One Health Hawaiʻi and the Medical Loss Ratio Question

One Health Hawaiʻi should be reviewed by economic substance, not label, because HMSA’s MLR treatment may show whether insurer-provider payments remain independent or stay inside one enterprise.

HHTF Staff · 2026-07-20

Hawaiʻi Healthcare Task Force Report

Why HMSA and Hawaiʻi Pacific Health’s proposed common-parent structure should be reviewed by economic substance, not label. The medical loss ratio is one way to test what the structure actually does.

Published July 19, 2026 Healthcare policy and antitrust review Medical loss ratio, HRS § 480-7, insurer-provider consolidation

Summary

HMSA and Hawaiʻi Pacific Health describe One Health Hawaiʻi as an affiliation and a proposed common-parent structure. The public question is whether the arrangement preserves independent economic decision-making or places insurer payments, provider revenue, patient volume, data, contracting strategy, and capital under coordinated control. The treatment of HMSA’s medical loss ratio may provide a concrete test of that substance.

HMSA and Hawaiʻi Pacific Health describe One Health Hawaiʻi as an affiliation, a partnership, and a proposed new nonprofit parent organization that would bring the two entities together under one locally governed structure. 1 Those words may describe the corporate paperwork. They do not answer the public question raised by the transaction.

The question is whether HMSA and HPH will continue to make independent economic decisions, or whether insurer money, hospital revenue, patient volume, data, contracting strategy, and capital will be managed for the benefit of one commonly controlled enterprise. For Hawaiʻi patients, employers, clinicians, and competing providers, that distinction carries legal and practical consequences.

Hawaiʻi Revised Statutes § 480-7 prohibits the acquisition and holding of stock, membership interests, assets, or control when the effect may be substantially to lessen competition or tend to create a monopoly in any line of commerce in any section of the state. 2 The statute does not turn on whether the parties prefer the word affiliation, partnership, alignment, integration, or merger. It asks what control is being acquired and what the probable effect of that control may be.

The medical loss ratio provides one concrete way to test the transaction’s substance. If HMSA can satisfy its medical loss ratio by paying HPH while the margin from those payments remains inside One Health Hawaiʻi, the proposed structure does more than coordinate care. It changes the economic meaning of payments that now occur between separate organizations.

What the Medical Loss Ratio Measures

The federal medical loss ratio, or MLR, was designed to limit how much premium revenue a health insurer may use for administration, overhead, and earnings rather than medical care and activities that improve health care quality. CMS explains that the Affordable Care Act requires health insurance issuers to report the share of premium revenue spent on clinical services and quality improvement, and to provide rebates when the insurer fails to meet the applicable standard. 3

For the large-group market, the federal threshold is generally 85 percent. For the individual and small-group markets, it is generally 80 percent, subject to limited state-specific adjustments in the individual market. 4 In plain terms, the rule asks whether enough of the premium dollar is being used for care or qualifying quality work, rather than retained by the insurer for other uses.

The MLR calculation can still miss a basic economic issue when the insurer and the provider are under common control. A payment from HMSA to an independent hospital leaves HMSA’s enterprise. A payment from HMSA to an HPH hospital after both sit beneath One Health Hawaiʻi may still appear as medical spending by HMSA, but any remaining provider margin may stay inside the same corporate family.

That is not an accusation about HMSA or HPH’s motives. It is a structural fact regulators should examine before approval, because the MLR was not built to answer every question created by insurer-provider consolidation.

Why Common Control Changes the Payment

When HMSA pays an independent hospital, the payment moves across an economic boundary. HMSA records a medical claim, the hospital records revenue, and the two organizations remain financially separate. They may share patients and contracts, but they still negotiate from different positions.

HMSA generally has an incentive to pay less for covered services. The independent provider generally has an incentive to be paid enough to cover the cost of care, maintain staffing, preserve services, and invest in its facilities. That tension is not always comfortable, but it is part of what keeps an insurer-provider market from becoming a single internal budgeting exercise.

Common control changes that relationship. If HMSA and HPH operate under the same parent, HMSA may still record a payment to HPH as medical spending, while HPH records the same payment as revenue. After HPH pays the cost of care, any remaining margin, reserve contribution, or capital may remain within One Health Hawaiʻi.

The result is simple enough to see with a dollar. If HMSA collects $100 in premium revenue and must spend $85 on medical care or qualifying quality activities, a payment of $85 to independent providers leaves HMSA’s corporate family. HMSA retains the remaining $15 for administration and other permitted uses.

If HMSA pays the same $85 to an affiliated HPH provider, and the provider furnishes the care for $70, HMSA may still report $85 in medical spending. The remaining $15 may sit on the provider side as margin or capital, still under the control of the same common parent. In that example, One Health Hawaiʻi could retain economic control over the $15 left at HMSA and the $15 left at HPH, even though HMSA’s MLR reports the full provider payment as medical care.

This example does not prove that HMSA or HPH intends to use the structure that way. It shows the opportunity created when the organization paying the claim and the organization receiving it are no longer independent in economic substance.

The MLR Question Is a Control Question

One Health Hawaiʻi’s potential MLR advantage would arise because transactions now conducted at arm’s length could become internal transfers within a commonly controlled system. That internalization is directly relevant to whether the proposed structure functions as a merger, regardless of the label attached to it.

If HMSA and HPH remain economically separate, their transactions should continue to resemble transactions between independent organizations. Reimbursement should be set on arm’s-length terms, HMSA should remain free to direct members to other providers when that serves its members, and HPH should remain free to contract with HMSA’s competitors without interference from the common parent.

