Health profits mixed

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The state's two largest health insurers have both been hit by escalating medical costs and a weak financial market but have financially positioned themselves on opposite ends of the spectrum.

Second-quarter loss: $16.7 million Year-earlier loss: $4.3 million

Hawaii Medical Service Association, the state's largest health insurer, posted a second-quarter loss of $16.7 million — the largest quarterly loss in the past two years.

HMSA more than tripled its year-earlier loss of $4.3 million, as a result of the health plan's eighth straight quarterly operating loss due to significantly higher payments to medical providers.

Meanwhile, Kaiser Foundation Health Plan Inc.'s Hawaii region swung a $1.5 million profit in the second quarter, reversing a year-earlier loss after two years of cost-cutting throughout the health maintenance organization.

The net gain, which represents a 0.7 percent return on revenue, compares with a $400,000 net loss — representing a minus 0.2 percent return — in the same quarter last year.

Both health plans recorded net investment income that helped boost the bottom-line results.

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Hawaii Medical Service Association's loss widened in the second quarter to $16.7 million, marking the largest quarterly net loss in the past two years. HMSA more than tripled its year-earlier net loss of $4.3 million, as a result of a $29.4 million operating loss - the health plan's eighth straight quarterly operating loss, which was 75 percent higher than the $16.8 million loss a year earlier.

The state's largest health insurer with 696,891 total members said the losses are a result of significantly higher payments to hospitals, physicians and other health-care providers since renegotiating contracts last year.

"The hospitals have been asking for increases, this is the result of those increases," spokesman Mike Stollar said.

In the first half of the year, HMSA posted a net loss of $26.7 million, compared to a $5 million year-to-date loss in June 2007.

The insurer on average said it paid medical providers nearly $121.7 million a month during the quarter, or nearly $8 million more per month in reimbursements compared to the prior quarter.

"This does point out how difficult the health insurance business is these days," said J.P. Schmidt, state insurance commissioner. "There have been some escalating costs from providers."

HMSA, which raised rates 10.4 percent on July 1, said it will likely have to pass along those costs to members.

"When contracts are negotiated to pay physicians and hospitals more, that comes from the premiums and that means rate increases," Stollar said.

The state's largest health plan reported dues revenue of $373.8 million and benefit expenses of $364.9 million in the quarter, down from revenue of $460.8 million and expenses of $437 million in the same period last year.

Administrative expenses totaled $38.2 million in the quarter, down 5.6 percent from $40.5 million a year earlier.

The second-quarter loss would have been even larger if it were not for $12.3 million in investment income, up 17.1 percent from $10.5 million a year ago, according to Steve Van Ribbink, HMSA's chief financial officer.

"As a result of escalating health care costs, we've seen our financial safety net - the HMSA reserve - shrink by nearly $57 million since this time last year," he said.

HMSA's reserve at the end of the quarter was $536 million, down 9.5 percent from $593 million a year earlier as a result of technology upgrades, continual net losses and a weak investment market, the company said.