not going to stand over the shoulder of the general manager, but the committee does want to be informed of situations within the agency. Mr. Dirks stated there are tough decisions facing SIIS. He pointed out the system is going through tremendous change, the market is changing, and the State of Nevada is changing. Senator Shaffer commented that since the general manager serves at the mercy of the Governor, the committee has no assurance they will be dealing with the same person each legislative session. Mr. Dirks stated he speaks on behalf of the Governor, and whomever shall hold the general manager's position will speak for the Governor. The Governor's feelings for the continuation of SIIS are constant. Senator Neal asked what is meant by "adequacy of premiums." Mr. Dirks said the premiums for the fiscal year of 1995 are adequate to cover claims for 1995. The liabilities from the past are not as well funded. Senator Neal asked an explanation of PPD and vocational rehabilitation. Senator Townsend explained: The concept of vocational rehabilitation has been a concept in which premium payers have put millions of dollars, in this year alone, $64 million, for which the claimant, as well as the premium payer has come back and said, `We have more failure than we have success.' However, since there are people with legitimate, rehabilitation needs, and I suggested that they are those persons with over 25 percent impairment, that we would allow that to stay in place, but we would, simply, eliminate rehabilitation as a concept, take that money over to PPD, then when people receive their PPD, they have to be under this customized service, be advised that is all they are going to get. If they want rehabilitation, they can go buy it, because they have the extra money to do that. If they do not want rehabilitation, if they want to go to college, if they want to buy a business, whatever they want to do will be up to them. It will no longer be a system function to provide that. Senator Neal asked Mr. Dirks for his reaction to Senator Townsend's proposal. Mr. Dirks responded the administrative cost for running the vocational rehabilitation program is about $12 million. Senator Townsend stated a decision will have to be made as to how much of the administrative costs will be shifted to PPD and how much will be a savings for SIIS. The $52 million which is normally spent on rehabilitation will all be shifted to PPD to be spent on the claimants. Mr. Dirks stated there may be a situation where some people may get paid who would not have previously been entitled to payment, and some people who would have gotten money, may get less. Senator Neal remarked, "Do you understand that engendered in his proposal, would be the elimination of vocational rehabilitation." Mr. Dirks responded, "As a specific benefit." Senator Neal agreed. Senator Townsend commented the only way the committee will be assured SIIS will succeed with the proposals, is if the general manager has greater control over the claims' management. He asked if safety in the workplace is improving. Mr. Dirks said some of the reduction in active claims is from the greater attention being paid to safety and some is to the loss of accounts to self-insurance. He stated the self-insureds put more money into loss control than they do into claims' management. He stressed if the injury can be prevented, everyone is the better for it. He pointed out he can do that through greater flexibility than by positioning staff and that heavy fines for safety violations, make workplaces safer. Mr. Dirks stated the insurer should not be the regulator. He explained the policyholders are reluctant to accept services for fear the insurer will see something and turn them in. He stressed his support for a strong enforcement section and a service oriented insurer. He said he prefers to avoid having the insurer act as the policeman. He illustrated Oregon's program where they expanded their loss control program and they developed a very aggressive Office of Safety and Health Administration (OSHA) program. He indicated SIIS has a loss control program which sends people into the workplace to tour work sites. Those people identify where problems might occur. Industrial hygienists test the air for dangerous particles. They assist people in writing safety plans. They act as consultants, rather than policemen, touring the state, distributing literature, and giving seminars. Senator Shaffer pointed out that due to the immense building projects, and the numbers of projects in southern Nevada, it would be extremely difficult to have as much involvement from OSHA. It would take too many people to monitor the system and the cost would be excessive. Mr. Dirks agreed suggesting the large projects are the ones which need targeting by the Division of Industrial Relations (DIR), leaving the smaller projects to SIIS. Senator Neal suggested SIIS and DIR be allowed to make unannounced inspections. Mr. Dirks stressed a private insurance company has the option of canceling a business for a poor loss record. SIIS does not have that option. Senator Townsend summarized the ideas he placed before the committee. 1) Create a standing committee on commercial policy and labor relations law including persons from the Assembly and the Senate. 2) Require quarterly reports to keep the committees informed of SIIS's activities. 3) SIIS will simultaneously work on the solvency surcharge formula that may be used if necessary emphasizing that everyone who has been undercharged during the past 12 years be considered in the formula. 4) There will be a delay for set-up of the board until December 31, 1998 (as suggested by Senator Regan) when three-way insurance is available. SIIS will function as a risk pool as well as an underwriter. 5) SIIS will restrict rehabilitation to those persons who are at 25 percent or greater in disability, and will require that the money be allocated to SIIS and to PPD awards. PPD would increase from .54 to .64. 6) SIIS will prohibit lump sums except where the claimant and insurer come to agreement. 7) SIIS will allow a "get whole" provision where the claimant may bring his or her "necessity" overdue bills in for immediate payment by SIIS. The remaining portion will be structured. Senator Shaffer asked Senator Townsend what the responsibilities will be for the standing committee. Senator Townsend explained the standing committee will meet four times a year, take testimony, and work on the solvency surcharge formula. He explained they will not micro-manage the system. SENATOR O'CONNELL MOVED THE CONCEPTS BEING DISCUSSED THIS MORNING BE INCLUDED IN THE BILL. SENATOR REGAN SECONDED THE MOTION. Senator Neal stated he will reserve his opinion on the concepts discussed until he has had time to further study the issues. THE MOTION CARRIED. (SENATOR NEAL ABSTAINED FROM THE VOTE.) ***** Senator Joerg explained the amendment agreed to by those involved with S.B. 252. The reference to the state treasurer is removed from the bill and they have corrected the mistake in the bill showing it as being in Chapter 461 instead of Chapter 489 where it is supposed to be. He indicated agreement has been reached and requested a vote on the bill. Ms. Diamond stressed the importance of the language remaining permissive. SENATOR REGAN MOVED TO AMEND AND DO PASS S.B. 252. SENATOR NEAL SECONDED THE MOTION. THE MOTION CARRIED UNANIMOUSLY. ***** With no further business, the meeting was adjourned at 10:40 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor March 24, 1995 Page