HMSA loses The Hawaii Medical Service Association lost nearly $35 million in 2002, the insurer said yesterday -- a huge reversal from a profit of almost $3.4 million a year earlier.
$35 million
The loss is a reversal
of the $3.4 million profit
shown in 2001
By Lyn Danninger
ldanninger@starbulletin.comThe state's largest health insurer lost $49.3 million on operations last year, but investment gains narrowed the loss to $34.9 million. Most of the losses came in the fourth quarter, when the company sustained an operating loss of $27.5 million.
It was the fifth year in a row that the plan reported operating losses, HMSA said.
"We definitely experienced another difficult year," said HMSA Chief Financial Officer Steve Van Ribbink. "Hospital, physician and drug costs continued to outpace HMSA dues income."
HMSA's losses included a $21.3 million write-down in the value of intangible assets in several information technology initiatives, including some to comply with federal patient privacy regulations that begin to take effect in October.
At the end of 2002, HMSA's membership stood at 668,493, a 5.9 percent increase from the previous year.
The majority of the increase was due to around 31,000 new members added when the company acquired Quest plan business from the now-defunct Kapiolani Health and Queen's Health Plans.
Still, the membership boost and the increase in premiums collected during the year were not enough to offset plan losses.
HMSA reported net premium income of almost $1.3 billion, a 33 percent increase over the previous year. Of that, it paid out just over $1.2 billion, or 94.9 percent, in health care expenses. HMSA's health-care costs in 2002 rose 10.1 percent over the year before.
The company increased premium rates for its smaller employer groups by an average of 5.7 percent in July. But Van Ribbink said it is clear now that the increase was not enough to cover rising costs.
"The 5.7 percent dues increase applied to the average community-rated group in July has clearly lagged the rapidly rising trends in health-care costs," he said. In retrospect, the increase should have been closer to 9 percent, Van Ribbink said.
HMSA filed revised 2001 financial statements late last year at the request of the state Insurance Division, Van Ribbink said. The revisions reduced a $19.1 million profit on the initial filing to the final $3.4 million.
HMSA will file its new 2002 community rates with the state Insurance Division in mid-March, he said. If approved, those rates will take effect July 1. Van Ribbink did not disclose what the proposed rates are likely to be.
Income generated by investments during 2002 was also less than in previous years. Overall, for the year, HMSA gained $2.6 million on its investments, nowhere near the $30 million gain of the previous year.
HMSA's reserves dropped from $430.6 million at the end of 2001 to $407.6 million for 2002.
Van Ribbink said the drop in reserves was due to operating losses and the declining value of its investments during a bear market. However, HMSA's reserves still stand well above what is required by both the state to maintain solvency and the Blue Cross Blue Shield Association, of which HMSA is a member.
"We're in the top quartile of Blue Cross/Blue Shield plans," he said.
HMSA's main competitor, Kaiser Permanente, reported last week losing $2.8 million in its health plan business for 2002. Like HMSA, it blamed much of the loss on higher medical costs.
HMSA says it now plans to aggressively pursue a variety of disease management plans, which are designed to reduce costs and foster early treatment of chronic diseases like diabetes and cardiac and respiratory disease.
"It's quality first, cost savings second," Van Ribbink said, "but they're not mutually exclusive. In fact, they work well hand in hand."
HMSA