HMSA’s net loss increases to $10M
HMSA cites payments to hospitals and doctors for its results
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Hawaii's two largest health insurers had very different financial stories in the first quarter.
Hawaii Medical Service Association lost $10 million as health care costs outpaced revenue, while Kaiser Foundation Health Plan Inc.'s two-year cost-cutting efforts resulted in net income of $3 million in Hawaii.
HMSA, which is awaiting state approval on a 12.8 percent rate increase for more than 11,000 small businesses, said the higher fees it is paying to hospitals and physicians are having "a significant effect" on the company's financial performance. The state's largest health insurer, with 701,527 members, has posted operating losses for seven straight quarters.
HMSA's revenue fell 19.2 percent to $366.1 million last quarter while expenses for health care services and administrative costs declined 16.9 percent to $382.4 million.
State Insurance Commissioner J.P. Schmidt said a decision on the rate increase should be made "within the next week or two."
Kaiser, which last month unveiled the first phase of a $168.8 million expansion project at the Moanalua Medical Center, saw its revenue and expenses virtually break even. Revenue rose 3.5 percent to $225.5 million while expenses gained 3.5 percent to $224.9 million. Kaiser, with 222,000 members, is the state's second-largest health care provider and the largest health-maintenance organization.
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Hawaii Medical Service Association, still awaiting approval of a 12.8 percent rate-increase request for more than 11,000 small businesses, said yesterday its net loss widened more than fourteenfold to $10 million in the first quarter due to rising health care costs.
The state's largest insurer, which lost $687,382 in the year-earlier period, said it suffered its seventh straight quarter of operating losses because costs grew faster than member dues.
"First-quarter operating results indicate that higher hospital and physician fees in 2008 are having a significant effect on the health plan's finances," HMSA Chief Financial Officer Steve Van Ribbink said. "Increases in provider fee schedules also mean higher member dues rates over time."
HMSA, which had 701,527 members as of March 31, paid physicians, hospitals, pharmacies and other health care providers last quarter an average of $113.8 million a month, or 93.2 percent of first-quarter dues revenue.
Excluding $5.9 million in investment income, HMSA's operating loss in the first quarter would have been $16.3 million, more than double the $7 million operating loss of a year ago.
"Without investment income from the health-plan reserve, HMSA would have suffered a much larger loss," Van Ribbink said. "Instead, investment income helped reduce the loss by 36 percent."
HMSA's reserve level was $540.7 million at the end of the quarter.
The insurer, which filed for its latest rate increase in late March, is waiting for a decision by state Insurance Commissioner J.P. Schmidt. Lawmakers passed a bill in 2007 that restored rate-approval oversight to the state, effective Jan. 1 of this year. HMSA's new rate increase would go into effect on July 1 and affect 144,000 members at businesses with fewer than 200 employees.
Schmidt said his office is still reviewing the request and that a decision should be made "within the next week or two." He said HMSA's large loss in the quarter will be taken into account "to some extent" in making a decision whether to grant all or part of HMSA's rate increase.
"I'm very concerned about striking the correct balance, because I do have to take into account the impact on the insurer," Schmidt said. "We've had some health insurers go insolvent in the late '90s, which had a terrible impact on everyone. So that's a very serious concern for me, but I have to balance that against the impact that rising rates have on individuals and employers throughout the state."
HMSA's dues revenue fell 19.2 percent last quarter to $366.1 million from $453 million while expenses for health care services and administrative costs decreased 16.9 percent to $382.4 million from $459.9 million. Both revenue and expenses were down substantially over the year-earlier quarter because of a decision by the Hawaii Employer-Union Health Benefits Trust Fund last July 1 to shift to a self-funded arrangement with HMSA.
Although HMSA has an administrative services contract to process EUTF claims, the risk of any revenue shortfalls is absorbed by EUTF. That means HMSA, under Statutory Accounting Principles, is not required to report the results of the EUTF plan, since it is not taking on any risk from it.
"We have one more quarter to go through this transition, and starting with the third quarter it will be apples to apples again," HMSA Senior Vice President Cliff Cisco said.
Of HMSA's total expenses, benefit expenses -- the amount paid to physicians, hospitals, pharmacies and other health-care providers -- declined 18.5 percent to $341.4 million from $418.7 million, while administrative expenses slipped 0.5 percent to $41 million from $41.2 million.