An official of the small company that recently displaced HMSA as administrator of the “default” preferred provider health plan for state and county workers says HMSA’s corporate arrogance and a string of bad strategic decisions are responsible for the nonprofit insurer’s recent problems.
Harris Nakamoto, vice-president and general manager of HMA Inc., a health plan administrator, and Summerlin Life & Health Insurance Company, an affiliated insurer, said his company has benefited from HMSA’s mistakes, as well as a business plan emphasizing patience, strong performance, and a measure of good luck.
Earlier this year, HMSA was ousted from its position as primary insurer for Hawaii’s unionized public school teachers, losing more than two-thirds of the state’s 9,000 teachers to HMA.
The Hawaii State Teachers Association provides health coverage through the separate HSTA Voluntary Employees Beneficiary Association Trust under temporary legislative authority designed to test the VEBA approach. Health coverage for other public employee unions is combined through the Hawaii Employer-Union Health Benefits Trust Fund.
Nakamoto hopes the EUTF’s decision to make an HMA-administered plan its “default” as of February 1, 2010 could shift another 20,000 members to HMA out of the 33,000 currently in an HMSA-administered plan, with family members and dependents added on top of those member numbers. [Note: An earlier version of this entry reported the date of the new plans as January 1, a deadline which has been delayed for one month.]
The projected losses are a body blow to HMSA, long the state’s dominant health insurer.
Both HSTA and EUTF have shifted largely to self-funded insurance plans, attempting to save money by paying an administrative fee to a “third party administrator” like HMA and covering claims from their own trust funds, instead of paying insurance premiums to an insurer such as HMSA, which would then pay claims and keep any profits, but also absorb all the risks.
The move to self-funding has been criticized by some because it also shifts all risks to the trust funds, leaving them vulnerable to unexpected cost increases or higher numbers of doctor visits by members. EUTF has been struggling to stem a series of substantial monthly losses.
The move to self-funding by public employee health plans is likely to cost HMSA hundreds of millions in annual insurance revenues, Nakamoto estimated.
Nakamoto, who starred with the Iolani football team back in the 1970s, said he was contacted by HSTA officials in April and asked whether HMA could provide an alternative to a substantial increase in premiums being demanded in a “take it or leave it” offer from HMSA.
On May 30, the HSTA VEBA board of trustees voted to move all 9,000 teachers to a new self-funded 80-20 plan administered by HMA.
Nakamoto believes HMSA was surprised when the teachers union “called their bluff” and rejected the insurers ultimatum. Subsequently HMSA agreed to offer a fully-insured 90-10 plan promising more benefits at a higher price.
According to a September 22 letter from HSTA to the EUTF, only 2,850 members have chosen the higher-cost HMSA plan.
“Our competition means that HSTA is now in the drivers’ seat,” Nakamoto said. “They were able to call the shots, and teachers now have a choice.”
“HMSA took a double whammy” in the HSTA negotiations, Nakamoto said with a smile. “They lost membership, and they also took all the risk.”
He believes those seeking the higher coverage of the 90-10 plan are likely to be those with more medical needs, so that the deal moved a lot of bad risk to HMSA through “adverse selection”.
In the HSTA case, HMA’s 80-20 plan became the default because the HSTA VEBA initially cancelled the prior 90-10 HMSA plan. Even when they later approved a new HMSA plan, the HMA 80-20 plan remained the default.
Nakamoto believes HMSA officials wrongly thought a similar 80-20 plan would become the default and the dominant plan for the larger EUTF, and immediately jumped on it when offered a choice of plans to administer.
But EUTF eventually decided that its 90-10 plan, now to be administered only by HMA, should remain the default, threatening to leave HMSA’s offering as an also-ran.
Nakamoto estimates HMSA has spent at least $1 million in advertising attempting to counteract its own bad decisions and to encourage its members to stay in an HMSA-administered plan. It also faces potential penalties for violating EUTF rules requiring advance review and approval of advertising concerning open enrollment issues.
HMA, part of the Arizona-based IMX Companies, entered the Hawaii market in 2002 and quickly targeted major unions that hire outside administrators for health plans funded through union health and welfare trusts. Like EUTF, these trusts are governed by boards composed of union and employer representatives.
HMA now administers health plans for more than 125,000 union members and their families in Hawaii, including Unite HERE! Local 5, Hawaii Teamsters, Hawaii Electricians, ILWU Local 142, and the United Food and Commercial Workers Union.
The company collects an administrative fee paid “per employee, per month”.
“I believe we do a good job, and provide a solution to escalating health care costs,” Nakamoto said.
Nakamoto said his company knows what it’s like when your competitor is in the default position.
“We were just a small peanut for the past three years,” Nakamoto said, referring to HMA’s fewer than 1,000 EUTF members compared to more than 33,000 that signed up with HMSA.
But we were required to attend all the open enrollment sessions, the same as any vendor. We traveled to the neighbor islands, we spent all the necessary money to be at the dozens of sessions, just like a good soldier. We were just thankful to be able to participate. We have to be patient.
Nakamoto said that patience has now paid off, as the company hopes its position as the default plan will translate into 20,000 or more new EUTF members.
HMA didn’t think about the default designation or take any special actions to grab that position away from HMSA, Nakamoto said.
He described it as a surprise, “an acorn that dropped into our hands.”
Nakamoto also responded directly to critics who say his company has a reputation for paying less and paying late.
HMA, as a third party administrator, doesn’t decide when claims are paid, Nakamoto said. Each trust fund has its own payment schedule, with some paying weekly, some bi-weekly, and at different times of the month.
“We follow their direction,” Nakamoto said.
