2017Annual Report

Investing in a healthy future

Aloha,2017 was a time of transition for us. Mike Gold retired in

December after fi ve years as chief executive offi cer and a

43-year career serving HMSA members and mentoring our

colleagues. We’re grateful for his leadership, his dedication to

Hawaii’s health, and his boldness in moving the state to a

new health care model.

With a new leadership team comes a reinvigorated commitment

to our mission: creating a sustainable health care system that

improves the health and well-being of everyone in Hawaii.

Renewing our mission means that we’ll move with continued

focus and determination to transform how HMSA operates and

relentlessly pursue new tools and strategies to support you and

your health and well-being.

Our ongoing fi nancial stability is the foundation for our work.

In 2017, 93 cents of every dollar we collected in premiums paid

for member benefi ts and expenses. Our fi nancial reserve helps

us make strategic investments that enhance the health of

our members and the health of Hawaii.

Thank you for choosing HMSA and for trusting us to be your

partner. We look forward to what we’ll achieve together in 2018.

Mahalo,

Michael B. Stollar

President and Chief Executive Offi cer

Robert S. Harrison

Chair of the Board

MESSAGE FROM THE PRESIDENTAND CHIEF EXECUTIVE OFFICERAND CHAIR

December after fi ve years as chief executive offi cer and a

43-year career serving HMSA members and mentoring our

colleagues. We’re grateful for his leadership, his dedication to

Hawaii’s health, and his boldness in moving the state to a

new health care model.

With a new leadership team comes a reinvigorated commitment

to our mission: creating a sustainable health care system that

improves the health and well-being of everyone in Hawaii.

Renewing our mission means that we’ll move with continued

focus and determination to transform how HMSA operates and

relentlessly pursue new tools and strategies to support you and

your health and well-being.

Our ongoing fi nancial stability is the foundation for our work.

In 2017, 93 cents of every dollar we collected in premiums paid

for member benefi ts and expenses. Our fi nancial reserve helps

us make strategic investments that enhance the health of

our members and the health of Hawaii.

Thank you for choosing HMSA and for trusting us to be your

partner. We look forward to what we’ll achieve together in 2018.

Mahalo,

Michael B. Stollar

President and Chief Executive Offi cer

Robert S. HarrisonRobert S. Harrison

Chair of the Board

Operationsand Finances

BILLION PAID IN MEMBER BENEFITS

Your health is our priority. HMSA has been proudly serving

the people of Hawaii as a nonprofi t health plan since we were

founded in 1938. We’re committed to putting your premiums

to good use — providing access to top-quality health care and

well-being resources.

$3.09Premiums Collected$3.3 billion.

Premium Dollar93 cents of every dollar collected goes directly

to paying for our members’ care.

Net GainHMSA ended the year with a net gain of $58 million, which is

approximately 1.7 percent of the $3.3 billion we collected in premiums

from members and employers. This was the result of investment income

we earned in the record-high U.S. stock market in 2017, our responsible

stewardship of premiums, and the federal government’s one-year

suspension of a major Affordable Care Act fee. HMSA and other health

plans will resume paying ACA taxes and fees in 2018.

The 2017 income was invested in the HMSA reserve, which protects

our members and the community during a health crisis.

WHAT HMSA OWNSCash and short-term investments ....................................................................$ 359,864Investments

Bonds ................................................................................ $ 175,717 Mutual funds .................................................................... 193,996Preferred stock ................................................................. 7,000 Real estate ....................................................................... 101,919Investment in subsidiaries ................................................ 26,421Other investments ............................................................ 29,161

Total investments ................................................................................... 538,214Receivables ....................................................................................................... 209,549Deferred income taxes ...................................................................................... 20,659 Electronic data processing equipment, net ....................................................... 4,269Other assets ...................................................................................................... 41,019

Total assets ........................................................................................... $ 1,173,574

WHAT HMSA OWESEstimated member claims outstanding ............................................................$ 303,063Membership premiums collected in advance .................................................. 40,020Accrued expenses ............................................................................................ 264,055Provision for experience rating ........................................................................ 57,533Premium deficiency reserve ............................................................................. 6,400Federal income tax payable ............................................................................. 1,951 Notes payable .................................................................................................. 3,149Other liabilities ................................................................................................ 19,367

Total liabilities ...................................................................................... 695,538

RESOURCES AVAILABLE FOR THE PROTECTION OF MEMBERSTotal resources available for the protection of members ................................. 478,036

Total liabilities and resources .............................................................. $ 1,173,574

Member premiums ................................................................ $ 3,332,650 .......... 100.0%Member benefits

Medical and hospital claims .................. $ 2,968,510 ..................................... 89.1%Claims adjustment expenses ................. 123,569 ..................................... 3.7%

Total member benefits ...................... 3,092,079 ..................................... 92.8%General administrative expenses .............. 193,301 ..................................... 5.8%

Total expenses ......................................................... 3,285,380 .......... 98.6%

