Hawaii health insurer employees say executive compensation came as a shock

Employees at the Hawaii Medical Service Association say they're angry after learning that top executives at their company raked in large pay increases during the COVID-19 pandemic while at the same time curtailing pay raises and benefits for regular employees.

"To say we lowly employees are furious is an understatement, " one HMSA employee told the Honolulu Star-Advertiser following detailing the health insurance company's executive compensation.

None of the employees were willing to speak publicly out of concern it would compromise their jobs.

Some employees say they received just 1 % annual raises for two or three years in a row, which was particularly hard in 2022 as inflation soared.

In response, an HMSA spokesperson said the company did issue guidance in June 2020 that "budgets should be watched carefully " and pay increases limited to 0 % to 2.5 %, down from a maximum of 5 %, due to the pandemic. She said that in 2021, salary increases were capped at 1.5 %, with an average increase of 1 %. In 2022, the average raise was 3 %, according to the company.

Beginning in April 2021, HMSA also reduced the number of vacation hours employees could accrue, to 400 from 600 hours, saying it would reduce administrative expenses and help the community and company push through the hard times of the pandemic. Employees were told that any accrued personal time over 400 hours not used by the end of 2022 would be lost.

One employee said staff often worked extra hours during the pandemic and some were denied time off, so they had no choice but to lose weeks of accrued vacation leave.

At the time, many other companies were struggling during the pandemic and HMSA's explanation for reining in costs didn't seem extraordinary, according to employees. "That seemed legitimate to all of us. We read the news, " said one employee. "We had no idea that at the same time they were granting these lavish pay raises."

The Star-Advertiser reported that compensation, including salaries and bonuses, for HMSA's top five officers increased 48 % from 2020 to 2022. HMSA, the state's largest health insurer, said some of the increases can be attributable to top officers being promoted in prior years and seeing a jump in their incentive pay, which is calculated over three years.

Between 2020 and 2021, their compensation increased 25 %, according to HMSA financial filings obtained by the Star-Advertiser. While the top officers received only 1 % pay increases, which was in line with the companywide pandemic policy in place for 2021, that didn't stop them from earning hefty bonuses.

HMSA President and CEO Mark Mugiishi received a $1.66 million bonus in 2021 on top of his $883, 413 annual salary, bringing his total compensation to $2.55 million. Other top executives earned bonuses that year of between $305, 945 and $475, 032.

Employees said executives should have forgone their bonuses if the company was struggling financially.

Between 2021 and 2022, the top officers' combined compensation jumped an additional 18 % after many of them received substantial raises. For example, Janna Nakagawa, HMSA's executive vice president and chief administrative and strategy officer, received the biggest raise, with her annual salary jumping 31 % to $470, 957. Her bonus brought her total compensation for 2022 to nearly $1 million.

HMSA executives have said their compensation is determined by the company's board of directors and that a private firm helps evaluate pay at similar companies to ensure it comports with industry standards.

Mugiishi told the Star-Advertiser last week that HMSA, which has long dominated the local market, insuring 1 in 2 Hawaii residents, needs to offer competitive compensation at the top in order to compete with for-profit, national companies that have a foothold in Hawaii.

"Our competition is the United, Kaiser, and Centenes of the world who spend billions of dollars a year on IT and customer infrastructure, while paying their CEO's ($20 million-plus ) and other exec's like CFO's ($15 million-plus ), " he said in an email. "If we want to keep healthcare premium dollars in Hawaii for reinvestment in Hawaii's communities and provider delivery system, we might never reach the nationals, but we sure have to try."

The companies he mentioned are much larger than HMSA, which operates as a nonprofit mutual benefit society serving Hawaii. HMSA had approximately 746, 000 members signed up for its health plans in 2022 and collected $4 billion in revenue from premiums. By comparison, UnitedHealth Group had about 50 million customers signed up for its health plans nationwide in 2022 and $324 billion in revenue.

Many health insurers benefited financially during the pandemic as people postponed doctor appointments and routine care and hospitals postponed elective surgeries. That meant insurers were shelling out less in medical claims while still collecting premiums.

HMSA reported profits of $48.9 million in 2021 and $26.9 million in 2022, according to its financial filings. The company attributed its 2022 gain to a "major reduction in administrative costs, " as well as membership growth.

HMSA's board of directors also voted in late 2021 to begin compensating board members for the first time, with its highest paid directors earning about $100, 000 in 2022.

One board member, Whitney Limm, an executive vice president and chief physician executive at The Queen's Health System, said last week that while he supports compensating HMSA directors, he declined to accept any pay.

"When I first joined the HMSA board several years ago, a few MDs asked me what my compensation as a board member was. I told them I served as a volunteer, " Limm said in a statement. "When compensation was offered by HMSA, I wanted to stay true to my words and made the personal decision to decline. As a provider on the board, I feel this minimizes the risk of real or perceived conflicts of interest."

The boosts in executive compensation and board salaries came at a time when HMSA was eliminating and outsourcing the jobs of nearly 200 employees. HMSA said the restructuring was not to cut costs but to boost capabilities.

But some HMSA employees last week said they are skeptical of that claim and that the layoffs hurt morale.

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