Health insurance rate regulation in jeopardy

Isle insurers could raise premiums unchecked as a rule requiring state approval of rates ends

Hawaii residents could see greater increases in their health premiums in the near future because of the apparent end of a state regulation that requires insurers to have their rate requests approved by the state Insurance Division.

Unless extraordinary action is taken on a House bill by lawmakers today during the final day of the legislative session, a three-year sunset provision requiring rate regulation will expire on June 30. After that, insurers would be able to charge whatever they want, without the state oversight that began in 2003.

State Insurance Commissioner J.P. Schmidt, who has been responsible for reviewing rate requests, said the pending death of rate regulation will hurt small businesses and likely discourage other insurers from entering the market.

"Normally, I am very much in favor of the market determining what goes on in business," Schmidt said. "However, when you have a market that is so dominated by one or two companies, then you don't really have a competitive market to rein in any improper behavior. When you know the insurance commissioner is looking over your shoulder and is going to check your figures, you sharpen your pencils and make sure those figures are right."

Schmidt said his office has found some aspects of insurers' rate-increase requests over the last three years that did not have proper justification, saving Hawaii citizens more than $18 million directly and millions more indirectly.

"Those were situations where I disapproved rates and they had to come back and file for lower rates," he said.

Hawaii Medical Service Association and Kaiser Permanente Hawaii, the state's two largest insurers, both had urged lawmakers to let the sunset provision expire because they said rate regulation was not necessary.

"It's rather premature to comment because the legislative session isn't over, but Hawaii's premium rates were one of the lowest in the nation before rate regulation, during rate regulation and will very likely be that way for the very near future after rate regulation," said Chris Pablo, Kaiser's director of government and community affairs. "Market forces, coupled with your own cost structure, influence what you need and what you can actually charge."

Cliff Cisco, senior vice president of HMSA, said the insurer's rate plans are based on how much its services are used and its health-care costs, and are "pretty regimented."

Cisco said he did not want to comment on the legislative situation because the session is not over yet, but said that HMSA has a good working relationship with Schmidt.

"We've worked well with the insurance commissioner for the time we've been under regulation, and we presume we'll work well with him afterward," Cisco said.

HMSA had more than 700,000 members at the end of last year. Kaiser had 226,000 members.

Small insurers, such as newcomer Summerlin Life and Health, could be hurt by the elimination of rate regulation, Schmidt said.

Summerlin, based in Las Vegas, began offering a full insurance program in the state in October 2004. Before that, Summerlin's only presence in the state was through a sister company, HMA Inc., which had been in Hawaii since 2001 and had operated as a third-party administrator for self-funded insurance programs.

"The rate-regulation law was one of the major factors in enabling us to attract a new competitor to the health insurance market, because they felt they could be assured of a level playing field," Schmidt said.

Jack Borja, senior vice president for Summerlin, said the insurer would not have come into the market without the rate oversight bill.

"Historically, there was a lot of predatory pricing from the current carriers, and new insurance companies weren't able to compete," he said. "The bill was really effective because the commission was able to approve, deny or adjust the increases. Summerlin will continue to compete because we're now established, but it will now be very difficult for a new player to compete because it would not have a base and would have to compete in an industry in Hawaii that has predatory pricing from the monopolies."

Pablo vehemently disagrees that there was predatory pricing.

"It should be noted that no health plan other than Kaiser and HMSA are participating in the QUEST (Medicaid managed care) plan other than AlohaCare, and only Kaiser Permanente and HMSA are offering individual plans for self-proprietors," Pablo said. "Those are higher risk, and that's the reason Summerlin and other health plans are not in that business, because it requires a larger risk pool to afford to be in that kind of marketplace."