Bills target insurance rates

Seven measures would allow the state to deny certain increases in health insurance costs

State lawmakers have once again turned to the controversial regulation of health insurance rates in attempting to solve what they describe as a health-care crisis in Hawaii.

Seven bills proposing to give the state insurance commissioner broad power to deny rates deemed excessive, inadequate or discriminatory have been introduced at the Legislature this year.

Two of the bills already have passed House and Senate health committees and will likely be battled out at the end of session, said Rep. Josh Green (D, Keauhou-Honokohau), House Health Committee chairman and co-sponsor of one of the measures.

Last year, Hawaii became one of only four states without some form of health insurance rate regulation after lawmakers failed to reinstate a law that expired last June.

"Because there's a health-care crisis and we're focused on reimbursements, people are more aware that we have to have rate regulation reinstated," Green said yesterday.

But Hawaii's two largest health insurers, HMSA and Kaiser Permanente Hawaii, have made fighting rate regulation a top priority at the Legislature.

The Hawaii Medical Service Association, the state's largest health insurer, maintains that rate oversight is unnecessary in a market that is already self-regulating, said Cliff Cisco, HMSA spokesman.

Chris Pablo, spokesman for Kaiser Permanente Hawaii, the state's largest health maintenance organization, said, "There's a bigger problem in Hawaii, and that is not going to be solved by rate regulation: It's the significant under-reimbursements to physicians and hospitals and other health-care providers. We should be devoting the legislative time and attention to solving that problem first."

Green, who introduced the House version of the bill, has added more stringent provisions to the measure that would require that health insurers' reserves not exceed 30 percent of annual expenditures and operating expenses. The proposal would require reserves above that threshold to be used to reimburse hospitals and providers, otherwise a health plan's tax-exempt status would be revoked.

"In the case of HMSA, that's about $70 million a year," Green said.

The Senate version of the bill aims to streamline the rate regulation process by shortening the deadline for the insurance commissioner to respond to a rate filing. A major concern among health insurers under the last rate regulation law, which took effect in January 2003, was the time it took to receive state approval after filing a proposed rate adjustment.

The Senate bill would let insurers use an interim rate in cases where a proposed rate is denied, and requires that the commissioner disclose the reasoning behind a denial.

"There are benefits to having rate regulation, especially in a market like Hawaii where there are only a handful of players," said Sen. David Ige (D, Aiea-Pearl City), Senate Health Committee chairman. "If it was a very active market with many insurers bidding on services, then the market forces would self-regulate the prices."

While some health insurers claim the market already is self-regulating, state Insurance Commissioner J.P. Schmidt said rate oversight is necessary to protect Hawaii consumers.

"It is simply a fundamental safeguard," he said. "Health insurance is a complex area, and it's necessary for all citizens of Hawaii so it's important to have some reasonable oversight."

Schmidt said Hawaii consumers saved at least $18 million in the three years rate regulation was law, as a result of proposed rate hikes that were denied by the insurance division. Consumers likely saved more than that because health insurers were careful in setting premiums knowing that the rates would be reviewed, he said.

For smaller players, such as Summerlin Life & Health Insurance Co., the state's newest health plan, rate regulation would assure a level playing field in the highly competitive health insurance market.

A price war was unleashed when Nevada-based Summerlin entered the market in 2004, said Jim Dyer, Summerlin chairman, adding that the larger health plans lowered premium rates to retain their market share.

"Summerlin is finding it more and more difficult to compete on the economics," Dyer said. "What we see in the marketplace, as far as the market conduct of our competitors, is proof that the state should have oversight responsibilities for health insurance (to ensure) the integrity in pricing."