MINUTES OF THE SENATE COMMITTEE ON COMMERCE AND LABOR Sixty-eighth Session May 30, 1995 The Senate Committee on Commerce and Labor was called to order by Chairman Randolph J. Townsend, at 8:30 a.m., on Tuesday, May 30, 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 Molly Dondero, Committee Secretary OTHERS PRESENT: Benedict J. Dasher, Chairman, Nevada Life and Health Guaranty Association Brooke Nielson, Assistant Attorney General, Office of the Attorney General Thomas J. Reich, Deputy Attorney General, Office of the Attorney General Ben Graham, Lobbyist, Nevada District Attorneys Association Marie Saldo, Lobbyist, Vice President Government Affairs, Sierra Health Services, Inc., Sierra Health and Life Wayne Nippe, Corporate Counsel, Sierra Health Services, Inc. Fred Hillerby, Lobbyist, Hospital Health Plan, Coordinated Care Options I.R. Ashleman, Attorney, Southern Nevada Home Builders Association Jim Wadhams, Lobbyist, Nevada Association of Health Underwriters Janice Pine, Director of Governmental Relations, Saint Mary's Health Network Bill Bradley, Lobbyist, Nevada Trial Lawyers Association Don Springmeyer, Lobbyist, Nevada Trial Lawyers Association Sharon Weaver, Actuary II, Supervisor Life and Health, Division of Insurance Jim Smith, Deputy Attorney General, Divison of Insurance Ron Swirczek, Administrator, Divison of Industrial Relations (DIR) Sam McMullen, Lobbyist, Nevada Self-Insurers Association, Las Vegas Chamber of Commerce Alice Molasky, Commissioner of Insurance, Divison of Insurance Danny Thompson, Political Action Director, Nevada State American Federation of Labor/Congress of Industrial Organizations The hearing was opened with a discussion of Senate Bill (S.B.) 493. SENATE BILL 493: Revises provisions governing assessments paid by member insurers to Nevada Life and Health Insurance Guaranty Association. Benedict J. Dasher, Chairman, Nevada Life and Health Guaranty Association, discussed S.B. 493. He explained there is a need for the fees requested by the bill due to the operating expenses incurred by the association. Senator Townsend asked how much will the assessment be to get to the $180,000 budget. Mr. Dasher responded it will be $200 per year, per company. He stated the assessment covers the administrative expenses. Senator Neal asked what is the difference between a class "A" and a class "B" company. Mr. Dasher stated a class "A" company is to cover the expenses of a guaranty association offices to pay the actuaries, attorney's fees, and office expenses. Class "B" assessment is the assessment that actually provides the money necessary to pay Nevada policyholder claims. The hearing was closed on S.B. 493 and opened on S.B. 488. SENATE BILL 488: Makes various changes to provisions governing solicitation by telephone. Brooke Nielson, Assistant Attorney General, Office of the Attorney General, spoke in favor of S.B. 488. She presented Exhibit C and Exhibit D. Ms. Nielson explained Exhibit C. Senator Townsend asked for an explanation of section 5. Thomas J. Reich, Deputy Attorney General, Office of the Attorney General, explained the deletion will be in section 5(10), subsection A4 and section 5(10), subsection C2. Senator Townsend asked if Mr. Reich is comfortable with the bill and if the bill as it is being processed will move sports information services to the gaming control board and will deal with the potential problems discussed in the proposed legislation regulating sports information. Senator O'Connell asked if he had discussed the matter with the gaming control board. Mr. Reich stated he had spoke with Joan Jacka of the gaming control board. He stated there is a gaming control board bill draft request which provides for licensing for sports information services. Senator Townsend asked if the money committees are familiar with the new approach being suggested. Ms. Nielson stated they are, but they have not seen the specific language suggested. Mr. Reich stated the language in the bill addresses several subjects. He explained from July 1, 1993 through December 31, 1993 his office received 38 complaints against "recovery rooms." In 1994 his office received 575 complaints against recovery rooms. He stated most complaints are from consumers who pay a fee to a recovery room in return for the promise that money they had lost to a telemarketing seller would be recovered for them. He stated too often, recovery rooms collect large fees from consumers often in excess of $500. These recovery rooms do little to collect the money which the consumer lost. He stated S.B. 488 is essential to reduce fraud in this area. He stated "recovery rooms" will be prevented from collecting for their services. Mr. Reich explained why "tele-funders" were added to the legislation. He stated a tele-funder is designated as a business