Restore oversight of health insurers

THE ISSUE The Legislature is considering reinstating regulation of Hawaii health insurance rates.

HAWAII health insurance companies have been free of rate regulation for nearly a year because of flawed legislation last year that allowed state oversight to expire. The Legislature must reinstate government monitoring and regulation of rates to prevent excessive increases.

During a meeting with the Star-Bulletin editorial board, legislative leaders said a House bill was intended to apply only to the state's largest insurer, Hawaii Medical Service Association. A joint House-Senate conference should resist any pressure to eliminate oversight of Kaiser Permanente from the measure.

A bill that would have continued the regulation of insurers last year contained an incorrect effective date, resulting in an end to oversight on June 30. The bungling made Hawaii one of only four states without regulation of health insurance rates.

J.P. Schmidt, the state insurance commissioner, explained to legislators at the beginning of this year's session that oversight is especially important in Hawaii because of the employer group health insurance required by law. "No other state imposes the same requirement on its business community," Schmidt said. "When government mandates by law that citizens must buy a product, it has some responsibility to review the product for fair pricing."

A review of the rate oversight during the three-year period before the law's expiration concluded that the public saved $18 million in premiums. Schmidt said the state's regulatory oversight attracted a new insurer, Summerlin Life & Health Insurance Co., into the market.

Public disclosure last month of a bonus of nearly $500,000 to the $620,000 salary of HMSA's top executive focused attention on that company, but that should not restrict oversight to HMSA alone. Rep. Josh Green, a Big Island doctor and chairman of the House Health Committee, says passage of the bill is needed to foster competition in Hawaii's market, but regulation of only one company's rate is not competitive.

Kaiser's clients had no way of knowing whether the average 3.75 percent increase in premiums on Jan. 1 was warranted, even though it was much smaller than increases at the beginning of the previous two years. Nor will they know whether next January's increase will be fair if Kaiser's rates continued to be unregulated.

The Senate bill also would cap each company's reserves at 30 percent of its annual total expenses. The House correctly exempted the reserves of companies whose revenue comes entirely from government contracts after AlohaCare, such a company, pointed out the negative effects.

Green alleges that HMSA's generation of $13.5 billion in revenue over the past decade is evidence that its $9.3 million in charitable grants is paltry. A company spokesman responded that HMSA experienced $176 million in net losses over that period. Those are issues that should be examined in every health insurance company operating in the state.