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The Honolulu Advertiser
Posted on: Thursday, February 16, 2006

Make health insurer reduce reserves first, legislator says

 •  Small businesses face HMSA rate increase

By Rick Daysog
Advertiser Staff Writer

A legislator is urging state regulators to reject any rate increase by the Hawaii Medical Service Association until the health insurer reduces its reserves, which have grown to more than $540 million.

Sen. Ron Menor, D-17th (Mililani, Waipi'o), said yesterday that HMSA's "excessive" reserves are a big reason small businesses in Hawai'i are paying high premiums.

HMSA said yesterday that it is seeking approval from the state Insurance Commission to raise its health insurance rates for about 11,000 small businesses by an average of 3.8 percent.

HMSA's reserves were at $541.8 million at the end of 2004 — up from $488.8 million in 2003 and $342.7 million in 2002, according to the company's annual report. HMSA reserves have risen to $553 million at the end of the third quarter of 2005.

"It is not necessary to have that high a level of reserves," said Menor, chairman of the Senate Commerce, Consumer Protection and Housing Committee.

"Small business in Hawai'i has been burdened by these high insurance costs for a long time."

Menor introduced a bill last session that would have barred the state's insurance commissioner from granting any rate hike if a health insurer's reserves exceeded 30 percent of the premiums it collects. The bill was passed by the Senate last year but was held by the House. The House could take up the measure this year.

HMSA's $541.8 million in reserves are about 33.7 percent of the $1.6 billion in premiums collected by the insurer in 2004.

Cliff Cisco, HMSA senior vice president, said the reserves are necessary to protect against potential increases in healthcare costs and other contingencies.

Cisco said HMSA is among the most efficient insurers in the 41-member Blue Cross and Blue Shield system. According to its annual report, more than 92 percent of the premiums collected by HMSA in 2004 was spent on medical benefits for the insurer's customers.

Under Hawai'i law, health insurers must hold reserves between 30 percent and 50 percent of the premiums they collect. At 33.7 percent of its premiums, HMSA's reserves are at the lower level of the requirement.

"We have to be fiscally prudent and we have to be fiscally sound to anticipate any changes in healthcare spending," Cisco said.

Menor believes that Hawai'i's reserve requirements may be too high.

Typically, a health insurer's reserves will range between 1 1/2 months and three months of its medical claims, according to Chris Renz, a San Francisco-based principal with the consulting firm of Mercer Health & Benefits.

For HMSA, the $1.5 billion in medical costs for 2004 translates into a monthly expense of about $120 million. That means HMSA's $541.8 million in reserves is equivalent to nearly 4 1/2 months of its medical expenses.

"HMSA's reserve levels are excessive when compared to the reserve requirements in other states," Menor said.

Reach Rick Daysog at rdaysog@honoluluadvertiser.com.

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