which solicits donations by telephone for charitable purposes. He stated between July 1, 1993 through December 31, 1993 his office received 128 complaints against tele-funders. In 1994 he received 700 complaints against tele-funders. He explained most complaints come from people who were promised prizes in exchange for large donations. He stated the donation ranges from $500 to $10,000 and the prize is never received. He said his office has formed a charitable solicitations task force consisting of several state and national charities including the United Way, Better Business Bureau, Aid for AIDS-Nevada, Las Vegas Metropolitan Police Department, Clark County District Attorney's Office, and several other organizations. They have examined the issues involved in tele-funding fraud. Senator Regan commented he has just returned from a conference where other legislators were complaining to him that there is a tele-funding "rip-off" of the Oklahoma bombing tragedy going on right now which is based in Las Vegas. He asked what Nevada is doing to overcome the problem of the unscrupulous people who are collecting money. He commented the people in Oklahoma have not seen any of the money. Mr. Reich stated whenever there is a natural disaster, tele- funders will turn their efforts to taking money for the victims. He commented he has heard from the Oklahoma attorney general's office that they are filing charges against a Las Vegas telemarketer and the Nevada attorney general's office has assisted them in serving subpoenas. Mr. Reich commented the language in S.B. 488 will give them the authority to work on the portion of the industry which is fraudulent. Mr. Reich stated the third change is S.B. 488 modifies the media exception which is currently ambiguous and is being challenged in the Nevada Supreme Court. He explained: That exemption which deletes from the definition of seller and allows people to not have to register was intended to exempt from the definition of seller telephone solicitation by a publisher or some third party, pursuant to a written agreement with the publisher of magazines or newspapers of general circulation. That exemption needs to be cleaned up as contained in the amendment sheet that we have provided today [Exhibit C] to make it clear that it is only publishers and those persons that have contracts with them that do not have to register. Not telemarketers who have changed their business practices to solicit to sell magazines. Senator Townsend asked Ms. Neilson if she is comfortable with the bill. He pointed out there is a change of financing in the department. He asked if she will be able to cut down on the problems detailed by Mr. Reich in his testimony. Ms. Neilson stated they have an interim finance report, but Senator Townsend explained the Senate Committee on Finance does not pass the same type of policy decisions as does the Senate Committee on Commerce and Labor. He asked for a report from her. Senator Townsend commented that no one will ever stop all of the telemarketing fraud. He commented he would like to "see the kind of informational and educational process that obviously will require some effort and funding, maybe some joint funding of public or private partnership, to alert people that it is okay to say `no thank you' and hang up the phone. It is not against the law." He commented educating the public will allow the attorney general's office to be more effective at what they do. Ben Graham, Lobbyist, Nevada District Attorneys Association, encouraged the efforts of the attorney general's office to develop a specialized unit in this field. The hearing was closed on S.B. 488 and opened on S.B. 491. SENATE BILL 491: Authorizes inclusion of provision for mandatory binding arbitration in certain contracts of insurance. Marie Saldo, Lobbyist, Vice President Government Affairs, Sierra Health Services, Inc., Sierra Health and Life, spoke in support of S.B. 491. She stated: The intent of the bill is to enable us to offer, within our benefit plans, to employers, a binding arbitration provision for purposes of dispute of benefits. It is not intended to get involved with medical liability or malpractice, but to provide us with a methodology to deal with claims related to benefit issues. Binding arbitration is used and has the potential for reducing litigation costs and will increase our ability to shorten the time frame in settling our disputes. Senator Townsend asked why this bill is needed and who is going to benefit. Wayne Nippe, Corporate Counsel, Sierra Health Services, Inc., explained the need for the bill. He explained arbitration will reduce the cost of litigation. He stated the reduction in expenses in their budget will help to stabilize their premiums for their members. Mr. Nippe explained he did a study