Posted on: Friday, May 3, 2002

HMSA profits up 38% last year

By Frank Cho
Advertiser Staff Writer

The Hawaii Medical Service Association said profits rose 38 percent last year on higher member premiums and narrower losses from the company's health insurance business.

HMSA, the state's largest health insurance services provider, reported net income of $6.5 million, up from $4.7 million the previous year.

But when gains from the company's investment portfolio are excluded, HMSA posted an operating loss of $19 million, down from an operating loss of $49.4 million in 2000.

It was the fourth straight year of operating losses for HMSA, which controls more than 90 percent of the fee-for-service medical insurance market.

"In 2001, we saw medical costs continue to outpace health plan rates," said Bob Hiam, HMSA's president and chief executive officer. "Two factors contributing to higher costs included: our aging population and our use of prescription medications."

Hiam said nearly half of the HMSA's members are 40 years old or older and the number of people between 50 and 64 years old has increased 34 percent in the last five years.

The company said it had operating revenues of $1.22 billion, but those were offset by benefit payments and expenses totaling nearly $1.24 billion. Total assets were $823.4 million, the company said.

However, the company's financial reserves fell to $483.2 million, down $19.3 million or 6.3 percent from $502.5 million the previous year, because of unrealized losses to the company's investment portfolio.

The state Legislature just passed legislation that could cap health insurance rate increases, over concerns about rising health insurance costs and HMSA's large reserve. But the company said its reserves are not excessive and represent only $765 per member, down from $816 a year ago. HMSA has more than 631,000 members.

In a filing with the state's insurance division earlier this week, HMSA reported net income of $19.1 million, up more than three-fold from $4.6 million the previous year. However, that report included a one-time $12.5 million gain from an accounting change mandated by the National Association of Insurance Commissioners.

Excluding that gain, under generally accepted nationwide corporate accounting principals, HMSA's profits rose 38.2 percent to $6.6 million from $4.7 million in the previous year.

"Overall, their picture is quite profitable," said Wayne Metcalf, state insurance commissioner.

But Steve Van Ribbink, HMSA's chief financial officer, said the state also did not take into account a $27.2 million unrealized loss in investments.

"Economically, we had a loss last year," Ribbink said.

The National Association of Insurance Commissioners changed the way health insurers report their financial data in 2001 under Statutory Accounting Principles, allowing HMSA a $12.5 million gain that was not there in the year-earlier period, Ribbink said.

"Anytime you are in the middle of accounting changes, you will see these wide swings," Ribbink said. "In 2002, things should clear up."