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The Honolulu Advertiser
Posted on: Sunday, January 23, 2005

HMSA fights $100 refunds

By Deborah Adamson
Advertiser Staff Writer

The 688,000 members of the Hawaii Medical Service Association could get a refund of roughly $100 each if a bill to be introduced by the Lingle administration tomorrow becomes law.

The bill, written by Insurance Commissioner J.P. Schmidt, effectively calls for distribution to HMSA members of part of the insurer's $516 million surplus.

HMSA keeps a surplus to pay for healthcare costs when premiums fall short. Schmidt argued the HMSA surplus has become excessive.

"Nonprofits should not be accumulating too much in surplus," Schmidt said. "They should be using those funds for the good of the public."

HMSA will fight the bill. The state's largest health insurer said the surplus is needed to guard against possible emergencies.

The bill, which will be included in Lingle's package of proposals to be submitted following her State of the State address tomorrow, would cut the amount of reserves nonprofit health insurers can hold.

State statute currently allows a managed care plan to hold a surplus equal to 50 percent of its annual expenses. Any extra amount is to be refunded to health plan members or used to lower premiums and other rates.

Schmidt's bill would lower the ceiling to 30 percent.

HMSA is the only nonprofit health insurer in Hawai'i that would be affected, Schmidt said. HMSA's $516 million in reserves equals about 35 percent of its annual expenses. The other Hawai'i insurers — Kaiser Permanente Hawaii, Hawaii Management Alliance Association, University Health Alliance and AlohaCare — do not have surpluses that go beyond 30 percent.

If the bill passes, HMSA "will have to make a refund ... of about $100 per member," Schmidt said.

The refund would go to customers who were HMSA members the year before the bill becomes effective.

Employees, not companies, will get the money, even if companies pay most of the HMSA premiums for their employees.

Schmidt said it had not yet been determined whether every covered person — including a member's spouse and children — would get separate refunds.

Commissioner Michael Stollar, an HMSA spokesman, said the reserves serve a purpose. They are in place "to protect our members, our employer groups and providers from all sorts of possible emergencies and operating losses, especially in today's climate of disaster and preparedness."

Stollar added that any rebates to customers should be a decision made by HMSA's board of directors, not the government. In the past 10 years, HMSA's board has authorized rebates three times at a total cost of $80 million when the insurer believed it had enough reserves.

Moreover, "It's unclear to us as to the rationale for the figures the governor is discussing," Stollar said.

Insurance Commissioner Schmidt said his scrutiny of HMSA's surplus was triggered by a complaint. After analyzing actuarial reports received from Rhode Island and Pennsylvania regulators, the Insurance Division determined that a surplus ceiling of 30 percent is adequate financial protection for nonprofit health insurers.

The commissioner has monitored the actions of regulators in North Carolina, Pennsylvania, Rhode Island and Mississippi, which are investigating the surpluses held by local Blue Cross Blue Shield health plans in their states that asked for rate increases. HMSA is part of the national Blue Cross Blue Shield network.

Last July, HMSA raised rates by an average of 7.8 percent for small businesses in its Preferred Provider Plan and by 7.4 percent for Health Plan Hawaii Plus. It also increased rates from between 5.2 percent to 10.9 percent for firms with more than 100 workers.

A month later, the state began looking into HMSA's surplus to determine whether it was too high. At the time, HMSA's surplus amounted to $738.37 per member — higher than several plans in other states now under scrutiny.

HMSA's surplus has drawn criticism from employees and employers who are feeling the pinch of rising healthcare costs.

Wally Kazama, co-founder of Kazama Enterprises in 'Aiea, said as a business owner he understands that HMSA must make enough money to meet expenses. But he's also sympathetic to the plight of companies as they struggle to pay ever-increasing premiums.

"To keep asking for money, that's why (HMSA is) getting a hard time," Kazama said. "They can survive with what they have right now."

Sen. Sam Slom, R-8th (Kahala, Hawai'i Kai), who also heads Small Business Hawaii, said he will back the bill but has reservations.

"Generally, we support the proposal. We've had double-digit increase in premiums in the past couple of years — these companies are nonprofits," Slom said. "As far as forcing refunds, that's another matter. We're really targeting HMSA and I don't like targeted legislation ... I haven't been a fan of HMSA's policies but I don't think it's government's business to target one business."

He said HMSA already has launched "pre-emptive strikes" by putting out word that they oppose the bill.

"I hope (the bill) will get a hearing," Slom said. "Chances of it passing (with revisions) are slim. Chances of passing it the way it is is even slimmer because HMSA, as big as it is, does a good lobbying job."

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