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The Honolulu Advertiser

Posted on: Monday, August 13, 2001

HMSA reserve levels worth a public review

No one wants the Hawai'i Medical Service Association, the state's largest health insurer, to get itself into a financially precarious position. That means substantial financial reserves are necessary as a hedge against economic vagaries and rapidly increasing medical costs.

But the state, residents covered by HMSA, the companies those people work for and healthcare institutions all have more than a passing interest in the level of reserves that HMSA chooses to maintain.

As detailed by Advertiser staff writer Frank Cho, those reserves have more than tripled during the past 10 years while rates have grown for most HMSA members.

HMSA's reserves were more than $502 million at the end of last year, more than five times the level required by state law and surpassing the level recommended by Blue Cross/Blue Shield.

HMSA said it believes the reserves are necessary to pay for operating losses when premiums don't cover expenses. And indeed, that is precisely what has happened for the last three years. Last year, HMSA reported an operating loss of $49 million. A $66 million gain on investments more than offset the loss, yet HMSA still chose to raise rates for most businesses. Last year, rates for the Preferred Provider Plan rose 8.6 percent; the previous year rates went up 6.8 percent.

HMSA says reserves cover losses while rate increases cover expected costs, such as inflation. That's all well and good, but the critical question is the amount of cushioning HMSA chooses to maintain.

The time has come for the Legislature to take a serious look at what HMSA's reserve level should be, particularly in light of recent rate increases. While there is little doubt that the level of reserves required by state law is too low for comfort, it may be possible that there is also a need for a state cap. That is already the case with other forms of state-mandated coverage, such as automobile insurance.

As businesses and individuals struggle with rising costs and economic worries, someone has to keep an eye on the costs of health insurance, particularly as competition in that field lessens.

In Hawai'i, oversight is doubly our business. Hawai'i law mandates heath insurance coverage for most employees. That means most businesses and their employees must have health insurance and pay for it. That is certainly a social good. But that puts a mandate on the Legislature to ensure that the rates are appropriate, particularly in years when HMSA's investments reward it handsomely.