HMO says double-digit rate hikes to continue

Alameda Times-Star (Alameda, CA)

Kaiser Permanente said third-quarter net income climbed a healthy 72 percent despite a membership drop, as premiums increased.

The health care provider also said that double-digit rate hikes are expected again in 2004, as health care costs keep rising, new medical offices are built and medical records are automated.

Kaiser Foundation Health Plan, Kaiser Foundation Hospitals and their subsidiaries said quarterly net income was $235 million and operating income was $251 million, compared with year-ago net income of $137 million and operating income of $136 million.

Revenue rose 14 percent to $6.4 billion. Membership fell 1 percent to 8.2 million members, including more than 6 million in California.

Kaiser raised rates an average of 11 percent each in 2003 and 2002, with higher hikes for Senior Advantage members. Expect more of the same in 2004.

“I think everyone in health care continues to say that the double-digit increases will continue in health care,” Kaiser spokeswoman Beverly Hayon said Monday.

Kaiser Medicare recipients can expect monthly premiums to dip to $80 from $85 in 2004, but Kaiser will drop brand-name prescription drug coverage and replace it with unlimited coverage of lower-cost generic drugs, she said.

Kaiser is the nation’s largest nonprofit health maintenance organization, but consumer advocates question how a nonprofit can be so profitable.

Kaiser‘s year-to-date net income is up 42 percent to $842 million and operating income is up 45 percent to $857 million, as revenues have risen 13 percent to $18.9 billion.

“Kaiser‘s latest profit reports come at a time when skyrocketing premium rates are uninsuring the insured and creating incredible roadblocks for Californians who don’t have access to care,” said Jerry Flanagan, spokesman for The Foundation for Taxpayer and Consumer Rights.

The foundation backs SB 26, which would require HMOs and health insurers to get prior approval from the state before raising rates. The bill stalled in the state Senate this year but will be reintroduced when the Legislature reconvenes in January, Flanagan said. Also, the foundation plans to gather signatures to put a similarly worded initiative on the November 2004 ballot.

“We’re going ahead on both tracks,” Flanagan said. “That bill is not dead.”

Kaiser, which opposes SB 26, says that as a nonprofit, it invests its income into its organization.

Kaiser is investing nearly $2 billion over three years to create an automated medical record system with Epic Systems Corp. Kaiser‘s capital construction budget this year is about $2 billion, Hayon said.

In California alone, Kaiser has two medical centers under construction [in Santa Clara and Los Angeles], two more medical centers in preconstruction [in Vallejo and West Los Angeles], another ready to break ground and three more medical centers slated for 2004 groundbreakings [Antioch, Modesto and Irvine].

“To accomplish all this, we must be able to generate the funds that will pay for these investments, which result in improved services for our members,” Kaiser CEO George Halvorson said. “As a nonprofit health plan, we are able to use most of our income to make those care system improvements.”

Kaiser‘s 2003 results include favorable adjustments in claims reserves. Also, 2002 results were hurt by restructuring costs and software writeoffs.

Kaiser has 136,000 technical, administrative and clerical employees and 11,000 physicians.