Guinn's plan to privatize insurance could cost 600 jobs

CARSON CITY -- Up to 600 state employees could lose their jobs under Gov. Kenny Guinn's plan to privatize the Employers Insurance Co. of Nevada, which writes workers' compensation coverage for 44,000 businesses.

Guinn's proposal to end the 84-year-old state system was heard Monday by the Senate Committee on Commerce and Labor, which will hold a hearing Friday.

The proposal was delivered by Douglas Dirks, who heads the insurance company.

The benefits for the state workers in the system now would be phased out and those who are being laid off would get priority in other state hiring. All employees who remain with the company would lose their civil service protections.

Organized labor announced immediately it was "adamantly opposed" to the plan. Danny Thompson, lobbyist for the Nevada State AFL-CIO, called it an effort at "union busting" by taking away many of the rights of state employees.

This is the second major overhaul of state government proposed by Guinn. He wants to privatize the medical system in the state prisons, which would eliminate more than 300 positions.

Dirks, in a prepared statement, said, "The proposed legislation reflects the governor's belief that with the opening of our market to competition, there is no longer a compelling need or reason for the state to operate an insurance company."

Under current law, on July 1, private insurance companies will be able to write policies to cover workers injured on the job, competing for the first time with Employers Insurance, which was formerly called the State Industrial Insurance System.

But instead of Employers Insurance continuing to operate as a quasi-government agency, Guinn wants to make it private. He plans to change the name of the company to Employers Mutual Insurance Co., of Nevada, which would operate for six months as a tax-exempt mutual insurance company owned by the state.

On Jan. 1, 2000, the public company becomes a private mutual insurance company and will no longer be a governmental agency. The policyholders will elect a new board of directors. And it would expand to write other lines of property and casualty policies.

When competition arrives, the system will see many of its customers leaving for private companies. If it loses one-half of its market, some 450 jobs will be eliminated, Dirks said. If it loses two-thirds of its policyholders, some 600 jobs will be lost.

To ease the transition on workers, Guinn is setting aside $2 million for retraining. The new company will buy up to five years retirement credits so some workers can take their pensions early. It expects 150 of its 900 current employees to take the buyout.

Those being laid off will get priority in hiring at other state departments. Those agencies that employ workers from Employers Insurance would be exempt from the hiring freeze. Workers will be placed at the top of all rehiring lists, ahead of any other layoffs that might occur in other agencies.

The workers would hold re-employment priority for more than two years.

For those employees who remain, their leave and vacation time will continue with the new private company. Workers will continue in the state retirement and health insurance program until Jan. 1, 2000, when the new mutual firm will devise its own pension and benefits plan.

As a private company, it will participate in Social Security. On Jan. 1, 2000, all employees, whether permanent or probationary, will automatically and immediately vest in the private company's pension plan.

Employers Insurance of Nevada, when it was called SIIS, was near bankruptcy in 1992 when Gov. Bob Miller took control from an appointed board of directors.

Medical benefits were trimmed for injured workers. The system employed managed care organizations, eliminating the workers' right to choose a physician. Employers with poor safety recorders had to pay deductibles on medical expenses. Job safety programs were emphasized.

From a deficit of more than $2.2 billion, the system has recovered under the direction of Dirks. There is still a $1.6 billion deficit but that has been placed in a separate account and the new company boasts more than $800 million to the good.

Under the Guinn proposal, the $1.6 billion debt would be sold off to a reinsurance company. Employers Insurance would also pay the reinsurance company a sum of money, thus wiping its books clean of the debt. The reinsurance firm would then manage the debt and invest its payments in hopes of making a profit.

Dirks said, "The governor does not want the state to ever face the financial catastrophe it faced in 1992 when SIIS was within 18 months of financial collapse."

archive