Trust fund to
save $25.7M

The company revises a health
insurance contract with HMSA
that will result in lower
coverage rates

The Hawaii Employer-Union Health Benefits Trust Fund will save $25.7 million for the state, the counties, active members and retirees in the next 12 months under a revised contract with Hawaii Medical Service Association.

The fund's trustees and the state's largest health insurer amended an earlier agreement after a nine-month report on the fund's fiscal 2005 financial condition showed a surplus of $28 million.

The amended contract, scheduled to take effect July 1, offers a rate reduction for the 28,000 retirees and a one-month suspension of premium payments for the 39,000 active members.

The state and counties, as employers, get a break because in most cases they pay all of the retirees' benefits and pay 60 percent of the active members' benefits. The rate reduction needs approval by the state Insurance Division.

"Our consultant advised us that the (surplus) trend was very likely to continue and asked us to negotiate with HMSA to get immediate relief," fund administrator Jim Williams said. "Instead of waiting to a later date for a future contract, our board moved aggressively to make adjustments now."

Under the retiree agreement, HMSA's rates will be 6 percent to 7 percent below the 2005 fiscal year's rates that end this month, and 3 percent below previously agreed-upon rates that were scheduled to take effect next month. The state and counties will save more than $5.2 million. Rates of other carriers for fiscal 2006, including Kaiser, Hawaii Dental Service and Vision Service Plan, will remain unchanged.

The new monthly medical and drug plan premiums for retirees without Medicare will be $322.82 for a single person and $902.64 for a family. For those with Medicare, it will be $202.64 for a single person and $664.10 for a family.

In a companion agreement, the fund's board negotiated a premium holiday for fiscal 2006, where during one month HMSA will not bill the active employees a premium for their medical and prescription drug plans. The one-month premium suspension will save $20.5 million, with employees keeping about $8.2 million and employers about $12.3 million.

Beginning next month, the fund's active members will pay medical and drug plan premiums that are 8.3 percent and 4.3 percent higher than fiscal 2005, respectively. But Williams points out that the rate increases are nullified by the premium holiday. Active members will pay monthly premiums of $106.62 for singles and $321.62 for families.

Fund Chairwoman Katherine Thomason said the deal shows the commitment of the trustees to hold down costs. In an earlier agreement, HMSA returned $27.4 million to the fund from a fiscal 2004 surplus.

Thomason said the board also voted unanimously at its May meeting to expedite the creation of self-insured coverage.

Self-insured coverage would allow the fund to establish premiums itself and be liable for the risk, while contracting with an insurance carrier to process claims and offer a provider base.

Williams said the self-funded plan could begin as early as July 1, 2007.

"The board can be more aggressive because if the claims are a little higher than expected, the reserves could be used to cover them," he said. "The administrative charges also would be lower for the plan."

HMSA Senior Vice President Cliff Cisco said the fund's surplus built up because members' use of services was running lower than projected.

"It's their money," he said. "They wanted to apply the savings now rather than later."