Posted on: Wednesday, August 18, 2004

HMSA shows profit in quarter

By Deborah Adamson
Advertiser Staff Writer

A 13 percent increase in revenue led to a profitable second quarter for the Hawaii Medical Service Association, reversing the loss incurred a year ago.

The state's largest health insurer yesterday reported a net income of $7.5 million, compared with a net loss of $2.14 million in the like quarter last year.

Revenue from premiums collected came to $393.2 million, compared with $347.2 million in the second quarter last year.

HMSA's reserves rose by 4 percent to $507.7 million from $488.6 million at the end of 2003.

"It was a rather unremarkable quarter," said Steve Van Ribbink, HMSA's chief financial officer. "It was a break-even kind of quarter, the kind of quarter we like to have — we want to provide our members with as much value as possible and maximize the amount of dues that go towards their benefits."

HMSA posted a profit even with a 42 percent drop in investment income to $4.8 million from $8.3 million last year. Lackluster performance by the stock and bond markets contributed to the dip in investment income.

Healthcare service costs went up by 8 percent to $358 million year-over-year and administrative expenses rose by 10 percent to nearly $31 million. An industry accounting change for 2004 would have resulted in higher healthcare costs and lower administrative expenses.

The net underwriting gain —revenue minus healthcare and administrative costs — came to $4.2 million in the quarter. Last year, HMSA had a net underwriting loss of $11.1 million.

The net underwriting gain or loss provides a clearer picture of a company's operations. Unlike the net income or loss, it does not include non-operating items such as taxes, investment or extraordinary gains or losses.

In the quarter, HMSA spent 91.1 percent of its revenue on health care while 7.9 percent went toward administrative expenses. Last year, 95 percent of revenue went to health care. The rest wasn't enough to cover administrative expenses, so the insurer had an underwriting loss.

HMSA still awaits state approval on an average 5 percent increase in rates for 103,000 members renewing their policies in January. They work for companies with more than 100 employees.

Last year, HMSA raised their rates by nearly 10 percent.

"The good news about having a very small operating gain this year versus having an operating loss last year is that you don't have to have as large of a rate increase to cover the higher medical cost trends," Van Ribbink said.

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