Posted on: Sunday, August 29, 2004

HMSA may dodge bid process for $350M contract

By Deborah Adamson
Advertiser Staff Writer

The trust fund that controls health insurance benefits for 200,000 government workers is considering renewing Hawaii Medical Service Association's $350 million contract without opening it to bidding, which would reverse a decision last month to take competitive bids.

The move by the Hawai'i Employer-Union Health Benefits Trust Fund would be a setback to more open competition in Hawai'i's health insurance industry and a blow to Las Vegas-based Summerlin Life & Health Insurance, a new player in the Hawai'i market that was hoping to bid on the contract.

"We are continuing negotiations with HMSA. We're trying to get the best coverage for the best price," said Kathleen Watanabe, vice chairwoman of the Trust Fund. "This is not about protecting the incumbent, this is about protecting the members."

Summerlin, which won state approval last week to begin selling health plans, said HMSA wants to curtail any competition.

"I am not surprised that HMSA has come forth with a proposal to try to eliminate competitive bidding," said Jim Dyer, chairman and chief executive of Arizona-based I/MX Companies, which owns Summerlin. "They are a monopoly and they don't want to lose their largest account."

Cliff Cisco, a spokesman for HMSA, said it's the trust fund's decision to solicit bids or not.

The trust fund, also called the EUTF, manages health and life insurance benefits for 200,000 state, county and city workers and their dependents. The agency paid out $409 million in healthcare premiums in the year to June 30.

HMSA gets more than $350 million of the fund's total premiums for its Preferred Provider Plan's medical and drug benefits. That one contract equals nearly 25 percent of all premiums collected by HMSA in 2003. The fund is the health insurer's biggest customer.

In July, the trust fund's board asked its current healthcare insurers to submit proposals because the present contract expires next summer.

Watanabe said that only HMSA's contract has not been renewed because the rest — including Kaiser Permanente's HMO plan as well as dental, vision and chiropractic benefits — did not have competitors.

After HMSA submitted a proposal, which included a rate increase, the trust fund's board voted to open the contract for bidding.

If HMSA held its rates "steady," the board might have renewed the contract instead of considering bidding, Watanabe said.

After the vote to open bidding, HMSA has "bettered their proposal," she said. "From the first proposal to where we are now, it's a huge difference."

However, HMSA added the stipulation that its new proposal would be withdrawn if the trust fund allowed other insurers to bid on the contract.

Watanabe would not comment on the details of the HMSA proposal, saying only that while the cost has been lowered, it's still higher than the current contract.

Dyer said that he understands HMSA offered to cut prices by at least $50 million over two years.

Asked why the board didn't just open the $350 million contract for bidding immediately, Watanabe said there's no guarantee that HMSA or anyone will put in a bid. If the board does get bids, there's no guarantee they'll be better than HMSA's offer, she said.

"That's the risk. We don't know what's out there," said Watanabe, adding that healthcare costs are rising and it's rather unlikely the board will get a cheaper contract than the current one.

Arleen Jouxson-Meyers, president of Hawaii Coalition for Health, a patient advocacy group that has sparred with HMSA, is hoping for more competition.

"Whenever someone has monopoly power, price goes up and quality goes down," she said.

Open bidding is still possible. If the trust fund board and HMSA can't agree on a deal, the trust fund will accept proposals from other health insurers, Watanabe said. On Thursday, the board set Sept. 15 as the date for a final decision on HMSA.

"We are very much in favor of competition," she said.

A benefits consultant from California, John Garner, is helping the board negotiate with HMSA and also will assist in evaluating the health insurer's proposal, Watanabe said.

Garner has done "very, very minimal" work for HMSA in the past, Watanabe said, adding that the deputy attorney general has told the board that Garner presents no conflict of interest.

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