By Richard S. Miller*

As you read this you can be sure that HMSA is pulling out all the stops; putting the heat on its paid lobbyists; reminding legislators of all the favors it has given them -- like giving them free favorable publicity in its publications, such as Island Scenes --, spreading on all the charm of its seasoned Public Relations executives in the halls of the legislatures in every way it can, and even asking its employees to get their friends to write letters to the editor and to call legislators.To what purpose, you might ask.The answer is easy.HMSA is trying to kill legislation requiring it to justify its premium rates to the Hawai''i Insurance Division.

All the rational arguments are in favor of such rate regulation.It would require all health insurers, not just HMSA, to explain how they arrived at their premium rates and it would give the Insurance Division the ability to disapprove rates which are excessive, inadequate, or discriminatory, or which are not reasonable based on the benefits provided.This is the same oversight that the Insurance Division exercises over every other type of insurance in Hawai''i, and it is the same oversight that other states’ insurance departments routinely exercise over health insurance rates in their states.

Why is rate oversight necessary?If there were real competition among health insurance plans in Hawai''i then the need for insurance rate regulation would not be quite as compelling as it is.Real competition could give physicians a choice about which health plans to sign up with, and health plans would be competing for the most competent physicians by offering them reasonable reimbursements.Real competition would require health plans to set rates that are attractive to the wide variety of private markets – the self insured, the small business, the small union – as well as to the larger entities, and that are fair to the people who must rely on the health insurance – the plan members – you and me.

But there is no real competition in Hawai''i in the fee-for-service market, mainly the preferred provider plans.Most have been forced out because of inability to compete with the HMSA giant, which pays no state or local taxes.In recent years HMSA has increased its share of that market, excluding Quest and other special needs programs, to about 90%.If a physician other than one who works for Kaiser wants to make a living in this State, he or she must sign up with HMSA.In economist’s terms, HMSA is a “monopsony,” which really means it has a virtually monopoly as almost the only buyer of fee-for-service physicians’ services in the State.

Even though HMSA holds virtual monopsony power, the State legislature has yet to enact regulation of health insurance rates.HMSA may make all kinds of noises about how it is regulated and how the Insurance Division has access to all kinds of information, but the simple fact is that there is no ability – repeat, no ability –of any State agency to examine the justification for HMSA’s rates or to do anything about it if those rates are discriminatory or if they bear no reasonable relation to the benefits they provide.They likewise have no ability to say to HMSA:When you set your rates consider not only your operating gain or loss, but the investment income you earn on your huge reserves, and show us how you justify these rates.If you think the rate your health plan charges you is unfair or discriminatory, there is no one – repeat, no one -- you can call with any authority to respond effectively to your complaint.

Why is it so important to have the Insurance Division oversee HMSA’s rates?There are several reasons:First, Hawai''i has a prepaid health act which requires employers of employees who work for them more than 19 hours a week to provide health insurance.This Act benefits many, many thousands of Hawai''i’s workers and, since its inception, has kept Hawai''i among the top states in providing health insurance to its people, though Hawai''i’s economic problems have weakened its position.Because the State requires employers to purchase reasonable levels of health insurance, it has a special duty to those employers – as well as to the insured workers who contribute to the insurance and to the health care providers – physicians and hospitals – to make sure that the premiums are fair and non discriminatory; that they are sufficient to sustain reasonable reimbursement to providers; that they are not excessive-- that they do not permit excessive profits which may not be used fully for the benefit of those who are insured.Furthermore, under the law, most health insurers have a special fiduciary duty to their insureds. Only rate oversight by the Insurance Commissioner can insure that these important duties are fulfilled.

And in the absence of rate oversight, there is just no effective control on what HMSA, which already has used its surpluses to invest in other, for profit, businesses, can do to favor certain businesses; to squeeze physicians’ reimbursements; or to use predatory pricing to keep competition away.

The leadership of the HMA and the Chamber of Commerce, for reasons which are inexplicable, have so far opposed HB 1761, the rate regulation bill.They say they favor openness; they want HMSA to provide information about rates to the Insurance Division but they don’t want to give the Commissioner any power to disapprove rates which cannot be justified.They fail to explain how mere information, generally of an actuarial nature not readily translatable for the public, will help achieve fairness in ratemaking.

The HMA leaders, though with significant dissent from individual doctors, have said that they fear that pressure to lower insurance rates brought by businesses and by the public will cause the commissioner to reduce their reimbursements, but that is not what HB 1761 allows.And while these leaders weaken support for the bill, HMSA actually has the temerity to demonstrate and indeed to flaunt that they can arbitrarily lower reimbursements without any recourse by physicians:It has told the Orthopedic surgeons that it is planning huge cuts in the amounts they are reimbursed for orthopedic surgery, causing the surgeons to consider leaving the State.Without the rate regulation provided by HB 1761, HMSA has no constraints on its ability to reduce rates or benefits.Only rate regulation has any chance of imposing reasonable restraints and, equally important, of keeping rates at a level where competition becomes feasible.

Some members of the legislature who disfavor monopolies, who opposed the merger of the airlines, or who would even seek to impose controls on the gasoline oligopoly in Hawai''i, have somehow become adamant against the garden variety of rate oversight provided by HB 1761.Perhaps they are operating on pure ideological grounds – knee-jerk anti-regulation; perhaps they hate the Prepaid Health Care law.But if they really are opposed to monopoly-type power in any industry, then they should recognize that health insurance rate regulation is the closest thing we have to an answer to an insurer’s monopsony power in Hawai''i.

If HB 1761 does not pass, then the people of Hawai''i – workers, employers, small businesses, those who are self-insured -- will have no recourse against unfair health insurance rates, predatory practices, improper use of surpluses, and a myriad of other abuses that uncontrolled rate-making can conceal.In that event, the people of Hawai''iwill know who to blame:Those legislators who succumb to the favors, rewards and misleading propaganda put forth by HMSA.

Keep in mind that this is the same HMSA that, in 1998, increased the number of its members who can call a special meeting of its Board to express concerns from 100 to 3% of the membership – over 18,000 members! -- and who requires about six months lead time to nominate a new member to its Board of Directors.This is the same HMSA that claims high operating losses but has been taking in more than double the amount of losses in investment income.This is the same HMSA that runs favorable picture stories about legislators in its publications, and that invites legislators to breakfast with its employees.This is the same HMSA that has created a special corporation to sell administrative services to itself, at what prices we do not know.

Hawai''i’s consumer organizations are unfortunately small and not wealthy.Only an enlightened population can insure that reasonable rate regulation -- HB 1761 SD1 HD1 – will pass.Only calls to your legislators asking them to support this legislation will help to maintain the momentum.Please do it now.Let your legislators know that if they let themselves be co-opted by HMSA, they may not survive the next election.

*The author is a retired UH law professor and an unpaid consultant to the Hawai''iCoalition for Health