HMSA seeking 11.5% increase for businesses
By John Duchemin
Advertiser Staff Writer
Hawai'i's largest insurer is seeking an 11.5 percent rate increase for coverage of employees of small businesses, saying it needs to keep up with higher medical costs and prescription drug prices.
In the largest proposed increase in 13 years, the Hawaii Medical Services Association wants to apply the rate increase to its most popular health plan, the HMSA Preferred Provider Plan.
HMSA, which provides insurance for 670,000 members, cited rising medical costs as the major reason for the increase, which would follow a 5.8 percent premium hike last year and a 9.1 percent increase in 2001.
The proposed increase, which would apply to about 10,000 Hawai'i businesses with fewer than 100 employees, was filed yesterday with the state Insurance Division, which has 90 days to examine HMSA's filing before it takes effect July 7.
HMSA also wants to increase rates by 7.8 percent for its Health Plan Hawaii Plus, its largest health maintenance organization plan.
The rate increases would mean that coverage for a single employee under the HMSA Preferred Provider Plan would rise about $30 per month, with drug, dental and vision benefits included, to $293.54 per month.
In most instances, state law requires the employer to pick up the full cost of an employee's medical premium. That means small-business owners, most of whom are already running on tight margins, will have to decide whether to absorb the increase or pass on the cost to customers.
HMSA officials said rising costs have forced the company, a nonprofit organization, to apply for the increases, which will affect a majority of its members. "We must move to catch up with medical spending trends," said Steve Van Ribbink, chief financial officer for HMSA, in a written statement. "Our hospital, medical and drug costs are moving up much faster than dues payments."
As an insurer, HMSA collects premium payments from businesses and employees, and uses them to cover hospital, drug, and other medical costs. In 2002, HMSA said, its hospital inpatient costs rose 7.1 percent, outpatient costs rose 10 percent, doctor expenses rose 9.8 percent, and drug expenses rose 14.7 percent.
HMSA said it has tried to restrain its premium rates in recent years, increasing them by smaller amounts than actually necessary to keep up with the rise in medical costs. It was able to do so because its cash reserves generated millions of dollars per year on the financial markets in the late 1990s.
But the stock market's drop since 2000 has eroded HMSA's cash reserves, forcing it to increase premiums as profits vanished. HMSA announced five weeks ago that it lost $34.9 million in 2002 because of higher costs and lower gains on its investments.
"We've got to increase rates a bit more than normal in order to catch up with the trend of healthcare costs," said HMSA spokesman Cliff Cisco in an interview yesterday.
Rising rates and multimillion-dollar losses are the latest trend in health insurance. Kaiser Foundation Health Plan Hawaii, the No. 2 health insurer in Hawai'i, lost $2.8 million in 2002. Kaiser, which together with HMSA controls the lion's share of the Hawai'i health insurance market, also blamed rising medical costs. Earlier this year it proposed an average rate increase of 9 percent.
State insurance commissioner J. P. Schmidt was off-island yesterday and could not be reached for comment on HMSA's proposed increase.
An independent actuarial consultant to HMSA said the organization is in a plight similar to many insurers nationwide.
"The increase (11.5 percent) is very typical of what we see," said S. Michael McLaughlin, a partner with Ernst & Young out of Chicago, and national director of the accounting firm's life and health actuarial services. "Everyone, all health plans, are facing cost trend issues, and HMSA is no exception."
Many insurers on the Mainland are increasing their premiums by 13 percent to 15 percent per month, putting HMSA's rate increase request on the low side, said McLaughlin, who was in Honolulu yesterday to help explain HMSA's filing to state insurance officials.
Since 1993, HMSA's rates have risen by a cumulative total of 96 percent.
Reach John Duchemin at 525-8062.
Correction: Hawaii Medical Service Association filed its 11.5 percent rate increase with the state Insurance Division. Information in a previous version of this story was incorrect.
