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The Honolulu Advertiser

Posted on: Thursday, May 16, 2002

HMSA profits soar 10-fold

By Frank Cho
Advertiser Staff Writer

The Hawaii Medical Service Association, the state's biggest medical insurer, yesterday reported first-quarter profit rose nearly 1,000 percent from a year ago, reflecting higher premiums, lower administrative expenses and slower growth in healthcare utilization costs.

HMSA said net income for the three months ended March 31 rose to $3.8 million, up from $38,010 in the same year-earlier period.

When investment gains, taxes and other expenses are excluded, the insurer said it actually lost $293,435 for the quarter, an improvement from a loss of $14.9 million in the same quarter a year ago.

The insurer's financial picture was filed late yesterday with the state. HMSA officials said much of the gain in net income came from increased membership.

Cliff Cisco, a spokesman for HMSA, said the company had absorbed an affiliate HMO, Health Plan Hawaii, which accounted for the largest jump in premiums collected. HMSA's membership rose from 616,000 last year to more than 631,000.

According to HMSA's financial report to the state insurance division yesterday, the company collected $354.6 million in premiums during the first quarter of 2002, up 34.6 percent from $263.5 million in the same quarter last year, despite raising rates an average of only 9 percent last year.

"Whichever way you look at it, HMSA had a very good first quarter in 2002," said Wayne Metcalf, state insurance commissioner.

The nonprofit mutual benefit organization has come under increased scrutiny recently from state regulators, consumer advocates and legislators who question its building more than $400 million in a reserve fund while raising members' health insurance premiums.

The state Legislature passed a bill this month that would require health insurers to seek state approval before raising healthcare premiums. The governor is expected to sign the bill, which would take effect Jan. 1.

HMSA is the leading provider of fee-for-service medical insurance in the state, with more than 90 percent of the market. The company is also the No. 2 provider of HMO coverage, behind Kaiser Permanente.

Under a state law passed two years ago, HMSA is required, along with other insurers, to report financial performance to state insurance regulators quarterly.

HMSA said hospital costs increased 32 percent to $265.2 million during the first quarter, from $200.9 million a year ago. The company paid doctors $13.3 million, up 4.2 percent from $12.7 million; prescription drug costs, one of the fastest-growing segments of healthcare costs, rose more than 30 percent to $53 million during the quarter.

Metcalf said yesterday that he still had questions about HMSA's true financial picture and why it reports one set of figures to the state and another to its members.

According to the National Association of Insurance Commissioners, which sets rules for financial reporting by the industry to state regulators, HMSA is supposed to include explanations of changes in its consolidated financial statements, Metcalf said.

"We want to find out how they reconciled their quarterly statements, and why they are different from the annual statements they give to their members. HMSA has an obligation to provide accurate and consistent information. Obviously we see some inconsistencies, but I don't want to say much more than that publicly at this point," Metcalf said.

HMSA said the differences could be explained by the two reporting systems it is required to use: one for the state; another to report its financial performance to members.

"The insurance division requires a filing that uses the NAIC standard. That standard uses the statutory accounting principles, which is different from the generally accepted accounting principles used by most other businesses," Cisco said. "We will be happy to explain that to the insurance division."