A year after letting health-insurance rate regulation end, state lawmakers may bring it back.

The Hawai'i Medical Service Association, Kaiser Permanente and other insurers were subject to rate regulation by the state's insurance commissioner for three years, and while most rate increases were approved, some were denied, saving consumers an estimated $18 million in premiums.

The rate-regulation law expired last summer, but the state Senate has passed a bill this session to restore it in a similar form, and a version is moving through the state House.

HMSA and Kaiser oppose the bill, arguing that rate regulation did not lower overall healthcare costs and that the increase in rates in Hawai'i is slower than on the Mainland. But the administration of Gov. Linda Lingle contends regulation is needed to protect against excessive or predatory pricing, and several lawmakers are convinced the law should not have been allowed to lapse.

"There is no question that rate regulation can save consumers and small businesses a significant amount of money," said state Sen. Ron Menor, D-17th (Mililani, Waipi'o), one of the advocates of the original law.

State Rep. Josh Green, D-6th (N. Kona, Keauhou, Kailua-Kona), a Big Island doctor and chairman of the House Health Committee, cited the recent disclosure of the salaries and bonuses of top HMSA executives as a reason for oversight.

"I just don't think we can go back to the people and tell them that a multibillion-dollar company that pays its executives hundreds of thousands of dollars in bonuses, that doesn't pay doctors adequately enough to stay in Hawai'i, doesn't need to be regulated," Green said.

EFFICACY DISPUTED

The three-year experience with rate regulation was viewed differently by the state's insurance commissioner, HMSA and Kaiser.

J.P. Schmidt, the insurance commissioner, said rate regulation saved consumers money and helped attract a new insurer, Summerlin Life & Health Insurance Co. of Nevada, into a market dominated by HMSA and Kaiser. He said it placed no significant burden on insurers because they have to compute rates anyway, but did help create a level playing field by not allowing insurers with large reserves to unfairly lower prices and undercut competition.

"It did work," Schmidt told the state House Consumer Protection and Commerce Committee at a hearing last week. "It did work very well."

HMSA maintains that rate regulation did not lure many new health plans to the Islands, other than Summerlin, and did not lower healthcare costs. Insurers, HMSA argues, need the flexibility to set rates that cover the actual costs of providing healthcare and administering a health plan.

"Developing health-plan rates is an inexact science, and creating rates takes expertise," Jennifer Diesman, HMSA's director of government relations, said in testimony prepared for the House. "Being able to set fair and adequate rates is one of our most important business competencies.

"Health plans go out of business if they are not able to set appropriate rates."

RESERVES AN ISSUE

Kaiser argues that market forces, not the state, should decide rates, and that average premiums in Hawai'i are lower than on the Mainland. "We believe the market should dictate the rates that customers should be paying," Chris Pablo, Kaiser's director of government and community affairs, told the House.

Lawmakers also are thinking about lowering the allowable reserves insurers can keep to 30 percent of annual net worth, down from 50 percent under the original law. Any money over that amount would have to be given back to health-plan members as refunds.

Schmidt said large reserves can be used by insurers to subsidize premium rates and deter competition. He said that between the existing 8 percent minimum reserve and the proposed 30 percent cap, insurers would have enough cushion to withstand unforeseen changes in the business cycle and pay for capital improvements. For example, he estimated that with a 30 percent cap, HMSA would have to refund nearly $80 million to its members but would still have a reserve in excess of $500 million.

"I think it's a very reasonable and appropriate way of dealing with it," Schmidt said of a cap.

'GIANT NEEDS TO BE HIT'

Green has urged HMSA to spend $100 million of its reserves over the next five years to improve the state's healthcare system. He said his decision to publicize HMSA's executive salaries and bonuses was an attempt to get the attention of the state's largest insurer. "The giant needs to be hit once in a while, because they're not helping," he said.

HMSA was able to get the Senate to strike any cap on reserves from its version of the bill, but it was restored by Green in the House. The bill is now pending in the House Finance Committee, and if the committee sends it to the full House and it is passed, any differences with the Senate would be negotiated in conference committee.

House and Senate leaders have signaled that restoring health-insurance rate regulation is possible this session, although some caution that the stalemate that wound up killing the law last year could happen again.

Menor, in the Senate, had wanted to extend the law without changes, while the House sought to speed up the rate review process and make other amendments. Unable to reach an agreement, the bill extending the law died in the final week of session.

"My biggest concern is that the Legislature pushes out a bill that the industry has watered down," Menor said.

Reach Derrick DePledge at ddepledge@honoluluadvertiser.com.