If Hawaii consumers think health care reform will lower costs, especially in the short term, then they should brace themselves for "rate shock," said Michael Gold, president and chief executive officer of the Hawaii Medical Service Association.
His comments came Wednesday, about a week after the Hawaii state insurance commissioner approved a rate increase of 6.8 percent for HMSA.
The state's largest health insurer provides coverage for doctor visits, medical procedures, drugs and hospitalizations for 60 to 65 percent of island residents statewide, or a little more than 700,000 people.
HMSA had sought an increase of 8.6 percent for its community-rated group plans, which cover small businesses with fewer than 100 employees, or more than 118,000 Hawaii consumers.
The latest increase of 6.8 percent goes into effect July 1 and will remain in effect for at least a year.
"Across the country, people are talking about what they're calling 'rate shock,' '' Gold said. "The idea behind 'rate shock' is that it will be a shock to everybody when rates actually go up instead of coming down once health care reform is implemented.
"Initially, it will not lower the cost of health care," he said in an interview at The Maui News. "That's going to happen because . . . you're covering more people who weren't paying before; and you're going to help them pay for it; and you're going to subsidize small business; and you're going to subsidize these people; and you're going to set up this infrastructure to make it work. Somebody's going to have to pay for that."
While it's a "good thing" to extend health coverage to more people, "the money has to come from someplace," Gold said. "It's going to come from, in a sense, all of us who've been paying up until now."
Insurance rates will go up to pay for federal levies assessed on health plans, he said, "and the health plans are going to build those into their rates because they don't have any extra money."
Gold acknowledged that HMSA has cash reserves of $400 million, but he said that money is needed for the company to operate.
"If you don't have reserves, if we have a bad year or if we have three bad years in a row, we're out of business and you don't have insurance. That's what reserves are for," he said, noting that HMSA is a $2.5 billion business annually.
He maintained that $400 million is "not a lot of reserves." He said he's not worried about HMSA's ability to do business, but he thinks its reserves ought to be higher.
The industry standard is to have three months' reserve, and HMSA has "a little more than two months," he said.
Last month, HMSA came under fire in a class-action lawsuit filed in U.S. District Court. The federal lawsuit alleges that HMSA has used anti-competitive practices to maintain a monopoly that has led to rapidly rising health insurance premiums for Hawaii residents.
HMSA disputes the claim, calling it meritless.
Gold said the lawsuit stems from an agreement among different Blue Cross Blue Shield association members in licensing by geographic region and the claim that the association's system is anti-competitive. It doesn't involve other insurers, such as Aetna and Kaiser Permanente, he said.
HMSA built into its most recent rate increase the 2 percent to 4 percent it will pay for fees associated with health care reform. The revamped system arises from the federal Affordable Care Act, also known as "Obamacare," enacted in March 2010.
The health insurance company did not get a fee increase for its anticipated costs of paying for a share of the cost of the reform-initiated Hawai'i Health Connector, an online insurance exchange that will launch Oct. 1 and offer alternate insurance plans to individuals and businesses with 50 or fewer employees.
The exchange's website (hawaiihealthconnector.com) says it will benefit small businesses and individuals who pay the highest premiums and are priced out of health insurance, as well as those who are unable to purchase health insurance due to the lack of information available and assistance.
"The ultimate goal is to improve access to affordable health coverage for Hawaii's residents, particularly those in hard-to-reach areas," the website says. "The Connector will serve as an impartial, electronic marketplace where users can easily compare the cost, coverage and value of plans offered by all participating health insurers."
Although the federal government has provided $200 million to start Hawaii's online health insurance exchange, there will be costs going forward that everyone will pay, Gold said.
After the $200 million is spent establishing the exchange, "then it becomes our baby, and we're going to have to pay for it in some way," he said, adding that HMSA may need to seek another 2 percent premium increase to cover the cost.
Gold was critical of the insurance exchange, which he called a "quasi-governmental, quasi-public entity" aimed at "finding a plan for everybody, eventually."
Employers and individuals already can shop for health insurance plans in Hawaii, he pointed out.
With the insurance exchange, "we're putting another level of infrastructure or bureaucracy on top of what already exists here now," he said.
It's conceivable that multiple insurance carriers could come to Hawaii to put their offerings on the exchange for employers with fewer than 50 workers and for individuals, and they would get a broader choice of health plans, he said.
But, "that's not going to happen," Gold said. "If it happens, people in Hawaii are not going to join (the outside health plans). They're not going to do that because they're not local. They're not here."
Also, because Hawaii has had mandated employer health insurance coverage in effect since 1974 under the Prepaid Health Care Act, most people in the state get their health insurance through their employer, he said.
"There isn't a large uninsured population in Hawaii compared with other places in the country," he said.
Nevertheless, the bill for establishing and running the exchange will come due. "Everybody is going to have to pay for the exchange, essentially," Gold said. Consumers will pay the added cost through higher health plan premiums.
Health care reform's promise of lower costs will take years to realize, he said.
"It's not in how people buy insurance," Gold said. "The real issue is how health care is delivered, and can it be delivered in a more cost-effective way that produces outcomes that lower the cost and improve the quality and everything else."
* Brian Perry can be reached at firstname.lastname@example.org.