Editorial: Future for workers’ comp fund

Tuesday, May 4, 1999 | 12:14 p.m.

When looking at this debate it's important to take a step back and look at this issue from some perspective. Until 20 years ago in Nevada, all employers had to obtain their workers' compensation coverage through one source: the state workers' compensation fund. But the Legislature at that time decided to allow companies with enough financial wherewithal to self-insure, providing their own workers' compensation coverage. The result: More than half of the work force in Nevada today is covered through such self-funded plans.

The decision two decades ago to allow the cream of the crop to leave hurt the state fund irreparably. Over time the fund has been left with those companies that often are smaller or those with higher risks. In the early 1990s the state workers' compensation fund was in danger of going bankrupt -- which could have had disastrous results. The fund's debt was more than $2 billion, which at the time was the size of the state government's budget for two years. A series of internal and legislative reforms, though, has helped reduce the debt to the point where the system's debt might be sold to reinsurance companies.

But the state fund faces another hurdle from a law passed by the 1995 Legislature. Starting July 1 private insurers will be allowed to enter Nevada's market and compete with the state fund. Doug Dirks, chief executive officer of the fund, believes Employers Insurance Co. of Nevada could lose 50 percent to 60 percent of the more than 44,000 policyholders the fund now has. The loss of business could require layoffs of 300 to 600 of the state fund's 900 employees. (Guinn is trying to soften the blow by providing $2 million in retraining for laid-off workers; for those close to retirement the state will offer five years in pension credits to enable early retirement.)

Another factor that steers discussion toward privatization is that the state fund will not be the insurer of last resort once private insurers are allowed into the market. The state Insurance Division has selected two private insurers -- Hartford and Travelers -- to provide insurance for those companies unable to find affordable insurance. One of the primary needs for a state fund in a competitive market, therefore, no longer would exist in Nevada.

In an effort to cushion the impact from the transition to an open market, the 1997 Legislature decided to enact price controls until 2003. While there will be caps to make sure there isn't predatory pricing by large insurance companies, at the same time the National Council on Compensation Insurance will set price floors as well. It is estimated that 8,500 employers who now pay $120 a year for every employee will have to pay at least $210 per employee for every employee.

Considering the stakes involved it was sad to see the Senate last week experience a meltdown in civility over privatization. In response to Democrats' parliamentary maneuvering, Republicans held a floor session shortly after midnight on Friday to consider Guinn's privatization legislation. The Republicans then prohibited any debate on the bill and walked off the floor en masse without adjourning. Determined to match the Republicans' spite, Democrats then invoked a rule that required the sergeant-at-arms to round up those Republicans who went home to sleep. After enough Republicans came back to constitute a quorum, the Democrats eventually adjourned at 2:20 a.m.

When the Legislature permitted self-insurance two decades ago, the die was cast that one day the state fund would fade away. The key now is for the Legislature to make this transition as painless as possible. Employers, injured workers and even the fund itself will experience rough times as these sometimes wrenching changes occur. Hopefully the political gamesmanship that occurred last week in the Senate will not repeat itself in the Assembly where the legislation now resides. The stakes are too high for this type of sideshow to develop on such an important issue.