HMSA suffers 66 percent drop in profit
By Frank Cho
Advertiser Staff Writer
The Hawaii Medical Service Association yesterday said its third-quarter profit fell nearly 66 percent and the company will likely have to raise rates again next year to cover rising prescription drug, doctor and hospital costs.
HMSA, Hawai'i's largest medical insurer, said income for the quarter ended Sept. 30 fell to $4.3 million, down from $12.8 million in the same year-ago period.
When taxes and a nearly $10 million gain on investments are excluded, the company said it had an operating loss of $11.6 million, compared to a gain of nearly $11 million the same time a year ago.
"As expected, Hawai'i health plans are experiencing another very difficult year," said Cliff Cisco, a senior vice president at HMSA. "Hospital, physician and drug costs continue to outpace HMSA dues income, and this trend is likely to continue for a while."
HMSA, a nonprofit mutual benefit organization, has been under increased scrutiny by state and federal regulators because of rising healthcare insurance premiums. State legislators last session passed a law to regulate rate increases and the company has been the target of a federal antitrust investigation by the Justice Department.
State Insurance Commissioner Wayne Metcalf said yesterday that HMSA's decision to release its financial report before its required quarterly filing with the state was a surprise.
"It's not particularly relevant for insurance regulators who want to know what the financial strength of an insurance company is on any given day of the year," Metcalf said.
The company is expected to file its third-quarter financial report tomorrow with the state insurance division. Under a state law passed two years ago, HMSA is required, along with other insurers, to report financial performance to state insurance regulators quarterly.
"The financial report that HMSA will be filing on Friday will be based on statutory accounting principles, which are used by insurance regulators across the country and the Internal Revenue Service because it best reflects, from a regulator's standpoint, the financial strength of an insurance company, of a health insurance plan," Metcalf said.
The financial results released by HMSA yesterday use a different set of accounting principles. Those principles are used by most public companies and allow companies to use certain accounting methods not allowed by state regulators.
Yesterday, HMSA, which under the new rate-regulation law must get state approval for rates starting Jan. 1, said it will probably have to increase premiums to Hawai'i consumers and employers to cover the rising costs of healthcare.
"We're going to have a bad fourth quarter, a really bad fourth quarter, I predict," said Steve Van Ribbink, HMSA's chief financial officer. "We'll probably have to raise premium rates more than we have in the past."
Van Ribbink said healthcare costs rose an average of about 14.5 percent this year when measured on a "per member, per month" basis, but the company raised rates on small businesses owners, those with fewer than 100 employees, only 5.5 percent on average.
Large employers renew their contracts annually and will likely see rate increases starting early next year.
Hospital costs, which account for nearly half of HMSA's medical expenses, have risen 12.4 percent since 2001. The costs of radiology and lab services have risen more than 17 percent, but account for only 11 percent of total costs. Increased utilization has driven physician costs up 16.1 percent since 2001, and drug costs are up 15.4 percent over the same quarter a year ago, the company said.
The operating losses have reduced HMSA's reserve fund to $452 million, down about 6.4 percent from $471.6 million in the same year-ago quarter. HMSA estimates it has enough reserves to cover a little more than three months of its expenses.
The company said income from member dues rose during the quarter to $410.1 million, up 24.7 percent from $328.8 million the same time a year ago.
Van Ribbink said about $35.6 million of the $81.3 million increase in dues came from former Health Plan Hawaii members when that plan was merged into HMSA in July. Another $19.2 million came from new membership and the remaining $26.5 million came from rate increases that averaged about 7.3 percent compared with a year ago.
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.
Reach Frank Cho at 525-8088 or fcho@honoluluadvertiser.com.