to determine the number of times a litigated case was found in favor of the claimant. He stated 40 percent of the time the decision went to the claimant, but in arbitration, 100 percent of the decisions went to the claimant. He pointed out that arbitration is much better for the claimant. He stated he contacted Kaiser Foundation Health Plan and they indicated they do all of their claims in binding arbitration. They stated they have more claims as a result of the program because it is more "user friendly." He stated more awards are made in favor of the members. Senator Regan asked if the policy holder bears the cost of arbitration as he would in litigation. Mr. Nippe stated under Kaiser's plan the parties share the cost of arbitration. Senator O'Connell asked what lines 15-17 of the bill mean. Mr. Nippe explained the Pepper case litigated in 1985 in the Nevada Supreme Court. He stated that case involved an agreement arbitrated in a medical malpractice claim. In that case the court was concerned as to whether the member was informed that arbitration would be the process to resolve a dispute. In order to address the concern lines 15-17 were included in the bill. He stated: If we follow the criteria in the statute which is to give clear notice of the arbitration provision in our evidence of coverage, if we follow those criteria, then our contract will not be deemed one of adhesion. That is where one party exerted undo influence over another party. Senator Lowden asked if small businesses will be able to use this as an option in their coverage. Ms. Saldo commented she does not feel this is a major consideration in offering insurance for the small businessman. Mr. Nippe discussed Exhibit E. He explained Exhibit E is already in statute and S.B. 491 will add one additional step. He explained that step is to require binding arbitration instead of it being an option. He pointed out binding arbitration is an option of the employer as to whether he wishes to offer it to his employees. Senator Lowden asked if there will be new plan books for employees, and if they will be informed of the changes in the rules. Ms. Saldo stated it is the intent: That this would be a provision that would be highlighted in every way possible in the certificate of coverage and in the sales' presentations, because in order to make the decision as to whether or not you even want this, you really have to have your salespeople explain it, initially. . . the member will have a variety of places where this will be pointed out, bolded and highlighted, so that they are clear on it. Senator Neal clarified that they want binding arbitration for all benefits. Mr. Nippe agreed it would be for all benefit disputes. Senator Neal asked if that includes emergency benefits. Mr. Nippe stated that will be included. Senator Neal expressed his concern that if a person has an emergency and there is a dispute over treatment, the person would have to wait for treatment while the dispute is settled. Mr. Nippe disagreed, stating that is an emergency situation and the service would be received when it is needed. The dispute would be addressed after the treatment. Ms. Saldo pointed out emergency situations are covered benefits. She stated prior authorizations are not applied in emergency situations. She stated: It is the intent [of the bill] when the member challenges us about a decision that we make after the fact that we can take this to an arbitrator . . . The dispute occurs after the care is obtained. This is not intended to deter people from seeking out care when they believe they need it, and certainly not in an emergency of any kind. Ms. Saldo explained there are detailed processes for grievance resolutions in the health management care organization's (HMOs) network. She explained when the grievance procedure is at its end, binding arbitration is used to resolve the problem. She emphasized the bill does not change anything which is currently in legislation, it simply offers another avenue to deal with dispute resolutions. Senator Neal asked why binding arbitration is needed. Mr. Nippe explained currently it is voluntary, but this bill makes it mandatory which will reduce expenses and shorten the dispute resolutions. Mr. Nippe pointed out if a dispute is for $25,000 or less, it is required in both Clark County and Washoe County to go through arbitration. He stated there are many exceptions and exemptions in those requirements. He stated a clever lawyer often will cleverly word the litigation into a medical malpractice situation to force the issue into litigation, which drives up the costs. Senator Townsend questioned the language in section 1, subsection 2, lines 16-17. He commented if an employee goes to work at a business with a binding arbitration contract in their health insurance