Will regulation
Hawaii companies are legally required to provide medical coverage for employees. In recent years, costs and premiums have soared, driving up the price of doing business. Critics say the health-care system, once a model for the rest of the country, is now broken. Price of Paradise asks, is regulation the answer, or will a law passed this year make things worse? End predatory pricing | Regulation no solution
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THOSE who believe that the repeal of Hawaii's employer prepaid health insurance law would increase competition within Hawaii's health-insurance industry and reduce insurance costs are wrong. Fix health care by
regulating premiums and
ending predatory pricingBy Arlene Jouxson-Meyers
The real problem is that Hawaii has permitted a health-insurance market to develop that is so concentrated that one major insurer, Hawaii Medical Service Association, can raise insurmountable barriers to mainland competition.
HMSA has amassed more than $400 million in reserves, which enables it to do two things. It can charge favored customers premiums that are well below the cost of providing promised services -- engaging in predatory pricing -- and it can sustain whatever losses result.
As essentially the only buyer of services outside of Kaiser Permanente, HMSA can cut reimbursements to physicians and other providers to minimize losses, whether or not such reductions may seriously degrade medical care.
If they can be under-priced by HMSA, mainland insurers have little incentive to enter Hawaii.
Using economic power to keep large, relatively low-risk businesses from contracting with smaller and less economically powerful insurers is called "buying the business."
Exercise of this power has unacceptably escalated health-insurance premiums in other segments of Hawaii's population. Small business, in particular, has felt the sting.
OUR MUCH-ADMIRED Prepaid Health Care Act has problems that need fixing, but repealing it would increase the number of uninsured people and cause more health problems for Hawaii.
For example, Kaiser and HMSA serve on the Prepaid Health Care Council, which approves any new health-plan provider applying to enter our market. Applicants must disclose premium prices and many other trade secrets to the only two players with any economic power in the market.
Even when HMSA and Kaiser abstain from voting, they can continue to influence other members of the council. Health insurers should be removed from the council.
Moreover, the chief way for a new health insurer to enter the market is to offer benefits matching those of the largest insurers. However, HMSA and Kaiser can deliberately develop benefits packages that are difficult for companies unfamiliar with Hawaii to match. Combined with possible predatory pricing by HMSA, this can make entry into the market unfeasible.
THE PREPAID Health Care Act requires employers to cover employees who work more than 20 hours per week. It sets a low limit on what employees can be charged, 1.5 percent of monthly salary.
While it might be reasonable for employees to pay a larger share, repeal of the act would have significant negative effects. Unless required to do so by law, many small employers would not cover employees.
Many workers covered under the act are young and low-risk medically. Removing them from the risk pool likely would increase insurance premiums for everyone else.
As a result, fewer family members would be covered and many would seek health care only under desperate circumstances. Health-care providers would find collecting fees much more difficult. Ultimately, welfare rolls would increase.
WHILE MODEST amendment of the PPHCA may be justified, our recently passed Health Insurance Rate Regulation Act can and will remedy most of its problems.
In a competitive health-insurance market, need for government intervention is reduced, but in our near-monopoly situation government involvement was essential.
Now, a health insurer must demonstrate to the state insurance commissioner that its premiums are not excessive to cover the benefits promised. Now, health insurers cannot "buy the business" of large low-risk groups, charging them low, predatory premiums while socking it to small business.
Now, insurers must show that the premiums charged cover the benefits offered. It will be much more difficult for health insurers to reimburse providers unacceptably low amounts leading to the disappearance of quality services.
Lastly, health insurers now must demonstrate that premiums do not discriminate unfairly. It is harder to force small businesses to pay double what large businesses pay.
Under the act, health insurers still set benefits and premiums but they will be disapproved if they are inadequate, excessive or unfairly discriminatory.
Requiring reasonable premiums and ending predatory pricing will enable competing insurers to enter the Hawaii market.
