Legislature must restore oversight of health insurance

THE ISSUE Seven bills have been introduced to reinstate a law that expired last year allowing the state to monitor health insurance rates.

STATE lawmakers are attempting to correct an error that has left Hawaii's consumers and businesses without oversight of health insurance rates.

The law requiring health insurance companies to justify their rate increases expired seven months ago, and the Legislature should restore the state's regulatory role this session.

Seven bills have been introduced on the issue, an indication that lawmakers are aware of their lapse last year when a measure that would have renewed the law contained an incorrect effective date that could not be fixed before the session's end.

This time, they should get it right. They should be careful, however, not to overly restrict insurance companies' financial flexibility by dictating amounts insurers can hold in reserve since the companies' investments provide opportunities to raise revenue without increasing premiums. Instead, reasonable reserve amounts could be determined by the insurance commissioner after insurers show need.

When state oversight ended June 30, Hawaii became one of only four states without some kind of check on health insurance costs. Because state law requires employers to provide health insurance for their employees, the state has a duty to assure that rates are fair.

In the past, insurance companies submitted requests for a rate increase, then had to demonstrate need and allow the commissioner to review the proposal. The law provided consumers and employers with accountability.

According to state Insurance Commissioner J.P. Schmidt, the oversight saved customers more than $18 million in three years. Moreover, insurers were prudent in proposing increases because they knew requests would be examined.

Two of the bills are advancing in the House and Senate. Both could use some modification.

The Senate bill would speed rate review with a shortened deadline for the insurance commissioner to respond to a request. No one would deny that government should move faster, but companies would probably agree that due consideration takes time.

When a rate increase is denied, the Senate bill would let insurers charge what they wanted while an appeal is made. Previous law that allowed companies an interim rate, generally lower, would be a better plan.

The House bill would place strict limits on insurers' reserve funds, capping them at 30 percent of annual expenditures and operating costs, the Star-Bulletin's Kristen Consillio reports. It also would require reserves above that amount be used to increase reimbursements to hospitals and medical providers. Lawmakers must be careful not to intervene too deeply into a company's business practices.

Insurers contend regulation isn't needed, that market forces provide better checks on consumer costs. But the dominance by two insurance companies in Hawaii demands continued state scrutiny.