Nevada health insurer fails to get tax waiver

By Deborah Adamson
Advertiser Staff Writer

Plans by a Nevada health insurer to enter the Hawai'i market may be delayed after it didn't get an expected tax waiver from the state.

Summerlin Life & Health Insurance Co., based in Las Vegas, had been counting on the state to change a law that taxes for-profit health insurers 4.265 percent of premiums. Hawai'i's health insurers are all nonprofit and do not pay this tax.

A bill to waive the tax, which had passed Senate committees, was not taken up by the House Finance Committee this week and is not likely to be revived.

Proponents of the bill, such as small businesses, say the tax waiver will bring more health insurers to Hawai'i and encourage competition. Competition would help moderate rising health-premium costs.

Opponents of the bill, such as AlohaCare, said the tax waiver would not necessarily lead to lower premiums, and what drives the cost of healthcare are factors such as pharmaceutical drugs and technology.

Summerlin said the presence of the premium tax puts it at a disadvantage in competing in Hawai'i because its rivals don't pay it. Many other states impose a premium tax that is paid by both for-profit and nonprofit health insurers.

Nevertheless, the insurer still plans to establish a business in the state. But it will re-evaluate its strategy to make sure entering Hawai'i remains financially viable. The company would not give details.

"Absolutely, we're coming," said Jim Dyer, chairman and CEO of I/MX Companies of Tempe, Ariz., the parent of Summerlin. "As I told you before, we're here to stay."

Summerlin is expected to get regulatory approvals from the state Insurance Division for selling health insurance.

Dyer said he finds it interesting that for-profit Summerlin will be making a smaller profit margin than Hawai'i's nonprofit insurers.

"As a for-profit company, we will not make the kind of profit that the current non-profit companies are making," he said. "Sort of ironic, isn't it?"

The death of the tax bill hampers competition, which is the most effective way of keeping premiums down in Hawai'i, Dyer said.

Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai) and head of Small Business Hawai'i, said businesses have long been concerned about healthcare costs and would like to see more insurers enter the state.

"You bet they welcome it," he said.

But the state's premium tax remains a deterrent, making it more difficult to turn a profit in this traditionally single-digit-margin business.

Summerlin said it may not be the lowest cost plan, but it wants to become the preferred plan through better service to customers, providers and hospitals.

Summerlin's market research in Hawai'i shows that 30 percent of those surveyed said they would leave their insurer for another company if the price is the same. That means as many as 300,000 people might switch if given the option.

Dyer said politics killed the bill.

"It's no surprise to us (local insurers) outwardly oppose the premium tax bill," he said. "What we did not know, however, was that the leadership of the House, specifically the speaker of the House, was more interested in protecting and preserving the monopoly than representing the best interests of the people of Hawai'i who have clearly said they want options and price competition."

House Speaker Calvin Say, D-20th (St. Louis Heights, Palolo, Wilhelmina Rise), said he is not the tax bill's killer and told Summerlin representatives that he was open to the tax waiver. However, Say said the Legislature hears thousands of bills and needed to prioritize. There also were concerns that the bill's passage would make the state lose tax revenue.

Moreover, "why can't they file as a mutual benefit company or a nonprofit in Hawai'i?" Say said.

As for competition keeping rates down, Say argued that Hawai'i's health insurers are regulated by the state Insurance Division. They have to ask the state to approve any rate increases.

The Insurance Commissioner "doesn't have to (approve higher) rates," Say said.

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