HMSA is pulling out of Hawaii Health Connector

Hawaii's largest health insurer is pulling out of the small-business side of the state's troubled health exchange, leaving the Hawaii Health Connector with only one insurance company for employers to select.

Michael Gold, president of Hawaii Medical Services Association, told The Associated Press that his staff is spending too much time and money dealing with the Connector's technical problems.

"It's an ongoing expense that everyone in the state is going to have to bear, and almost everyone in the state agrees it is not the best model for Hawaii," Gold said in an interview.

The decision affects more than 300 Hawaii businesses that buy plans for 664 subscribers and independents from HMSA through the exchange. HMSA will stop offering plans to small businesses beginning January 2015. The companies will be able to finish the terms of their enrollment over the next few months, and then they can either enroll in plans directly through HMSA or choose a different plan on the exchange, likely from the only other insurer, Kaiser Permanente, Gold said.

That represents about half the Hawaii businesses purchasing insurance plans through the Connector, state Sen. Rosalyn Baker said.

"They really are dissing small businesses, and I'm appalled by that," Baker said. "They don't think about the impact. They're so used to having their way."

Tom Matsuda, interim director of the Hawaii Health Connector, said he was disappointed that HMSA decided to pull out of the small business exchange after less than a year.

The small business exchange "provides the only opportunity for small businesses to get tax credits that reduce the cost of insurance for their employees by up to 50 percent," Matsuda said in an emailed statement. "I am especially concerned about small business owners who have already qualified for the tax credits by purchasing HMSA plans through the Connector.  We will do our best to help those employers."

Small businesses have to buy insurance plans through the Connector to qualify for those tax credits, said Lindsay Chambers, spokeswoman for Hawaii's Insurance Commissioner Gordon Ito, in an email.

"We will continue to seek other ways to ensure that Hawaii's small businesses are able to obtain these tax credits in accordance with federal law," Chambers said.

Gold said very few employers qualify for the tax credits.

Matsuda will work with other insurers that may want to offer plans on the exchange, he said.

The Hawaii Health Connector has been plagued with problems from its inception. Its open-enrollment period was delayed because of technical problems. Then it enrolled just 10,800 people and earned just $40,350 in its first six months, far below the $320,000 it expected. It was awarded more than $200 million in federal grants, but it couldn't get by without a $1.5 million appropriation from the Legislature. Now, Connector officials are working on reducing expenses.

While the company is pulling out of the small business side, HMSA will continue to sell plans through the Connector on the individual side, where it has nearly 5,000 customers, Gold said.

Many employers already provide insurance to most employees because of the state's Prepaid Health Care Act, which mandates coverage for workers who clock more than 20 hours per week.

But HMSA staff logged 8,000 hours dealing with problems such as data from 133 patient accounts that disappeared when it was sent from the Connector to HMSA, Gold said.

"It's an astonishing number of hours we've spent on this," Gold said. "The system still is not really working correctly."

Eric Alborg, deputy director of the Connector, said it's unfortunate that HMSA is focusing on problems and drawing attention away from the fact that "they are denying their customers tax credits." But it is true that on both sides there was a lot of time spent on fixing issues with both systems, Alborg said.

HMSA reported year-to-date loss of $8.4 million Thursday. It blamed its $30 million first-quarter loss on the Affordable Care Act and said it made up some of that loss in the second quarter.

[meanwhile that same day]

Hawaii Medical Service Association, the state's dominant health insurer, reported a $21.8 million profit in the second quarter, compared with losing $2.3 million in the same period a year ago.

The health plan collected $730.4 million in premiums, up 8.3 percent from $674.2 million, and spent $652.3 million, a 2.9 percent increase from $634.2 million in the second quarter of 2013. Administrative expenses totaled $54.8 million, down 10.2 percent from the $61 million it spent a year earlier.

HMSA's $17 million operating gain was augmented by $4.8 million in investment income, resulting in earnings of $21.8 million. A year earlier, investment gains of $15.4 million reduced the insurer's $21 million operating loss to a $2.3 million deficit.

At the end of the second quarter, HMSA's membership grew to 730,745, up from 719,977, and its reserve stood at $391.7 million, or $536 per member per month.

In July, HMSA boosted rates by 8.9 percent for 110,000 consumers and 8,500 small businesses. HMSA had originally sought a rate hike of 13.1 percent, but that was lowered by the state Insurance Division, which regulates health plan rates.

"It's a struggle to live in Hawaii and make ends meet for businesses and individuals," Steve Van Ribbink, HMSA's chief financial officer, said in a statement. "When we set premiums, we put every effort into making sure we collect only what's necessary to cover the cost of making sure our members' health care needs are met."

Beyond the written statement, Van Ribbink was not available to answer questions about the quarterly earnings.

HMSA said the second-quarter gain helped the company recoup some of its losses in the first quarter, which totaled $30.1 million. It attributed much of the first-quarter loss to $46.1 million in fees related to the Affordable Care Act, also known as Obamacare.

While the ACA fees will be paid to the federal government in September, all insurers, including HMSA, were required to set money aside and record it in financial reports Jan. 1, Van Ribbink said.

"The gain we reported for the second quarter can be attributed in part to collecting ACA fees from our members in the second quarter and recognizing those fees as revenue without recording the related expense, since the related expense was previously recorded on Jan. 1," Van Ribbink said.

The not-for-profit mutual benefit society will pay $65.4 million in ACA fees this year, with the remaining Obamacare fees -- about $19.3 million -- to be expensed throughout the year.