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The Honolulu Advertiser
Posted on: Monday, January 19, 2004

Competition comes to HMSA, Kaiser Permanente

By Deborah Adamson
Advertiser Staff Writer

Tempe, Ariz.-based I/MX Companies' chairman and CEO says his company has the resources to compete with Hawai'i's two major medical insurers, HMSA and Kaiser Permanente Hawaii, even while others have tried and failed.

Tempe, Ariz.-based I/MX already has a presence in Hawai'i with its health plan administrator subsidiary HMA Inc.

HMA Inc.

In an interview last week, Jim Dyer appeared undaunted by the unique hurdles that have stopped other insurers in the past, particularly Hawai'i's 4 percent premium tax levied on for-profit health insurers and restrictions mandated by the 1974 Prepaid Health Care Act.

Earlier this month, the state Insurance Division disclosed that I/MX, which has a presence in Hawai'i with its health plan administrator subsidiary HMA Inc., planned to offer health insurance in the Islands through its Las Vegas-based Summerlin Life & Health Insurance.

The company's bid is a significant entry, one with the potential to change the competitive landscape in Island health coverage even while there is no guarantee lower premiums will result.

According to Dyer, the company's plans for the Hawai'i market are not fleeting.

"Our company has the size — the human and financial resources — to compete in the state of Hawai'i," Dyer said. "We are here to stay."

That's music to the ears of Arleen Jouxson-Meyers, president of the Hawaii Coalition for Health, a doctor and consumer advocacy group that has clashed with HMSA in the past over compensation for medical providers.

"HMA has done an excellent job as an administrator," said Jouxson-Meyers. "When I heard (Summerlin) was linked to HMA, I was even more encouraged."

Summerlin will offer several products, including a health maintenance organization (HMO) plan, a preferred provider organization (PPO) plan and a point-of-service or POS product. Summerlin's point-of-service plan would let a patient switch among HMO, PPO and out-of-network options, depending on the patient's needs.

HMO is the least costly but most restrictive of the options while the pricier preferred provider alternative gives patients more flexibility in choosing doctors and other providers. The out-of-network plan lets patients choose any provider, but there is a deductible and patients must pay a higher portion of the costs.

In 2001, I/MX subsidiary HMA moved into the market as a third-party administrator of health plans. Later the parent company added R/xx, a pharmacy benefit management company, and Health Management Network, which contracts with 3,200 doctors and hospitals to provide medical services. Together, they serve more than 50,000 people.

"Over the last three years, we have been busy establishing, implementing and growing that business," Dyer said. "It simply made complete sense to offer a fully insured product in the state. That's where Summerlin Life & Health comes into play."

Dyer said Summerlin initially will focus on the biggest part of the health insurance market in the state — businesses with 2 to 300 employees. For Hawai'i's largest employers, it plans to partner with sister company HMA to offer comprehensive coverage or self-insurance options. The company is taking that approach because most big groups in Hawai'i are either partially or fully self-funded, Dyer said.

Summerlin also will make a play for the state's QUEST contract and it will offer healthcare to associations, such as chambers of commerce or accountants. It's a market that both Kaiser and HMSA have pulled back from because of the level of risk involved.

Summerlin's suite of products and services will be more like HMSA's than Kaiser's, which has its own captive HMO doctors and hospitals. Over time, the insurer plans to offer group life insurance and reinsurance options as well, Dyer said.

Cliff Cisco, a spokesman for HMSA, said Hawai'i is a tough market to conquer. "It's not easy and you have to keep your costs down," he said.

HMSA has fought this fight before. In the early 1990s, there were about eight health insurers in the state and a price war ensued. But half of them couldn't make it and either closed operations or sold out to their competitors.

Armed with about half a billion dollars in reserves, and a history in Hawai'i that harkens back to 1938, HMSA is a formidable foe. It commands about two-thirds of the health insurance market in Hawai'i, the Insurance Division said.

Summerlin has a substantial track record as well. Dyer said I/MX through its subsidiaries provides healthcare coverage to more than a million people nationwide. I/MX also operates NevadaCare, Iowa Health Solutions and Illinois Health Solutions. These health plans are not rated by the National Committee for Quality Assurance, a nationally recognized group that insurers including HMSA and Kaiser voluntarily approach to be rated.

However, the Illinois Department of Insurance said Illinois Health Solutions is in good standing in its state. Nevada officials said NevadaCare has had 185 complaints since 2001 — half of which pertained to late payments to providers due to problems with Medicaid.

Dyer declined to disclose I/MX's annual revenues since it is privately held.

The challenges I/MX faces in Hawai'i will be different than in other states.

The 4 percent premium tax is a "significant, onerous tax," Dyer said. But the Lingle administration is working on a waiver of the tax, which only applies to for-profit health insurers. Both HMSA and Kaiser operate as nonprofits.

Whether or not the tax is waived, however, Dyer said Summerlin will do business in Hawai'i.

Another hurdle is the state Prepaid Health Care Act, which requires health insurers to offer one standard type of HMO plan and one PPO plan.

Cisco said that since health insurers will offer the same benefits for these, they have to compete on price. Summerlin will face the same costs in Hawai'i as its rivals and it might not be easy to offer a better price.

Dyer does not guarantee that when Summerlin offers the health plan benefits mandated by the act, premiums will be cheaper. But he said the company certainly can "get creative with alternative plans" to supplement the two.

"I don't want a company underpricing its product" because it could lead to insolvency for an insurer, said State Insurance Commissioner J.P. Schmidt. However, "If they're not doing it at a loss, (rates) will be approved."

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