HMSA made profit of $47 million last year
By Deborah Adamson
Advertiser Staff Writer
The state's largest health insurer earned nearly $47 million in 2003 — its largest profit since 1997 — but said it still needs to ask for a rate increase next year.
The Hawaii Medical Service Association, which covers more than 677,000 Hawai'i residents, also reported a 20 percent increase in reserves to $488 million.
"I don't understand why they need to raise rates if they made $47 million," said Brad Walker, owner of Kamehameha Garment Co. in Honolulu.
For 2003, HMSA collected $1.46 billion in premiums, up 13.6 percent from the year before. About 91 percent of premiums were used to pay medical expenses. After adding in investment gains, net income came to $47 million compared with a loss of $40.5 million in 2002. A surging stock market last year propelled investment gains to nearly $36 million — the highest since the bull market's peak in 2000.
"2003 was a surprising year for us," said Steve Van Ribbink, HMSA's chief financial officer. "It was better than what we expected."
But rising healthcare costs and increased use of costlier services by an aging population led HMSA to conclude that it will need a rate increase next year.
"We're encouraged because we think we see a dampening in the rate of increase," Van Ribbink said. "But (medical costs) are not going negative. They are not going down."
Last year, HMSA estimates that healthcare costs rose by about 10 percent to 12 percent, he said. This year, HMSA is projecting increases of roughly 10 percent.
While HMSA has contracts with doctors and other providers that pay pre-negotiated rates — for instance, it might pay $50 for a $150 doctor's fee — Van Ribbink said these costs are going up and people are using services more often. Other rising costs include paying for prescription drugs and use of high-tech medical equipment.
But one group that's not seeing an increase overall are doctors, said Dr. Arleen Jouxson-Meyers, president of Hawaii Coalition for Health, a consumer advocacy group. For surgeons and specialty physicians in particular, such as gynecologists, their reimbursements from HMSA are going down.
Rising medical costs is one of the biggest concerns of Hawai'i businesses. The most recent sign of that is the nearly month-old strike by concrete workers at Ameron Hawaii and Hawaiian Cement. The workers walked off the job when the two companies, trying to contain their rising costs, asked employees to shoulder more of the medical insurance expense.
Businesses have been seeing rate hikes from HMSA for the past 10 years. This year, the insurer petitioned the state to approve a rate hike of as much as 12.3 percent on average for businesses with fewer than 100 workers. Two months ago, HMSA raised rates of many larger companies by an average of 9.7 percent but lowered rates by an average of 4 percent for the 24,000 individuals who buy insurance outside of group plans.
HMSA did not say how much it wants to increase rates next year. Any rate increase must be approved by the state insurance commission.
The Chamber of Commerce of Hawaii wanted HMSA to offer a new plan that would cut the cost to businesses by an average 5.7 percent, boost the patient's co-pay to 20 percent from 10 percent, and beef up preventive and mental care benefits. That plan was vetoed last month by the director of the Department of Labor and Industrial Relations, saying it didn't conform to Hawai'i's Prepaid Health Care Act. The act sets a minimum benefits standard.
Next year's rate hikes would start with businesses employing more than 100 workers and renewing their policies in January 2005.
As for HMSA's reserves, Van Ribbink said the insurer needs them to offset potential losses in future years. HMSA's reserves can cover total costs for 3.5 months.
Donna O'Rourke, senior health analyst at Weiss Ratings in Jupiter, Fla., said she understands why HMSA needs a $488 million reserve since it often has losses from operations that they make up with gains from investments.
HMSA had net underwriting losses — premiums minus medical expenses — in every year from 1998 to 2002, totaling $194.6 million. The insurer was able to avoid net losses in most of those years because of gains from investments.
Weiss Ratings, which rates insurers, has a "C" grade for HMSA to reflect prior years of operating losses. The ratings range from "A," the highest, to "F" for failing firms.
Excluding investment gains and taxes, HMSA made a net underwriting profit of $18.15 million in 2003. That includes one-time gains totaling $13.3 million related to a Medicare settlement and an adjustment in a special reserve that offsets lower-than-expected premiums. Without those one-time items, the underwriting gain would have been $4.85 million.
Results reflect only the operations of HMSA, the nonprofit company. It does not include any earnings or losses from the insurer's for-profit subsidiaries. HMSA owns Benefits Services of Hawaii, a health services management company, and Integrated Services, an employee benefits firm.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