The same principle applies to capital, data, network design, quality incentives, care management, and administrative services. If the common parent can coordinate those functions across HMSA and HPH, the relationship is materially different from a contract between independent organizations.

Separate licenses, separate boards, separate ledgers, and separate brand names do not by themselves preserve competition. Large corporate combinations often keep those formal divisions because licenses, tax status, financing arrangements, contracts, and public trust depend on them. The legal question for Hawaiʻi is whether independent economic decision-making has been replaced by common control.

What HMSA and HPH Should Explain Before Approval

HMSA and HPH should publicly explain how HMSA’s MLR will be calculated if One Health Hawaiʻi is approved. The explanation should address payments to HPH hospitals, HPH physician groups, affiliated providers, capitation arrangements, shared savings, quality payments, management services, technology services, data services, and other related-party transactions.

Regulators should require enough detail to follow a premium dollar from HMSA to HPH. The public should be able to see how much of that dollar paid for covered clinical care, how much became provider margin, how much funded administrative or data services, and where the remaining value stayed.

The parties should also answer a narrower set of control issues. The record should state whether HMSA payments to HPH will count in full as medical spending for MLR purposes, whether any HPH margin on those payments will remain inside One Health Hawaiʻi, whether related-party payments will be disclosed separately and audited independently, and whether reimbursement to HPH will be compared with reimbursement to independent hospitals and physicians providing similar care.

The same review should cover market conduct. HMSA should state whether it can favor Queen’s, an independent hospital, or an independent physician group when doing so would benefit members but reduce revenue to HPH. HPH should state whether it can contract freely with health plans that compete with HMSA, and the parties should identify whether the common parent can intervene when HMSA’s interests and HPH’s interests conflict.

These are not technical accounting details to be handled after approval. They determine whether One Health Hawaiʻi preserves independent decision-making or replaces it with coordinated control.

Why the Parties Cannot Use Integration Selectively

HMSA and HPH should not be permitted to describe One Health Hawaiʻi as one coordinated organization when promising better care management, fewer prior authorizations, data sharing, administrative savings, and lower long-term costs, then describe the same structure as separate when regulators examine antitrust consequences, related-party payments, or MLR treatment. The same operational facts that support the claimed benefits also define the control regulators must examine.

If money paid by HMSA to HPH leaves HMSA’s economic enterprise in the same meaningful sense that a payment to Queen’s or an independent physician leaves it today, the parties should show how that separation will be maintained. They should identify the governance limits, contracting rules, audit standards, and enforcement mechanisms that will prevent HMSA’s premium-derived revenue from being managed for the benefit of the combined enterprise.

If the money remains under the control of the same parent, the transaction has internalized an exchange that now occurs between independent organizations. HMSA records medical spending, HPH records revenue, and One Health Hawaiʻi retains the economic benefit. The public should not have to pretend that the word affiliation makes that structure competitively neutral.

Why Merger Treatment Matters Under Hawaiʻi Law

Treating One Health Hawaiʻi as a merger in economic substance would not decide whether the transaction is lawful. Hawaiʻi law does not prohibit every merger, and a serious review should examine evidence rather than assume the conclusion.

HRS § 480-7 requires examination of whether the acquisition or holding of assets, membership interests, or control may substantially lessen competition or tend to create a monopoly in any line of commerce in any section of Hawaiʻi. 2 That review should occur before control is consolidated, because the competitive harm from a dominant insurer joined to a major provider system may be difficult to repair after independent providers have already lost patients, revenue, bargaining power, or clinical capacity. A remedy imposed after those losses would not restore every clinic relationship, service line, referral pattern, or bargaining position that disappeared while the state waited.

HMSA controls insurance networks, benefit design, reimbursement terms, utilization management, prior authorization rules, data flows, and access to a substantial share of Hawaiʻi patients. HPH controls major hospitals, physician practices, clinical services, and care infrastructure. Placing those functions beneath one parent could give the combined organization both the ability and the incentive to favor its own delivery system.

That advantage could operate through network design, patient cost-sharing, reimbursement policy, prior authorization, referral patterns, data access, capital investment, quality incentives, or contract terms imposed on independent providers. None of those mechanisms requires a crude instruction to send patients to HPH. A market can be steered through many small decisions that look administrative when viewed separately and powerful when viewed together.

The MLR structure could add another advantage. Payments to independent providers leave the combined enterprise, while payments to HPH may satisfy HMSA’s MLR and still support revenue, margin, reserves, and investment inside One Health Hawaiʻi. An independent hospital or physician practice cannot offer HMSA the same opportunity to keep value within the insurer’s own corporate family.

That difference could encourage HMSA to direct more patients and more premium-derived spending toward its affiliate, even when an independent provider offers comparable or better value. In Hawaiʻi, where island geography, payer concentration, high operating costs, and limited redundancy already make local clinical capacity fragile, that shift could affect more than price. It could affect which practices survive, which hospitals retain services, which networks remain viable, and which communities lose realistic choices.

What Regulators Should Require

The state should require a public, written explanation of how One Health Hawaiʻi will treat HMSA payments to HPH for MLR purposes. That explanation should include related-party reimbursement, affiliated-provider margin, capitation, shared savings, quality payments, management fees, technology expenses, data services, and any other material flow of premium-derived money between HMSA, HPH, and the common parent.

The state should also require audited reporting that follows the premium dollar after