However it’s
figured, HMSA
posts profit

By one measure, the insurer
made $6.5 million in 2001; by
another it earned $19.1 million

---

By Lyn Danninger
ldanninger@starbulletin. com

Hawaii Medical Service Association yesterday reported a $6.5 million profit for 2001, but a $19 million loss on operations.

HMSA earned $27.8 million on its investments to move it into the black. The insurer's net income grew 38 percent from a $4.7 million profit 2000.

"In 2001, we saw medical costs continue to outpace health plan rates," HMSA President and Chief Executive Robert Hiam said at the company's annual meeting. "Two factors contributing to higher costs included our aging population and our use of prescription medications."

Hiam made note of the fact that almost half of HMSA's members are now more than 40 years old. The fastest-growing segment of the population is between 50 and 64 years old, he said.

The numbers released yesterday are in sharp contrast to the $19.1 million profit HMSA reported April 30 in its annual filing with the state Insurance Division.

In addition, the Insurance Division filing showed that while the company had underwriting losses of $11.7 million, it offset those losses with $33.8 million in investment gains.

The apparent contradiction between the numbers can be explained by the different accounting method HMSA must use when it reports its finances to the state, said Steve Van Ribbink, HMSA senior vice president and treasurer.

Generally accepted accounting principles used in HMSA's annual report to its members allow for more flexibility in valuing assets, accounting for liabilities and valuing unrealized gains or losses, where statutory accounting principles which are used in filings to insurance regulators by health insurance companies nationwide follow stricter and more conservative rules, he said.

For example, Van Ribbink said the difference between HMSA's $19.1 million net income reported to the Insurance Division and the $6.5 million net income reported to members yesterday at the annual meeting was the result of a one-time accounting adjustment the company was allowed to take as a result of a change in National Association of Insurance Commissioners accounting rules.

The change required the company to set up a premium deficiency reserve to guard against insufficient collections of insurance premiums.

The numbers filed with the Insurance Division also do not include figures from some of HMSA's for-profit subsidiaries and other non-insurance activities that are reported to members, but not required for its year-end filing with the Insurance Division.

Regulators are interested only in the solvency of the insurance portions of the company and so require different accounting, state Insurance Commissioner Wayne Metcalf said.

"It gives a better picture of the true financial health of an insurance company," Metcalf said.