State scrutinizing high level of HMSA reserves

By Deborah Adamson
Advertiser Staff Writer

The state is looking into the nearly $508 million in reserves held by the Hawaii Medical Service Association to determine if it is "too high," a move that could force the health insurer to issue refunds to customers.

There are 688,000 HMSA members who stand to gain.

But it's too early to say whether there will be any refunds, how much each policyholder might get, and in what form it — a discount on future premiums or a check.

"We have been taking a very close look at HMSA's reserves as well as their administrative expenses, and the appropriateness of the reserves that they currently have," said Insurance Commissioner J.P. Schmidt. "We're monitoring other states and evaluating their approach."

HMSA's $508 million in reserves comes to about $738.37 per member — higher than several plans in other states that are now under scrutiny.

Pennsylvania, North Carolina and Rhode Island are questioning high reserves held by nonprofit insurers in their states who have asked for double-digit rate increases from their clients. Consumers have complained about the rising premiums and suggest the insurers tap their billions of dollars in reserves instead.

Cliff Cisco, a spokesman for HMSA, said the insurer's reserves are "essential to the long-term financial viability of HMSA and our ability to continue to serve the community."

Health insurance companies put money in reserve to make sure they have enough to cover claims that may result from unexpected catastrophic events, such as a natural disaster.

Brian Crawford, spokesman for the Blue Cross and Blue Shield Association — whose 41 members, including HMSA, serve 90 million people nationwide — said "if everyone went to the emergency room once, it would wipe out the reserves ... Without the reserves, the premium level could be higher."

State statutes require HMSA to refund money to clients if a managed care plan's net worth exceeds 50 percent of healthcare expenditures and operating costs. HMSA falls just under the threshold, Schmidt said.

Schmidt said he might attempt to address the reserve issue using his general authority, or by asking the Legislature to revise the statute.

He said he planned to proceed carefully to ensure that any revision in the reserve rules would not lead to destabilization of the health insurer and create "a much bigger problem."

"When you make a hard-and-fast rule, the concern is whether they will be appropriate in the future," Schmidt said.

While he does consider a health insurer's surplus in approving or disapproving rate change requests, it's generally not good practice to lower rates by using the surplus, he said.

As of June 30, HMSA's Risk Based Capital ratio — a measure of an insurer's financial strength — was 871 percent. The state minimum is 200 percent, and the Blue Cross and Blue Shield Association has set a minimum of 375 percent for member companies. That means HMSA has exceeded the national Blue Cross and Blue Shield standard by 132 percent.

Meanwhile, other states are increasing scrutiny of large reserves held by health insurance companies.

Chrissy Pearson, a spokeswoman for North Carolina's Insurance Department, said 1,000 people attended three public hearings on the health insurers, complaining of rising premiums in the face of bountiful reserves.

Last year, Blue Cross and Blue Shield of North Carolina — the state's only nonprofit, its largest and most profitable — asked for a rate increase in the "low teens," Pearson said. She said state officials were concerned that as premiums rose, more people wouldn't be able to afford coverage.

A bill before the North Carolina legislature would broaden the Insurance Commissioner's powers to include requiring health insurers to justify their surplus and order a refund if needed, she added.

Pennsylvania regulators are soliciting public comment about the level of reserves for their Blue Cross and Blue Shield member companies. In April the insurers were required to submit for state approval a report detailing their reserve and surplus levels. A lawsuit by two health plans delayed submissions; they were concerned that their reports would be made public. A judge ruled in July that portions of the report containing trade secrets could be kept confidential.

The regulatory scrutiny came about in Pennsylvania after premiums rose and consumers found out about surpluses. The state wants to determine the "appropriate" level of surplus in light of "double-digit" rate increases, said Rosanne Placey, spokeswoman for its Insurance Department.

In Rhode Island, after seeing "significant" rate increase in the past few years, regulators decided to scrutinize the $270 million surplus held by Blue Cross and Blue Shield of Rhode Island.

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