HMSA weighs another rate hike

The health insurer warns its costs are beginning to rocket

Hawaii Medical Service Association warned yesterday it may have to raise health insurance rates again next year after suffering a staggering $20.2 million operating loss in the third quarter.

The state's largest insurer said its cost for health care services is rising faster than its revenue and that it likely will need to increase premiums more than it has during the past two years.

HMSA raised rates 3.8 percent in July for small-employer groups, and also said premiums will go up 4.4 percent at the start of 2007 for businesses of 100 or more employees that renew contracts in January. Its previous increases for its small- and large-employer groups were 4.9 percent and 3.4 percent, respectively.

"It's worrisome that these health care costs have gone up," HMSA Chief Financial Officer Steve Van Ribbink said. "We've had a number of years of moderate growth in the trend, but now it's going up at a more quickened pace. The rates we have out there ... may in fact not be sufficient to cover the trend in health care costs, and that could put us in a further loss situation, not just in the fourth quarter but going into 2007. In order to keep our revenue more in alignment with health care costs, we probably will have to raise rates at a higher level than what we've done in recent years."

HMSA, which has 703,610 members, said it paid physicians, hospitals, pharmacies and other health care providers nearly $10 million a month more last quarter than the same period a year ago. Nearly 96 percent of the money taken in from premiums was used to pay for health care costs.

That was one of the factors that led to HMSA posting a net loss of $7.2 million for the quarter, versus a year-earlier net gain of $6.4 million. HMSA's net loss would have been larger except for a $4.7 million federal income tax benefit it recorded as part of a tax settlement stemming from the insurer's treatment of depreciation deductions.

Revenue, or the dues collected from monthly premiums, gained just 3 percent to $452.6 million from $439.3 million, while benefit expenses rose 7.1 percent to $434 million from $405.3 million. HMSA paid out $144.7 million a month in benefit expenses during the quarter.

In the third quarter of 2005, HMSA had a net operating gain of $779,256.

"I'm afraid that health care costs have left the benign period," Van Ribbink said. "I'm concerned about 2007 because we're in negotiations with hospitals and, because of inadequate reimbursement they get from the government, they're trying to get more out of private payers like HMSA."

HMSA, which relies on its investment income to bolster its reserves, had a net realized investment gain of $7.9 million last quarter compared with $6.9 million a year earlier. Its reserve level at the end of the quarter was $593 million, up from $553.7 million a year earlier.

Administrative expenses increased 16.7 percent to $38.7 million from $33.2 million because of a $40 million information-system replacement project that began in 2005. Administrative costs also were boosted by compliance with the federal Health Insurance Portability and Accountability Act, and by implementation of the new Medicare drug-benefit program.