Net operating income ....................................................... 47,270 ........... 1.4%

Net investment and other income ........................................ 30,623 .......... 0.9%

Income before income tax expense .................................. 77,893 .......... 2.3%

Income tax expense ............................................................. 19,888 .......... 0.6%

Net income .................................................................. $ 58,005 .......... 1.7%

CONDENSED HMSABALANCE SHEET*December 31, 2017

CONDENSED HMSASTATEMENT ofOPERATIONS*Year endedDecember 31, 2017

*Statutory basis (in thousands)

2CONDENSED HMSA2CONDENSED HMSA2CONDENSED HMSA2CONDENSED HMSASTATEMENT of2STATEMENT ofOPERATIONS*2OPERATIONS*2CONDENSED HMSA2CONDENSED HMSASTATEMENT of2STATEMENT ofOPERATIONS*2OPERATIONS*2CONDENSED HMSA2CONDENSED HMSASTATEMENT of2STATEMENT ofOPERATIONS*2OPERATIONS*Year ended2Year ended

1CONDENSED HMSA1CONDENSED HMSA1CONDENSED HMSA1CONDENSED HMSA1212CONDENSED HMSA2CONDENSED HMSA1CONDENSED HMSA2CONDENSED HMSA212CONDENSED HMSA2CONDENSED HMSA1CONDENSED HMSA2CONDENSED HMSA

3STATEMENT of

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3STATEMENT ofOPERATIONS*3OPERATIONS*3STATEMENT of

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December 31, 20173December 31, 20173232STATEMENT of2STATEMENT of

3STATEMENT of2STATEMENT ofOPERATIONS*2OPERATIONS*3OPERATIONS*2OPERATIONS*232OPERATIONS*2OPERATIONS*3OPERATIONS*2OPERATIONS*23245December 31, 2017

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5353December 31, 20173December 31, 2017

5December 31, 20173December 31, 20173534546

STATEMENT of

6STATEMENT ofOPERATIONS*6OPERATIONS*Year ended6Year ended6December 31, 20176December 31, 20176STATEMENT of

6STATEMENT ofOPERATIONS*6OPERATIONS*6Year ended6Year endedDecember 31, 20176December 31, 2017Year ended6Year ended

787879CONDENSED HMSA9CONDENSED HMSA9CONDENSED HMSA9CONDENSED HMSA9CONDENSED HMSA9CONDENSED HMSACONDENSED HMSACONDENSED HMSACONDENSED HMSA

STATEMENT ofOPERATIONS*Year ended

STATEMENT ofOPERATIONS*STATEMENT ofOPERATIONS*Year endedYear endedDecember 31, 2017December 31, 2017

Investingin YOU

Helping you make positive, lasting changes is the

best way to help you stay healthy. That’s why HMSA

brought Blue Zones Project® to Hawaii in 2014. Blue

Zones Project partners with local businesses, schools,

and workplaces to help you build healthy habits

through community activities like purpose workshops

and cooking demos. In 2017, Blue Zones Project made

the healthy choice the easy choice in even more

communities statewide.

Blue Zones Project engaged more than 33,000people in their health and well-being last year.

●

✽ ●

✽

●✽ ✽

✽

NORTH HAWAII

EAST HAWAIIWEST HAWAII

CENTRAL MAUI

KOOLAUPOKOWAHIAWA

MANOA/MAKIKI/McCULLY/MOILIILI

KAPOLEI/EWA

Blue Zones Project worked with:

• 123 new worksites

• 21 new schools

• 10 new grocery stores

Blue Zones Project® is a trademark of Blue Zones, LLC. All rights reserved.

5NEWBLUE ZONESPROJECTCOMMUNITIES NAMED

✽ New communities● Previously established communities

Investingin Hawaii'sFuture

270PARTNERSHIPS WITH LOCALBUSINESSES OFFERING HEALTHAND WELL-BEING DISCOUNTS

• 21 on Hawaii Island

• 57 on Oahu

• 38 in Maui County

• 17 on Kauai

We’re committed to building a healthy future for

the people of Hawaii. In 2017, we partnered with

communities, businesses, and schools to ensure

a bright future in which we work together to

ensure health and well-being across Hawaii.

We also participated in133 community events

statewide, including runs and walks, health fairs,

and career days.

“ Thank you, HMSA, for your continued community support.It is rare to have a sponsor reach out to us! Thank you forbeing that aware of the community.”

- Makawao Merchants Association

“HMSA gives members a discount on Still and Movingweekly classes like yoga, Feldenkrais, hula, Pilates, qi gong,belly dance, aerial silks, and Nia. We’re delighted to workwith HMSA to give members an array of options to attaina healthy mind, body, and spirit!”

- Doris Morisaki, Aloha Ambassador,Still and Moving Center

HMSA KAIMANAAWARDS ANDSCHOLARSHIPPROGRAM

$160kIN AWARDS AND SCHOLARSHIPSFOR SCHOOLS AND STUDENTS

Nearly $1 million awarded since the

program started in 2005.

