From the March 5, 2004 print edition
HMSA's financial health improves, still seeks rate hikes
Kristen Sawada
Hawaii Medical Service Association, which is seeking
more rate increases, recorded its first operating gain
in six years --
$18.15 million for 2003 -- reversing a $49.3 million
loss the previous year.
Profit on its insurance underwriting business was the
result of premium increases and lower administrative
costs. Two one-time adjustments totaling $13.3 million
-- a $9.5 million net decline in a special reserve
fund and a $3.8 million settlement from a
Medicare contract -- added to the operating gain.
HMSA's net profit was $47 million, bolstered by gains
from $35.62 million in investments. Other income totaled
$280,000.
"In the case of 2003 we thought that trends were
going to be a little bit higher than they turned out
to be with health-care costs
and we didn't think that investment returns would be
nearly as strong as they have been," said Steve
Van Ribbink, HMSA chief
financial officer.
Despite the unexpected net profit, HMSA is requesting
a 9.6 percent rate increase for 11,000 small businesses
renewing health
plans on July 1 and a 12.1 percent hike for its HMO-plan
members. In addition, the insurer raised premiums 9.7
percent on
average for 140 large businesses in January.
A credit from last year's investment gains offset what
would have been higher health-plan dues, HMSA said.
"It's good news for small businesses on one hand
because our increases could have been significantly higher," said
Christine
Camp Friedman, principal of Avalon Development & Consulting
and chairwoman-elect of the Chamber of Commerce of
Hawaii.
She says small businesses shouldn't expect to see significant
savings on premiums because the net operating gain
represents
only 1.2 percent of total dues revenue. And, despite
an improved investment climate, small businesses still
must look at cost
drivers such as utilization, which hasn't changed,
she said.
Drivers influencing health-care costs include rising
consumer expectations, medical technology, prescription-drug
costs, an
aging population and unhealthy lifestyles, HMSA says.
In 2003, hospital admissions were lower than expected
but those who
were hospitalized tended to have more serious conditions
and members in general used more services, the company
said.
Meanwhile, the state Insurance Division is analyzing
proposed 2004 rate increases and will take into account
HMSA's profit
earned last year, Insurance Commissioner J.P. Schmidt
told PBN.
"We are going to look at them very hard and test
all the assumptions and justifications," Schmidt
said, adding that actuaries
look at trends over the past three years in predicting
future outcomes. "We do take into account the
investment income that they
have, but we also have to take into account the rising
costs which ... seem to be continuing to escalate."
Health insurers began filing rate adjustments with
the division about a year ago under a rate-regulation
law. The division has 90
days to approve or deny rate adjustments. In 2003 it
rejected HMSA's request for an 11.5 percent premium
increase for small
businesses and instead approved a 9.87 percent rate
hike.
HMSA collected dues of $1.46 billion in 2003, up 13.7
percent from $1.28 billion in 2002. The insurer paid
$1.33 billion for
health-care services, a 9 percent increase from $1.22
billion the previous year.
Administrative expenses totaled $112.2 million for
the year -- down 1.9 percent from $114.4 million in
2002 -- resulting in a
net gain of $18.15 million, or 1.24 percent of total
dues revenue for the year.
The operating gain follows a $49.28 million operating
loss in 2002 and operating losses totaling $175 million
over the past six
years.
HMSA's net realized investment gain -- $35.62 million
-- increased from $2.57 million in 2002. At the end
of 2003, HMSA's
reserves totaled $488.6 million, up from $407.6 million
at the end of 2002. The health plan's total membership
was 677,140 at
year's end.
"Reserves are maintained to protect health-plan
members, employers and providers from losses and unexpected
emergencies,"
Van Ribbink said, adding that investment income has
subsidized losses over the past six years. "It's
also important to
understand that reserves generate investment income
to help limit the growth of health-plan dues."
Reach Kristen Sawada at 955-8036 or ksawada@bizjournals.com
Pacific Business News (Honolulu) - March 8, 2004
http://pacific.bizjournals.com/pacific/stories/2004/03/08/story6.html
© 2004 American City Business Journals Inc.
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