HMSA rates
set to rise

The health group reports a
$49 million operating loss
due to soaring costs

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By Helen Altonn
Star-Bulletin

Soaring drug costs and greater use of health plans led to a $49 million operating loss for the Hawaii Medical Service Association last year that will result in some insurance rate increases.

"Clearly, with the operating losses and inflation in health care costs, some adjustment is needed,' said Cliff Cisco, HMSA senior vice president.

He said community-rated employer groups -- those with 100 employees or less -- will receive letters next week regarding "adjustments." He acknowledged that they will be upward, but declined to say how much.

HMSA also had some good news as it reported the loss today at its 63rd annual membership meeting at the Ala Moana Hotel: Investment income from the association's financial reserves covered the red ink.

"If we didn't have the reserves, it would be a significant problem," Cisco said.

"That's why, in the length of time HMSA has been in business in the state of Hawaii, you have to be prepared for highs and lows and look at it in the long view," he said, referring to the "underwriting cycle." In reporting to members, HMSA said: "One year's loss or gain is merely a moment in time, and it should be considered in the context of HMSA's long, successful financial history."

HMSA losses the past three years followed nine years of gains, the association pointed out. Membership dues were refunded to employers and members in 1996 and 1998.

Then, the association lost $37 million (3.6 percent of revenue) in 1998 and $18 million (1.7 percent of revenue) in 1999. Last year's loss was 4.4 percent of revenue.

The association's net investment income last year totaled $66 million. It was $57 million in 1999 and $54 million in 1998.

"Our financial reserves continue to protect the association and its membership during these times of increased costs and higher utilization," Cisco said.

But he added, in an interview, "I'm not sure I can vouch for this year."

HMSA's operating revenues totaled $1.122 billion last year. Benefit payments and administrative expenses totaled $1.171 billion. Income before taxes was $16.68 million and net income over expenses was $4.67 million for the year.

HMSA has little control over forces causing the operating loss, such as an average 20 percent hike in drug costs, Cisco said. "Hawaii is not alone. Health plans across the country are realizing an 18 to 20 percent rate increase annually in prescription drugs.

"That's going to require some national initiative to control," Cisco said. "There is a lot of debate, but not much concrete yet."

Hawaii also has the largest aging population in the country and the work force is growing older, he pointed out. Islanders are going to the doctor more frequently, often for more acute illnesses, Cisco said. "And when we have to go to the hospital, oftentimes it's more acute. All of that acute utilization pressure is forcing costs up."

Physicians and hospitals were paid $97 million more last year by HMSA than the previous year -- an 11 percent jump reflecting higher use of health plans. And there are other pressures, HMSA said: Increased use of expensive new medical technologies and higher costs triggered by government mandates. Cisco said the association has developed disease management programs to try to improve health, avoid medical crises and hold down costs.

It is working with physicians to help patients with better diabetes, asthma and cardiac care, he said.

Founded June 1, 1938, HMSA has more than 6,000 members in Preferred Provider, HMO, individual, student and senior plans.

It paid about $10,000 in benefits to members in its first year, charging them $3 a month for a maximum of $300 in coverage.

In each of the past five years, it paid more than $1 billion in benefits. More than 3,600 doctors, hospitals, dentists, pharmacies, laboratory and other facilities participate.