MEDIA RELEASE

The Hawaii Medical Service Association has announced its operating results for 2008, including a shortfall after taxes of $35.79 million. The shortfall represents 2.4 percent of revenue, and was due in large part to increases in hospital and physician reimbursements. 

In 2008, HMSA’s total payments to health care providers were $1.44 billion. With health care costs continuing to rise, HMSA experienced net losses last year in three out of four quarters.

HMSA Revenue & Benefit Expenses

Last year, HMSA collected $1.51 billion in dues revenue, and paid $1.44 billion for members’ health care services. The year before, HMSA paid $1.55 billion in benefit expenses, while collecting $1.65 billion in dues.

“In 2008, provider reimbursements increased to 95.2 percent of total revenue,” said Steve Van Ribbink, HMSA executive vice president and chief financial officer. “This is 2.2 percentage points higher than our historical average of 93 percent. When a greater percentage of dues revenue is spent on health care services, it puts considerable pressure on the health plan. But on a positive note, it means our members are receiving an outstanding value for their dollar.”

Provider payments of more than $1.44 billion last year also means HMSA paid physicians, hospitals, pharmacies, and other health care providers an average of more than $120 million per month.

HMSA Operating Expenses

HMSA held the line on operating expenses last year. Health plan operating expenses were essentially unchanged, with $158.62 million in 2008, compared to $158.47 million the year before.

Health Plan Membership and Reserve

At the end of 2008, HMSA had 705,249 members and maintained a health plan reserve of nearly $421 million. On average, the HMSA reserve equals $596 per member. The reserve declined $148.4 million, or 26.1 percent, due to higher benefit costs and a 13.4 percent decline in the market value of the investment portfolio.

The HMSA reserve is used to protect members from financial losses and community health emergencies, like a disease outbreak or natural disaster. It is also used to fund important health initiatives that affect members and the community at large.

In 2008, the reserve helped HMSA absorb expenses associated with several unexpected events, such as the bankruptcy of Aloha Airlines and the state’s sudden decision to stop funding Keiki Care, a program where HMSA and the state shared the cost of providing coverage to uninsured children. In both of these cases, HMSA extended coverage to those most affected, but did not pass the cost along to its existing members or employer groups.

HMSA also continued to fund its HMSA Initiative for Innovation and Quality (HI-IQ) in 2008. The HI-IQ program helps health care providers acquire and implement electronic medical record systems. Once again, HMSA did not pass the cost of the program along to its members or employer groups. Program funds came from the reserve.

In 2008, the HMSA reserve generated $47.82 million in investment income. This represents an increase of 21.3 percent over 2007. These investment dollars helped reduce the health plan’s shortfall for the year.

2008 Executive Compensation

HMSA also released information about 2008 executive compensation. Total compensation for HMSA’s president and chief executive officer (CEO) was $1,305,152 in 2008. The executive vice president and chief operating officer earned $965,219, and the executive vice president and chief financial officer earned $633,660 in 2008.

The Compensation and Human Resources committee of HMSA’s board of directors is responsible for determining executive compensation. The committee uses the services of a national human resources consulting firm, to help establish appropriate levels of compensation. The committee looks at other local and national companies similar to HMSA in size, complexity, and scope of responsibility.

The program closely links executive compensation to performance. Executive compensation consists of a base salary and performance incentives set by the board of directors, including measures focusing on the delivery of high quality health care, outstanding customer service, value to the community at large, and overall financial performance.

The 2008 performance incentive portion of key executives’ compensation was based on strategic measures met for 2005, 2006 and 2007, for which payment was received in 2008. In short, the 2008 incentive payments represent accomplishments over a three-year period.

Due to the current economic downturn in Hawaii and the nation, HMSA’s CEO recommended a freeze of his base salary for 2009. The board of directors has authorized the salary freeze.

Despite experiencing a moderate operating shortfall in 2008, beyond planned losses resulting from funding programs directly from reserves, HMSA was able to achieve its major financial performance goal of returning more than 93 percent of members’ dues dollars in health care benefits. This benefit-to-revenue ratio remains one of the highest in the nation. 

The health plan also held the line last year on operating expenses and performed well in all other areas, including ensuring the delivery of quality care and outstanding member services.

 

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 nearly 100 million members.

— Find out more:

Hawaii Medical Service Association: www.hmsa.com