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The Honolulu Advertiser
Posted on: Wednesday, August 13, 2003

HMSA seeks rate increase

By Deborah Adamson
Advertiser Staff Writer

Hawai'i's largest health insurer plans to raise premiums for about half of its members to counter increased medical costs, more frequent use of services by patients and higher administrative expenses.

The Hawai'i Medical Service Association has requested state approval to increase premiums for businesses with 100 or more employees. The average increase, in percent, would be in the "high single digits," said Steve Van Lier Ribbink, HMSA's chief financial officer.

Insurance Commissioner J.P. Schmidt said it would take at least 90 days for the state to review HMSA's request. The increase would take effect immediately upon approval.

HMSA also filed to increase rates for individual customers, but could not say yet what the average percentage increase would be.

HMSA raised rates in July for businesses with fewer than 100 workers by an average of 9.87 percent in the preferred-provider plan and 7.8 percent in the HMO. About 11,000 businesses covering 139,000 workers were affected.

If the new increases are approved, a total of nearly 470,000 people, or 70 percent of HMSA's members, will be affected, HMSA said.

Van Lier Ribbink said the request for the rate increase was made in the context of HMSA's recent losses and medical costs projected to be 10 percent to 12 percent higher this year.

Yesterday, the insurer reported an operating loss of $11.16 million for the second quarter, compared with a loss of $8.47 million in the year-ago period, excluding taxes and investment gains. Revenue rose to $347 million from last year's $311 million because of rate increases and growing membership.

In the quarter, HMSA said, administrative costs rose by nearly 18 percent from the prior year to $28 million — or 8.07 percent of revenue —but should moderate by year's end. Van Lier Ribbink said compliance with the Health Insurance Portability and Accountability Act, or HIPAA patient privacy regulations, raised administrative costs. HIPAA is expected to add $12 million to $14 million to HMSA costs this year, up from $8 million in 2002.

HMSA said its second-quarter operating loss was partially offset by gains from investments in an improved stock market. After taxes and the investment gains, net loss came to $2.14 million vs. $17.5 million in the second quarter of 2002.

Investment income came to $8.33 million in the quarter and reverses last year's $9.1 million loss. Year-to-date, the insurer's investments had a total return of 5.7 percent, buoyed by a 26 percent stake in stocks and moderated by its 63 percent exposure in fixed-income securities. The insurer is considering increasing its stock exposure to 35 percent.

Investment income comes from HMSA's reserves, which topped $424 million in the quarter, compared with $403 million a year ago.

But HMSA noted that investment gains can't always be counted upon to offset operating losses.

"We're heartened that this year, investment income is quite a bit higher," Van Lier Ribbink said. "But we're worried whether it will continue."

In 2002, HMSA reported a net operating loss of $40 million — the worst annual performance in the nonprofit's history. The last time HMSA posted an annual profit was in 1997.

Also yesterday, University Health Alliance reported year-to-date profits of $2.7 million. Its net worth rose to $4.5 million — $292,000 more than the minimum legal requirement.

UHA, which serves 25,000 members, has been under a rehabilitation order since July 2001. Nearly two years ago, the insurer's reserves totaled $826,000.

Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.