Q. Rising healthcare costs seem to be a fact of life these days. Although the increases have been fairly moderate over the years, they appear to have spiked up lately at a rate that is outpacing inflation. What do you think is causing this?

A. There is no single answer to what is causing it. It's a number of things working in concert together. So I can't point to hospitals and say it's just hospital costs. I can't point to physicians and say it's just physician costs. The population in general are using services more than they have in recent years, so we see more physician visits. We see more hospital admissions, we see more outpatient services being provided.

Q. What can be done to help control healthcare costs?

A. Government programs, such as Medicare, Medicaid and QUEST, need to adequately reimburse providers and at least cover the cost of care. A number of other factors can help, including disease management and prevention programs for things like diabetes, asthma, cardiac and obesity; improvement in the quality of care delivered and a reduction in medical errors; and increased individual responsibility for personal health and health of family members.

Q. Are drug costs a factor?

A. What we have enjoyed in recent years is sort of a decline in the steepness ... of drug costs. And that has now begun to pick up some. Where that used to mask the overall healthcare increase, because it was docile, now it's starting to pick up again. And it's a big component of healthcare costs. It's causing our whole trend of healthcare costs to escalate more rapidly than it has in the past two or three years.

Q. What are some of the reasons drug prices are going up?

A. I think the pharmaceutical companies would argue — and that would be a good and true argument — what we're seeing is an increase in both in the number of prescriptions that members are getting as well as the ingredient cost. But it's not all a bad story because we do see more and more of our members moving to generic drugs. We see more and more drugs coming off patents that were more expensive and now there are generic alternatives to them. That continues, but we kind of had a two or three-year period there where a lot of those things came off patent and kind of got the baseline cost at a lower level, which made the trend look lower. Now things are kind of getting back a little more toward normal.

Q. What do you think of Wal-mart's move to sell a month's supply of certain generic prescription drugs for $4?

A. I personally was very encouraged and delighted to see what Wal-Mart is doing. I think it's great personally, I really do. Right now, they've got it up to 331 different drugs and it covers at least 26 different therapeutic classes. It goes from anti-depressants to cholesterol reducing to antibiotics to cardiac, it covers a wide spectrum of conditions and to go to four bucks is going to really make a big difference, I think, because they are so big in the marketplace, not just here but nationwide. I think others will follow suit and it will bring great value to the community. Not just to our members but it's going to help make healthcare in general more affordable.

Q. How does Wal-Mart's pricing compare with the typical drug co-pay health insurance companies charge their subscribers?

A. Our typical co-pay is five bucks. What it will mean if it's widely adapted is that more people will move from brand name drugs to generics. And because they will be buying at a lower cost it will save them money and it ostensibly saves HMSA money.

Q. The Bush administration has been promoting health savings accounts as a way for Americans to reduce their health insurance costs. What kind of reception have these types of plans received in Hawai'i?

A. So far, little interest has been expressed by our groups and members. Many people are probably waiting to see how HSA's perform on the Mainland. With Hawai'i's strong economy and tight labor market, companies here find they need to offer employees good benefits, such as health insurance.

Q. Some state lawmakers have suggested that HMSA not increase its rates until it whittles down its reserves, which are in excess of $500 million. Why does HMSA feel it's important to maintain reserves at that level?

A. First of all, we need to meet our commitments to our members and providers to pay for healthcare benefits. The reserves allow us to provide a safety net to fund the cost of catastrophic events, such as avian flu, hurricanes and earthquakes. The reserves are used to mitigate operating losses, generate investment income that helps subsidize membership dues, and pay for dues refunds which amounted to $75 million in 1996, 1998 and 2001. Additionally, the reserves were used to fund strategic initiatives, such as the $50 million Community Health and Care Management programs.

Q. You mentioned that you were on the Outrigger Canoe Club teams that won the 1986 and 1987 Moloka'i-to-O'ahu outrigger canoe race. Are there any lessons from competitive paddling that can be applied to the business world, or vice versa?

A. Absolutely. Some of the elements include teamwork, good coaching, alignment of goals and expectations, communication, dedication, hard work, humor and understanding spouses. There are no passengers on a competitive outrigger team — just paddlers. Its the same in business.

Interviewed by Alan Yonan Jr., Advertiser assistant business editor