HMSA to increase rates

By Frank Cho
Advertiser Staff Writer

The state's biggest medical insurer plans to raise rates by an average 9 percent or more this year, leaving employers facing nearly double-digit increases in the cost of health insurance for the first time since the early 1990s.

The Hawaii Medical Service Association said yesterday that rising drug costs are behind the rate increase, which will affect about 10,000 local businesses, primarily those with fewer than 100 employees.

"Skyrocketing drug costs and increases in benefit utilization pushed Hawai'i's health care costs upward," said Cliff Cisco, senior vice president for HMSA. "We've seen drug costs rise 18 to 22 percent per year over the past few years."

The rate increase by HMSA comes as other Hawai'i health insurers also have announced plans to raise rates, or are reviewing the possibility.

And with the state economy expected to slow later this year, some businesses said yesterday they don't know how they are going to handle the extra costs.

"It's a tough situation," said Harry Horita, human resources director for Alaka'i Mechanical, a local subcontracting firm based in the airport industrial area.

Horita said the company had already asked its employees to pick up some of the cost of increases in the past and will likely do so again this year.

Rising health insurance costs are a national problem, experts said.

Across the country, rising drug costs, falling medical reimbursements and an aging population have all contributed to the runaway expense of many aspects of health care.

Cisco said the high costs of new drugs such as cancer medications or the latest very expensive arsenal of arthritis medications being prescribed so widely, are helping fuel the need for rate increases.

"There's just this steady continuous pressure from the pharmacy industry of increasing costs," Cisco said.

But critics say the latest increases faced by Hawai'i employers are far above those of just a few years ago, when most premiums rose in single digits.

"In some ways it doesn't seem fair," said Don Morrison, general manager for John Groark & Associates Inc., a specialty contractor in Kapolei. "It seems like it's always the small businesses that are having to take it."

Businesses can choose to absorb the costs themselves, pass on some of the costs to their employees, or pass on some or all of the costs to customers.

Morrison said he most likely will pass the costs along to consumers in the form of higher prices.

"It's like gasoline. It's a necessity you have to have so we will have to look at our pricing," Morrison said.

Irene Miyake doesn't know yet how the small building supply company she and her husband, David, own is going to handle the latest rate increase for medical insurance, but she does know one thing.

Even though the Hawai'i Medical Service Association rates are going up, Miyake Concrete won't change anything it offers its employees.

"I don't think we'll take away anything," said Miyake, who is corporate secretary for the Maui company that has 55 employees in four offices.

By state law, businesses are required to provide health insurance for workers, but coverage for dependents, plus drug, vision, and dental coverage is not part of that requirement.

"Employers have few options as far as limiting basic benefits," Cisco said. "Most pay 100 percent of the employee rate and then employees may pick up additional costs for dependents. But sometimes companies pay that, too."

For state employees, HMSA is in the middle of a two-year agreement. But the insurer said the state could see similar increases when its contract comes up for renegotiation in another year.

HMSA is not the only company struggling with the increased costs of medical care.

University Health Alliance is raising its rates between 6 and 10 percent after it was put under a supervisory watch by state regulators because of inadequate reserves.

And Kaiser Permanente Hawaii, the state's biggest HMO, is also looking at raising its rates again next year because of rising medical costs and increased use of services.

"Our long-term strategy is to keep our rate increases in the single digits," said Chris Pablo, a spokesman for Kaiser.

According to financial reports recently filed with the state, Kaiser Hawaii recorded net income of $2.5 million, down 26.5 percent from $3.3 million in the same period a year ago, because of increased drug costs and other expenses.

The company, which raised rates 4 percent this year, is expecting to announce its new rates for 2002 sometime in the fall.

This is the fourth consecutive year of higher rate increases by HMSA to combat rising drug and claims costs.

The increase, the biggest since 1993 when rates rose 9.3 percent, comes after HMSA announced last week that losses from operations widened to $49 million last year from $17.7 million in 1999.

Revenues were $1.1 billion in 2000, but the company said payouts to doctors and hospitals rose 11 percent, or $97 million, from a year earlier.

The insurer said the average monthly dues for its more popular Preferred Provider Plan, medical portion only, will be $182.88 for a single plan and $548.64 for a family plan, an 8.5 percent increase over last year.

When drug, dental and vision are included, the premium will rise about 9 percent, to $248.84 for a single plan and $746.52 for family coverage.

HMSA's health maintenance organizations —ÊHealth Plan Hawaii and Health Plan Hawaii Plus — are also raising their rates between 12 and 13 percent, the company said.

Monthly premiums for the Plus plan, medical only, will be $182.88 a month for a single plan and $548.64 for a family.

When drug, dental and vision coverage is included, the monthly premium is $227.96 for a single plan and $683.88 for a family.

HMSA said about 62 percent of its members select the preferred provider plans, the rest choose Health Plan Hawaii or the Plus version.

HMSA said it also has modified its three-tiered prescription drug benefit by adjusting the member co-payment for the more expensive preferred and brand name drugs, to help keep the increases down and ease the financial burden on employers.

The insurer said members will still pay only $5 for generic drugs at the pharmacy counter, but co-payments for preferred and brand name drugs will jump 50 percent, to $15 from $10 a year ago.

The most recent rate adjustment, which begins July 1, will affect about 20 percent of HMSA's 625,000 covered members.

Advertiser Staff Writer Bev Creamer contributed to this report.