In addition, Nakamoto said HMA is stricter than HMSA in pursuing questions like “third party liability”, cases where another insurer might be responsible for covering part of the cost.
“Our clients do more due diligence, and we do more management of claims,” he said.
Nakamoto said each of the unions has its own performance measures that the company has to meet or exceed in order to retain its contracts.
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Just a note to say that I’m trying to block http://www.UnionFacts.com from the Google ads showing with these posts.
It’s a grossly anti-labor site and I’m doing my best to get it excluded.
Nevada? Iowa?
Mahalo, Ian, for presenting the “other side of the story.”
I am no fan of HMSA but decided to stay with them (i.e. move to the 80/20 plan) because it is a bit cheaper and provides better off-island/international coverage for my eligible offspring. If/when it no longer suits me, I will change; open enrollment comes around at least once a year so they’d better stay on their toes. Not to mention, stop paying ridiculous bonuses to its executives while nickel-and-diming doctors and its own employees.
Perhaps it was not covered in your meeting or perhaps you will cover it in a subsequest post, but I was surprised to read nothing of the parent company’s travails in Nevada and Idaho (?). Perhaps they will establish a better track record here, but an explanation of those circumstances would certainly factor into whether I would consider switching to them in the future, if they are at all an indication of what may happen here.
I find comments like “We had to be patient” and “an acorn that dropped into our hands” as disingenuous. Does Mr. Nakamoto really think we are all idiots? Come on, Iolani graduate, it just doesnt work this way anymore, folks. Or at least, it shouldnt. For Ian’s work here, I think we’re peeling away at this onion, one layer at a time.
The immediate question that comes to my mind is – was Mike McCartney the head of HSTA when all this happened? Arent Mike and Charlie two peas in a pod, dating back to when Mike’s first job under Charlie? Wow, what an acorn.
Like I said, Charlie is doing his job and HMSA needs to take a page from everything that Charlie is doing right. And just as I said too, HMSA has been pissing off way too many people in this town. What a hard way for HMSA to learn this lesson — and the rest of us are literally paying for it. I guess that is Mr. Nakamoto’s point, isnt it? Painted like this, it sure seems a lot like Go!, coming to take over Aloha, and forcing them to their knees, with Charlie at the helm of it all. If it sounds like Im criticizing Charlie, Im not. Its fascinating to watch this, the layers of his mastery. Tell me when I can be your Karate Kid, Mr. Miyagi.
Additionally, I too find it interesting and untrustworthy that there was no comment by Nakamoto on the company’s Nevada and Idaho problems. If youre going to come forward to address a blog that has been questioning exactly this, wouldnt you speak to this? More sweeping those black marks under the rug, are we? Chicken-….s.
HMSA Corporate Leaders, if youre reading this, and Im betting you are: from one HMSA patron who is trying her best to stay with you – can you please extract your heads out of your collective okoles and play smarter than you have been? Immediately would be good. Thank you.
oh my god, is that the same harris nakamoto that was president of IEHA from ’93-’95? wow!
It appears so!
http://www.hawaii-ieha.org/about.html
Tomorrow is December 10, the deadline the Office of Information Practices set for the EUTF to submit information in response to Larry Geller’s December 1, 2009, request regarding its possible violation of sunshine laws.
Transparency is really important when you’re messing with the rank and file’s money and health care coverage.
Are you going to present HMSA’s side of the story?
Ian, the only arrogance I read was the attitude of the HMA guy. Was that due to your style of writing or did he really come off that way? They were just lucky..give me a break.
I too am disappointed there was no mention of what happened to them in Nevada or Iowa, or even why they pulled out of the local QUEST contract.
I also would question their membership count of 125K. With only about 1.2M people in HI, and HMSA has 700K, Kaiser has 230K, UHA & HMAA maybe have 80K combined, add all those who are uninsured, QUEST, Medicare, VA, I don’t see how they can have over 75K.
What bugs me is at the EUTF OE session, HMA was telling me they are the same as HMSA. But when I asked where are their disease management programs, or health and wellness programs, or group health discounts, etc.. They do not thave those. The said they only administer or to use their words, “we are paper pushers”. Maybe this is the way of the future where a carrier/administrator will only process claims and not provide any additional value. HMSA , while far from perfect, provides better “perks” and seems interested in creating programs to let me stay healthy. Maybe I’m wrong, but the OE spiels by both carriers sounded like I’m only a number to HMA but I’m a member to HMSA.
Thanks for staying with this. Certainly one can’t find any eyes on this with the major local media. It’ll only be investigating such as this and the sunshine request that might help us understand it. There is much that seems to be wafting up, whether locally on HSTA and EUTF or Summerlin’s stories elsewhere.
FWIW, I knew Harris Nakamoto personally when he was the president of a local youth swim club for several years. Our family thought he displayed much charm, charisma, and good character in dedicated volunteer work then. (Though we’re still with HMSA. . . . with OhiaForest in wait and see mode) And your picture captures him well.
So I guess to use Mr. Nakamoto’s own logic… “HMSA took a double whammy” in the HSTA negotiations, Nakamoto said with a smile. “They lost membership, and they also took all the risk.” He believes those seeking the higher coverage of the 90-10 plan are likely to be those with more medical needs, so that the deal moved a lot of bad risk to HMSA through “adverse selection”. I guess HMA is going to tank since they will now have thoes “with more medical needs” and his own deal will “move a lot of bad risk” to HMA.
The situations are not the same.
In the case of the HSTA plans, HMSA offered a 90-10 “fully insured” plan. Meaning that it takes the risk.
In the case of the current EUTF plans, both HMSA and HMA are “self-funded” by EUTF. Meaning that it’s EUTF that takes the risk. HMSA and HMA get paid to administer the benefits.