HMSA's losses worst ever
By John Duchemin
Advertiser Staff Writer
The Hawaii Medical Services Association, the state's largest health insurance company, reported its worst annual loss ever in 2002, leading HMSA officials to repeat their warning that significant rate increases will be necessary in 2003.
HMSA lost $34.9 million last year, compared with a $3.4 million gain in 2001, according to financial statements released yesterday by HMSA officials.
Those losses were worsened by a $21.3 million one-time charge sustained in the fourth quarter. HMSA took the charge to reflect the costs of scuttling a program to upgrade its Internet capabilities, and to reflect expenses related to other computer upgrades.
Excluding the one-time charges, HMSA's net loss for 2002 was $13.6 million. Still, officials said, 2002 was exceedingly rough on the nonprofit health insurer, which as 670,000 members. And 2003 will also be rough if HMSA can't win approval for its proposed rate increases that are pending before the state Insurance Commission, said Steve Van Ribbink, chief financial office for HMSA.
"We definitely experienced another very difficult year," he said. "Hospital, physician and drug costs continued to outpace HMSA dues income. This trend will continue unless health plan rates are adjusted appropriately this year."
HMSA will file unaudited financial statements with the state today, and later this year plans to formally propose higher rates for its "community-rated group" insurance plan, representing hundreds of small-business employers. Under health insurance rate regulation laws enacted this year, the state Insurance Commission will review that rate application, and can choose to limit or deny the proposed increase.
The insurer earlier this month filed for higher premiums averging 5.8 percent for roughly 140 large companies that renewed their policies in January. The rate increase, however, compared favorably with the 14.5 percent rate hike many of the firms absorbed a year ago.
In 2002, HMSA lost money because its insurance operations lost money for the fifth straight year — and that loss was not counterbalanced by other gains that have sustained HMSA's financial health in the past.
In recent years, the insurer has stayed profitable because of healthy investment returns from its reserve assets, which are invested in a portfolio of stock and bond mutual funds and cash accounts. But in the bearish market conditions of 2002, HMSA's stock investments declined in value and low interest rates producing meager payouts on bonds and dividends. HMSA's investment income in 2002 was only $2.6 million, compared to $30.0 million in 2001.
"Our investment income previously had been sufficient to absorb our losses, and people seemed to expect these types of gains would happen every year," Van Ribbink said. "This year, that didn't happen."
On the insurance side, HMSA's premium income rose 33 percent to $1.28 billion in 2002. But its healthcare services costs increased 35 percent to $1.22 billion, wiping out much of the additional revenue.
Income and costs rose because HMSA incorporated a previously independent subsidiary, Health Plan Hawaii, into its main pool. That plan added $158 million in revenues, but also $154 million in costs.
A rate increase last year that averaged about 6.5 percent for HMSA's hundreds of healthcare plans also brought in about $73 million, Van Ribbink said. Increased membership and other factors added an additional $86.7 million.
Together, those increases were not enough to offset a 10.1 percent increase in HMSA's healthcare expenses, Van Ribbink said. Costs of hospital inpatient and outpatient care, physicians and drug prescriptions all rose, HMSA said.
The losses caused HMSA's reserves to drop to $407.6 million at year-end 2002, a 5.3 percent drop from $431 million the previous year.