program, is not the contract one of adhesion. Mr. Nippe stated he hoped the employer will educate the employee. He stated Kaiser Health Foundation includes information about these arbitration provisions in all their marketing literature, inform all their sales people, and they discuss it in the newsletters. He commented they will use the same steps which Kaiser Health Foundation has incorporated into their organization. Senator Townsend expressed his concern that a person is stuck with the restrictions of binding arbitration if they want the job. He stressed he feels it is a contract of adhesion. Ms. Saldo stated there is an option in the grievance process for binding arbitration, but it is not mandatory. Mr. Nippe commented when they attempted to make it a binding provision and mandatory, the Division of Insurance did not approve. Ms. Saldo emphasized the proposed legislation will be a benefit to the consumer with faster resolution of disputes. Senator Townsend asked if they will consider the option of the Division of Insurance eliminating the prohibition against Ms. Saldo from offering this to employers. Mr. Nippe stated he will not oppose that suggestion. Fred Hillerby, Lobbyist, Hospital Health Plan, Coordinated Care Options, spoke in favor of the bill. He stated Hospital Health Plan and Coordinated Care Options would like to use arbitration. He stated he is in favor of removing the prohibition. I.R. Ashleman, Attorney, Southern Nevada Home Builders Association, favored alternative dispute resolutions. He emphasized that emergency room treatments are always provided. The battle for payment comes after the treatment. Senator Lowden asked if it really takes less time to arbitrate than it does to sue. Mr. Ashleman stated it takes less time to resolve a case through arbitration. He pointed out, it usually takes about 60 days from when he is requested to conduct an arbitration hearing. He stated he has never had one take longer than 6 months. Senator Neal asked how an arbitrator is selected. Mr. Ashleman stated they are selected in two ways. He stated a short biography is submitted for selection and a choice is made. Another way to select is by using experience in the service being selected as the criteria. The arbitrator may be rejected by either or both parties participating in arbitration. Mr. Ashleman commented the majority of disputes in the insurance industry are about whether a treatment is covered. He commented it is acceptable to have the Commissioner of Insurance permit arbitration, thus leaving it up to the insurance companies to battle with the trial lawyers over the legalities of the issues. Mr. Ashleman suggested a change in section 5 of the bill relates to the contract between the contractors and the purchasers. He stated, "Frequently, if the courts see you do something in one area and they do not see you do it in another, they draw a conclusion from it that the Legislature did not desire to have this happen in the other area." He stated contractors currently put binding arbitration into their contracts, especially in the larger contracts. Jim Wadhams, Lobbyist, Nevada Association of Health Underwriters, commented a distinction must be made between a legislated mandate for arbitration versus changing the public policy permitting the insurance commissioner to allow a contracting party to include binding arbitration in a contract to be offered for sale to an employer. He stated the language is permissive. Senator Lowden asked if other states have similar legislation. Mr. Wadhams stated there are other states, including California, who have similar legislation. He commented there was a recent United States Supreme Court case Allied Bruce Terminex vs Dobson. The court decided it is the law of the land that in any transaction in interstate commerce the parties may enter into binding arbitration agreements. He stated S.B. 491 and the suggestions by Mr. Ashleman as being a facilitation by the Legislature for contractors in Nevada to take advantage of the Federal Arbitration Act. He stated contracts may contain binding arbitration under the Federal Arbitration Act, if the Legislature has adopted the language that contracts of adhesion and unconscionability will facilitate the alternative dispute resolution process. He stated: The supreme court said in the majority decision, that, indeed arbitrations advantages often would seem helpful to individuals if complaining about a product, who need a less expensive alternative to litigation. Senator Lowden asked if an employer were negotiating a contract for insurance and this provision was a part of the contract as an option, could the employer ask for a lower price for their employees' insurance. Mr. Wadhams stated they could. Arbitration reduces costs to the insurer. Janice