Hawaii Health Insurance

By Kristen Consillio
Pacific Business News (Honolulu)
Updated: 8:00 p.m. ET May 14, 2006

Hawaii is about to become one of only four states that does not regulate health insurance rates.

The decision by legislators not to pass a bill that would have continued rate regulation means that starting July 1, Hawaii insurance companies can set their premiums for medical coverage without challenge.

House and Senate leaders are pointing fingers at one another, with both sides claiming they favored continuing the law that began in January 2003.

The Senate wanted to lift the June 30 "sunset" date for the law and continue giving the state insurance commissioner broad power to deny proposed rates if they couldn't be justified.

House leaders favored an amended bill with new language that some senators, and state Insurance Commissioner J.P. Schmidt, believed weakened his oversight.

Senate leaders ultimately relented and passed the amended bill just days before the session ended last Thursday.

But in the haste to move the bill, senators forgot to change the bill's effective date from 2020. A future date is sometimes written into legislation to ensure continued discussion on areas of disagreement, with the intent being to change the date to the correct year once conflicts are resolved.

Rep. Robert Herkes, D-Puna-N. Kona, chairman of the House Consumer Protection and Commerce Committee, said the defective date doomed the bill.

"I've never been a fan of regulation, but I didn't do this deliberately," Herkes said. "If the Senate adopted it with the right date it would be law."

House Speaker Calvin Say, D-St. Louis Heights-Wilhelmina Rise, did not return calls this week from PBN.

Sen. Ron Menor, D-Mililani-Waipahu, chairman of the Senate Commerce, Consumer Protection and Housing Committee, who championed the law in the 2002 session, said House leaders refused to meet to correct the date.

Herkes said correcting the bill would have meant extending the legislative session. He said the insurance business is competitive without regulation.

"In July, the free enterprise starts to work. The insurance companies would be stupid to do anything bizarre up or down," he said.

Chris Pablo, spokesman for Kaiser Permanente Hawaii, said Hawaii's health insurance premiums were among the lowest in the nation before rate regulation and likely will continue that way.

Kaiser's average rate increase was 4.4 percent from 1999 to 2002, before rate regulation. The average was 8.9 percent during regulation.

"The market is the mechanism that really influences pricing," Pablo said. "Our premiums are fair and reflect the cost of providing care."

The state's largest health insurer, the Hawaii Medical Service Association, raised rates an average of 7.4 percent in the four years before regulation. After regulation, the average was 6.6 percent.

Today, 47 states have some form of health insurance rate regulation. Hawaii's insurance division will continue to regulate all other types of insurance.

"It has definitely got the potential to hurt small businesses," said Tim Lyons, executive vice president of the Hawaii Business League, which typically doesn't support regulation. "They've got the opportunity now to sort of misbehave."

For his part, Schmidt wrote numerous newspaper opinion pieces, went on morning TV shows and gave countless speeches at association meetings urging continuation of the law.

"I was telling everybody that the House didn't seem to think this was important and, in fact, seemed intent on killing it," he said.

Schmidt said HMSA influenced the shape of the legislation in the House. Herkes has been criticized by some lobbyists and advocates for government transparency for having an intern who is an employee of HMSA working in his office.

"Companies like HMSA have people in the Legislature in key positions who are sympathetic to HMSA's cause," said former Gov. Ben Cayetano, a Democrat who signed rate regulation into law in 2002. "The nature of people in office today, sometimes their focus is very narrow. They forget about the public."

Cliff Cisco, HMSA spokesman, said the insurer had no particular influence in the discussion of rate regulation.

"The end result of how the legislation did not pass was not anything that we had directly to do with," Cisco said. "We do exactly the same thing that anyone else would do in working with the Legislature."

The state insurance division will continue to review health insurers' finances and investigate complaints.