News Release
March 28, 2008
HMSA seeks dues adjustments for community groups
Chuck Marshall
(808) 948-6826
chuck_marshall@hmsa.com
The Hawaii Medical Service Association (HMSA) today announced it has filed documents
with the state Insurance Division requesting an average dues adjustment of 12.8
percent for the HMSA Preferred Provider Plan (PPP), the most popular plan for its
community-rated employer groups. If the state approves the new rates, they will
take effect July 1 for over 11,000 small businesses and 144,000 members.
Plans and Dues Adjustments
HMSA’s two most popular free-choice plans with community-rated groups are
its PPP and CompMED plans. Members selecting the PPP (with dental, drug and vision
coverage) could see an average increase of 12.8 percent, and members with CompMED
(with dental, drug and vision coverage) could see an average increase of 12.7 percent.
Another popular plan is HMSA’s Health Plan Hawaii (HMO plan with dental, drug
and vision coverage). Members of this plan could see an average increase of 14.3
percent.
“The increase in members’ dues is a direct reflection of the increase
in the health care costs we have been experiencing since 2007,” says Steve
Van Ribbink, HMSA executive vice president and chief financial officer. “Maintaining
a balance between dues and costs is critical for a nonprofit health plan. We strive
to break even each year by asking our membership to pay only enough to cover their
health care costs and health plan operating expenses. In recent years, we have fallen
short of that mark as cost trends have outpaced increases in member dues. As a result,
we need to adjust our members’ dues to keep pace with increasing costs. Since
2007, health care costs have accounted for 94.4 percent of member dues collected.”
“It’s important to remember that these rate adjustments are not final
until approved by the state Insurance Division,” says Van Ribbink. “But
we expect approval, given the substantial fee increases we’ve made to providers
– particularly hospitals – and the impact this has on health care costs,
which comprise 94.4 percent of our members’ dues.”
Reasons for Dues Adjustments
In recent years, HMSA was able to keep annual adjustments for community-rated groups
well below Mainland trends. When many health plans across the country were seeing
double-digit increases, HMSA employer groups were experiencing single-digit adjustments.
With costs now outpacing dues revenue, appropriate adjustments must be made. Two
key reasons for seeking these adjustments are higher provider fees and operating
losses in 2007.
- Higher Provider Fees – Increases in HMSA’s reimbursement
rates to hospitals and physicians have pushed health care costs upward. One of the
primary reasons for this is because government health programs (i.e., Medicare and
Medicaid) reimburse providers at levels far below actual costs. As a result, hospitals
and physicians put pressure on HMSA and other private health plans for higher reimbursement
rates to help subsidize the government shortfall.
“For HMSA commercial plan members, our hospital fee schedule is about 42 percent
higher than what Medicare pays,” says Van Ribbink. “Our physician fee
schedule is approximately 20 percent above the Medicare fee schedule. These reimbursement
levels are necessary to make sure our members have continued access to the quality
care they expect and deserve.”
The primary drivers of health care cost increases are shown in the graph below:
“Fortunately, there was little increase in the volume of these health care
services used by our community-rated group members in 2007 – otherwise, these
costs would have been even higher,” says Van Ribbink. “However, we are
concerned about increased utilization of services in 2008 coupled with significant
fee increases committed to hospitals and physicians for 2008. We are already seeing
a rise in utilization of services in recent months.”
- Operating Losses in 2007 – Last year, HMSA experienced operating
losses in all four quarters. At the end of the year, the underwriting shortfall
amounted to $65.7 million, or 4.0 percent of member dues. This occurred because
dues revenue did not keep pace with increases in health care costs.
“Fortunately, our reserve earned enough investment income to offset much of
this shortfall, leaving us with a net loss of $22.6 million, or 1.4 percent of member
dues,” says Van Ribbink.
Focused on Delivering Value
“At HMSA, our top priority is to deliver the best possible value to our members,”
says Van Ribbink. “We work hard to keep health care affordable for the community.
As in 2007, we are again applying 100 percent of our investment income to subsidize
our members’ dues rates. This helps to protect our members from experiencing
higher dues adjustments.”
As a nonprofit organization, HMSA uses only a very small portion of member dues
to operate the health plan. The largest portion pays for member benefits. Last year,
94.4 percent of member dues went to pay hospitals, physicians, pharmacies, and other
health care providers for services rendered to HMSA members. This provided outstanding
value to HMSA members, and is one of the best health plan values in the country.
Future Trends
“If costs continue to be shifted from government programs to the private sector,
HMSA and other private health plans will have no choice but to increase member dues,”
says Van Ribbink. “Without dues increases which are needed for provider payments,
our members’ access to care would be impacted. Even without this type of cost-shifting,
health care costs are on the rise with advances in medical technology and Hawaii’s
aging population.”
HMSA Community Rating Stabilizes Rates
“There are many small business groups in Hawaii, and their claims experience
can vary significantly from year to year,” says Van Ribbink. “To help
them maintain rate stability over time, HMSA uses a form of community rating that
combines projections of future costs and current claims experience. Community rating
is good for small business groups because it protects their health plan rates from
extreme fluctuations from year to year.”
About HMSA
HMSA is a nonprofit, mutual benefit association founded in Hawaii in 1938. It is
governed by a community board of directors and includes representatives from health
care, business, labor, government, education, clergy, and the community at large.
HMSA is a member of the Blue Cross and Blue Shield Association, an association of
independent Blue Cross and Blue Shield plans. Nationally, HMSA and 38 other Blue
Cross and Blue Shield plans provide worldwide coverage to over 100 million members
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