HMSA, Kaiser make money

Hawaii’s two dominant health insurers — Kaiser and HMSA — were profitable in the second quarter thanks in part to double-digit rate hikes over the past two years and strong returns from investments.

Hawaii Medical Service Association, the state’s largest insurer with 688,625 members, reported Monday it had a $5.8 million profit in the second quarter, reversing a $4.1 million year-earlier loss.

Meanwhile, Kaiser Permanente Hawaii ended the quarter with a $2.8 million gain, matching first-quarter earnings and stemming a year-earlier loss of $5.1 million.

Both insurers increased premiums in January — HMSA by an average 14.8 percent for large businesses and Kaiser by an average 12.6 percent.

HMSA said it will likely impose another round of rate hikes for members at the start of 2012. Kaiser would not comment on whether it intends to raise premiums again this January.

"They (Kaiser and HMSA) have put in some healthy (premium) increases over the past two years, which is contributing to their surplus," said Paul Tom, president of Benefit Plan Solutions Inc., a Honolulu consulting and actuarial firm for employee health benefits. Employers "are very concerned about what has been happening in health care premiums."

HMSA’s monthly premium for its preferred provider conversion plan is $418.50 for an individual and $1,256.50 for a family, according to its website.

HMSA collected $518.2 million in premiums in the second quarter, up 21.8 percent from $425.3 million a year ago. HMSA spent $475 million on benefits, up 20.5 percent from $394.1 million a year ago.

Administrative expenses at HMSA rose 7.9 percent to $42.6 million from $39.5 million a year ago, as the insurer worked to prepare for expanded coverage under the federal Affordable Care Act. Administration expenses equaled 8.2 percent of total premiums collected.

HMSA’s income from operations totaled $697,077, or 0.1 percent of revenue — virtually breaking even — compared with a loss of $8.3 million in the second quarter of 2010.

"HMSA health plan dues were right on target to cover the total cost of member benefits and administrative expenses," the company said in a statement. "Although health care costs are still rising, we were able to get extremely close to break-even in this quarter, which means our projections were on track and our plans are not overpriced or underpriced."

HMSA’s reserves, which are invested in a number of institutions, grew 18 percent to $401.3 million from $340 million.

Earnings were improved by investment gains of $4.3 million, up from $3.6 million in the year-earlier quarter.

"We were lucky enough to have some reasonable investment results in the second quarter," said Steve Van Ribbink, HMSA’s chief financial officer. "It’s been very volatile. … We would expect investment performance for the remaining six months of the year will not be as strong as it was for the first six months of the year." 

Van Ribbink said medical costs have begun to moderate as a result of a new pay-for-performance reimbursement model, which bases a percentage of payments to hospitals, doctors and other providers on improved patient outcomes.

HMSA said it set aside $3.5 million for a future premium deficiency due to state Medicaid cuts of 3.9 percent for provider reimbursements and administrative costs as of July 1.

Meanwhile, Kaiser’s revenue rose 13.3 percent to $266.2 million from $234.9 million a year ago, while expenses climbed 9.8 percent to $264.7 million from $241.1 million.

That resulted in operating income of $1.5 million, up from a loss of $6.2 million a year earlier. Combined with investment income of $1.3 million, it boosted Hawaii’s largest health maintenance organization’s bottom line to $2.8 million.

"We’ve been working on holding down expenses so a small margin in the second quarter is encouraging," said Thomas Risse, Kaiser’s chief financial officer, in a statement.

Kaiser, whose membership totaled 229,400, did not disclose its reserves.