Hawaii Medical Service Association recorded a $2.2 million profit in the fourth quarter of 2014, reversing a $39 million year-ago loss, after reducing a special reserve fund and boosting premiums.
The state’s largest health insurer said Friday it collected $722.2 million in premium revenue last quarter, $70 million more than the $651.8 million it received in the same period a year earlier. It spent $654.5 million on benefits, down from $660 million.
"We’re definitely in a much better place than we were a year ago," Steve Van Ribbink, HMSA’s chief financial officer, said in a statement. "We had to make major adjustments last year to compensate for changes due to the Affordable Care Act, lower Medicare reimbursements, Hawaii’s aging population, and the rising costs associated with new specialty drugs that are coming onto the market."
Administrative expenses rose to $64.4 million from $59.8 million. Taxes related to the Affordable Care Act, also known as Obamacare, totaled $6.7 million, up from $246,635, HMSA said. The result was a $3.4 million operating loss, down from $68.2 million in the fourth quarter of 2013.
The insurer offset the loss with $7.4 million in gains from investments, significantly down from the $28.5 million it earned in the year-earlier quarter. After taxes and other income, net income was $2.2 million.
HMSA’s reserves totaled $393.4 million, or $546 for each of its 720,982 members.
For the year, HMSA earned a profit of $4.2 million, reversing a $44.4 million loss in 2013. It collected $2.9 billion in premiums, up from $2.6 billion, and paid $2.6 billion in benefit expenses, an increase from $2.5 billion.
Administrative expenses totaled $238 million, up slightly from $237.9 million, while ACA taxes and fees soared to $65.4 million from $879,873.
That resulted in a $31.5 million annual operating loss, down from a $110.8 million loss the previous year. The loss was buoyed by annual investment gains of $34.4 million, down from $57.1 million, while other income fell to $97,580 from $970,257.
"The premiums we collected last year weren’t enough to cover our members’ health care benefits and the cost of administering those benefits," Van Ribbink said. "Fortunately, we had strong investment gains to offset our operating loss of $31.5 million. But we can’t continue to depend on the investment market."
In 2013, HMSA established a premium deficiency reserve — separate from its general reserve — totaling $37 million based on expectations that premium dues for 2014 wouldn’t adequately cover health care costs, Van Ribbink said.
"In 2014, we reversed $28.9 million of the premium deficiency reserve based on actual 2014 results and in expectation that 2015 dues will cover all but $8.2 million of expected health care costs," he said.
HMSA said last year that costs related to Obamacare were responsible for most of an 8.9 percent rate hike for roughly 77,000 small-business workers renewing health plans July 1.
In addition, 2014 was the first full year that HMSA had to factor in costs related to the ACA, including a 2 percent fee to pay for the Hawaii Health Connector, the state’s glitchy insurance exchange meant to enroll residents in Obamacare.
After significant computer problems since the rollout of the online marketplace in October 2013, HMSA announced in August that it would no longer sell small-business plans on the exchange because staff was spending too much time and money dealing with Connector’s technical issues. HMSA still sells individual policies on the exchange.
In the fourth quarter, HMSA also announced a plan to discontinue its five Medicare Advantage plans for 46,000 seniors on Dec. 31.
The company, which covers the bulk of Hawaii’s Medicare population, estimated it lost about $64.1 million last year on its plans — called Akamai Advantage — due to higher-than-expected medical claims as well as lower federal Medicare reimbursements. The insurer began offering four higher-premium plans in 2015.
