HMSA earns $7.5M
The state's largest health insurer
posts a large rise in operating income
Hawaii Medical Service Association, bolstered by a turnaround in its operating income, swung to a $7.5 million profit in second-quarter net income even as its investment gains were cut in half.
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HMSA's net operating income of $4.2 million represented a $15.4 million increase from its operating loss of $11.2 million a year ago. Revenue from health plan dues rose to $393.3 million from $347.3 million.
Despite the improvement, HMSA Chief Financial Officer Steve Van Ribbink downplayed the income gain.
"It looks remarkable, perhaps, in terms of dollar vs. dollar, but if you put it into context of what this is as a percent of dues, it's not so remarkable," he said.
HMSA's operating income represented 1.1 percent of total dues.
"People should view this as good news because if we have an operating gain, that means that we probably won't have to raise rates as much as if we were on the heels of an operating loss," Van Ribbink said.
Earlier this year, HMSA reduced its rate-increase request for its most popular small-business health plan to an average of 7.8 percent from the 9.6 percent rate it initially sought. The 7.8 percent rate was approved by the state Insurance Division and took effect on July 1.
HMSA is awaiting approval for an average 5 percent rate increase for businesses of 100 or more employees. That increase, which would affect 131,000 members, would go into effect on Jan. 1, 2005.
Rate increases for other large businesses go into effect during other months.
HMSA, which uses its investment income to subsidize the revenue its gets from premiums, had an operating loss over the last six-and-a-half years of $158.6 million. But its net income over that same period was $85.4 million because of a $275.3 million increase in investments and other income. Last quarter, HMSA's investment income dropped to $4.8 million from $8.3 million a year ago.
"If we had not had reserves (during that six-and-a-half-year period), we could not have survived," Van Ribbink said.
HMSA, which had 688,000 members at the end of July, boosted its reserves to $507.7 million, or $743.51 per member, at the end of last quarter. The reserves stood at $488.6 million, or about $722 per member, at the end of last year.
The amount that HMSA paid to providers last quarter rose 8.4 percent to $358 million from $330.3 million while total administrative expenses gained 10.1 percent to $31 million from $28.1 million.
But an Insurance Division accounting change that went into effect this year changed the way certain costs are categorized and skewed some of the year-over-year comparisons. That resulted in $4.2 million in disease-management expenses during the quarter being shifted from health-care service costs to administrative expenses.
Under the previous reporting guidelines, payments to providers would have risen 9.7 percent to $362.2 million from $330.3 million while total administrative expenses would have fallen 4.7 percent to $26.8 million from $28.1 million.