HMSA plans to raise rates 12.7% for Hawaii small businesses
By Greg Wiles
Advertiser Staff Writer
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The Hawaii Medical Service Association's insurance premiums would soar by 12.7 percent for about 10,800 small businesses under a proposed rate increase filed with the state.
HMSA yesterday filed what would be its biggest rate hike for the small-business group in two decades. State Insurance Commissioner J.P. Schmidt must approve the higher rates before they can go into effect July 1.
The state's largest health insurer said the higher premiums are needed to cover its losses brought on by higher medical costs, increases in reimbursements to doctors, hospitals and others and more people seeking treatments. The proposed increase follows a 10.4 percent hike to the small-business group last year.
HMSA noted it lost $35.8 million last year while paying out 95.2 cents of every $1 collected. The insurer sent out letters to affected businesses, noting its losses and explaining escalating healthcare costs are outpacing members' dues.
"While we do everything possible to keep HMSA dues as affordable as we can, healthcare costs have increased faster than dues adjustments in recent years," said the letter, which noted the difficult economic times many businesses are experiencing as the state goes through a recession.
"This was not an easy decision. It was made after exhaustive, extensive analysis."
The increase also comes after three consecutive years of net losses at HMSA, which had relied on its reserves to subsidize some of the red ink. Steve Van Ribbink, HMSA chief financial officer, said the insurer can't rely on investment income this year to help offset operating losses.
"We understand this is a bad time to be asking for a rate increase," Van Ribbink said.
"We've really had two calendar years of healthcare cost trends that have risen 10 to 12 percent. In past years, we've subsidized that with investment income."
The proposed rate increase covers one of HMSA's largest employer groups, businesses with less than 200 workers. The businesses employ 103,000 of HMSA's more than 700,000 members.
HMSA said three requests for increases for small businesses were filed with the Insurance Division. They include:
"We need to have a rate that gets us back to a break-even footing," Van Ribbink said.
HMSA requested a 12.8 percent rate increase for the small-business group last year and Schmidt granted 10.4 percent.
Even at the lower-than-desired increase, the rate hike was higher than the 5 percent average rise in premiums for businesses nationally, according to a national survey.
In some prior years, HMSA's rate increases were lower than the national average.
Between 1999 and 2008, premiums for employer-sponsored health insurance nationwide rose 119 percent, while HMSA's premiums increased about 90 percent.
HMO ALTERNATIVE
HMSA's letter to employers said the insurer remains committed to offering members choices that meet healthcare needs and economic circumstances. It said employers might want to opt for its HMO plan, Health Plan Hawaii Plus, if they want to lower costs.
Van Ribbink said HMSA is cutting costs to pare administrative expenses. That includes a hiring freeze, not allowing overtime payments, cutting back on temporary services and outside technology services.
Some executives also are taking lower pay, including Chief Executive Robert Hiam who requested his pay be reduced by more than 10 percent this year.
HMSA's executives have come in for criticism in recent months after it was disclosed Hiam was paid $1.31 million in 2008.
HMSA's proposed rate increase compares with a 4.9 percent rise in 2009 rates at Kaiser Permanente, the state's largest health maintenance organization. In 2008 Kaiser, which has enacted cost cuts in prior years, produced net income of $7.3 million.
Hawai'i is the only state that mandates employer-provided health insurance for workers putting in more than 20 hours a week. Under the Prepaid Health Care Act of 1974, most employees' share of the costs are capped at 1.5 percent of his or her gross salary or 50 percent of the premium cost, whichever is less.
Reach Greg Wiles at gwiles@honoluluadvertiser.com.
