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Read Making a Killing

home / healthcare / in the media

Oakland Tribune
May 01, 2004

by Eve Mitchell, BUSINESS WRITER

Kaiser income enjoys big gain

OAKLAND -- Kaiser Permanente saw its first-quarter net income rise by 43 percent compared to the same period last year, at the same time consumers are paying higher rates for health-care premiums.

Kaiser said Friday that its strong financial performance will help it keep up with ongoing improvements such as building new facilities and investing in technology for the nonprofit health-maintenance organization, which has a national membership of 8.2 million, including 3.2 million Northern California members.

Consumer advocates say the first-quarter earnings show the need for passage of legislation that would require Kaiser and other health plans to go through a state approval process before raising premiums.

Kaiser raised premiums an average of 11 percent each in 2002 and 2003. Similar double-digit rate increases are being made this year. Earlier this week, Kaiser said that it will offer deductible health plans that would allow members to pay lower monthly premiums in exchange for possibly higher-out-of pocket expenses.

Oakland's Kaiser Foundation Health Plan, Kaiser Foundation Hospital and their subsidiaries reported net income for the period ending March 31 of $431 million, compared to $301 million for the same period last year. First-quarter operating income was $385 million in 2004, up from $308 million for the first quarter in 2003. Kaiser's first-quarter operating margin was 5.6 percent based on operating revenues of $6.9 billion.

"Being a nonprofit is not about making or losing money, it's about how that money is put back to work," George Halvorson, Kaiser's chairman and chief executive officer, said in a statement.

Last year, Kaiser spent $1.7 billion on capital improvements, seismic upgrades and technology enhancements such as putting medical records on a computerized system. It expects to spend more than $300 million this year on improvements in Northern California in 2004.

"From a consumer perspective, Kaiser's earnings increase means one thing -- premiums are on the increase and fewer consumers can afford their health care," said Jerry Flanagan, a consumer advocate with the Foundation for Taxpayer and Consumer Rights.

The foundation supports Senate Bill 1349, which calls for health care plans to get approval for premium increases from the state Department of Insurance. The legislation is scheduled for a committee hearing on Wednesday.

"This is essentially Prop. 103 for health insurance," said Flanagan, adding there is not enough competition in the marketplace to create incentives for Kaiser to be more efficient and keep administrative and overhead costs down.

Robert Briggs, Kaiser's chief financial officer, noted that first-quarter results are typically stronger than other quarters "in part because most rate increases go in effect in January while cost increases occur throughout the year."

Kaiser's fourth-quarter net income was $154 million.

While last year's first-quarter operating margin was 4.9 percent, the margin for all of 2003 was 3.9 percent. Part of this year's improved first quarter was made possible by replacing almost $1.1 billion of expensive debt with the sale of $1.6 billion in tax-exempt revenue bonds at a lower interest rate.

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