Tag Archives: EUTF

Competitor says HMSA caused its own problems with bad strategic decisions, arrogance

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Harris NakamotoAn 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.

EUTF to consider penalizing HMSA for “unauthorized and inaccurate information”

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Trustees of the Hawaii Employer-Union Health Benefits Trust Fund are expected to vote today in a closed executive session on whether to penalized the state’s largest health insurer for what EUTF has called “unauthorized and inaccurate information” distributed in advertisements and mailings during November’s “open enrollment” period.

The action stems from a widely circulated email and Hawaii Medical Service Association ads warning its 33,000 EUTF members that they will be automatically transferred to a plan administered by HMA Inc., an affiliate of Summerlin Life & Health Insurance Company, unless they apply for a new lower cost plan administered by HMSA.

The EUTF contract requires prior approval of any communications sent directly by health insurers and plan administrators regarding the open enrollment choices and procedures, which HMSA did not request or receive.

It is the latest round in a lingering controversy over EUTF’s decision to discontinue the existing side-by-side HMA and HMSA-administered plans, and to designate the HMA-administered plan as the “default” for all public employees, rather than a new plan administered by the larger and far better known HMSA.

Currently, both HMSA and HMA administer PPO 90-10 health plans, in which employees pay 10% of most costs while the insurance plan covers 90%. Fewer than 1,000 employees are in the existing HMA-administered plan, while more than 33,000 are in the HMSA plan.

But as of February 1, 2010, employees in the PPO plan who did not apply for a new HMSA 80-20 plan will be assigned to the 90-10 HMA-administered plan. [Note: A previous version of this post incorrectly reported the start date of the new plans as January 1, a deadline which has been delayed a month.]

HMSA officials have said that they did not expect HMA to be designated as the default at the time they chose to administer the 80-20 plan. A request by HMSA to administer both their existing 90-10 plan and their new 80-20 plan was rejected by EUTF trustees in September.

EUTF has demanded that HMSA stop references to an “HMSA plan” because the plan is self-funded by EUTF and is not an HMSA insurance plan. Instead, both HMSA and HMA are hired only as third-party administrators of the plan defined and self-insured by EUTF.

HMSA’s competition has increased the pressure on EUTF by calling for strong action.

In a November 30 letter to EUTF chairman George Kahoohanohano, HMA General Manager Harris Nakamoto called on the trustees to “take serious action” in response to HMSA and impose penalties that will “send a message” to all vendors.

HMA requests that the Board of Trustees take serious action on MHSA’s attitude, conduct and disregard of the established rules during this open enrollment period. They did not follow the necessary approval processes communicated to all EUTF vendors in some of their emails, ads and external communications. Jim Williams’ demand letter to HMSA on November 4, 2009 was a strong message. However, we have yet to receive corrective actions to be taken by HMSA. We believe no vendor has any right or privilege to be above the established rules and regulations set forth by the EUTF and its Board of Trustees. What penalties will be EUTF Board serve HMSA during the next board meeting? This will set the tone for all vendors, and send a strong message in the next open enrollment sessions.

Mediation by health fund trustees bypasses sunshine law restrictions

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Turns out there’s a lot more going on at the Hawaii Employer-Union Health Benefits Trust Fund (EUTF) than the recent dispute with HMSA.

A review of recent minutes shows the EUTF board has struggled with a string of monthly losses earlier in the year, serious disagreements on revised plans and rates, concerns over the state’s “social contract” with retirees, and fears about the system’s ability to keep up with rising costs and fund health care in the long-term.

For several months over the summer, EUTF trustees met out of public view with the assistance of a federal mediator in order to try to forge an agreement on policies and rates for the next year, a process that had never been used previously.

At its March 18, 2009 meeting, the EUTF board unanimously passed a motion to request the assistance of federal mediator Ken Kawamoto to bridge the gap between trustees representing unions and the public employers, the state and counties.

One benefit seen in entering into mediation was that the sunshine law would not apply, trustees were told. Instead, the mediator would set the rules. Any decisions would have to be reserved for later public meetings of the EUTF board.

The board considered, but rejected, the possibility of having the mediator take part in a board executive session rather than a separate mediation process.

Following what was apparently a long and complex discussion, the board voted unanimously to request the assistance of the federal mediator in order to reach agreement on setting of rates and benefit plans. The first meeting was held on March 30, 2009. In late May, trustees were told that one employer proposal had failed, and no other progress was reported.

Meanwhile, trustees were told that more medical claims were being filed than expected, leading to monthly losses.

EUTF Administrator Jim Williams “stated with all the turmoil and uncertainty, he has heard unions are telling their members to go to the doctor now and believes it is affecting the utilization.”

In July, EUTF trustees were told that the spike in the number of members going to their doctors had caused a $10 million loss during the month of May alone.

The loss, one of several monthly losses, prompted serious concern among trustees.

Trustee Radcliffe wants to clarify that the EUTF had over $72 million a year ago but because of recurring expenses we are using reserves at an increasing rate to a point now the EUTF is down to approximately $9.9 million in reserves instead of $72 million in reserves and by the end of next month the EUTF will be at zero. [minutes of the July 15, 2009 meeting]

The discussion continued, according to the minutes:

There is no doubt in Trustee Radcliffe’s mind having been involved in union and public employment business for years that when times are tough like this, people get upset and use their benefits as much as they can. If there is a spike it is because of all the talk in the community about losing benefits, furloughs, lay-offs, and because of this people gets sick.

The board decided to create a 4-member subcommittee to investigate the issues as part of the ongoing mediation. The cover of mediation allowed bypassing of sunshine requirements, and the smaller 4-member committee would make it easier to schedule meetings and make progress, trustees were told.

In August, EUTF abandoned a move to set up a mandatory “wellness” program designed to help members control their weight, blood pressure, diabetes, and other common ailments due to poor diet and lack of exercise. Despite predicted cost savings from such a move, the board was advised that a mandatory program would face a legal challenge. As a result, the board backed off and cancelled a planned request for proposals.

This prompted one trustee to express his concerns:

Trustee Radcliffe stated that the cost of health insurance for the EUTF member was $6,000.00 and we are going to average $7,300.00 and information that we got about the future indicates that 9 or 10 years from now all things being equal, it would be in the neighborhood of $50,000 per person/year which means our system will be pretty much destroyed by that point. Unless something is seriously done to change that path we are on, we will continue on that path.

I’m still plowing through EUTF minutes. There are lots of stories buried here.

Given the fact that all state and county employees and retirees are impacted by EUTF policies, it’s amazing how under reported its debates and discussions are.