Kaiser’s earnings
rise 22.2%

Better investment performance
and Medicare changes helped
the state's biggest HMO
in the second quarter

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Kaiser Permanente Hawaii, the state's largest health maintenance organization, posted a 22.2 percent gain in second-quarter net income while a reduction in federal pension funding requirements left it with more cash than anticipated.

Hawaii's second-largest health insurer, which is waiting for state approval on an 11 percent average rate increase next year, saw earnings rise to $2.2 million from $1.8 million a year ago. Revenues gained 12.8 percent to $196.1 million from $173.9 million, giving Kaiser a 1.1 percent return on revenues generated.

Arnold Matsunobu, vice president of finance, said that while Kaiser was pleased to have a positive quarter, the results were the result of new Medicare law changes this year and improved investment performance rather than Kaiser's core operating income.

"Our operations remain challenged by the costs for outside services, pharmacy, hospital and clinic costs, and, well, everything," Matsunobu said.

Expenses increased 12.7 percent to $193.9 million from $172.1 million a year ago.

Kaiser spokesperson Alison Russell said the return on revenues generated give a better picture of the health insurer's operations than the net income, because it shows whether Kaiser is keeping costs in line with revenues.

Kaiser, which has delayed the scheduled fall opening of two clinics, said the positive second-quarter results will allow it to open the Waipio Clinic on Oahu and the Maui Lani Clinic on Maui before the end of the year.

"Although that is several months later than we had hoped to make them available to our members, it's good news that we can start getting ready," Kaiser Regional President Jan Head said.

Head said the Waipio Clinic will open toward the end of November while the Maui Lani Clinic likely will open in early December. She noted, however, that some services still will be delayed, such as extended pharmacy hours, the on-site lab, and other services that were in Kaiser's original plan.

"We'll make final decisions when we firm up actual opening dates," she said.

Kaiser, which serves 235,000 members statewide, filed papers with the state Insurance Division in July asking for approval to raise rates 11 percent in 2005 because of rising health care costs and expenses it is incurring in opening the new clinics. Unlike the Hawaii Medical Service Association, whose core business is providing financing to pay members' medical claims, Kaiser needs to pay for its facilities and health-care personnel. HMSA is the state's largest health insurer.

In 2003, Kaiser asked the Insurance Division for a 14.5 percent rate increase to go into effect on Jan. 1, 2004. That request was adjusted retroactively earlier this year to 11.7 percent.

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