Obamacare costs drag down HMSA for $39M 4Q loss

Hawaii Medical Service Association lost $39 million in the fourth quarter as it rolled out a number of initiatives to position itself for Obama­care.

The state’s largest health insurer said late Friday that it also lost $44.4 million in the full year due to factors that include Hawaii’s aging population, an increase in medical costs, and assessments and fees associated with President Barack Obama’s Affordable Care Act.

Under major provisions of the health care law that took effect this year, residents must buy insurance directly through insurers or via a state-based online marketplace that only offers coverage under HMSA or Kaiser Permanente Hawaii. The law imposes tax penalties on the uninsured.

"We are concerned with the large loss HMSA incurred in 2013," state Insurance Commissioner Gordon Ito said in a statement. "The financial results illustrate how challenging it is for health insurers and the importance to address the health care cost drivers and the underlying reasons for these increases."

HMSA reported $651.8 million in dues revenue in the quarter, up from $635.3 million in the year-earlier period. Benefit expenses totaled $660 million, up from $578.3 million. The insurer spent $60 million on administrative expenses, down slightly from $62.5 million in the year-ago quarter. That resulted in a $68.2 million operating loss that was buoyed by investment gains of $28.5 million. After other income and taxes, HMSA’s net loss totaled $39 million compared with a $5.4 million profit in the year-ago period.

For the year, the health plan collected $2.6 billion in premiums, an increase from $2.5 billion in 2012. It paid $2.5 billion in benefit expenses compared with $2.3 billion. Administrative expenses totaled $238.8 million, up from $217.4 million the previous year, resulting in a $110.8 million operating loss. Annual investment gains of $57.1 million decreased the net loss to $44.4 million from a profit of $36 million in 2012. Other income, a tax benefit and HMSA’s reserve covered the rest of the operating loss.

"We’re fortunate that strong investment markets helped boost our investment income last year," Steve Van Ribbink, HMSA’s chief financial and services officer, said in a press release issued after the company’s offices closed at 5 p.m. "It couldn’t have come at a better time."

Van Ribbink was unavailable to answer questions about the earnings report.

HMSA’s reserves also fell to $391.5 million, or $540 per member, compared with $452.3 million, or $638 per member.

As Hawaii’s medical insurers fight to hold onto their market share, HMSA for the first time opened retail storefronts, investing millions of dollars to get consumers to shop for health plans and learn about the Affordable Care Act.

HMSA bumped up premiums by an average 1.2 percent for roughly 78,000 people in the beginning of last year. The insurer also raised rates by 7.5 percent for 14,300 individuals and increased small-business rates by 6.8 percent this past July for 118,000 members.

HMSA said at the time the rate adjustments were necessary to cover higher projected medical expenses and costs related to Obama’s signature health care law.

"There were a lot of changes to the health care laws in 2013," Elisa Yadao, senior vice president of consumer experience, said in a statement. "We were prepared for some of them, but others were unexpected. We made decisions that despite the cost were in the best interest of our members."