New health plans blocked

By Frank Cho
Advertiser Staff Writer

A special panel that includes Hawai'i's largest medical insurer recommended the rejection of nearly every Mainland employer-sponsored health plan that tried to enter the state's insurance market last year.

Of the roughly 100 employer-sponsored plans reviewed by the seven-member Prepaid Health Care Advisory Council last year, about 96 were initially rejected, according to minutes of the council's meetings. Of the 64 plans reviewed so far this year, all but five have been rejected by the council.

The state-appointed council says it initially rejected the plans and recommended changes because the plans did not satisfy state requirements in areas such as fee structure and coverage.

While many of the employers whose plans were rejected decided to make the recommended changes to win council approval, nearly half chose instead to buy local health coverage from Hawaii Medical Service Association, one of the panel's seven members, a state Labor Department official said.

Pelican Products Inc., an equipment case and high-tech flashlight manufacturer in Torrance, Calif., is one of the employers who submitted an insurance plan for council approval earlier this year and received a letter saying it was rejected.

"I was shocked," said Dana Brooks, a spokeswoman for Pelican. "The changes they (the council) asked us to do we just couldn't. We started looking at the costs and it just seemed a lot simpler to buy a local plan. You want to go with a company that is already operating in Hawai'i and knows the ins-and-outs."

Pelican opted to buy coverage from HMSA. Brooks said she was surprised to learn an HMSA representative was on the council that rejected the company's initial insurance plan.

As one of the council's members, HMSA helps review the employer plans. Kaiser, the dominant health maintenance organization in Hawai'i, also sits on the panel, but few employers seeking to enter the market apply to offer competing HMOs. HMSA defends its place on the council, saying it does not use it to thwart competition.

But that role has raised questions in recent months. A U.S. Justice Department investigation of HMSA in connection with possible antitrust violations has included questions about the insurer's role on the council and whether it has used its position to limit competition.

State Insurance Commissioner Wayne Metcalf said he also has received several complaints from employers about the council, although none have been formalized.

"They are concerned that competition is being limited through a gatekeeper effect," Metcalf said.

Created under the 1974 Hawaii Prepaid Health Care Act, the council is the only one of its kind in the nation and was designed to ensure that employers in the state are meeting the minimum insurance requirements for their employees.

Appointed by the Labor Department director, the seven-member council has representation from the hospitals, insurance industry, medical profession, consumers and the state's two dominant insurance plans — Kaiser Foundation Health Plan, the largest health maintenance organization in the state, and HMSA, the largest fee-for-service provider.

There are no term limits and current members' experience on the council ranges from one year to more than 16. Members, who serve without pay, meet about every six weeks to review plans and make recommendations.

HMSA, which provides coverage for more than half of the state's 1.2 millions residents, said it does not use its position on the council to keep out competition.

"I just don't think a lot of people understand the role of the council," said Cliff Cisco, a spokesman for HMSA. "HMSA is just one seat on the council. We don't believe we have any more influence than anyone else does."

Paul Tom, a health-care consultant who has chaired the council for the past 10 years, said neither HMSA nor Kaiser has more influence on the council than other members. And when employers propose using an HMSA or Kaiser plan, HMSA and Kaiser members recuse themselves from the recommendation process.

"What everybody forgets is it's the law that sets the standard," Tom said. "Whether the council is good, bad or indifferent, that is a matter of perspective. I see it as leveling the playing field."

Tom said the council reviews recommendations first made by the state Labor Department staff, which compares any new, proposed insurance plans to the most popular fee-for-service plan in Hawai'i, which is HMSA's.

Under state law, the employer-sponsored plans are required to be "comparable" to HMSA's most popular health plan. But state law does not require such plans to exactly match, allowing the staff and council some discretion in recommendations.

The council then reviews the staff's analysis and makes a recommendation to the director.

Some on the council believe that any concerns with the process should be directed at the law that created the council, not at the council itself.

"I don't think the problem is with the council," said William Brown, vice president of human resources for Outrigger Hotels Hawai'i and a council member since 1987. "The market has so changed over the years that the Prepaid Health Care Act is antiquated beyond its usefulness."

Brown said HMSA and Kaiser have been valuable resources on the council in helping evaluate other plans. But he acknowledges that by being on the council the two companies may be getting "a leg up" on their competitors by seeing their plans; he said he would rather see the state's health-care industry move more toward a "free-market" approach in which health plans would compete freely for business.

Still, supporters say the council plays an important role in keeping Hawai'i's health-care industry among the best in the nation. And they say the Prepaid Health Care Act — which makes Hawai'i the only state in the country to require employers provide a minimum level of health-care benefits for employees who work 20 hours or more — ensures that employees get quality health care.

"I think the Prepaid Health Care Advisory Council is a good thing," said Dr. Guy Hirayama, a Maui pediatrician and president of the Maui Medical Group. "Choice is one thing, but choice without substance may be more harmful to the consumer."

"The screening process makes sense. The state has a responsibility to ensure that the insurance plans offered consumers are valid plans. If we let any old insurance company come in here and it fails, it will be the consumer who pays."

Tom said the council makes its decisions based on state insurance requirements and its recommendations are given to the director of the state Labor Department, who makes the final decision.

In the past 16 years, the director has asked the council to reconsider a decision on three occasions, Tom said.

Still, because of its key role, some Mainland experts said they believe the council has been keeping competition out of Hawai'i's health insurance market.

"I don't think there is much doubt that they (HMSA and the council) are deterring entry into the market," said Thomas Saving, a professor of antitrust economics at Texas A&M University and a director of Private Research Enterprise, which sponsors research on economic issues.

Saving said few Mainland health plans can enter Hawai'i without making changes that could add significant costs to employers because the level of benefits that must be provided are so high in Hawai'i's fee-for-service and HMO markets.

Local critics, including physicians and employers, also say the problem is that HMSA sits on the council and votes on competing plans.

"I just don't think a company that has a financial interest should be involved in the process," said Richard Miller, a retired law school professor and legal adviser to the Hawai'i Coalition for Health, a consumer advocacy group.

That process includes letters from the state Labor Department to employers whose plans fail to measure up. And while Tom said the council votes to give conditional approvals to employers' health-care plans, in the letters, Labor Department officials state that the council has "recommended its disapproval" of the plan.

Tom, who has been on the council for 16 years, said he was surprised to learn of the letters' wording.

"I don't know what their rationale is for that," Tom said. "What the director does with his staff you have to talk to them about."

The state says it changed the wording because some employers were misinterpreting the conditional approvals as clearance to offer their plans in Hawai'i without modifications.

Dorothy Jones, a human resources director with a Fremont, Calif., semiconductor company, said her company's initial health plan also was rejected by the council. The company later bought coverage from HMSA.

"There just seems to be a conflict," Jones said of HMSA's role.

This year, of the nearly 60 employer plans rejected, about half will likely buy an HMSA plan, said Noraine Ichikawa, the state's Prepaid Health Care Program chief.

Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.