Kaiser and HMSA bleed cash during ’07

STORY SUMMARY »

The state's two largest health insurers reported a reversal in their financial fortunes for the second quarter, with both posting losses in contrast to year-earlier profits. Both cited continuing sharp increases in health care costs.

Kaiser Foundation Health Plan Hawaii posted a net loss of $3.2 million for the second quarter and a loss of $2.5 million for the first half of the year, while Hawaii Medical Service Association lost $4.3 million for the quarter and $5 million for the first half.

The losses follow criticism of HMSA for paying its top executive more than $1 million last year and a shake-up at Kaiser, which began a cost-cutting program more than a year ago that led to 54 layoffs and a management overhaul.

FULL STORY »

Kaiser blames ’07 losses on higher medical costs

Kaiser Foundation Health Plan Hawaii Inc. said yesterday it recorded a net loss of $3.2 million in the second quarter due to changes in accounting estimates stemming from higher-than-forecast medical costs.

The state's largest health-maintenance organization also said rising medical expenses outside the Kaiser network and lower-than-expected membership affected revenue.

The net loss compares with a $1.5 million net gain in the year-earlier period and comes as Kaiser continues to restructure operations to rein in expenses.

The HMO began cutting costs -- which led to 54 layoffs and a management overhaul -- more than a year ago and is continuing to review staffing levels to increase efficiency, Kaiser spokeswoman Lynn Kenton said.

Kaiser's restructuring measures include consolidating property, reviewing all contracts and evaluating all positions.

Kenton would not say whether Kaiser will boost premiums for employers come Jan. 1. The company, which has 219,000 members statewide, raised rates an average 3.75 percent for all businesses at the beginning of this year.

"We're evaluating our expenses and health care costs to determine if and what type of rate increase our purchasers and members will see," she said.

The company, which announced a new executive team in June, saw operating revenue for the quarter increase to $218.3 million, up from $217.1 million in the same period last year, while expenses rose to $226 million, compared with $219.1 million last year.

This resulted in an operating loss of $7.7 million for the quarter, compared with a loss of $2 million in the 2006 period.

"Using historical data, we did not take into consideration the rising costs that hit us later in the year in 2006 and in early 2007," said Dave Delaney, the region's chief financial officer.

Meanwhile, Kaiser's net investment income rose to $4.5 million in the quarter ending June 30, up $1 million from the second quarter last year.

"While the second-quarter results show we have some short-term challenges, we remain focused on our long-term success by improving our members' total experience with us," said Janet Liang, who became president of the Hawaii region in March. "This includes managing costs so we can deliver affordable options to the business community and ensuring that we make efficient use of our members' dues."

For the first half of the year, Kaiser reported a net loss of $2.5 million, compared with a net gain of $5.5 million in the same period last year.

Operating revenue was $436.1 million for the first six months of the year, slightly down from $437.4 million last year. Year-to-date operating expenses rose to $446.1 million compared with $437.8 million, resulting in a $10 million operating loss, up significantly from a loss of $400,000 in the year-earlier period.

Net investment income grew to $7.5 million so far this year, up from $5.9 million last year.

Kaiser has 350 physicians and 4,000 employees on Oahu, Maui, Kauai and the Big Island.

Dues are not covering expenses, HMSA says

The health insurer faults new technology and also the "upward pressure of utilization"

Hawaii Medical Service Association lost $4.3 million in the second quarter, a sharp reversal from earnings of $12.6 million a year earlier, a figure boosted by a one-time $10.4 million benefit resulting from a federal income tax settlement.

"Health care costs are continuing to rise in 2007 and are outpacing HMSA dues revenue," said Steve Van Ribbink, executive vice president and chief financial officer.

The state's largest health insurer, with 706,582 members, said yesterday that health care expenses rose 4.8 percent, to $437 million, from $416.9 million a year before. Dues revenue increased 2.4 percent, to $460.8 million, from $450 million.

Administrative expenses grew 7.6 percent during the period, to $40.5 million, from $37.6 million, and the net operating loss widened by 271 percent, to $16.8 million, from $4.5 million.

However, a strong stock market led to investment gains of $10.5 million -- a 68 percent increase from a year earlier -- and reduced HMSA's second-quarter loss to $4.3 million.

Cliff Cisco, an HMSA spokesman, attributed the loss to "the upward pressure of utilization, new technology and the use of drugs."

For the first half of the year, HMSA collected $913.7 million in dues, or 2.2 percent more than $893.8 million a year before. It paid $855.7 million in health care expenses, an increase of 5.2 percent from $813.1 million. Administrative expenses rose 2.1 percent, to $81.7 million, from $80 million.

That overall result was a net operating loss of $23.7 million, in contrast to an operating gain of $757,581 a year before.

Investment gains grew 28.9 percent in the first half, to $17.8 million, from $13.8 million a year before, helping to narrow its loss to $5 million, in contrast to earnings of $21 million in the year-earlier period.

Yesterday's financial results follow criticism directed at HMSA for paying its top executive more than $1 million last year.

HMSA, which posted $2.1 billion in revenue last year, paid Chief Executive Bob Hiam a $620,000 salary and $497,117 performance bonus, or 0.05 percent of annual health plan revenue, which is comparable to that of other large mainland health plans.

Hiam's salary is based upon the insurer's year-end performance, not quarterly results, Cisco said. "We really don't know what the end of year will be, so we'll have to wait until the end-of-year results," he said.

"They gave their guy a bonus of $500,000 because his performance is so good, and they're losing money," said Rep. Josh Green, House Health Committee chairman and a full-time physician on the Big Island. "What they're rewarding their executives for is maintaining the status quo (by) bullying other people out of the market and ... on their tax-exempt status."

HMSA said on average it paid physicians, hospitals and other providers $146 million a month during the quarter, or $6.72 million more a month than the year-earlier quarter.

Nonetheless, Green said HMSA's provider reimbursements are still not enough to keep doctors from leaving Hawaii, or hospitals from cutting services.

HMSA, a nonprofit, mutual benefit association founded in Hawaii in 1938, is an independent licensee of the Blue Cross and Blue Shield Association.