Pine, Director of Governmental Relations, Saint Mary's Health Network, stated the network supports S.B. 491. She stated the key word in the bill is "may." She stressed they will want to offer binding arbitration as an alternative, if they desire to do so. Senator Townsend asked if the bill is processed, does subsection 2 have to remain in the bill. Mr. Wadhams pointed out the United States Supreme Court has said insurance may include binding arbitration provisions. He stated state laws to the contrary are preempted. He stated subsection 2 of section 1 is critical to the bill. Senator Neal commented the supreme court case dealt with a private contract. He expressed his concern that the state constitution can only affect contracts that do not have anything to do with public policy issues. Mr. Wadhams stated: No insurance company can sell a contract which has not been approved by the insurance department. Our insurance department has chosen not to allow the inclusion of binding arbitration provisions in insurance contracts . . . The purpose of this statute is to say to the executive branch, as a matter of policy being set by the legislative branch that it is not unconscionable for that provision to be in an insurance contract. It does mandate it goes in . . . it makes it permissive that the insurance can allow binding arbitration in an insurance contract. Senator Lowden questioned if arbitration will eliminate attorneys. Mr. Wadhams explained attorneys will not be eliminated from arbitration. It is up to each party to retain counsel if they so choose. Bill Bradley, Lobbyist, Nevada Trial Lawyers Association, presented Exhibit F. He discussed contractive parties. He opposed the bill because people give up their right to jury trial. He maintained that employees will not know they have given up their right to a jury trial, only the employer will. He stated it is an adhesion contract. He pointed out the health management organizations (HMOs) will be writing their own arbitration rules which will go into their certificates of insurance. They will be able to prevent lawyers from participating in arbitration if the HMOs choose to do so by terms of those rules. Mr. Bradley stressed he supports arbitration, but the insured member has a right to select whether he is willing to submit to arbitration or not. He stated the bill not only places a restriction on jury trial, it eliminates jury trial. He stated the bill has significant constitutional problems. Senator Townsend asked if the bill addresses malpractice situations. Mr. Bradley stated the bill does not involve malpractice. He stated it involves an insurance company's decision as to whether to pay a benefit or not. When an insurance company fails to do a proper and adequate investigation it is acting in bad faith and that situation gives rise to litigation. Don Springmeyer, Lobbyist, Nevada Trial Lawyers Association, explained not all medical problems are emergency problems. He related a case where cancer treatment was denied because the insurance company decided to call the bone marrow replacement a transplant even though it was the patient's own bone marrow. He pointed out he had to go to court in 2 days to try to have the decision reversed so the woman could have her treatment. He stated if S.B. 491 was a law at that time, he would not have been able to go to court to ask for the decision on the treatment. He stated she received the treatment because the court determined she should do so. He pointed out the bill is very carefully drafted to provide that the member who thinks the benefit is covered or deserved does not have the right to go in front of the judge for a temporary restraining order in 2 days to resolve an issue. Senator Lowden asked why an arbitrator could not have provided the same quick response as the court. Mr. Springmeyer stated he cannot say, because he does not know what rules the health plan will write if the bill is a law. He stated the arbitration system is not as quick when a decision such as this must be made. He stated the panel must be selected based on their schedule. Senator Lowden commented the bill is open-ended. Mr. Springmeyer stressed mandatory, binding arbitration, if forced on the employee, is not good legislation. Senator Lowden asked if the woman he spoke about had selected mandatory, binding arbitration, would he have been her attorney. Mr. Springmeyer stated he would have still been her attorney. Mr. Springmeyer stated he has been an arbitrator and it is not as fast a process as has been indicated in previous testimony. He pointed out that claimants who appear in a hearing without a lawyer are at a severe disadvantage. He stated the arbitration system should be encouraged, but it should remain voluntary. Sharon Weaver, Actuary II, Supervisor Life and