State health fund to stick
with HMSA for 2 years

Trustees of the state's Hawaii Employer-Union Health Benefits Trust Fund have exercised the final two years of a four-year contract with Hawaii Medical Service Association by accepting a two-year option that the organization said will result in "substantial savings."

Chairwoman Katherine Thomason said the board had drafted a "request for proposals" to go out to other health insurers, but decided to stay with HMSA when it sweetened the option years of the contract, which otherwise would have ended on June 30, 2005.

"I very much believe that competition is important and we need to open up everything to competition, but at the same time we wanted to also look at whether we could get more favorable rates (from HMSA)," Thomason said. "It wasn't just price alone. We had to look at several components, including the operations and a number of significant things."

The fund covers about 66,500 active and retired state and county employees.

Thomason said retirees came out a big winner in the new fiscal contract, which goes into effect on July 1, 2005, and runs through June 30, 2007. Under the plan, retirees' medical and prescription drug premiums each will decrease 3.2 percent in the first option year when compared with the previous year. Those same retiree medical and prescription drug costs then will remain the same in the second option year.

"We generally were looking at holding down costs for retirees. It's a huge thing," Thomason said.

Active employees' medical plan premiums will increase 8.3 percent in the first option year and 8 percent in the second option year while their prescription drug costs will go up 4.3 percent in the first year and 12 percent in the second year.

Overall, the weighted increase for active employees and retirees is 3.1 percent in the first year and 5.4 percent in the second year.

The fund said an independent analysis by Garner Consulting concluded that the average 7.4 percent increase in HMSA rates for active employee medical and prescription drug plans in the first option year compared positively with a 17 percent increase in Medicare premiums and projected increases of 13 percent for similar plans nationwide next year.

Thomason said Garner had advised sticking with HMSA because the fund, which took effect in July 2003, only had one year of complete comprehensive claims data.

"The consultant was concerned that this could impair the ability of competitors to prepare accurate pricing estimates in any proposals submitted," said Thomason.

"There also was a risk of unnecessarily high rates for the beneficiary, or potential carrier failure. The development of additional experienced data under the contract extension option will ensure better competition when the carrier contracts are competed for at the end of the option period."

Another key feature of the two-year option was a refund of approximately $17.5 million in fund premiums that exceeded the amounts paid out in claims in fiscal 2004 by HMSA. The fund's board also said the refund would allow for the establishment of a self-insured plan that could bring savings in future years. The fund anticipates self-insuring no earlier than July 1, 2007.

Thomason said fund members paid $354 million in total premiums for health and prescription drugs in 2003-2004 and will pay an estimated $385 million for 2004-2005.

Under the two-year option, members will pay an additional $11.8 million in premiums in fiscal 2006 over 2005 and another $21.6 million in premiums in fiscal 2007.