Health insurance profitable for UHA
By John Duchemin
Advertiser Staff Writer
Its revenues are dropping and its membership base is shrinking, but Hawai'i's third largest health insurer still managed to make a profit in 2002.
University Health Alliance reported net income of $650,000 last year, compared to a $470,000 loss in 2001, making it the only health insurer of the state's top three to turn a profit in 2002.
The news comes as University Health Alliance attempts to recover from a financial crisis that in 2001 forced the state to intervene.
University Health Alliance, which provides health insurance to about 4 percent of the Hawai'i market, has been in state receivership — under financial oversight — since capital reserves dropped well below statutory requirements in mid-2001.
Company chief executive Max Botticelli said the profits were "not very large" but were still a sign that UHA is gradually regaining its financial health, though it likely will remain under state control until its finances improve further. The company's cash reserves are still well below the state's reserve requirements.
Botticelli said the profits resulted from lower costs, which dropped faster than revenue from insurance premiums.
"Obviously we're really pleased, though (the profits) aren't a lot of money," he said. "The big thing was, we were able to keep administrative expenses under control; we were pretty aggressive in cutting costs last year. That helped a lot."
The company also increased its premium prices to compensate for higher medical costs, and has started to enact an additional 10 percent rate increase. While the higher insurance rates have caused some customers to seek insurance elsewhere, the company's profit margins are now healthier, Botticelli said.
"There's no question we've lost some membership because of our higher rates, but (local competitors) Kaiser, HMAA and HMSA want to increase their premiums, too, so I don't think the effect has been that bad," he said. "We've been able to keep most of our customers."
According to the financial filing:
• UHA has seen its membership shrink by about 15 percent. The insurer now has 25,600 members, down from 30,000 at the end of 2001.
• The insurer's revenues fell to $53.7 million in 2002, down from $55.1 million in 2001.
• Costs dropped to 53.1 million, down from $55.9 million the previous year.
• The company's capital and surplus account — its reserve funds — rose from $317,000 at the end of 2001 to $960,000 at the end of 2002. That's still well short of the approximately $4 million the state requires of an insurer the size of UHA.
State Insurance Commissioner J.P. Schmidt, who is the acting financial overseer of UHA, said he was pleased by the financial improvements.
"It is a good thing, and it is a sign that they are rehabilitated under state receivership," he said. "They still have some goals to meet in order to ensure they are in sound condition, and we will continue to monitor that, and seek to ensure the trend continues."
The state continues to seek an investor interested in buying the company, Schmidt said.
UHA's filing follows announcements of multimillion-dollar losses by the state's two largest health insurers, Hawaii Medical Service Association and Kaiser Health Plan Hawaii.
Like UHA, those insurers are also seeking approval for rate increases under new state laws requiring health insurance rate regulation.
Reach John Duchemin at jduchemin@honoluluadvertiser.com or at 525-8062.