Health, Divison of Insurance, explained the division is neutral on this bill. She stated the insurance division has aggressively declined requests for mandatory provisions for binding arbitration. Senator Neal asked why they have declined those requests. Ms. Weaver stated insurance contracts are contracts of adhesion. She pointed out the consumer or employee does not have a chance to participate in the creation of that health contract. She pointed out people cannot understand most contracts and do not understand all the terms of their contracts. Jim Smith, Deputy Attorney General, Divison of Insurance, stated a federal arbitration law decision does not, necessarily, bind the state. Senator Lowden asked if any other states, other than California, have this in statute. Ms. Weaver stated Oklahoma has such legislation, but it has been ruled unenforceable for dispute resolution because the contract was a contract of insurance. She stated Oklahoma determined the arbitration provision is contrary to public law and policy. She stated she will not change her position and the Division of Insurance will not change its position. It will not allow binding arbitration. Senator Lowden asked if there were lower costs due to arbitration agreements, is this a possibility for the consumer to lower their premiums. Ms. Weaver stated it takes a long time to see the effects of arbitration to lower premiums. The hearing was closed on S.B. 491 and opened on Assembly Bill (A.B.) 61. ASSEMBLY BILL 61: Expands authority of division of industrial relations of department of business and industry to impose administrative fine for violation of certain provisions relating to control of asbestos. Ron Swirczek, Administrator, Division of Industrial Relations (DIR), presented Exhibit G and Exhibit H. Mr. Swirczek explained the language of the amendment (Exhibit H). Sam McMullen, Lobbyist, Nevada Self-Insurers Association, Las Vegas Chamber of Commerce, expressed his concerns about the amendment. He stated he has had several discussions with Mr. Swirczek and some of the amendments are appropriate. He discussed page 8, subsection 2 of Exhibit H. He asked for clarification of the phrase "in lieu of . . . " He stated there should not be an alternative listed in the statute for subsection 1. Mr. McMullen stated the amendment is intended to establish disciplinary procedures and a clear activation of the Commissioner of Insurance's actions against an insurer who violates the statute. Senator Townsend questioned why the change was made to have a three-times-the-amount penalty instead of the $10,000 fine as it was originally recommended. Mr. Swirczek referred to Exhibit G and pointed out that the clause stating "if the administrator determines if there has been injury to the claimant for the delay or refusal of payment" would require DIR to form a district court within the agency. They would have to have a hearing to determine whether or not there has been an economic loss or further injury to the claimant by the delay. He stated the three-times-the-amount figure caps at $10,000. Senator Townsend pointed out that no one on the committee ever suggested there be a three-times-the- amount regulation for determining the fine. He emphasized the committee recommended the fine to be $10,000 and there was never any intent for it to be anything else except a $10,000 fine. Senator Townsend stressed the entire point of the $10,000 fine is to stop the problem from happening more than once. He stated the first time someone is fined $10,000 for a delay of payment; it will be the last time anyone delays a payment. He stressed he does not want to see the legislation watered down. Mr. McMullen referred to page 9, subsection 3 of Exhibit H. Senator Townsend stated the fines will go to the claimant if the claimant is the one aggrieved. Mr. Swirczek discussed page 16 of Exhibit H. Senator Townsend explained there is no negotiation with people who injure claimants. If they delay payment, they get fined and lose their self-insurance status. Mr. McMullen stated any underpayment of benefit must be paid as soon as possible. Alice Molasky, Commissioner of Insurance, Divison of Insurance, expressed her concern about section 9, subsection 1 and section 11, subsection 2 of Exhibit G. She asked the word "involuntarily" be inserted before the word "withdrawn." Danny Thompson, Political Action Director, Nevada State American Federation of Labor/Congress of Industrial Organizations, commented he questioned what the fiscal note for the agency will be on this bill. With no further business to discuss, the hearing was closed at 11:05 a.m. RESPECTFULLY SUBMITTED: Molly Dondero, Committee Secretary APPROVED BY: Senator Randolph J. Townsend, Chairman DATE: Senate Committee on Commerce and Labor May 30, 1995 Page