Temperature rising: Kaiser’s income soars;

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2003 revenue up despite membership drop

Alameda Times-Star (Alameda, CA)

OAKLAND — Kaiser Permanente said Monday that its 2003 net income rose 14 times to nearly $1 billion on higher premiums, renewing calls from critics for state controls on health insurance rates.

Oakland’s Kaiser Foundation Health Plan, Kaiser Foundation Hospitals and their subsidiaries said 2003 net income was $996 million. Kaiser had net income of $70 million in 2002, when it took a $442 million impairment charge involving its efforts to automate patient records.

The largest U.S. nonprofit health maintenance organization said 2003 revenue rose 12 percent to $25.3 billion, despite a 2 percent drop in membership to 8.2 million members. Kaiser raised rates an average of 11 percent each in 2003 and 2002. Similar double-digit rates are happening this year, as Kaiser invests in technology and new and retrofitted facilities to serve patients.

Kaiser‘s 2003 operating income was $998 million, up from $142 million in 2002.

“I’m flabbergasted that a nonprofit could make this kind of money,” said Jamie Court, president of the Foundation for Taxpayer and Consumer Rights. “For a nonprofit to have almost $1 billion left over is a tribute to the fact that there is no premium regulation.”

Court backs SB 26, which would require HMOs and health insurers to get prior approval from the state before raising rates, as Proposition 103 did with auto insurance. The bill stalled last year, and if it doesn’t become law, the foundation will try to get an initiative on the 2006 ballot, Court said.

Kaiser said its income makes possible its investments in facilities, equipment and systems to support its members. A spokesman noted that Kaiser‘s 3.9 percent operating margin was less than for-profit health insurers such as WellPoint [8.1 percent] and UnitedHealth [10.2 percent].

“In a nonprofit, we plow the money back into the organization,” Kaiser spokesman Mike Lassiter said. “We’re making a long-term investment in facilities and technology, which we think will have an impact down the road. … We need to generate numbers and the margin is the key — the 3 to 4 percent range — to continue to make these investments in quality of care.”

Kaiser spent more than $1.2 billion in 2003 — up nearly $400 million from 2002 — to retrofit and build new hospitals and medical offices, many in California. Kaiser said it plans to spend about $4 billion in the next decade to meet the state’s seismic building requirements.

Also, Kaiser invested $157 million in 2003 to develop a new electronic medical record system. The four-year project, which will begin to be phased in at the end of 2004, is expected to exceed $2 billion.

Kaiser said fourth-quarter net income was $154 million, compared with a year-earlier loss of $525 million, as revenue rose 10 percent to $6.4 billion.

Kaiser‘s income is too high, Court said.

“You shouldn’t be a pig at the trough if you’re a nonprofit,” Court said. “My concern is that people are priced out of policies, particularly seniors and those most vulnerable.”

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