For 2007, HMSA's physician reimbursement was approximately 117 percent of the Medicare fee schedule. For 2008 it will be approximately 120 percent.

Concerned HMSA member: Please explain the bonuses received by the executives. Do nonprofit organizations give bonuses as a normal practice?

Van Ribbink: Executive compensation is set by the personnel committee of the HMSA community board of directors. The committee is made up of outside, independent directors with extensive experience in personnel matters.

The HMSA personnel committee uses the services of a national human resources consulting firm to assist in its review of executive compensation. The consulting firm does a comprehensive assessment of competitive pay practices in the healthcare industry and other large companies in Hawai'i. The committee also considers other companies similar to HMSA in size, complexity and scope of responsibility.

The HMSA personnel committee has four important goals related to executive compensation. These goals are to provide compensation that will attract the best talent to HMSA, motivate executives to perform at their highest levels, reward outstanding executive performance, and retain executives with skills that are necessary for HMSA's long-term success.

Each year, members of the HMSA personnel committee review executive compensation and make sure it is appropriate and aligned with strategic corporate goals.

HMSA board members serve three-year terms and receive no compensation for their service. As a true community board, HMSA board members represent Hawai'i's most respected, experienced and conscientious leaders.

Ted: Last year, HMSA reported payment of what seemed to be substantial bonuses to HMSA executives, including yourself. They were justified as being consistent with bonuses paid to executives in similar nonprofit health insurance companies on the Mainland. To me, that explanation is valid only if premiums, employee compensation and physician reimbursement are also comparable (taking into consideration the cost of doing business in Hawai'i). Can you comment on that?

Also, I believe HMSA reported operating losses in the same year it paid those bonuses and indicated its intent to raise premiums accordingly. Is it appropriate to pay bonuses under such circumstances?

Van Ribbink: See my previous answer to Concerned HMSA Member regarding executive compensation.

Regarding operating losses, HMSA operates on a value driven model versus a profit model. Value means the quality of the service we provide— healthcare — in relationship to its costs to our members. The quality is excellent and 93 percent of member dues go directly to providers. So our members receive outstanding value. We try to break even on operations and earn a small return on investments to maintain an adequate reserve for our members protection.

Tina: From a healthcare standpoint, what do you think can be done to get medical coverage for more people who can't necessarily afford it? Do you see universal healthcare working here in the United States?

Van Ribbink: I think Hawai'i's prepaid healthcare system is a great model for the rest of the country. We have the lowest uninsured population of all the states. The best way to achieve universal healthcare is to keep it affordable, something we strive to do every day by operating efficiently.

Kevin: HMSA insurance plans differ depending on the amount of coverage your employer wants to purchase, but for the individual you only offer a plan without prescription coverage. The government-financed health insurance seems to be more comprehensive compared to yours. Why do you think people aren't demanding something like Medicare for all, which is offered in all of the other developed countries?

Van Ribbink: I think you are referring to Medicare programs that now do offer drug coverage. HMSA does offer a number of drug plans through our Medicare offerings. With respect to employer plans, we offer drug coverage but it is not required under the laws of Hawai'i.

Diane N.: It seems like HMSA is always raising its rates. Why are health plan rates so high?

Van Ribbink: HMSA's dues rates are among the lowest in the country due to our low operating costs and no built in profit margin. Dues rates go up because healthcare costs continue to rise. Since 93 percent of our dues go to cover these costs, our rates must keep pace.

Increases in healthcare costs come from several key drivers — provider reimbursement rates, member utilization of services, and the severity of cases treated. Reimbursement rates are rising due to government cost shifting and advances in medical technology. Utilization and case severity are constantly rising, with the aging of our population as a prime factor.

It is important to keep in mind that although healthcare costs have increased substantially over the past 20, 10, or even five years, so has the quality of care, allowing our members to live longer and healthier lives. The healthcare product of today is far different from what it was 10 years ago. I think most people, if given a choice, would choose today's product at today's prices over yesterday's product at yesterday's prices.

Bleeds Green: What makes single proprietors and really small business owners so unattractive as HMSA customers? Are administrative costs that prohibitive?

Van Ribbink: Actually, small business is an attractive and considerable part of our business. We have over 11,000 small businesses as our customers.

Richard: Health insurance rate regulation starts again effective Jan. 1, 2008. What effect, if any, did rate regulation have on HMSA's business practices and market share when the law was in force in prior years?

Van Ribbink: Government regulation of health plan rates had very little impact on HMSA's adjustments.

Early in the process, the Insurance Division made a few minor adjustments to HMSA rates. However, the adjustments overall totaled less than one-fifth of 1 percent of dues filed.

HMSA will continue to operate as we have in the past, working very hard to keep rates as affordable as possible for our members and employer groups.

Wayne: Can you explain why an individual cannot just pick their own health company instead of having to choose what their employer can/wants to afford?

Van Ribbink: Hawai'i law requires all employers to provide healthcare insurance to their employees but does not require employers to offer all or more than a single health plan. Employers, at their discretion, may offer more than a single plan.

Paul Mooney: I'd like to know how HMSA can be a "nonprofit" and still pay their CEO over $1 million a year.

Van Ribbink: HMSA is a nonprofit organization whose mission is to provide affordable quality healthcare to its members. We continue to fulfill this mission. To sustain this mission we need to attract and retain competent personnel and leaders.

Compared to CEOs from the top five businesses in Hawai'i, compensation for HMSA's CEO is modest. Total annual compensation — and compensation as a percentage of annual revenue — for HMSA's CEO is the lowest, when compared to chief executives from the top five companies in Hawai'i. These include Bank of Hawaii, Alexander & Baldwin, Hawaiian Airlines, First Hawaiian Bank and Hawaiian Electric Industries.

Matthew: HMSA has huge amounts of money in the bank/investments. Why can't they use these profits to pay doctors more?

Van Ribbink: HMSA's reserve strikes people as a large amount — and it is — but you have to put it in context. For example, the reserve amounts to a little over $802 per member. We have a commitment to our members and providers that we will be there to pay their claims. If you divide the amount of claims we pay every year into the amount of our reserve, it represents about 30 percent of our annual claims. That means we could go about 3 1/2 months without any dues coming in. Putting this into a personal context, I can't think of any financial adviser who would say you only need to save 3 1/2 months of your salary to cover possible emergencies.

The reserve generates investment income, which we prudently invest to balance return with risk. This income is used to subsidize our member dues and any annual operating losses. Consequently, the reserve itself has come entirely from investment income and none of it from member dues.

The reserve also serves as a safety net to cover members' healthcare following times of financial losses after emergencies, such as a flu pandemic or a major earthquake.

We previously answered a question regarding physician reimbursement but the following should be noted: