HMSA wants Hawaii Medical Services Association said yesterday it is preparing to ask the state Insurance Division next year for a small-business customer rate increase that will be in the "low double digits."
to raise rates
The insurer says a double-digit
percentage increase is needed to
help offset operating lossesBy Dave Segal
dsegal@starbulletin.com
The state's largest health provider, which posted a third-quarter operating loss of $11.6 million compared with a gain of just under $11 million in the same period last year, blamed a 14.5 percent rise in health care service costs -- measured on a per-member, per-month basis -- and poor investment returns for its planned rate increase. HMSA is heading for its fifth consecutive year of operating losses.
The insurer last boosted premiums for community-rated groups, which are businesses with 100 or fewer employees, by an average of 5.6 percent on July 1. Including drug, dental and vision riders, that rate increase amounted to an average gain of 5.8 percent.
"If you've got a 5.8 percent premium increase that covers a full year, and if the underlying cost trend is substantially above that, you're going to have a larger loss," said Steve Van Lier Ribbink, HMSA's chief financial officer and a senior vice president. "At some point you're going to need to raise your rates to get the premium back on track.
"We're still evaluating and want to take a close look to see if trends change at all as the date draws closer, but I think it's fair to say we're probably going to have rate increases of low double digits."
Despite the quarterly operating loss, HMSA's net income after taxes was $4.3 million. For the first nine months of the year, though, HMSA had a net loss of $9.4 million. In 2001, HMSA absorbed health maintenance organization subsidiary Health Plan Hawaii and had a combined net income after taxes of $13.3 million.
State legislation passed earlier this year requires that health insurers, beginning on Jan. 1, must submit rate filings to Hawaii's Insurance Division for review and approval. The division also will be able to examine existing rates to determine if they are reasonable or excessive. Previously, insurers could adjust rates without outside approval.
Currently, monthly premium rates for HMSA's most popular Preferred Provider Plan are $193.12 a month for a basic single plan and $579.36 for a family plan. Coverage for the same plan with drug, dental and vision riders are $260.84 for a single plan and $782.52 for a family plan.
"We have been raising rates over the past years, but the raise of rates has been well below what they've been on the mainland," Van Lier Ribbink said. "On the mainland they've been experiencing premium rate increases of double digits for the last two or three years."
Van Lier Ribbink said 96.4 percent of every premium dollar collected in the third quarter was paid out in health care service costs, which include payments for physicians, hospitals and drugs.
"Since our dues are really a proxy for that underlying cost in health care services, we will have to raise premiums to cover it," he said.
Wayne Metcalf, the outgoing state insurance commissioner, said there was nothing in HMSA's press release to allow the insurance division to reach a conclusion whether HMSA's planned rate increase will meet the test of reasonableness. He said the new insurance commissioner who will be appointed under the Linda Lingle administration will look at prior years' performance for the insurer, examine the size of its reserves and consider other actuarial factors. He said the division will look closely at HMSA's financial statement, which is due to be filed with the division no later than Friday.
"The new law in Hawaii will require that all investment income be considered in calculating rates, and not only whether or not claims paid out exceed premiums collected," Metcalf said. "Premium dollars can be, and typically are, invested until such time as a claim comes due. A young HMSA member may go for years, even decades, before incurring any significant claim. Nevertheless, they and their employer pay premiums month in and month out, year in and year out. So the information we require of health care plans to determine if rates are fair and reasonable is fairly detailed to ensure that our obligation to the public is met."
HMSA, which has had a net operating loss of $3.3 million since its inception in 1938, continues to be largely dependent on its investment income. The insurer's investment income rose 20 percent to $9.9 million from $8.3 million for the combined operations a year ago.
"In the past, where we've had bad operating years because of high operating health care costs, it's always been mitigated by good investment markets," Van Lier Ribbink said. "This is probably the second year in a row we probably haven't done very well in our investments and we're having a bad underwriting cycle. That concerns us."
Despite the investment gain, HMSA's reserves fell by 4.1 percent to $452 million, or $676.88 per member, from $471.6 million, or $744.72 per member, a year ago.
The reserves are maintained to protect members and providers from losses and unexpected emergencies, and to generate investment income to subsidize dues.
Membership rose by 5.5 percent to 667,794 from 633,237 a year ago, primarily because of an increase in members from the state's QUEST Medicaid demonstration program. The reorganization of Health Plan Hawaii brought an additional $35.6 million in dues income and boosted HMSA's total to $410.1 million, from $328.9 million for HMSA alone last year.
