HMSA faces push
to cut its reserves

Lawmakers and Lingle
differ over how to reduce
the insurer's surplus

Democrats in the state Legislature and Republican Gov. Linda Lingle are looking to trim the $516.3 million held in reserve by the Hawaii Medical Service Association.

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Lingle wants some of the reserves handed back in the form of rebates, while Democrats, led by Sen. Ron Menor, Consumer Protection Committee chairman, thinks HMSA rate increases should be frozen until the reserve has dropped by about $68 million.

"We are amending the administration proposal to impose a health insurance rate freeze," said Menor (D, Mililani).

The bill is expected to pass the Senate today and move to the House for further scrutiny.

State insurance commissioner J.P. Schmidt argues, however, that the Democrats' plan would take too long to cut rates in the long run and would hurt consumers. HMSA could coast on its big reserves, lowering rates in the short run and driving smaller insurers out of the market.

HMSA, already the state's largest health insurer, opposes both Lingle's and the Democrats' plans (Senate Bill 760), saying its reserves are needed in the event of emergencies and other contingencies.

Under existing state laws, managed-care insurers such as HMSA or Kaiser Permanente are allowed to hold a surplus of up to 50 percent of annual expenses.

The two competing plans in the Legislature would drop that to 30 percent of reserves.

The difference is how to handle excess reserves.

Schmidt says the money must be cleared out quickly.

"Our bill would have the excess returned to HMSA members and maintains a level playing field," Schmidt said.

Although Schmidt agreed the Menor plan would lower rates for a "short time, such as a year, but then there would be disastrous results."

"I'm hoping we can do a better job of explaining this to the Legislature," Schmidt said.

Menor sees his plan as bringing about a gradual rate reduction, a more prudent way to go.

"I agree with the insurance commissioner that the reserve levels are too (high), but while we agree on the problem, I think the rate freeze is better," Menor said.

The Lingle plan would incur expenses, as HMSA would have to provide rebates and the state would have to set up a mechanism to monitor the rebates.

"The administration approach would only result in giving subscribers a $1,200 rebate. Our proposal would deliver relief to businesses that are currently being crushed by high insurance rates, and it would save business $20 million over the long term," Menor said.