HMSA lowers
rate request

The health insurance
organization more than
tripled its first-quarter profits

Hawaii Medical Service Association has reduced its rate-increase request for its most popular small-business health insurance plan to an average of 7.8 percent after moderating medical costs helped the nonprofit organization post a 374.5 percent increase in first-quarter net income.

HMSA's proposed
rate increases

Hawaii Medical Service Association, the state's largest health insurer, has asked the state Insurance Division for a smaller rate increase than previously requested. Here are the new proposed rates for small-employer groups that would go into effect July 1, if approved.

Preferred provider plan (free-choice plan): Single, $311.90; two-party, $623.80; family, $935.70.

HPH Plus (HMO plan): Single, $285.14; two-party, $570.28; family, $855.42.

CompMED (new comprehensive plan): Single, $295.28; two-party, $590.56; family, $885.84.

Source: Hawaii Medical Service Association

The state's largest health insurer, which had 679,338 members at the end of March, asked the state Insurance Division in January to approve a 9.6 percent rate increase that would go into effect July 1 for more than 11,000 small-employer group customers covered under its preferred provider plan. But HMSA amended its rate request last month because a steeper health-care cost trend that it had anticipated did not materialize.

"We have been seeing for the last several years health-care cost trends that have been double digit (increases)," HMSA Chief Financial Officer Steve Van Ribbink said. "What we began to see over the last six to nine months is that the rate of increase has begun to decline a bit. ... This caused there to be a higher operating gain than we forecast when we initially set the rates."

Companies under the small-business plan have 100 or fewer employees.

HMSA also lowered its rate-increase request for Health Plan Hawaii Plus to 7.4 percent from 11.6 percent. Both the preferred provider plan and HPH Plus include drug, dental and vision benefits.

State Insurance Commissioner J.P. Schmidt said yesterday that the requests are under review and a decision probably would be made within a week. He said the agency's criteria include whether a rate is excessive and that it not be inadequate for the company.

"The cost drivers for health insurance are still rising very rapidly," he said. "When (the costs for drugs and new medical technology) go up, it costs more to insure and to pay the claims associated with that."

HMSA's net income grew to $17.5 million last quarter from $3.7 million a year earlier, largely due to a net operating gain from the lower-than-expected health-care costs. The insurer's net operating gain -- health-care provider payments and administrative costs subtracted from membership dues -- rose to $13.6 million from a net operating loss of nearly $372,000 a year ago.

HMSA's investment income rose 30.4 percent to $7.6 million from $5.9 million.

Revenue from health-plan dues rose 14.6 percent to $398.2 million from $347.5 million.

Under previous accounting guidelines, HMSA's payments to providers rose 12.1 percent to $357.4 million from $318.8 million a year ago, and accounted for nearly 90 percent of the dues that HMSA collected. HMSA's administrative expenses decreased 6.4 percent to $27.3 million from $29.1 million and accounted for 6.8 percent of the dues.

An Insurance Division accounting change that went into effect last quarter changed the way certain costs are categorized and skewed some of the comparisons. As a result, about $4.7 million in expenses that HMSA spent on its disease-management programs and the administration of them had to be shifted from health-care service costs to administrative expenses.

Under the reclassification, payment to providers rose 10.6 percent to $352.7 million from $318.8 million, and total administrative expenses increased 9.7 percent to just under $32 million from $29.1 million.

HMSA's reserve was $505.9 million at the end of March, up from $488.6 million at the start of the year.


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