Hawaii DOI Takes Back Control of Insurance Rates

Hawaii lawmakers are prepared to approve a bill Tuesday that brings back government oversight of health insurance rates a year after they deregulated them.

Members of both houses of the Legislature have agreed on a final bill, and Gov. Linda Lingle has indicated she supports a return of some form of regulation.

Concerns that insurance companies would raise rates excessively high or lower them to drive competitors out of business caused the Legislature to bring back some state control of the industry, said Hawaii Insurance Commissioner J.P. Schmidt.

Hawaii is the only state in the nation that requires all employers to provide health insurance to their employees.

“Given the fact that government requires that folks buy the insurance and the fact that we have a noncompetitive market, it’s important for the government to provide some oversight that the rates are fair,” Schmidt said.

Hawaii became one of only four states without regulation of health insurance rates last year, when the law calling for their review was not renewed.

Deregulation opponents questioned whether the health insurance industry gained influence by placing Hawaii Medical Service Association Executive Administrator Mark Forman as an intern in the office of Rep. Bob Herkes, D-Volcano-Kainaliu, chairman of the Consumer Protection and Commerce Committee.

The flap over Forman led to new rules in the Legislature ending the practice of allowing so-called “embedded lobbyists” to work as interns for lawmakers.

“We need rate regulation,” which gives the health insurers “reason not to get out of line,” said Herkes, who denies that Forman influenced last year’s deregulation.

This new law, which Herkes supports, would be weaker than the state’s previous insurance rate requirements because it gives the state a 60-day deadline to certify rates rather than 90 days. It also does not limit how much money health insurers can hold in reserve, while the old law capped reserves at 50 percent of annual net worth.

The law covers all of Hawaii’s insurers, including Hawaii Medical Service Association, Kaiser Permanente and AlohaCare.

“The new bill is workable,” said Cliff Cisco, HMSA senior vice president and spokesman. “We’re naturally averse to government regulation, but it’s here and we’ll deal with it and move on.”

In the year since insurance rates were deregulated, rate increases went up only moderately.

Kaiser Permanente boosted premiums an average of 3.75 percent on Jan. 1, compared to 3 percent in 2006, 11 percent in 2005 and 11.7 percent in 2004. HMSA, the state’s largest insurer, raised rates 3.8 percent on July 1, 2006.

But just because they kept rate increases to reasonable levels doesn’t mean the health insurers weren’t trying to manipulate the system, Schmidt said.

“I had my suspicions that they filed the low rate to try to show the Legislature, ‘See, we don’t need regulation,'” he said.

The new insurance regulation bill prohibits excessive, inadequate or unfairly discriminatory rates. All rate increases will go through the Insurance Commissioner’s office for review.

The bill passed out of the House-Senate conference committee which shapes final legislation Friday and ws scheduled to be heard before both the full House and Senate on Tuesday.