HMSA contract renewed without opening to bid
By Deborah Adamson
Advertiser Staff Writer
Board members of a trust fund that controls health insurance benefits for 66,500 state and county employees, retirees and their dependents renewed its contract yesterday with Hawaii Medical Service Association, without opening it to bidding.
The trust fund covers about 200,000 people in total.
In a session closed to the public, board members of the Hawaii Employer-Union Health Benefits Trust Fund reversed an earlier decision to open the contract to competitive bids, after it got an offer from HMSA discounted by $74 million. The insurer told the board the deal would be withdrawn if the contract went out to bid, said trust fund consultant John Garner after the meeting was reopened to the public.
"This was not an easy decision," said Katherine Thomason, chairwoman of the trust fund, who said she believes in competition.
The trust fund's current two-year, $350 million contract with HMSA expires in July. HMSA originally had sought a 9 percent rate increase, but reduced that to 3 percent.
Garner, a consultant hired by the trust fund who had done work for HMSA in the past, said the board's decision was not based solely on rates. Board members also took into consideration potential inconvenience to members, such as additional paperwork, Garner said.
Yesterday's decision shut out Las Vegas-based Summerlin Life & Health Insurance from putting in a bid. The healthcare insurer, owned by Arizona-based I/MX Companies, had told the board it wished to bid on the contract.
"We're disappointed that we're not going to even get an opportunity to compete," said Jim Dyer, chief executive of I/MX. "Had they gone out to competitive bidding, it's pretty clear the savings (to the state) would have been greater."
HMSA's offer is a $74 million discount from the current contract. HMSA reduced its rate increases, resulting in a $49 million discount. The insurer also pledged to return $25 million in surplus premiums to the trust fund.
Under the new two-year contract, employees and retirees will see an average weighted increase of 3.1 percent on their premiums. Employees will see a 8.3 percent hike on their medical plan and 4.3 percent on their drug plan, while retirees will see a 3.2 percent decrease each on both plans.
For the second year of the contract, the average rate hike would not exceed 5.4 percent, with employees seeing an 8 percent and 12 percent increase for medical and drug plans respectively. Retirees would see no increase in year two.
HMSA also will give back an estimated $17.5 million in surplus to the trust fund in the first year and more than $8 million in the second year.
HMSA has been collecting more in premiums than it uses to offset healthcare cost increases, and holding the extra money for the trust fund. The trust fund plans to use the money to become self-insured in the future.
After Summerlin representative Charles Toguchi told the board yesterday the state would not have gotten a better deal from HMSA without Summerlin, HMSA protested.
"That's not a correct statement," said HMSA's vice president of marketing, John Jacobs.
Reach Deborah Adamson at dadamson@honoluluadvertiser.com or 525-8088.
Correction: The Hawaii Employer Union Health Benefits Trust Fund renewed a two-year contract with the Hawaii Medical Service Association that covers about 66,500 state and county employees, retirees and their dependents. The trust fund covers about 200,000 people in total. A previous version of this story contained incorrect information.
