HMSA plans to raise rates again
By Frank Cho
Advertiser Staff Writer
The Hawaii Medical Service Association said medical insurance rates are going up again this year for many of the state's largest employers because of escalating costs of everything from prescription drugs to hospital stays, but the actual rate increases most people see will likely be lower than they were a year ago.
HMSA, Hawai'i's largest medical insurance company with nearly 670,000 covered members, is raising insurance premiums by an average of 5.8 percent for roughly 140 companies that renewed their policies in January, according to filings the health insurer made Friday with the state insurance division.
The rate increase, however, compares favorably with the 14.5 percent rate hike many of these same firms had to absorb a year ago.
Some companies will see their rates decline and others will increase, based on their track records. But on average, rate increases for larger employers this year should be slightly lower, HMSA said.
"We thought the costs were going to be higher for that population than they actually were," Steve Van Ribbink, HMSA's chief financial officer, said about the decision to seek a smaller rate increase.
As of January, HMSA's large employer group — or those with 100 or more workers — have seen their health insurance rates rise an average of 9.2 percent from the previous year, Van Ribbink said. But based on claims experience of the roughly 300 companies in the group during that same period, HMSA said it will be asking the state for lower overall rate increases in 2003. The insurer's popular preferred provider plans for large employers covers about 93,000 people statewide.
HMSA has also inserted a "risk adjustment charge" for the first time in healthcare rates as a means to offset investment losses and maintain the company's large reserve fund, which hovered at about $400 million.
The charge, which varies from plan to plan, could range from $1 to more than $5 per person and mean millions of dollars in additional revenue to the company each year.
"The risk adjustment charge was meant to take into consideration the investment income and to cover any actual errors in setting the rates," Van Ribbink said.
The company depended on the gains from its investments to help cover underwriting losses in its health plan business.
But under the state's new formula for regulating healthcare rates, a portion of investment gains are taken into account by the state when determining rates.
Van Ribbink said the charge was important for HMSA to maintain an adequate level of solvency. HMSA lost nearly $19 million in 2001, the last year annual figures are available. The company is expected to report its 2002 financial performance later this month.
The company last week also requested an average 14.8 percent rate increase for sole proprietors and an average 5.8 percent for its student plan. The sole proprietor request would take effect immediately, but the student plan changes would not become effective until Sept. 1.
HMSA's 50 plus plan is also asking state regulators to approve an average 16 percent increase effective immediately. These plans cover fewer than 9,000 people, the company said.
In the past, HMSA has not typically provided rate information on members covered by larger employers, which negotiate contracts individually with the insurer based on their own experience. But the state's new health rate regulation law passed last session is forcing insurers to file their current and proposed rates with the state for approval.
HMSA plans to file for rate adjustments for small businesses, or employers with fewer than 100 employees, in March, Van Ribbink said. The community-rated groups, with about 87,000 members, renew their health plans annually on July 1. Last July, HMSA raised rates 5.6 percent for those firms.
Kaiser Permanente, Hawai'i's second-largest health insurer and No. 1 health maintenance organization, and Hawaii Management Alliance Association have already filed with the state insurance division a request to raise base rates an average of 9 percent. Also seeking higher rates are University Health Alliance, which wants to raise its base rates an average of 10 percent.
The state has 90 days to rule on the insurers' request, but state officials have said that insurers could still implement the higher rates while their requests are pending.
Reach Frank Cho at 525-8088 or fcho@honoluluadvertiser.com.