“With the Kaimana Scholarship, I've been ableto pursue a degree in exercise science and minorin medical sciences. After graduating with myundergraduate degree, I plan on applying to theJohn A. Burns School of Medicine, where I will work toward becoming a doctor in pediatrics. Asa pediatrician, I will return and serve my communityon the North Shore and provide my services forlow-income families.

I'm studying the medical fi eld because there is no better way to give back to your community than to help residents on their path to live a long, happy, and healthy life.”

– Kanani Uluave, 2017 Kaimana Scholarshiprecipient, Kahuku, Oahu

Investingin QualityCare

91%

OF HMSA’S PRIMARY CAREPROVIDERS ARE NOW PARTICIPATINGIN PAYMENT TRANSFORMATION

As part of payment transformation, 250 nurses,

social workers, and case managers are working

side by side with doctors, hospital staff, and

community resources to improve the health

of HMSA members living with severe illnesses

like diabetes, heart disease, cancer, and

other conditions.

We’ve been working with primary care

providers, specialists, and hospitals to

develop our payment transformation model,

which rewards them for improving the health

of HMSA members and pays them for value

instead of volume.

HMSA Leadership in 2017Offi cersRobert S. HarrisonCHAIRChairman and ChiefExecutive Offi cerFirst Hawaiian Bank

John T. Komeiji, Esq.VICE CHAIRChief Administrative Offi cerand General CounselHawaiian Telcom

Carla J. Nip-Sakamoto, M.D.SECRETARYOahu physician

Gina L. MartingTREASURERSenior Vice President andChief Financial Offi cerHawai‘i Medical Service Association

Gwen S. MiyasatoASSISTANT SECRETARYExecutive Vice President,Chief Internal Operations Offi cer,and Chief of StaffHawai‘i Medical Service Association

Michael B. StollarASSISTANT TREASURERPresident and Chief Operating Offi cerHawai‘i Medical Service Association

Board of DirectorsLorraine H. Akiba, Esq.CommissionerHawaii Public Utilities Commission

Paul T. Esaki, M.D.Kauai physician

Terrence R. GeorgePresident and Chief Executive Offi cerHarold K.L. Castle Foundation

Michael A. GoldChief Executive Offi cerHawai‘i Medical Service Association

Elizabeth S. HokadaManaging Director, Financial AssetsKamehameha Schools

Howard H. KarrRetiredFormer Vice ChairmanFirst Hawaiian Bank

Whitney M.L. Limm, M.D.Executive Vice President, Clinical IntegrationThe Queen’s Medical Center

Kathryn S. MatayoshiRetiredFormer SuperintendentDepartment of Education(through November 2017)

Elliot K. MillsVice President, Hotel OperationsDisneyland Resort and Aulani,A Disney Resort and Spa

Ross R. MurakamiPartnerKMH LLP

Kenric M. Murayama, M.D.Chair, Department of SurgeryJohn A. Burns School of Medicine

Randy P. PerreiraExecutive DirectorHawaii Government Employees Association

James C. PolkVice ChairmanBank of Hawaii – Consumer Banking Group

Lisa M.K. SakamotoDiocesan Finance Offi cerThe Roman Catholic Churchin the State of Hawaii

Roger J. WallVice ChairmanFoodland Super Market Ltd.

Reverend MonsignorTerrence A.M. WatanabePastorSt. Theresa Church

Robert W. WoPresidentC.S. Wo & Sons Ltd.

Senior Executive StaffMichael A. GoldChief Executive Offi cer(retired at end of 2017)

Michael B. StollarPresident and Chief Operating Offi cer

David R. HerndonExecutive Vice President andChief Member Services Offi cer

Timothy E. JohnsExecutive Vice President andChief Consumer Offi cer(through June 2017)

Gwen S. MiyasatoExecutive Vice President,Chief Internal Operations Offi cer,and Chief of Staff

Mark M. Mugiishi, M.D., F.A.C.S.Executive Vice President andChief Health Offi cer

Janna L.S. NakagawaExecutive Vice President,Chief Governance andCorporate Services Offi cer

Katy Y. AkimotoSenior Vice PresidentHealth Management Operations(effective May 2017)

Jennifer A. DiesmanSenior Vice PresidentGovernment Relations(effective May 2017)

Dick S. EscueSenior Vice President,Chief Information Offi cer(effective March 2017)

Linda J. KatagiriSenior Vice PresidentMember Services(through May 2017)

Gina L. MartingSenior Vice President, Chief Financial Offi cer

Kathryn S. MatayoshiSenior Vice President Account Relationship Management(effective December 2017)

Hilton R. RaethelSenior Vice President Foundational Enhancement Services(through mid-May 2017)

Stephany N. VaioletiSenior Vice PresidentMember Operations(effective October 2017)

Jennifer A. WalkerSenior Vice President andGeneral Counsel(effective May 2017)

Elisa YadaoSenior Vice President,Chief Communications andCommunity Engagement Offi cer