Arlene Jouxson-Meyers is a pediatrician practicing in Wahiawa and an attorney specializing in health-care law. She founded the nonprofit Hawaii Coalition for Health in 1996, which supported passage of this year's rate-regulation bill. BACK TO TOP
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HAWAII'S health-care system is in turmoil. Health plans are going out of business, with hospitals downsizing and doctors pressured to withhold care. Regulation is not the
solution to Hawaii’s
health-care crisisBy Pat Chinn
Don't believe it? Ask someone you can still trust -- your doctor -- but be prepared to sit a while. You're likely to get an earful. Undoubtedly, the system's "broke," but rate regulation is not the solution.
Hawaii's situation is unique in three ways:
>> First, Hawaii's 1974 Prepaid Health Care Act, or PPHCA, which mandates employer-provided health care, places a tremendous financial burden on small businesses that must pay 30 to 50 percent of basic pay for employee benefits.
Employers hire part-timers to avoid paying benefits. State government is no exception, hiring "emergency" and "temporary" employees who work 10 or more years without benefits. Is the system broke? You bet.
>> Second, Hawaii's PPHCA is statutorily precluded from changing cost allocations, even though benefits continue to expand. The law was frozen in time 30 years ago, when HMOs, managed care, rationed care and pre-authorizations were unheard of. Once lauded as a model, the PPHCA now stymies innovation.
>> Third, Hawaii Medical Service Association has created a monopsony market -- one controlled by a buyer of services. (In contrast, a monopoly market is controlled by a seller of services).
HMSA can offer so-called "contracts of adhesion," non-negotiable, take-it-or-leave-it contracts. This is dangerous both for health-care providers and patients. When a physician is forced to sign a bad contract just to stay in business, patients are put at risk, not knowing when or how care is withheld.
SUPPORTERS of the new rate- regulation bill claim that there is a difference between reviewing and regulating and that the state insurance commissioner will not be setting rates. They're wrong.
Since the commissioner will approve premiums, in effect he will set rates. For example, if HMSA proposes a premium of $150 per month, which is disapproved, and then submits a proposal of $155, which is approved, hasn't the commissioner set the rate?
The rate-regulation bill puts full faith, concentrated power and broad discretion in the hands of one person -- the commissioner. This should worry most people.
Supporters also say only one additional part-time actuary is needed to oversee the regulation process. However, following the flow of money in a large corporation with numerous subsidiaries is painstakingly difficult. With HMSA revenues of $1 billion per year in premiums and millions more in investment income, how can one part-time employee be sufficient?
Hawaii has problems recognizing conflicts of interest. For example, the Department of Labor director has appointed HMSA and Kaiser employees to the PPHCA council. This council reviews applications to do business in Hawaii from potential new competitors and recommends whether or not these new plans should be allowed to sell insurance.
MOST IMPORTANT, rate regulation misses the real target: lack of competition. Deregulation of airlines and tele - communications led to competition and lower rates for consumers. Freeing up Hawaii's health-care system can do the same.
Supporters say this law will provide antitrust protection; however, rate regulation is antithetical to open competition. We already have antitrust laws that prohibit illegal monopolies. We simply need to apply them.
Rate regulation is an artificial solution that will generate its own problems.
Let there be no misunderstanding: The leaders of HMSA, a mutual benefit society representing hundreds of thousands of Hawaii residents, should have had a policy of open communication and open books. They didn't.
HMSA should have promoted good relationships with its providers. It didn't.
In many ways, HMSA brought rate regulation upon itself. Yet rate regulation is not the answer for Hawaii's people. An open, free market is our best long-term solution.
Dr. Patricia L. Chinn is a general surgeon in private practice, past president of the Hawaii Medical Association and a third-year law student who will graduate this December.
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The Price of Paradise appears each week in the Sunday Insight section. The mission of POP is to contribute lively and informed dialog about public issues, particularly those having to do with our pocketbooks. Reader responses will appear in Thursday's paper. If you have thoughts to share about today's POP articles, please send them, with your name and daytime phone number, to pop@starbulletin.com, or write to Price of Paradise, Honolulu Star-Bulletin, 7 Waterfront Plaza, Suite 210, 500 Ala Moana, Honolulu, HI 96813.
John Flanagan
Contributing Editor
