Kaiser’s net
jumped 26%
last year

The state's largest HMO raised
insurance rates 11% this year

Kaiser Permanente Hawaii, capping off its second straight profitable year, boosted net income 26 percent in the fourth quarter as a $4 million gain from its investments offset higher expenses and a loss from operations.

The state's second-largest health insurer, which opened two new clinics in the fourth quarter, posted quarterly earnings of $2.9 million compared with $2.3 million a year ago. For the year, Kaiser's net income also rose 26 percent -- to $12 million from $9.5 million in 2003 -- as investment income contributed $7 million.

"While we're pleased that 2004 was a positive year for us, our operations remain challenged by the costs for outside services, pharmacy and clinics," said Arnold Matsunobu, Kaiser's vice president of finance. "We still experienced a fourth-quarter operating loss and remain concerned about achieving financial targets that are essential to our short- and long-term plans to improve services and keep pace with demand."

Kaiser, which plans to break ground next month on a $68 million expansion and renovation of its Moanalua Medical Center, raised its insurance rates 11 percent this year to help pay for rising medical care costs and for upgrading facilities.

The state's largest HMO also is implementing a new electronic medical record system, KP HealthConnect, that will improve all facets of the insurer's operations.

Kaiser President Jan Head said the opening of the Maui Lani clinic in Wailuku, Maui, and the Waipio Gentry clinic on Oahu were needed to provide better access for Kaiser members. She said the Moanalua project represents the next avenue of growth for Kaiser.

"Having a positive 2004 was absolutely critical for us as we move forward with the first major expansion of our hospital since it first opened 20 years ago," Head said.

Kaiser's revenue, or the premiums collected from its 231,000 members, rose 7 percent to $200.7 million in the fourth quarter from $187.2 million a year ago. But expenses also grew in the period, gaining 7 percent to $201.8 million from $188.6 million. As a result, Kaiser had an operating loss of $1.1 million, slightly better than the insurer's operating loss of $1.4 million a year ago.

Kaiser had investment income of $3.7 million in the fourth quarter of 2003.

For the year, Kaiser collected $786.3 million from premiums, an 11 percent rise from $710.5 million a year ago. Expenses grew 11 percent to $781.3 million from $705.9 million. Operating income rose 9 percent to $5 million from $4.6 million in 2003.

Kaiser's net income represented 1.4 percent of revenue in the fourth quarter and 1.5 percent of revenue for the year.

"The 1.5 percent margin is a positive result, given the continuing increases in health care costs," Head said. "Achieving this margin was a tremendous challenge, but thanks to some one-time events (affecting pension and post-retirement funding), operational plan changes, and hard work, we ended the year near our financial targets."

Kaiser finished the year with a reserve level of $112.5 million, or the equivalent of 1.7 months in reserve if it operated for that long without receiving any dues. However, only $87 million of the insurer's reserve was in cash. The rest was tied up in the company's investments in construction and equipment.

The insurer's total reserve level came to about 15 percent of annual expenses, far below the 30 percent cap being sought in a Senate bill making its way through the state Legislature.