Profits up at HMSA, but down at Kaiser
By Frank Cho
Advertiser Staff Writer
Hawai'i's two largest health insurers reported divergent third-quarter financial results, illustrating how some companies are coping better than others with the rising cost pressures that are roiling the state's health industry.
The Hawaii Medical Service Association reported net income of $13.3 million for the first three quarters of 2001, more than triple the $4.6 million it reported for all of 2000. The company said it actually had an operating loss of $8.2 million in its health insurance business for the nine-month period ended Sept. 30, but that was more than offset by $26.8 million in gains from the insurer's $400 million investment portfolio.
Kaiser Hawaii, the state's biggest health-maintenance organization and No. 2 insurer, said it earned $7.7 million for the first nine months of 2001, down 33 percent from $11.5 million it earned for the same period the previous year.
"The cost of providing health care, both the hospital and the pharmaceutical, is just skyrocketing," said Arnold Matsunobu, Kaiser's vice president for finance.
Matsunobu said an aging population and increased use of health care facilities are among the biggest factors contributing to the rising cost of health care.
Critics, however, believe insurers in the state are charging excessive premiums, and they are supporting proposals to regulate the industry.
The state Senate Committee on Commerce, Consumer Protection, and Housing along with the Senate's Committee on Health and Human Services are expected to vote on several bills today that could restrict health insurance rate increases and cap financial surpluses insurers have built up over the years.
There is also a proposal to repeal the tax-exempt status of insurers like HMSA. Last year, because of its nonprofit status, HMSA did not have to pay more than $47 million in state taxes.
The most recent financial reports, which are filed with state insurance regulators quarterly, could provide an important and public window into the financial health of Hawai'i's health insurance industry as legislators consider the current measures, state insurance officials said.
HMSA, the state's biggest fee-for-service health insurance company, said its $8.2 million operating loss for the first three quarters of 2001 was down from $55 million the previous year because of increased revenue from higher premiums and fewer hospitalizations.
"We had a number of long-term contracts renewed so we have an improved revenue situation," said Cliff Cisco, a spokesman for HMSA.
State Insurance Commissioner Wayne Metcalf said HMSA has increased its share of Hawai'i's health insurance market slightly to 67.5 percent, based on the latest financial data. When HMOs are excluded, HMSA controls more than 90 percent of the fee-for-service market. Kaiser's marketshare expanded to 25.6 percent, up from around 20 percent the previous year.
Matsunobu said some of the gains may have come at the expense of other smaller insurers who are no longer in the market or are in the process of leaving.
University Health Alliance, which is under rehabilitation after being seized by state regulators for insufficient capital reserves, reported an underwriting loss of $1.5 million. When a $200,000 gain on investments and $100,000 in other expenses are included, the company had a net loss of $1.4 million for the nine-month period. According to UHA's financial records, it had a capital deficit of $500,000. Its market share slipped to 3.6 percent.
Hawaii Management Alliance Association, which has a 3 percent market share, reported a profit of $300,000 on its health insurance business through Sept. 30. When a $200,000 gain from its investment portfolio is included, the company had a net income of $500,000, along with a capital surplus of $1.9 million.
Metcalf said the Queen's Preferred Plan and Straub Health Plan are phasing out of the market and had not reported their results. Aloha Care does not participate in the private insurance market, so did not report its results.
Reach Frank Cho at 525-8088, or at fcho@honoluluadvertiser.com.
